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TABLE OF CONTENTS
TABLE OF CONTENTS
TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF HARBORONE BANK AND SUBSIDIARIES
As filed with the Securities and Exchange Commission on March 4, 2016
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form S-1
Registration Statement
Under
The Securities Act of 1933
HarborOne Bancorp, Inc.
HarborOne 401(k) Plan
Merrimack Mortgage, LLC Retirement Plan
(Exact name of registrant as specified in its charter)
Massachusetts
|
6022
(Primary Standard Industrial Classification Code Number) |
81-1607465
(IRS Employer Identification No.) |
HarborOne Bancorp, Inc.
770 Oak Street
Brockton, Massachusetts 02301
(508) 895-1000
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
James W. Blake
President and Chief Executive Officer
HarborOne Bancorp, Inc.
770 Oak Street
Brockton, Massachusetts 02301
(508) 895-1000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Please send copies of all communications to: | ||
William P. Mayer, Esq. Samantha M. Kirby, Esq. Goodwin Procter LLP Exchange Place Boston, Massachusetts 02109 (617) 570-1000 |
|
Lawrence M.F. Spaccasi, Esq. Scott A. Brown, Esq. Luse Gorman, PC 5335 Wisconsin Avenue, NW Suite 780 Washington, D.C. 20015 (202) 274-2000 |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: ý
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462© under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer
ý
(Do not check if a smaller reporting company) |
Smaller reporting company o |
CALCULATION OF REGISTRATION FEE
|
||||||||
Title of Each Class of Securities
to Be Registered |
Amount to Be
Registered |
Proposed Maximum
Offering Price per Unit |
Proposed Maximum
Aggregate Offering Price |
Amount of
Registration Fee |
||||
---|---|---|---|---|---|---|---|---|
Common Stock, par value $0.01 per share |
13,912,356 | $10.00 | $139,123,560(1) | $14,010 | ||||
Participation interests |
3,996,772 | (2) | ||||||
|
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.
PROSPECTUS SUPPLEMENT
Interests in
HarborOne 401(k) Plan
and
Offering of up to 3,245,610 Shares of
HarborOne Bancorp, Inc.
Common Stock ($0.01 Par Value)
This prospectus supplement relates to the offer and sale to participants in the HarborOne 401(k) Plan, or the 401(k) Plan, of participation interests and shares of common stock of HarborOne Bancorp, Inc.
401(k) Plan participants may direct the trustee of the 401(k) Plan to use up to 100% of their current account balances to subscribe for and purchase shares of HarborOne Bancorp, Inc. common stock. This prospectus supplement relates to the election of 401(k) Plan participants to direct the trustee of the 401(k) Plan to invest all or a portion of their 401(k) Plan accounts in HarborOne Bancorp, Inc. common stock.
The prospectus dated [ · ] of HarborOne Bancorp, Inc., which accompanies this prospectus supplement, includes detailed information regarding the reorganization of HarborOne Bank into the mutual holding company form of organization, HarborOne Bancorp, Inc.'s stock offering, and the financial condition, results of operations and business of HarborOne Bank. This prospectus supplement provides information regarding the 401(k) Plan. You should read this prospectus supplement together with the accompanying prospectus and keep both for future reference.
Please refer to "Risk Factors" beginning on page 11 of the accompanying prospectus.
The securities offered in this prospectus supplement are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any government agency or the Depositors Insurance Fund.
None of the Securities and Exchange Commission, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Massachusetts Commissioner of Banks, nor any other state or federal agency or any state securities regulator, has approved or disapproved of these securities or determined if this prospectus supplement is accurate or complete. Any representation to the contrary is a criminal offense.
This prospectus supplement may be used only in connection with offers and sales by HarborOne Bancorp, Inc. of interests in, or shares of, common stock acquired by the 401(k) Plan. No one may use this prospectus supplement to reoffer or resell interests in, or shares of, common stock acquired through the 401(k) Plan.
Neither HarborOne Bancorp, Inc. nor HarborOne Bank has authorized any person to give any information or to make any representations other than those contained in the prospectus or this prospectus supplement, and, if given or made, no one may rely on such information or representations as having been authorized by HarborOne Bancorp, Inc., HarborOne Bank or the 401(k) Plan.
This prospectus supplement does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction in which it is unlawful to make such offer or solicitation in such jurisdiction. Neither the delivery of this prospectus supplement and the prospectus nor any sale of common stock shall under any circumstances imply that there has been no change in the affairs of HarborOne Bancorp, Inc. or any of its subsidiaries incorporated by the accompanying prospectus or the 401(k) Plan since the date of this prospectus supplement, or imply the information contained in this prospectus supplement is correct as of any time after the date of this prospectus supplement.
The date of this prospectus supplement is [ · ].
i
The securities offered in connection with this prospectus supplement are participation interests in the HarborOne 401(k) Plan, or the 401(k) Plan. HarborOne Bancorp, Inc., the proposed mid-tier holding company for HarborOne Bank, is the issuer of the common stock. All participants in the 401(k) Plan may use up to 100% of their account balances to subscribe for shares of HarborOne Bancorp, Inc. common stock in the offering subject to the purchase priorities set forth in the HarborOne Bank Plan of Reorganization and Minority Stock Issuance. See "The Reorganization and OfferingGeneral" in the prospectus accompanying this prospectus supplement for a discussion of the purchase priorities in the offering. The interests offered under this prospectus supplement are conditioned on the consummation of the reorganization of HarborOne Bank and related HarborOne Bancorp, Inc. stock offering.
This prospectus supplement contains information regarding the 401(k) Plan. The accompanying prospectus contains information regarding the reorganization of HarborOne Bank into the mutual holding company form of organization, HarborOne Bancorp, Inc.'s stock offering, and the financial condition, results of operations and business of HarborOne Bank. The address of the principal executive office of HarborOne Bank is 770 Oak Street, Brockton, MA 02301. The telephone number of HarborOne Bank is (508) 895-1000.
Election to Purchase the Common Stock in the Offering; Priorities
In connection with the offering, the 401(k) Plan provides an additional investment option that allows you to transfer up to 100% of the funds which represent your beneficial interest in the assets of the 401(k) Plan to the HarborOne Bancorp, Inc. Stock Fund. If you elect to invest in the HarborOne Bancorp, Inc. Stock Fund, the 401(k) Plan trustee will subscribe for the common stock offered for sale in the offering in accordance with your direction, subject to the purchase priorities discussed below. In the event the offering is oversubscribed and some or all of your funds cannot be used to purchase common stock in the offering, the 401(k) Plan trustee will return the amount not invested in common stock to the money market account in the 401(k) Plan.
All plan participants are eligible to direct a transfer of funds to the HarborOne Bancorp, Inc. Stock Fund. However, these directions are subject to subscription rights and purchase priorities. Your order for shares in the offering will be filled based on your purchase priority in the offering. HarborOne Bancorp, Inc. has granted rights to subscribe for shares of HarborOne Bancorp, Inc. common stock to the following persons in the subscription offering, in descending order: (i) depositors who had accounts at HarborOne Bank with aggregate balances of at least $50 as of the close of business on December 31, 2014, (ii) the tax qualified employee benefit plans of HarborOne Bank and its wholly owned subsidiary, Merrimack Mortgage Company, LLC, or "Merrimack Mortgage" (i.e., our employee stock ownership plan, the 401(k) Plan and Merrimack Mortgage's 401(k) Plan) and (iii) employees, officers, directors, trustees and corporators of HarborOne Bank or Merrimack Mortgage who do not qualify under priority (i) above. No individual may purchase more than 60,000 shares of common stock in the offering through one or more individual and/or joint deposit accounts, including HarborOne Bancorp, Inc. Stock Fund accounts, and no individual together with any associate or group acting in concert may purchase more than 80,000 shares of common stock.
If any shares of our common stock remain unsold in the subscription offering, we will offer such shares for sale in a community offering. Natural persons residing in the Massachusetts cities and towns of Abington, Attleboro, Avon, Berkley, Braintree, Bridgewater, Brockton, Canton, Carver, Cohasset, Dighton, Duxbury, East Bridgewater, Easton, Foxboro, Halifax, Hanover, Hanson, Hingham, Holbrook, Hull, Kingston, Lakeville, Mansfield, Marshfield, Middleborough, Milton, North Attleboro, Norton, Norwell, Plainville, Pembroke, Plymouth, Plympton, Quincy, Randolph, Raynham, Rehoboth, Rochester, Rockland, Seekonk, Scituate, Sharon, Stoughton, Taunton, Wareham, West Bridgewater, Weymouth and Whitman will have a purchase preference in any community offering. Shares also may be offered to the general public. The community offering, if any, may commence concurrently with,
during or promptly after, the subscription offering. See "The Reorganization and OfferingCommunity Offering" in the accompanying prospectus for a discussion of the community offering.
We also may offer shares of common stock not purchased in the subscription offering or the community offering through a syndicate of brokers in what is referred to as a syndicated community offering. The syndicated community offering, if necessary, would be managed by Sandler O'Neill & Partners, L.P. and would commence as soon as practicable after the termination of the subscription offering and would be open to the general public beyond the local community. We have the right to accept or reject, in our sole discretion, any orders received in the community offering and the syndicated community offering.
To ensure a proper allocation of stock, each eligible account holder must list on his or her stock purchase order form all deposit accounts in which he or she had an ownership interest at December 31, 2014. Failure to list an account, or providing incorrect information, could result in the loss of all or part of a subscriber's stock allocation. We will strive to identify your ownership in all accounts, but cannot guarantee that we will identify all accounts in which you have an ownership interest. Our interpretation of the terms and conditions of the Plan of Reorganization and of the acceptability of the stock purchase order forms will be final.
No investor in the offering may purchase fewer than 25 shares of common stock or more than 60,000 shares of common stock.
Value of Participation Interests
As of December 31, 2015, the market value of the assets of the 401(k) Plan totaled approximately $32.5 million, and up to 100% of this amount may be used to purchase common stock in the offering. The plan administrator informed each participant of the value of his or her beneficial interest in the 401(k) Plan as of December 31, 2015. The value of plan assets represents the past contributions to the 401(k) Plan by or on behalf of the participants of the 401(k) Plan, plus or minus earnings or losses on the contributions, less previous withdrawals.
If you want to use your 401(k) Plan funds to purchase common stock in the offering, you must complete the Special Investment Election Form included with this prospectus supplement and submit the form to Patricia Williams, Senior Vice President in the HarborOne Bank Human Resources Department, by hand delivery, electronic mail, interoffice mail, fax or regular mail, as specified in the first paragraph of the Special Investment Form. The 401(k) Plan trustee will submit an order form on your behalf to purchase the number of shares in the offering that you have elected to purchase. To transfer the funds into the HarborOne Bancorp, Inc. Stock Fund, the 401(k) Plan trustee will withdraw the amount indicated on the Special Investment Election Form from the other investment funds in which your accounts are invested on a pro rata basis. If you do not wish to purchase shares in the offering with your 401(k) Plan funds, you should still check the applicable box on the Special Investment Election Form included with this prospectus supplement and submit the form to Patricia Williams.
Please note that if you are subscribed to PortfolioXpress, you will be automatically unsubscribed from this service in order to initiate your election to invest all or a portion of your accounts in HarborOne Bancorp, Inc. common stock and that you can re-subscribe to PortfolioXpress after the transfer is complete, by contacting Transamerica at HarborOne.trsretire.com or by calling 1-800-755-5801.
2
Deadline for Directing Transfer in Connection with the Offering
The deadline for submitting your instructions to Patricia Williams in the Human Resources Department, to transfer your funds to the HarborOne Bancorp, Inc. Stock Fund in connection with the offering is [ : ] p.m., Eastern time, on [401(k) Expiration Date].
The 401(k) Plan deadline is earlier than the [Expiration Date] deadline for submitting stock order forms to purchase shares in the offering with funds outside of the 401(k) Plan.
Irrevocability of Transfer Direction in Connection with the Offering
Your direction to transfer amounts credited to your account in the 401(k) Plan to the HarborOne Bancorp, Inc. Stock Fund in connection with the offering cannot be changed. Pending completion of the offering, the funds you elect to transfer to the HarborOne Bancorp, Inc. Stock Fund will be held in an interest-bearing account until the offering is completed.
Direction to Purchase the Common Stock After the Close of the Offering
After the close of the offering, you may direct on a daily basis the 401(k) Plan trustee to transfer a certain percentage (in multiples of not less than 1%) of the net value of your interests in the other investment funds into the 401(k) Plan to the HarborOne Bancorp, Inc. Stock Fund. Alternatively, you may direct the 401(k) Plan trustee to transfer a certain percentage of your interest in the HarborOne Bancorp, Inc. Stock Fund into any of the other investment funds in the 401(k) Plan in accordance with the terms of the 401(k) Plan by visiting the website of Transamerica Retirement Solutions Corporation or Transamerica at HarborOne.trsretire.com or by calling Transamerica at 1-800-755-5801. Special restrictions may apply to transfers directed by those participants who are officers, directors and 10% shareholders of HarborOne Bancorp, Inc.
Common Stock in the Offering will be Purchased at $10 Per Share
You will pay the same price for shares of common stock as all other persons who purchase shares of the common stock in the offering. Post-reorganization purchases of common stock in the HarborOne Bancorp, Inc. Stock Fund will be made at prevailing market prices. These prices may be higher or lower than the current offering price of $10 per share of common stock.
Nature of a Participant's Interest in the HarborOne Bancorp, Inc. Stock Fund
The 401(k) Plan purchases its underlying investments every pay period. Each investment fund's unit value is updated every business day based on the total value of its underlying investments and the number of units held in the fund. Distributions, withdrawals, loans and investment transfers may occur each business day. Loan and transfer requests are made through Transamerica's website (HarborOne.trsretire.com) or by calling Transamerica at 1-800-755-5801.
Voting Rights of the Common Stock
The 401(k) Plan provides that, after the offering, you may direct the 401(k) Plan trustee how to vote the shares of HarborOne Bancorp, Inc. common stock held by the HarborOne Bancorp, Inc. Stock Fund representing the interest in the shares that is credited to your account. If the trustee does not receive your voting instructions, the plan administrator will exercise these rights as it determines in its discretion and will direct the trustee accordingly. All voting instructions will be kept confidential.
3
DESCRIPTION OF THE 401(k) PLAN
Since January 1, 1997, HarborOne Bank has maintained the 401(k) Plan. HarborOne Bank intends for the 401(k) Plan to comply, in form and in operation, with all applicable provisions of the Internal Revenue Code and the Employee Retirement Income Security Act, most commonly referred to as ERISA. HarborOne Bank may amend the 401(k) Plan from time to time to ensure continued compliance with these laws. HarborOne Bank may also amend the 401(k) Plan from time to time to add, modify, or eliminate certain features of the plan, as it sees fit. As a plan subject to ERISA, federal law provides you with various rights and protections as a plan participant. Although the 401(k) Plan is subject to many of the provisions of ERISA, your benefits under the plan are not guaranteed by the Pension Benefit Guaranty Corporation.
Applicable federal tax law requires the 401(k) Plan to impose substantial restrictions on your right to withdraw amounts held under the plan. Generally, withdrawals of 401(k) pre-tax and Roth deferrals are not permitted before a participant's death, disability, attainment of age 59 1 / 2 , termination of employment, in the case of certain loans or in connection with a financial hardship. Federal law may also impose an additional 10% tax on withdrawals made from the 401(k) Plan prior to your attainment of age 59 1 / 2 , regardless of whether the withdrawal occurs during your employment with HarborOne Bank or after termination of employment.
Reference to Full Text of Plan. The following portions of this prospectus supplement summarize certain provisions of the 401(k) Plan. HarborOne Bank qualifies these summaries in their entirety by the full text of the 401(k) Plan. You may obtain copies of the 401(k) Plan document by sending a request to: Patricia Williams, Senior Vice President, Human Resources, HarborOne Bank, 770 Oak Street, Brockton, MA 02301. You should carefully read the full text of the 401(k) Plan document to understand your rights and obligations under the plan.
Any employee of HarborOne Bank age 21 or older and who has completed three months of employment may make deferrals (pre-tax or Roth) into the 401(k) Plan. Participants are also eligible to receive employer nonelective contributions upon attainment of age 21 and the completion of a 12 months of employment with HarborOne Bank.
As of December 31, 2015, there were 461 participants in the 401(k) Plan.
401(k) Plan Participant Contributions. The 401(k) Plan permits each participant to make pre-tax salary deferrals or Roth deferral contributions, or a combination of both, in an amount up to the statutory limit of $18,000 for participants under age 50 and $24,000 for participants age 50 or older. All newly hired employees age 21 or over who have completed three months of employment are automatically enrolled in the 401(k) Plan unless they elect otherwise, and 5% of compensation will be withheld from their pay automatically. Also, the contribution level of participants included in automatic enrollment will increase by 2% each year (unless they choose a different level), until it reaches 10% of their eligible compensation. These increases will occur each year on the anniversary of the participants' automatic enrollment date. Employees who do not wish to make deferrals under the 401(k) Plan must notify the plan administrator. Participants in the 401(k) Plan may modify the amount contributed to the 401(k) Plan, effective on the first day of the next payroll period, by filing a new deferral agreement with the plan administrator.
HarborOne Bank Contributions. At the time of initial hire, the plan administrator will provide each new employee with a notice that explains the automatic enrollment provisions. This notice will also
4
explain how an employee may elect not to have automatic deferrals made to the 401(k) Plan or how to alter the amount of the salary deferrals. HarborOne Bank may make a nonelective contribution to the 401(k) Plan. The decision on whether to make a contribution and the amount of the nonelective contribution is determined by the Board of Directors of HarborOne Bank. Nonelective contributions are allocated to plan participants who have completed a year of service and who are either employed on the last day of the plan year, or who retired, died or became disabled during the plan year, in the ratio that each eligible participant's compensation bears to the total compensation paid to all eligible participants for the plan year. Only compensation up to $265,000 (as adjusted) is recognized under the 401(k) Plan.
Limitation on Employee Salary Deferral. Although the 401(k) Plan permits you to defer up to 100% of your compensation, by law, your total pre-tax and Roth deferrals under the 401(k) Plan for the 2016 Plan Year, together with contributions to similar plans, may not exceed $18,000, provided, however, if you are over age 50, you may contribute an additional $6,000 per year. The IRS will periodically increase these annual limitations. Contributions in excess of the limitations or excess deferrals, will be included in an affected participant's gross income for federal income tax purposes in the year they are made. In addition, any such excess deferral made on a pre-tax basis will again be subject to federal income tax when distributed by the 401(k) Plan to the participant, unless the excess deferral together with any income allocable thereto, is distributed to the participant not later than the first April 15th following the close of the taxable year in which the excess deferral is made. Any income on the excess deferral that is distributed not later than such date shall be treated, for federal income tax purposes, as earned and received by the participant in the taxable year in which the distribution is made.
Limitations on Annual Additions and Benefits. Under the requirements of the Internal Revenue Code, the 401(k) Plan provides that the total amount of contributions and forfeitures (annual additions) allocated to participants under the 401(k) Plan and other defined contribution plans maintained by HarborOne Bank during any plan year may not exceed the lesser of 100% of the participant's compensation, or $53,000 (as indexed for future years for increases in the cost of living).
Top-Heavy Plan Requirements. If for any calendar year the 401(k) Plan is a Top-Heavy Plan, then HarborOne Bank may be required to make certain minimum contributions to the Plan on behalf of non-key employees.
In general, the 401(k) Plan will be treated as a "Top-Heavy Plan" for any calendar year if, as of the last day of the preceding calendar year, the aggregate balance of the accounts of participants who are "Key Employees" exceeds 60% of the aggregate balance of the accounts of all participants. Key Employees generally include any employee who, at any time during the calendar year or any of the four preceding years, is:
The foregoing dollar amounts are for 2016 and may be adjusted periodically by the IRS.
5
All amounts credited to participants' accounts under the 401(k) Plan are held in trust. A trustee appointed by the Board of Directors of HarborOne Bank administers the trust.
Prior to the effective date of the offering, you were provided the opportunity to direct the investment of your account into one or more of the following options:
HarborOne Bancorp, Inc. Stock Fund. In connection with the offering, the 401(k) Plan now offers the HarborOne Bancorp, Inc. Stock Fund as an additional investment alternative. The HarborOne Bancorp, Inc. Stock Fund will invest primarily in the common stock of HarborOne Bancorp, Inc. This fund will maintain a relatively small position in a money market account to accommodate liquidity. In connection with the offering, participants in the 401(k) Plan may direct the trustee to invest up to 100% of their 401(k) Plan account balance in the HarborOne Bancorp, Inc. Stock Fund. Your interest in the HarborOne Bancorp, Inc. Stock Fund will be credited to your 401(k) Plan account in units, just like the other funds available under the 401(k) Plan.
Subsequent to the offering, you may elect (in increments of 1%) to transfer into the HarborOne Bancorp, Inc. Stock Fund a portion of your accounts currently invested in other funds under the 401(k) Plan.
6
After the offering, the trustee of the 401(k) Plan will, to the extent practicable, use all amounts held by it in the HarborOne Bancorp, Inc. Stock Fund, including cash dividends paid on the common stock held in the fund, to purchase additional shares of common stock of HarborOne Bancorp, Inc.
As of the date of this prospectus supplement, none of the shares of common stock have been issued or are outstanding and there is no established market for the common stock of HarborOne Bancorp, Inc. Accordingly, there is no record of the historical performance of the HarborOne Bancorp, Inc. Stock Fund. Performance of the HarborOne Bancorp, Inc. Stock Fund depends on a number of factors, including the financial condition and profitability of HarborOne Bancorp, Inc. and HarborOne Bank and market conditions for the common stock generally.
Investments in the HarborOne Bancorp, Inc. Stock Fund may involve certain special risks in investments in the common stock of HarborOne Bancorp, Inc. For a discussion of these risk factors, see "Risk Factors" in the accompanying prospectus.
The following table provides performance data with respect to the investment accounts available under the 401(k) Plan through December 31, 2015 (performance results shown are net of investment management fees):
PERFORMANCE AS OF DECEMBER 31, 2015
Stock Funds
|
ONE
QUARTER |
1 YEAR | 3 YEAR | 5 YEAR | 10 YEAR | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Transamerica Partners Institutional Money Market |
0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 1.18 | % | ||||||
Diversified Investment Advisors Stable Pooled Fund |
0.31 | % | 1.21 | % | 1.18 | % | 1.42 | % | 2.58 | % | ||||||
Metropolitan West Total Return Bond M |
(0.55 | )% | (0.05 | )% | 1.96 | % | 4.43 | % | 6.15 | % | ||||||
Vanguard Total Bond Market Index Admiral |
(0.60 | )% | 0.40 | % | 1.33 | % | 3.13 | % | 4.47 | % | ||||||
BlackRock High Yield Bond Institutional |
(1.98 | )% | (4.04 | )% | 2.73 | % | 5.56 | % | 6.98 | % | ||||||
Templeton Global Bond Adv |
2.26 | % | (4.03 | )% | 0.03 | % | 2.60 | % | 7.51 | % | ||||||
JPMorgan Equity Income R6 |
5.46 | % | (1.96 | )% | 13.80 | % | 12.50 | % | 8.09 | % | ||||||
JPMorgan US Equity R6 |
7.18 | % | 0.84 | % | 16.06 | % | 12.58 | % | 8.88 | % | ||||||
Vanguard 500 Index Admiral |
7.04 | % | 1.36 | % | 15.09 | % | 12.53 | % | 7.30 | % | ||||||
T. Rowe Price Institutional Large Cap Growth |
8.81 | % | 10.08 | % | 20.01 | % | 14.91 | % | 9.34 | % | ||||||
JHancock Disciplined Value Mid Cap R6 |
5.00 | % | 2.16 | % | 17.41 | % | 14.00 | % | 10.68 | % | ||||||
Vanguard Mid-Cap Index Admiral |
3.44 | % | (1.34 | )% | 14.90 | % | 11.52 | % | 7.90 | % | ||||||
Janus Enterprise N |
4.89 | % | 3.57 | % | 15.01 | % | 11.97 | % | 9.53 | % | ||||||
DFA US Small Cap Value I |
1.89 | % | (7.81 | )% | 10.75 | % | 8.86 | % | 6.25 | % | ||||||
Vanguard Small Cap Index Admiral |
3.11 | % | (4.26 | )% | 12.60 | % | 10.43 | % | 7.95 | % | ||||||
PNC Multi Factor Small Cap Growth I |
5.44 | % | 5.71 | % | 18.11 | % | 13.89 | % | 8.12 | % | ||||||
Vanguard Total International Stock Index Admiral |
2.74 | % | (4.26 | )% | 1.84 | % | 1.31 | % | 2.86 | % | ||||||
American Funds EuroPacific Growth R6 |
2.97 | % | (0.48 | )% | 5.45 | % | 3.99 | % | 4.84 | % | ||||||
American Funds New Perspective R6 |
6.84 | % | 5.63 | % | 11.65 | % | 9.35 | % | 7.73 | % | ||||||
American Funds New World R6 |
4.35 | % | (5.62 | )% | 0.27 | % | 0.88 | % | 5.97 | % | ||||||
PIMCO All Asset Institutional |
(0.04 | )% | (8.72 | )% | (2.49 | )% | 1.86 | % | 4.02 | % |
7
The following is a description of each of the Plan's investment options (excerpted from each option's own description):
Transamerica Partners Institutional Money Market This fund invests primarily in high quality, U.S. dollar-denominated short-term money market instruments. These instruments include short-term U.S. government obligations, corporate bonds and notes, bank obligations (such as certificates of deposit and bankers' acceptances), commercial paper, asset-backed securities and repurchase agreements. This fund may also invest in obligations issued or guaranteed by the U.S. and foreign governments and their agencies and instrumentalities as well as obligations of U.S. and foreign banks, or their foreign branches, and U.S. savings banks. This fund may invest without limit in obligations of U.S. banks.
Diversified Investment Advisors Stable Pooled Fund This fund invests in the Stable Return Fund, a stable value collective fund advised by Galliard Capital Management. This fund is primarily comprised of investment contracts issued by financial companies including Guaranteed Investment Contracts (GICs), Separate Account GICs, and Security Backed Investment Contracts.
Metropolitan West Total Return Bond M This fund seeks to maximize long-term total return. This fund pursues its objective by investing, under normal circumstances, at least 80% of its net assets in investment grade fixed income securities or unrated securities that are determined by the Adviser to be of similar quality. Up to 20% of the fund's net assets may be invested in securities rated below investment grade. This fund also invests at least 80% of its net assets plus borrowings for investment purposes in fixed income securities it regards as bonds.
Vanguard Total Bond Market Index Admiral This fund seeks to track the performance of a broad, market weighted bond index. This fund employs an indexing investment approach designed to track the performance of the Barclays U.S. Aggregate Float Adjusted Index. This Index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United Statesincluding government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securitiesall with maturities of more than one year.
BlackRock High Yield Bond Institutional This fund seeks to maximize total return, consistent with income generation and prudent investment management. This fund invests primarily in non-investment grade bonds with maturities of ten years or less. This fund formally invests at least 80% of its assets in high yield bonds. The high yield securities (commonly called "junk bonds") acquired by the fund will generally be in the lower rating categories of the major rating agencies (BB or lower by Standard & Poor's or Fitch Ratings, Inc. or Ba or lower by Moody's Investor Services) or will be determined by the Fund management team to be of similar quality. This fund may invest up to 30% of its assets in non-dollar denominated bonds of issuers located outside of the United States.
Templeton Global Bond Adv This fund seeks current income with capital appreciation and growth of income. Under normal market conditions, the fund invests at least 80% of its net assets in "bonds." Bonds include debt obligations of any maturity, such as bonds, notes, bills and debentures. It invests predominantly in bonds issued by governments and government agencies located around the world. This fund may invest up to 25% of its total assets in bonds that are rated below investment grade. It is non-diversified.
JPMorgan Equity Income R6 This fund seeks to provide a blend of long-term growth and current income through the consistent payments of dividends. Under normal circumstances, at least 80% of the fund's Assets will be invested in the equity securities of corporations that regularly pay
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dividends, including common stocks and debt securities and preferred stock convertible to common stock. Although this fund invests primarily in securities of large cap companies, it may invest in equity investments of companies across all market capitalizations. In implementing this strategy, the fund invests primarily in common stock and real estate investment trusts (REITs).
JPMorgan US Equity R6 This fund seeks to provide high total return from a portfolio of selected equity securities. Under normal circumstances, the fund invests at least 80% of its assets in equity securities of U.S. companies. "Assets" means net assets, plus the amount of borrowings for investment purposes. In implementing its strategy, the fund primarily invests in common stocks of large- and medium-capitalization U.S. companies, but it may also invest up to 20% of its assets in common stocks of foreign companies, including depositary receipts.
Vanguard 500 Index Admiral This fund seeks to track the performance of a benchmark index that measures the investment return of large-capitalization stocks. This fund employs an indexing investment approach designed to track the performance of the Standard & Poor's 500 Index, a widely recognized benchmark of U.S. stock market performance that is dominated by the stocks of large U.S. companies. The advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
T. Rowe Price Institutional Large Cap Growth This fund seeks to provide long-term capital appreciation through investments in common stocks of growth companies. This fund employs a growth approach to stock selection. This fund will normally invest at least 80% of its net assets (including any borrowings for investment purposes) in the common stocks of large-cap companies. This fund defines a large-cap company as one whose market capitalization is larger than the median market capitalization of companies in the Russell 1000 Growth Index, a widely used benchmark of the largest U.S. growth stocks.
JHancock Disciplined Value Mid Cap R6 This fund seeks long-term growth of capital with current income as a secondary objective. Under normal circumstances, the fund seeks to achieve its investment objectives by investing at least 80% of its net assets (including borrowings for investment purposes) in a diversified portfolio consisting primarily of equity securities, such as common stocks, of issuers with medium market capitalizations, and identified by the subadvisor as having value characteristics. It may also invest up to 20% of its total assets in foreign currency-denominated securities.
Vanguard Mid-Cap Index Admiral This fund seeks to track the performance of a benchmark index that measures the investment return of mid-capitalization stocks. This fund employs an indexing investment approach designed to track the performance of the CRSP US Mid Cap Index, a broadly diversified index of stocks of mid-size U.S. companies. The advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
Janus Enterprise N This fund seeks long-term growth of capital. This fund invests primarily in common stocks selected for their growth potential, and normally invests at least 50% of its equity assets in medium-sized companies. Medium-sized companies are those whose market capitalization falls within the range of companies in the Russell Midcap Growth Index. This fund may also invest in foreign securities, which may include investment in emerging markets.
DFA US Small Cap Value I This fund seeks to achieve long term capital appreciation. This fund uses a market capitalization weighted approach to purchase a broad and diverse group of the
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readily marketable securities of U.S. small cap companies that the Advisor determines to be value stocks. The advisor may modify market capitalization weights and even exclude companies after considering such factors as free float, momentum, trading strategies, liquidity management, and profitability, as well as other factors that the advisor determines to be appropriate, given market conditions. Securities are considered value stocks primarily because a company's shares have a high book value in relation to their market value. In assessing profitability, the advisor may consider different ratios, such as that of earnings or profits from operations relative to book value or assets.
Vanguard Small Cap Index Admiral This fund seeks to track an index of small-sized companies. One of the fund's primary risks is its focus on the small-cap arena. This fund employs an indexing investment approach designed to track the performance of the CRSP US Small Cap Index, a broadly diversified index of stocks of small U.S. companies. This fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the Index, holding each stock in approximately the same proportion as its weighting in the Index.
PNC Multi Factor Small Cap Growth I This fund seeks long-term capital appreciation by primarily investing in stocks of small-cap companies with market caps approximating the benchmark. Using an analytical process together with fundamental research methods, the team rates the performance potential of companies and buys those stocks that it believes offer the best prospects for superior performance relative to the securities of comparable companies.
Vanguard Total International Stock Index Admiral This fund tracks stock markets all over the globe, with the exception of the United States. This fund employs an indexing investment approach designed to track the performance of the FTSE Global All Cap ex US Index. The Index includes approximately 5,550 stocks of companies located in 46 countries. This fund invests all, or substantially all, of its assets in the common stocks included in its target index.
American Funds EuroPacific Growth R6 This fund seeks long-term growth of capital. This fund invests primarily in common stocks of issuers in Europe and the Pacific Basin that the investment adviser believes have the potential for growth. Growth stocks are stocks that the investment adviser believes have the potential for above-average capital appreciation. It normally invests at least 80% of its net assets in securities of issuers in Europe and the Pacific Basin. This fund may invest a portion of its assets in common stocks and other securities of companies in emerging markets
American Funds New Perspective R6 This fund seeks long-term growth of capital; future income is a secondary objective. This fund seeks to take advantage of investment opportunities generated by changes in international trade patterns and economic and political relationships by investing in common stocks of companies located around the world. In pursuing its primary investment objective, it invests primarily in common stocks that the investment adviser believes have the potential for growth. In pursuing its secondary objective, this fund invests in common stocks of companies with the potential to pay dividends in the future.
American Funds New World R6 This fund seeks long-term capital appreciation. This fund invests primarily in common stocks of companies with significant exposure to countries with developing economies and/or markets. The securities markets of these countries may be referred to as emerging markets. This fund may also invest in debt securities of issuers, including issuers of lower rated bonds with exposure to these countries. Under normal market conditions, the fund will invest at least 35% of its assets in equity and debt securities of issuers primarily based in qualified countries that have developing economies and/or markets.
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PIMCO All Asset Institutional This fund seeks maximum real return, consistent with preservation of real capital and prudent investment management. This fund normally invests substantially all of its assets in Institutional Class or Class M shares of any funds of the Trust or PIMCO Equity Series, an affiliated open-end investment company, except other funds of funds, or shares of any actively-managed funds of the PIMCO ETF Trust, an affiliated investment company. The fund's investment in a particular underlying PIMCO Fund normally will not exceed 50% of its total assets. It is non-diversified.
An investment in any of the funds listed above is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. As with any mutual fund investment, there is always a risk that you may lose money on your investment in any of the funds listed above.
Vesting. At all times, you have a fully vested, nonforfeitable interest in your own contributions, adjusted for earnings or losses. Your share of employer nonelective contributions, as adjusted for earnings or losses, becomes vested at 20% after two years of service, and vesting increases by 20% for each subsequent year of service until you become fully vested after six years of service. Service with Nations Heritage Federal Credit Union is also recognized for this purpose.
Withdrawals and Distributions From the 401(k) Plan
Withdrawals Prior to Termination of Employment. You may receive in-service distributions from the 401(k) Plan. The 401(k) Plan permits in-service withdrawals of rollover contributions at any time. You may also withdraw vested employer nonelective contributions that have been in your account for at least two years. You may also apply for a hardship withdrawal from your salary deferral contributions and Roth deferral contributions if you are under age 59 1 / 2 . In order to qualify for a hardship withdrawal, you must have an immediate and substantial need to meet certain expenses and have no other reasonably available resources to meet the financial need. If you qualify for a hardship distribution, the trustee will make the distribution pro rata from the investment funds in which you have invested your own contributions. If you make a hardship withdrawal, your right to make elective deferrals is suspended for six months. Hardship withdrawals may not be paid back to the 401(k) Plan. Once you attain age 59 1 / 2 , all your contributions in the 401(k) Plan are eligible for in-service withdrawals. You can also apply for a loan from the 401(k) Plan. You cannot have more than one loan outstanding at a time. You can apply for a minimum loan of $1,000 and a maximum loan of the lesser of $50,000 or 50% of your total vested account balance.
Distribution Upon Retirement or Disability. Participants shall receive benefits as soon as administratively feasible following the close of a valuation period during which the distribution is requested. Distributions are payable to participants in a lump sum or installments, at the participant's election. Certain distributions may also be rolled over to another qualified plan or individual retirement account.
Distribution Upon Death. If you die prior to your benefits being paid from the 401(k) Plan, your benefits will be paid to your surviving spouse or beneficiary under one or more of the forms available under the 401(k) Plan. Certain distributions may also be rolled over to another qualified plan or individual retirement account.
Distribution Upon Termination for Any Other Reason. If you terminate employment for any reason other than retirement, disability or death and your vested account balance exceeds $5,000, the trustee will make your distribution when you attain age 62, unless you request otherwise. If your vested account balance does not exceed $1,000, the trustee will generally distribute your benefits to you as
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soon as administratively practicable following your termination of employment. If your vested account balance is over $1,000 but not more than $5,000, and you have not attained age 62, if you do not make a timely distribution or direct rollover election, your entire vested account balance will automatically be rolled over to a traditional individual retirement account serviced by Transamerica.
Nonalienation of Benefits. Except with respect to federal income tax withholding, federal tax liens and as provided with respect to a qualified domestic relations order, benefits payable under the 401(k) Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to benefits payable under the 401(k) Plan shall be void.
Applicable federal tax law requires the 401(k) Plan to impose substantial restrictions on your right to withdraw amounts held under the plan before your termination of employment with HarborOne Bank or its affiliates. Federal law may also impose an additional 10% tax on distributions from the 401(k) Plan before you attain 59 1 / 2 years of age, regardless of whether the withdrawal occurs during your employment with HarborOne Bank or its affiliates or after your termination of employment.
Trustee. The board of directors of HarborOne Bank has appointed State Street Bank and Trust Company as trustee of the 401(k) Plan. The trustee receives, holds and invests the contributions to the 401(k) Plan in trust and distributes them to participants and beneficiaries in accordance with the terms of the plan and the directions of the plan administrator. The trustee is responsible for investment of the assets of the trust as directed by plan participants.
The plan administrator will furnish you a statement at least quarterly showing (i) the balance in your account as of the end of that period, (ii) the amount of contributions allocated to your account for that period, and (iii) the adjustments to your account to reflect earnings or losses (if any).
Currently, the plan administrator of the 401(k) Plan is HarborOne Bank. The plan administrator is responsible for the administration of the 401(k) Plan, interpretation of the provisions of the plan, prescribing procedures for filing applications for benefits, preparation and distribution of information explaining the plan, maintenance of plan records, books of account and all other data necessary for the proper administration of the plan, and preparation and filing of all returns and reports relating to the plan which are required to be filed with the U.S. Department of Labor and the Internal Revenue Service, and for all disclosures required to be made to participants, beneficiaries and others under ERISA.
HarborOne Bank intends to continue the 401(k) Plan indefinitely. Nevertheless, HarborOne Bank may terminate the 401(k) Plan at any time. If HarborOne Bank terminates the 401(k) Plan in whole or in part, then regardless of other provisions in the plan, all participants affected by such termination shall become fully vested in their accounts. HarborOne Bank reserves the right to make, from time to time, any amendment or amendments to the 401(k) Plan which do not cause any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries; provided, however, that HarborOne Bank may amend the plan as it determines necessary or desirable, with or without retroactive effect, to comply with ERISA or the Internal Revenue Code.
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Merger, Consolidation or Transfer
In the event of the merger or consolidation of the 401(k) Plan with another plan, or the transfer of the trust assets to another plan, the plan requires that you would (if either the plan or the other plan then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit you would have been entitled to receive immediately before the merger, consolidation or transfer (if the plan had then terminated).
Federal Income Tax Consequences
The following is only a brief summary of the material federal income tax aspects of the 401(k) Plan. You should not consider the following as a complete or definitive description of the material federal income tax consequences relating to the 401(k) Plan. Statutory provisions change, as do their interpretations, and their application may vary in individual circumstances. Finally, the consequences under applicable state and local income tax laws may not be the same as under the federal income tax laws. You are urged to consult your tax advisor with respect to any distribution from the 401(k) Plan and transactions involving the 401(k) Plan.
As a "qualified retirement plan," the Internal Revenue Code affords the 401(k) Plan special tax treatment, including:
HarborOne Bank will administer the 401(k) Plan to comply with the requirements of the Internal Revenue Code. If HarborOne Bank receives an adverse determination letter regarding its tax exempt status from the Internal Revenue Service, all participants would generally recognize income equal to their vested interest in the plan, the participants would not be permitted to transfer amounts distributed from the 401(k) Plan to an individual retirement account or to another qualified retirement plan, and HarborOne Bank may be denied certain deductions taken with respect to the 401(k) Plan.
Lump Sum Distribution. A distribution from the 401(k) Plan to a participant or the beneficiary of a participant will qualify as a lump sum distribution if it is made within one taxable year, on account of the participant's death, disability or separation from service, or after the participant attains age 59 1 / 2 , and consists of the balance credited to the participant under the plan. The portion of any lump sum distribution required to be included in your taxable income for federal income tax purposes consists of the entire amount of the lump sum distribution.
HarborOne Bancorp, Inc. Common Stock Included in Lump Sum Distribution. If a lump sum distribution includes HarborOne Bancorp, Inc. common stock, the distribution generally will be taxed in the manner described above, except that the total taxable amount will be reduced by the amount of any net unrealized appreciation with respect to HarborOne Bancorp, Inc. common stock, that is, the excess of the value of HarborOne Bancorp, Inc. common stock at the time of the distribution over its cost or other basis of the securities to the trust. The tax basis of HarborOne Bancorp, Inc. common stock for computing gain or loss on its subsequent sale equals the value of HarborOne Bancorp, Inc. common stock at the time of distribution, less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of HarborOne Bancorp, Inc. common stock, to the extent of the amount of net unrealized appreciation at the time of distribution, will constitute long-term capital gain regardless of how long the HarborOne Bancorp, Inc. common stock is held. Any gain on a
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subsequent sale or other taxable disposition of HarborOne Bancorp, Inc. common stock in excess of the amount of net unrealized appreciation at the time of distribution will be considered either short-term or long-term capital gain, depending upon the length of the holding period of HarborOne Bancorp, Inc. common stock after the date of distribution from the 401(k) Plan. The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or to an IRA. You may roll over virtually all distributions from the 401(k) Plan to another qualified retirement plan or to an individual retirement account.
We have provided you with a brief description of the material federal income tax aspects of the 401(k) Plan which are of general application under the Internal Revenue Code. It is not intended to be a complete or definitive description of the federal income tax consequences of participating in or receiving distributions from the 401(k) Plan. Accordingly, you are urged to consult a tax advisor concerning the federal, state and local tax consequences of participating in and receiving distributions from the 401(k) Plan.
Additional Employee Retirement Income Security Act Considerations
As noted above, the 401(k) Plan is subject to certain provisions of ERISA, including special provisions relating to control over the 401(k) Plan's assets by participants and beneficiaries. The 401(k) Plan's feature that allows you to direct the investment of your account balances is intended to satisfy the requirements of section 404(c) of ERISA relating to control over plan assets by a participant or beneficiary. The effect of this is two-fold. First, you will not be deemed a "fiduciary" because of your exercise of investment discretion. Second, no person who otherwise is a fiduciary, such as HarborOne Bank, as the plan administrator, or the 401(k) Plan's trustee is liable under the fiduciary responsibility provision of ERISA for any loss which results from your exercise of control over the assets in your 401(k) Plan account.
Because you will be entitled to invest a portion of your account balance in the 401(k) Plan in HarborOne Bancorp, Inc. common stock, the regulations under ERISA section 404(c) require that the 401(k) Plan establish procedures that ensure the confidentiality of your decision to purchase, hold, or sell employer securities, except to the extent that disclosure of such information is necessary to comply with federal or state laws not preempted by ERISA. These regulations also require that your exercise of voting and similar rights with respect to the HarborOne Bancorp, Inc. common stock be conducted in a way that ensures the confidentiality of your exercise of these rights.
There are restrictions on resale of shares of HarborOne Bancorp, Inc. common stock applicable to persons who may be "affiliates" of HarborOne Bancorp, Inc., including any person receiving a distribution of shares of common stock under the 401(k) Plan who is an "affiliate" of HarborOne Bancorp under the Securities Act of 1933, as amended. An "affiliate" of HarborOne Bancorp, Inc. is someone who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control, with HarborOne Bancorp, Inc. Normally, a director, principal officer or major shareholder of a corporation may be deemed to be an "affiliate" of that corporation. A person who may be deemed an "affiliate" of HarborOne Bancorp, Inc. at the time of a proposed resale will be permitted to make public resales of the common stock only under a "reoffer" prospectus or in accordance with the restrictions and conditions contained in Rule 144 under the Securities Act, or some other exemption from registration, and will not be permitted to use this prospectus in connection with any such resale. In general, the amount of the common stock which any such affiliate may publicly resell under Rule 144 in any three-month period may not exceed the greater of 1% of HarborOne
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Bancorp, Inc. common stock then outstanding or the average weekly trading volume reported on the Nasdaq Global Market during the four calendar weeks before the sale. Such sales may be made only through brokers without solicitation and only at a time when HarborOne Bancorp, Inc. is current in filing the reports required of it under the Securities Exchange Act of 1934, as amended.
Any person who may be an "affiliate" of HarborOne Bank may wish to consult with counsel before transferring any common stock they own. In addition, participants are advised to consult with counsel as to the applicability of Section 16 of the Securities Exchange Act of 1934, as amended, which may restrict the sale of HarborOne Bancorp, Inc. common stock acquired under the plan, or other sales of HarborOne Bancorp, Inc. common stock.
Persons who are not deemed to be "affiliates" of HarborOne Bancorp, Inc. at the time of resale will be free to resell any shares of HarborOne Bancorp, Inc. common stock distributed to them under the Plan, either publicly or privately, without regard to the registration and prospectus delivery requirements of the Securities Act, or compliance with the restrictions and conditions contained in the exemptive rules under federal law.
SEC Reporting and Short-Swing Profit Liability
Section 16 of the Securities Exchange Act, imposes reporting and liability requirements on officers, directors and persons beneficially owning more than 10% of public companies such as HarborOne Bancorp, Inc. Section 16(a) of the Securities Exchange Act, requires the filing of reports of beneficial ownership. Within ten days of becoming a person required to file reports under Section 16(a), a Form 3 reporting initial beneficial ownership must be filed with the Securities and Exchange Commission, or the SEC. Certain changes in beneficial ownership involving allocation or reallocation of assets held in your 401(k) Plan account must be reported periodically, either on a Form 4 within two days after a transaction, or annually on a Form 5 within 45 days after the close of a company's fiscal year.
In addition to the reporting requirements described above, Section 16(b) of the Securities Exchange Act, or Section 16(b), provides for the recovery by HarborOne Bancorp, Inc. of profits realized by any officer, director or any person beneficially owning more than 10% of the common stock resulting from the purchase and sale or sale and purchase of the common stock within any six-month period.
The SEC has adopted rules that exempt many transactions involving the Plan from the "short-swing" profit recovery provisions of Section 16(b). The exemptions are available if an election to transfer into the HarborOne Bancorp, Inc. Stock Fund is at least six months after an election to transfer out of the HarborOne Bancorp, Inc. Stock Fund, and vice versa.
Except for distributions of the common stock due to death, disability, retirement, termination of employment or under a qualified domestic relations order, persons who are governed by Section 16(b) may, under limited circumstances involving the purchase of common stock within six months of the distribution, be required to hold shares of the common stock distributed from the 401(k) Plan for six months following the distribution date.
The validity of the issuance of the common stock will be passed upon by Goodwin Procter LLP , Boston, Massachusetts. Goodwin Procter LLP has acted as special counsel for HarborOne Bancorp, Inc. in connection with the reorganization of HarborOne Bank into a two-tier mutual holding company and the related HarborOne Bancorp, Inc. initial public offering.
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PROSPECTUS SUPPLEMENT
Interests in
Merrimack Mortgage, LLC Retirement Plan
and
Offering of up to 751,162 Shares of
HarborOne Bancorp, Inc.
Common Stock ($0.01 Par Value)
This prospectus supplement relates to the offer and sale to participants in the Merrimack Mortgage, LLC Retirement Plan, or the 401(k) Plan, of participation interests and shares of common stock of HarborOne Bancorp, Inc.
401(k) Plan participants may direct the trustee of the 401(k) Plan to use up to 100% of their current account balances to subscribe for and purchase shares of HarborOne Bancorp, Inc. common stock. This prospectus supplement relates to the election of 401(k) Plan participants to direct the trustee of the 401(k) Plan to invest all or a portion of their 401(k) Plan accounts in HarborOne Bancorp, Inc. common stock.
The prospectus dated [ · ] of HarborOne Bancorp, Inc., which accompanies this prospectus supplement, includes detailed information regarding the reorganization of HarborOne Bank into the mutual holding company form of organization, HarborOne Bancorp, Inc.'s stock offering, and the financial condition, results of operations and business of HarborOne Bank. This prospectus supplement provides information regarding the 401(k) Plan. You should read this prospectus supplement together with the accompanying prospectus and keep both for future reference.
Please refer to "Risk Factors" beginning on page 11 of the accompanying prospectus.
The securities offered in this prospectus supplement are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any government agency or the Depositors Insurance Fund.
None of the Securities and Exchange Commission, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Massachusetts Commissioner of Banks, nor any other state or federal agency or any state securities regulator, has approved or disapproved of these securities or determined if this prospectus supplement is accurate or complete. Any representation to the contrary is a criminal offense.
This prospectus supplement may be used only in connection with offers and sales by HarborOne Bancorp, Inc. of interests in, or shares of, common stock acquired by the 401(k) Plan. No one may use this prospectus supplement to reoffer or resell interests in, or shares of, common stock acquired through the 401(k) Plan.
Neither HarborOne Bancorp, Inc., HarborOne Bank nor Merrimack Mortgage, LLC has authorized any person to give any information or to make any representations other than those contained in the prospectus or this prospectus supplement, and, if given or made, no one may rely on such information or representations as having been authorized by HarborOne Bancorp, Inc., HarborOne Bank or the 401(k) Plan.
This prospectus supplement does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction in which it is unlawful to make such offer or solicitation in such jurisdiction. Neither the delivery of this prospectus supplement and the prospectus nor any sale of common stock shall under any circumstances imply that there has been no change in the affairs of HarborOne Bancorp, Inc. or any of its subsidiaries incorporated by the accompanying prospectus or the 401(k) Plan since the date of this prospectus supplement, or imply the information contained in this prospectus supplement is correct as of any time after the date of this prospectus supplement.
The date of this prospectus supplement is [ · ].
i
The securities offered in connection with this prospectus supplement are participation interests in the Merrimack Mortgage, LLC Retirement Plan, or the 401(k) Plan. HarborOne Bancorp, Inc., the proposed mid-tier holding company for HarborOne Bank, is the issuer of the common stock. All participants in the 401(k) Plan may use up to 100% of their account balances to subscribe for shares of HarborOne Bancorp, Inc. common stock in the offering subject to the purchase priorities set forth in the HarborOne Bank Plan of Reorganization and Minority Stock Issuance. See "The Reorganization and OfferingGeneral" in the prospectus accompanying this prospectus supplement for a discussion of the purchase priorities in the offering. The interests offered under this prospectus supplement are conditioned on the consummation of the reorganization of HarborOne Bank and related HarborOne Bancorp, Inc. stock offering.
This prospectus supplement contains information regarding the 401(k) Plan. The accompanying prospectus contains information regarding the reorganization of HarborOne Bank into the mutual holding company form of organization, HarborOne Bancorp, Inc.'s stock offering, and the financial condition, results of operations and business of HarborOne Bank. The address of the principal executive office of HarborOne Bank is 770 Oak Street, Brockton, MA 02301. The telephone number of HarborOne Bank is (508) 895-1000.
Election to Purchase the Common Stock in the Offering; Priorities
In connection with the offering, the 401(k) Plan provides an additional investment option that allows you to transfer up to 100% of the funds which represent your beneficial interest in the assets of the 401(k) Plan to the HarborOne Bancorp, Inc. Stock Fund. If you elect to invest in the HarborOne Bancorp, Inc. Stock Fund, the 401(k) Plan trustee will subscribe for the common stock offered for sale in the offering in accordance with your direction, subject to the purchase priorities discussed below. In the event the offering is oversubscribed and some or all of your funds cannot be used to purchase common stock in the offering, the 401(k) Plan trustee will return the amount not invested in common stock to the other investment funds in the 401(k) Plan in accordance with your then-existing investment election for future contributions in the 401(k) Plan.
All plan participants are eligible to direct a transfer of funds to the HarborOne Bancorp, Inc. Stock Fund. However, these directions are subject to subscription rights and purchase priorities. Your order for shares in the offering will be filled based on your purchase priority in the offering. HarborOne Bancorp, Inc. has granted rights to subscribe for shares of HarborOne Bancorp, Inc. common stock to the following persons in the subscription offering, in descending order: (i) depositors who had accounts at HarborOne Bank with aggregate balances of at least $50 as of the close of business on December 31, 2014, (ii) the tax qualified employee benefit plans of HarborOne Bank and its wholly owned subsidiary, Merrimack Mortgage Company, LLC, or "Merrimack Mortgage" (i.e., the HarborOne Employee Stock Ownership Plan, the HarborOne 401(k) Plan and the Merrimack Mortgage, LLC Retirement Plan) and (iii) employees, officers, directors, trustees and corporators of HarborOne Bank or Merrimack Mortgage who do not qualify under priority (i) above. No individual may purchase more than 60,000 shares of common stock in the offering through one or more individual and/or joint deposit accounts, including HarborOne Bancorp, Inc. Stock Fund accounts, and no individual together with any associate or group acting in concert may purchase more than 80,000 shares of common stock.
If any shares of our common stock remain unsold in the subscription offering, we will offer such shares for sale in a community offering. Natural persons residing in the Massachusetts cities and towns of Abington, Attleboro, Avon, Berkley, Braintree, Bridgewater, Brockton, Canton, Carver, Cohasset, Dighton, Duxbury, East Bridgewater, Easton, Foxboro, Halifax, Hanover, Hanson, Hingham, Holbrook, Hull, Kingston, Lakeville, Mansfield, Marshfield, Middleborough, Milton, North Attleboro, Norton, Norwell, Plainville, Pembroke, Plymouth, Plympton, Quincy, Randolph, Raynham, Rehoboth, Rochester, Rockland, Seekonk, Scituate, Sharon, Stoughton, Taunton, Wareham, West Bridgewater,
Weymouth and Whitman will have a purchase preference in any community offering. Shares also may be offered to the general public. The community offering, if any, may commence concurrently with, during or promptly after, the subscription offering. See "The Reorganization and OfferingCommunity Offering" in the accompanying prospectus for a discussion of the community offering.
We also may offer shares of common stock not purchased in the subscription offering or the community offering through a syndicate of brokers in what is referred to as a syndicated community offering. The syndicated community offering, if necessary, would be managed by Sandler O'Neill & Partners, L.P. and would commence as soon as practicable after the termination of the subscription offering and would be open to the general public beyond the local community. We have the right to accept or reject, in our sole discretion, any orders received in the community offering and the syndicated community offering.
To ensure a proper allocation of stock, each eligible account holder must list on his or her stock purchase order form all deposit accounts in which he or she had an ownership interest at December 31, 2014. Failure to list an account, or providing incorrect information, could result in the loss of all or part of a subscriber's stock allocation. We will strive to identify your ownership in all accounts, but cannot guarantee that we will identify all accounts in which you have an ownership interest. Our interpretation of the terms and conditions of the Plan of Reorganization and of the acceptability of the stock purchase order forms will be final.
No investor in the offering may purchase fewer than 25 shares of common stock or more than 60,000 shares of common stock.
Value of Participation Interests
As of December 31, 2015, the market value of the assets of the 401(k) Plan totaled approximately $7.5 million, and up to 100% of this amount may be used to purchase common stock in the offering. The plan administrator informed each participant of the value of his or her beneficial interest in the 401(k) Plan as of December 31, 2015. The value of plan assets represents the past contributions to the 401(k) Plan by or on behalf of the participants of the 401(k) Plan, plus or minus earnings or losses on the contributions, less previous withdrawals.
If you want to use your 401(k) Plan funds to purchase common stock in the offering, you must complete the Special Investment Election Form included with this prospectus supplement and submit the form to Patricia Williams, Senior Vice President in the HarborOne Bank Human Resources Department, by hand delivery, electronic mail, interoffice mail, fax or regular mail, as specified in the first paragraph of the Special Investment Form. The 401(k) Plan trustee will submit an order form on your behalf to purchase the number of shares in the offering that you have elected to purchase. To transfer the funds into the HarborOne Bancorp, Inc. Stock Fund, the 401(k) Plan trustee will withdraw the amount indicated on the Special Investment Election Form from the other investment funds in which your account is invested on a pro rata basis. If you do not wish to purchase shares in the offering with your 401(k) Plan funds, you should still check the applicable box on the Special Investment Election Form included with this prospectus supplement and submit the form to Patricia Williams.
Deadline for Directing Transfer in Connection with the Offering
The deadline for submitting your instructions to Patricia Williams in the Human Resources Department, to transfer your funds to the HarborOne Bancorp, Inc. Stock Fund in connection with the offering is [ : ] p.m., Eastern time, on [401(k) Expiration Date].
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The 401(k) Plan deadline is earlier than the [Expiration Date] deadline for submitting stock order forms to purchase shares in the offering with funds outside of the 401(k) Plan.
Irrevocability of Transfer Direction in Connection with the Offering
Your direction to transfer amounts credited to your account in the 401(k) Plan to the HarborOne Bancorp, Inc. Stock Fund in connection with the offering cannot be changed. Pending completion of the offering, the funds you elect to transfer to the HarborOne Bancorp, Inc. Stock Fund will be held in an interest-bearing account until the offering is completed.
Direction to Purchase the Common Stock After the Close of the Offering
After the close of the offering, you may direct on a daily basis the 401(k) Plan trustee to transfer a certain percentage (in multiples of not less than 1%) of the net value of your interests in the other investment funds into the 401(k) Plan to the HarborOne Bancorp, Inc. Stock Fund. Alternatively, you may direct the 401(k) Plan trustee to transfer a certain percentage of your interest in the HarborOne Bancorp, Inc. Stock Fund into any of the other investment funds in the 401(k) Plan in accordance with the terms of the 401(k) Plan. Following your initial election, you may change the allocation of your interest in the HarborOne Bancorp, Inc. Stock Fund by accessing NetBenefits @ www.netbenefits.com or by calling Fidelity at 1-800-294-4015. Special restrictions may apply to transfers directed by those participants who are officers, directors and 10% shareholders of HarborOne Bancorp, Inc.
Common Stock in the Offering will be Purchased at $10 Per Share
You will pay the same price for shares of common stock as all other persons who purchase shares of the common stock in the offering. Post-reorganization purchases of common stock in the HarborOne Bancorp, Inc. Stock Fund will be made at prevailing market prices. These prices may be higher or lower than the current offering price of $10 per share of common stock.
Nature of a Participant's Interest in the HarborOne Bancorp, Inc. Stock Fund
The 401(k) Plan purchases its underlying investments every pay period. Each investment fund's unit value is updated every business day based on the total value of its underlying investments and the number of units held in the fund. Distributions, withdrawals, loans and investment transfers may occur each business day. Loan and transfer requests are made through NetBenefit @ www.netbenefits.com or by calling Fidelity at 1-800-294-4015.
Voting Rights of the Common Stock
The 401(k) Plan provides that, after the offering, you may direct the 401(k) Plan trustee how to vote the shares of HarborOne Bancorp, Inc. common stock held by the HarborOne Bancorp, Inc. Stock Fund representing the interest in the shares that is credited to your account. If the trustee does not receive your voting instructions, the plan administrator will exercise these rights as it determines in its discretion and will direct the trustee accordingly. All voting instructions will be kept confidential.
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DESCRIPTION OF THE 401(k) PLAN
Since April 1, 1989, Merrimack Mortgage has maintained the 401(k) Plan. Merrimack Mortgage intends for the 401(k) Plan to comply, in form and in operation, with all applicable provisions of the Internal Revenue Code and the Employee Retirement Income Security Act, most commonly referred to as ERISA. Merrimack Mortgage may amend the 401(k) Plan from time to time to ensure continued compliance with these laws. Merrimack Mortgage may also amend the 401(k) Plan from time to time to add, modify, or eliminate certain features of the plan, as it sees fit. As a plan subject to ERISA, federal law provides you with various rights and protections as a plan participant. Although the 401(k) Plan is subject to many of the provisions of ERISA, your benefits under the plan are not guaranteed by the Pension Benefit Guaranty Corporation.
Applicable federal tax law requires the 401(k) Plan to impose substantial restrictions on your right to withdraw amounts held under the plan. Generally, withdrawals of 401(k) pre-tax and Roth deferrals are not permitted before a participant's death, disability, attainment of age 59 1 / 2 , termination of employment, in the case of certain loans or in connection with a financial hardship. Federal law may also impose an additional 10% tax on withdrawals made from the 401(k) Plan prior to your attainment of age 59 1 / 2 , regardless of whether the withdrawal occurs during your employment with HarborOne Bank or after termination of employment.
Reference to Full Text of Plan. The following portions of this prospectus supplement summarize certain provisions of the 401(k) Plan. HarborOne Bank qualifies these summaries in their entirety by the full text of the 401(k) Plan. You may obtain copies of the 401(k) Plan document by sending a request to: Patricia Williams, Senior Vice President, Human Resources, HarborOne Bank, 770 Oak Street, Brockton, MA 02301. You should carefully read the full text of the 401(k) Plan document to understand your rights and obligations under the plan.
Any eligible employee of Merrimack Mortgage who has completed three months of employment may make pre-tax deferrals into the 401(k) Plan and may be eligible to receive matching employer nonelective contributions. Eligible employees include all employees other than employees covered by a collective bargaining agreement and nonresident aliens with no U.S. source income. Seasonal employees are not eligible to participate unless they attain age 21 and have completed 1,000 hours of service.
As of December 31, 2015, there were 245 participants in the 401(k) Plan.
401(k) Plan Participant Contributions. The 401(k) Plan permits each participant to make pre-tax salary deferrals in an amount up to the statutory limit of $18,000 for participants under age 50 and $24,000 for participants age 50 or older. All eligible employees who are not seasonal employees who have completed three months of employment are automatically enrolled in the 401(k) Plan unless they elect otherwise, and 3% of compensation will be withheld from their pay automatically. Participants in the 401(k) Plan may modify the amount contributed to the 401(k) Plan, effective on the first day of the next payroll period, by filing a new deferral agreement with the plan administrator.
Merrimack Mortgage Contributions. At the time of initial hire, the plan administrator will provide each new eligible employee with a notice that explains the automatic enrollment provisions. This notice will also explain how an employee may elect not to have automatic deferrals made to the 401(k) Plan or how to alter the amount of the salary deferrals. Merrimack Mortgage may make matching or nonelective contributions to the 401(k) Plan, but it has not done so in the past. If Merrimack Mortgage
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makes a nonelective contribution, it will be allocated to plan participants who have completed a year of service and who are either employed on the last day of the plan year, or who retired, died or became disabled during the plan year, in the ratio that each eligible participant's compensation bears to the total compensation paid to all eligible participants for the plan year. Only compensation up to $265,000 (as adjusted) is recognized under the 401(k) Plan. If Merrimack Mortgage makes a matching contribution, it will be allocated to participants who make pre-tax salary deferrals.
Limitation on Employee Salary Deferral. Although the 401(k) Plan permits you to defer up to 75% of your compensation, by law, your total pre-tax deferrals under the 401(k) Plan for the 2016 Plan Year, together with contributions to similar plans, may not exceed $18,000, provided, however, if you are over age 50, you may contribute an additional $6,000 per year. The IRS will periodically increase these annual limitations. Contributions in excess of the limitations or excess deferrals, will be included in an affected participant's gross income for federal income tax purposes in the year they are made. In addition, any such excess deferral made on a pre-tax basis will again be subject to federal income tax when distributed by the 401(k) Plan to the participant, unless the excess deferral together with any income allocable thereto, is distributed to the participant not later than the first April 15th following the close of the taxable year in which the excess deferral is made. Any income on the excess deferral that is distributed not later than such date shall be treated, for federal income tax purposes, as earned and received by the participant in the taxable year in which the distribution is made.
Limitations on Annual Additions and Benefits. Under the requirements of the Internal Revenue Code, the 401(k) Plan provides that the total amount of contributions and forfeitures (annual additions) allocated to participants under the 401(k) Plan and other defined contribution plans maintained by Merrimack Mortgage during any plan year may not exceed the lesser of 100% of the participant's compensation, or $53,000 (as indexed for future years for increases in the cost of living).
Top-Heavy Plan Requirements. If for any calendar year the 401(k) Plan is a Top-Heavy Plan, then HarborOne Bank may be required to make certain minimum contributions to the Plan on behalf of non-key employees.
In general, the 401(k) Plan will be treated as a "Top-Heavy Plan" for any calendar year if, as of the last day of the preceding calendar year, the aggregate balance of the accounts of participants who are "Key Employees" exceeds 60% of the aggregate balance of the accounts of all participants. Key Employees generally include any employee who, at any time during the calendar year or any of the four preceding years, is:
The foregoing dollar amounts are for 2016 and may be adjusted periodically by the IRS.
All amounts credited to participants' accounts under the 401(k) Plan are held in trust. A trustee appointed by the Board of Managers of Merrimack Mortgage administers the trust.
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Prior to the effective date of the offering, you were provided the opportunity to direct the investment of your account into one or more of the following options:
HarborOne Bancorp, Inc. Stock Fund. In connection with the offering, the 401(k) Plan now offers the HarborOne Bancorp, Inc. Stock Fund as an additional investment alternative. The HarborOne Bancorp, Inc. Stock Fund will invest primarily in the common stock of HarborOne Bancorp, Inc. This fund will maintain a relatively small position in a money market account to accommodate liquidity. In connection with the offering, participants in the 401(k) Plan may direct the trustee to invest up to
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100% of their 401(k) Plan account balance in the HarborOne Bancorp, Inc. Stock Fund. Your interest in the HarborOne Bancorp, Inc. Stock Fund will be credited to your 401(k) Plan account in units, just like the other funds available under the 401(k) Plan.
Subsequent to the offering you may elect (in increments of 1%) to have both past and future contributions and additions to your accounts invested in the HarborOne Bancorp, Inc. Stock Fund and you may also elect to transfer into the HarborOne Bancorp, Inc. Stock Fund a portion of your accounts currently invested in other funds under the 401(k) Plan.
After the offering, the trustee of the 401(k) Plan will, to the extent practicable, use all amounts held by it in the HarborOne Bancorp, Inc. Stock Fund, including cash dividends paid on the common stock held in the fund, to purchase additional shares of common stock of HarborOne Bancorp, Inc.
As of the date of this prospectus supplement, none of the shares of common stock have been issued or are outstanding and there is no established market for the common stock of HarborOne Bancorp, Inc. Accordingly, there is no record of the historical performance of the HarborOne Bancorp, Inc. Stock Fund. Performance of the HarborOne Bancorp, Inc. Stock Fund depends on a number of factors, including the financial condition and profitability of HarborOne Bancorp, Inc. and HarborOne Bank and market conditions for the common stock generally.
Investments in the HarborOne Bancorp, Inc. Stock Fund may involve certain special risks in investments in the common stock of HarborOne Bancorp, Inc. For a discussion of these risk factors, see "Risk Factors" in the accompanying prospectus.
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The following table provides performance data with respect to the investment accounts available under the 401(k) Plan through December 31, 2015 (performance results shown are net of investment management fees):
PERFORMANCE AS OF DECEMBER 31, 2015
Stock Funds
|
ONE
QUARTER |
1 YEAR | 3 YEAR | 5 YEAR | 10 YEAR | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fidelity Money Market Trust Retirement Government Money Market II |
0.01 | % | 0.02 | % | 0.01 | % | 0.01 | % | 1.34 | % | ||||||
Fidelity Spartan International Index Fund Investor Class |
3.79 | % | (0.79 | )% | 4.57 | % | 3.60 | % | 3.07 | % | ||||||
Fidelity Spartan 500 Index Advantage |
7.03 | % | 1.35 | % | 15.08 | % | 12.52 | % | 7.28 | % | ||||||
Fidelity Spartan Mid Cap Index Advantage |
3.63 | % | (2.48 | )% | 14.10 | % | | | ||||||||
Fidelity Spartan Small Cap Index Advantage |
3.66 | % | (4.22 | )% | 11.83 | % | | | ||||||||
Victory Sycamore Established Value A |
1.93 | % | 0.68 | % | 14.84 | % | 11.19 | % | 9.28 | % | ||||||
PIMCO Total Return Fund Class A |
0.38 | % | 0.34 | % | 0.74 | % | 3.12 | % | 5.32 | % | ||||||
PIMCO Real Return Administrative Class |
(0.88 | )% | (3.00 | )% | (3.17 | )% | 1.94 | % | 3.86 | % | ||||||
Invesco Comstock Fund Class A |
4.85 | % | (5.93 | )% | 11.55 | % | 10.10 | % | 5.86 | % | ||||||
Invesco Equity and Income Fund Class A |
3.26 | % | (2.35 | )% | 10.00 | % | 8.21 | % | 6.06 | % | ||||||
JPMorgan Small Cap Value Fund Class A |
2.78 | % | (7.79 | )% | 9.30 | % | 8.51 | % | 6.15 | % | ||||||
JPMorgan Large Cap Growth Fund Class A |
7.42 | % | 7.45 | % | 16.36 | % | 12.60 | % | 8.91 | % | ||||||
Oppenheimer Global Fund Class A |
5.60 | % | 3.89 | % | 10.36 | % | 8.19 | % | 5.76 | % | ||||||
ClearBridge Small Cap Growth Fund Class A |
7.57 | % | (4.83 | )% | 12.55 | % | 11.25 | % | 8.27 | % | ||||||
AB Discovery Growth Fund Class A |
4.03 | % | (0.86 | )% | 12.15 | % | 10.88 | % | 7.18 | % | ||||||
Franklin Rising Dividends Fund Class A |
5.97 | % | (3.54 | )% | 11.02 | % | 10.10 | % | 6.46 | % | ||||||
Franklin Strategic Income Fund Class A |
(0.74 | )% | (4.26 | )% | 0.15 | % | 2.99 | % | 5.10 | % | ||||||
T. Rowe Price Retirement 2005 Fund Class R |
1.60 | % | (1.21 | )% | 3.96 | % | 4.67 | % | 4.65 | % | ||||||
T. Rowe Price Retirement 2010 Fund Class R |
1.91 | % | (1.23 | )% | 4.74 | % | 5.16 | % | 4.79 | % | ||||||
T. Rowe Price Retirement 2015 Fund Class R |
2.42 | % | (1.08 | )% | 5.91 | % | 5.95 | % | 5.13 | % | ||||||
T. Rowe Price Retirement 2020 Fund Class R |
3.07 | % | (0.86 | )% | 6.98 | % | 6.61 | % | 5.35 | % | ||||||
T. Rowe Price Retirement 2025 Fund Class R |
3.58 | % | (0.63 | )% | 7.93 | % | 7.17 | % | 5.54 | % | ||||||
T. Rowe Price Retirement 2030 Fund Class R |
4.07 | % | (0.51 | )% | 8.72 | % | 7.67 | % | 5.72 | % | ||||||
T. Rowe Price Retirement 2035 Fund Class R |
4.47 | % | (0.36 | )% | 9.32 | % | 7.99 | % | 5.81 | % | ||||||
T. Rowe Price Retirement 2040 Fund Class R |
4.75 | % | (0.35 | )% | 9.68 | % | 8.19 | % | 5.92 | % | ||||||
T. Rowe Price Retirement 2045 Fund Class R |
4.77 | % | (0.34 | )% | 9.68 | % | 8.21 | % | 5.93 | % | ||||||
T. Rowe Price Retirement 2050 Fund Class R |
4.80 | % | (0.27 | )% | 9.68 | % | 8.20 | % | | |||||||
T. Rowe Price Retirement 2055 Fund Class R |
4.80 | % | (0.28 | )% | 9.66 | % | 8.23 | % | | |||||||
T. Rowe Price Retirement Balanced Fund Class R |
1.53 | % | (1.24 | )% | 3.53 | % | 4.15 | % | 4.36 | % |
The following is a description of each of the Plan's investment options (excerpted from each option's own description):
Fidelity Money Market Trust Retirement Government Money Market II This fund seeks to obtain as high a level of current income as is consistent with the preservation of capital and liquidity. The Adviser normally invests at least 99.5% of the fund's total assets in cash, U.S. government securities and/or repurchase agreements that are collateralized fully (i.e., collateralized by cash or government securities). Certain issuers of U.S. government securities are sponsored or chartered by Congress but their securities are neither issued nor guaranteed by the U.S. Treasury.
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Investing in compliance with industry-standard regulatory requirements for money market funds for the quality, maturity, and diversification of investments.
Fidelity Spartan International Index Fund Investor Class This fund to provide investment results that correspond to the total return of foreign stock markets. The fund normally invests at least 80% of assets in common stocks included in the Morgan Stanley Capital International Europe, Australasia, Far East Index, which represents the performance of foreign stock markets.
Fidelity Spartan 500 Index Advantage This fund seeks to provide investment results that correspond to the total return (i.e., the combination of capital changes and income) performance of common stocks publicly traded in the United States. The fund normally invests at least 80% of assets in common stocks included in the S&P 500 Index, which broadly represents the performance of common stocks publicly traded in the United States.
Fidelity Spartan Mid Cap Index Advantage this fund seeks to provide investment results that correspond to the total return of stocks of mid-capitalization United States companies. The fund normally invests at least 80% of assets in securities included in the Russell Midcap Index as well as lends securities to earn income for the fund.
Fidelity Spartan Small Cap Index Advantage This fund seeks to provide investment results that correspond to the total return of stocks of small-capitalization U.S. companies. The fund normally invests at least 80% of assets in securities included in the Russell 2000 Index as well as lends securities to earn income for the fund.
Victory Sycamore Established Value A This fund seeks to provide long-term capital growth by investing primarily in common stocks. The fund pursues its investment objective by investing, under normal circumstances, at least 80% of its net assets in equity securities of companies with market capitalizations, at the time of purchase, within the range of companies comprising the Russell MidCap Value Index. It may invest a portion of its assets in equity securities of foreign companies traded on U.S. exchanges, including American and Global Depositary Receipts (ADRs and GDRs).
PIMCO Total Return Fund Class A This fund seeks maximum total return, consistent with prudent investment management. The fund seeks to achieve its investment objective by investing under normal circumstances at least 65% of its total assets in a diversified portfolio of Fixed Income Instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts or swap agreements. It invests primarily in investment grade debt securities, but may invest up to 10% of its total assets in high yield securities ("junk bonds") that are rated B or higher. The fund may invest up to 30% of its total assets in securities denominated in foreign currencies, and may invest beyond this limit in U.S. dollar-denominated securities of foreign issuers.
PIMCO Real Return Administrative Class This fund seeks maximum real return, consistent with preservation of capital and prudent investment management. The fund seeks its investment objective by investing under normal circumstances at least 80% of its net assets in inflation-indexed bonds of varying maturities issued by the U.S. and non-U.S. governments, their agencies or instrumentalities, and corporations, which may be represented by forwards or derivatives such as options, futures contracts or swap agreements. It invests primarily in investment grade securities, but may invest up to 10% of its total assets in high yield securities ("junk bonds") rated B or higher. The fund also may invest up to 30% of its total assets in securities denominated in foreign currencies, and may invest beyond this limit in U.S. dollar denominated securities of foreign issuers.
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Invesco Comstock Fund Class A This fund seeks total return through growth of capital and current income. The fund invests, under normal circumstances, at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks, and in derivatives and other instruments that have economic characteristics similar to such securities. It may invest in securities of issuers of any market capitalization; however, a substantial number of the issuers in which the fund invests are large-capitalization issuers. The fund may invest up to 10% of its net assets in real estate investment trusts (REITs).
Invesco Equity and Income Fund Class A This fund seeks to provide current income and, secondarily, capital appreciation. The fund invests, under normal circumstances, at least 80% of its net assets (plus any borrowings for investment purposes) in equity and income securities, and in derivatives and other instruments that have economic characteristics similar to such securities. It invests, under normal circumstances, at least 65% of its net assets in income-producing equity investments, such as dividend paying common or preferred stocks. The fund may invest up to 25% of its net assets in securities of foreign issuers or depositary receipts.
JPMorgan Small Cap Value Fund Class A This fund seeks long-term capital growth primarily by investing in equity securities of small-capitalization companies. Under normal circumstances, the fund invests at least 80% of its assets in equity securities of small cap companies. Small cap companies are companies with market capitalizations equal to those within the universe of the Russell 2000 Value Index stocks at the time of purchase. In reviewing investment opportunities for the fund, its adviser uses a value-oriented approach. In implementing its main strategies, the fund's equity investments are primarily in common stocks and real estate investment trusts (REITs).
JPMorgan Large Cap Growth Fund Class A This fund seeks long-term capital appreciation. Under normal circumstances, at least 80% of the fund's assets will be invested in the equity securities of large, well-established companies. "Assets" means net assets, plus the amount of borrowings for investment purposes. Large, well-established companies are companies with market capitalizations equal to those within the universe of the Russell 1000 Growth Index at the time of purchase. Typically, in implementing its strategy, the fund invests in common stocks of companies with a history of above-average growth or companies expected to enter periods of above-average growth.
Oppenheimer Global Fund Class A This fund seeks capital appreciation. The fund invests mainly in common stock of U.S. and foreign companies. It can invest without limit in foreign securities and can invest in any country, including countries with developing or emerging markets. However, the fund currently emphasizes its investments in developed markets such as the United States, Western European countries and Japan. It does not limit its investments to companies in a particular capitalization range, but primarily invests in mid- and large-cap companies. The fund normally will invest in at least three countries (one of which may be the United States).
ClearBridge Small Cap Growth Fund Class A This fund seeks long-term growth of capital. Under normal circumstances, the fund invests at least 80% of its assets in equity securities of companies with small market capitalizations and related investments. The portfolio managers use a growth-oriented investment style that emphasizes small U.S. companies.
AB Discovery Growth Fund Class A This fund seeks to provide long-term growth of capital. The fund invests primarily in a diversified portfolio of equity securities with relatively smaller capitalizations as compared to the overall U.S. market. Under normal circumstances, the fund invests at least 80% of its net assets in the equity securities of small- and mid-capitalization companies. For these purposes, "small- and mid-capitalization companies" are generally those companies that, at the time of investment, fall within the lowest 25% of the total U.S. equity market capitalization (excluding, for purposes of this calculation, companies with market capitalizations of less than $10 million).
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Franklin Rising Dividends Fund Class A This fund seeks to provide long-term capital appreciation, and preservation of capital, while not a goal, is also an important consideration. Under normal market conditions, the fund invests at least 80% of its net assets in investments of companies that have paid consistently rising dividends. It invests predominantly in equity securities, primarily common stock. The fund may invest in companies of any size, across the entire market spectrum. It may invest up to 25% of its total assets in foreign securities.
Franklin Strategic Income Fund Class A This fund seeks to earn a high level of current income. A secondary goal is capital appreciation over the long term. Under normal market conditions, the fund invests at least 65% of its assets in U.S. and foreign debt securities, including those in emerging markets. Debt securities include all varieties of fixed and floating rate income securities, including bonds, U.S. and foreign government and agency securities, corporate loans (and loan participations), mortgage-backed securities and other asset-backed securities, convertible securities, and municipal securities.
T. Rowe Price Retirement 2005 Fund Class R This fund seeks the highest total return over time consistent with an emphasis on both capital growth and income. The fund pursues its objective by investing in a diversified portfolio of other T. Rowe Price stock and bond funds that represent various asset classes and sectors. The fund's allocation between T. Rowe Price stock and bond funds will change over time in relation to its target retirement date. It is managed based on the specific retirement year (target date 2005) included in its name and assumes a retirement age of 65. While the fund is non-diversified, it invests in diversified underlying holdings.
T. Rowe Price Retirement 2010 Fund Class R This fund seeks the highest total return over time consistent with an emphasis on both capital growth and income. The fund pursues its objective by investing in a diversified portfolio of other T. Rowe Price stock and bond funds that represent various asset classes and sectors. The fund's allocation between T. Rowe Price stock and bond funds will change over time in relation to its target retirement date. It is managed based on the specific retirement year (target date 2010) included in its name and assumes a retirement age of 65. While the fund is non-diversified, it invests in diversified underlying holdings.
T. Rowe Price Retirement 2015 Fund Class R This fund seeks the highest total return over time consistent with an emphasis on both capital growth and income. The fund pursues its objective by investing in a diversified portfolio of other T. Rowe Price stock and bond funds that represent various asset classes and sectors. The fund's allocation between T. Rowe Price stock and bond funds will change over time in relation to its target retirement date. It is managed based on the specific retirement year (target date 2015) included in its name and assumes a retirement age of 65. While the fund is non-diversified, it invests in diversified underlying holdings.
T. Rowe Price Retirement 2020 Fund Class R This fund seeks the highest total return over time consistent with an emphasis on both capital growth and income. The fund pursues its objective by investing in a diversified portfolio of other T. Rowe Price stock and bond funds that represent various asset classes and sectors. The fund's allocation between T. Rowe Price stock and bond funds will change over time in relation to its target retirement date. It is managed based on the specific retirement year (target date 2020) included in its name and assumes a retirement age of 65. While the fund is non-diversified, it invests in diversified underlying holdings.
T. Rowe Price Retirement 2025 Fund Class R This fund seeks the highest total return over time consistent with an emphasis on both capital growth and income. The fund pursues its objective by investing in a diversified portfolio of other T. Rowe Price stock and bond funds that represent various asset classes and sectors. The fund's allocation between T. Rowe Price stock and bond
11
funds will change over time in relation to its target retirement date. It is managed based on the specific retirement year (target date 2025) included in its name and assumes a retirement age of 65. While the fund is non-diversified, it invests in diversified underlying holdings.
T. Rowe Price Retirement 2030 Fund Class R This fund seeks the highest total return over time consistent with an emphasis on both capital growth and income. The fund pursues its objective by investing in a diversified portfolio of other T. Rowe Price stock and bond funds that represent various asset classes and sectors. The fund's allocation between T. Rowe Price stock and bond funds will change over time in relation to its target retirement date. It is managed based on the specific retirement year (target date 2030) included in its name and assumes a retirement age of 65. While the fund is non-diversified, it invests in diversified underlying holdings.
T. Rowe Price Retirement 2035 Fund Class R This fund seeks the highest total return over time consistent with an emphasis on both capital growth and income. The fund pursues its objective by investing in a diversified portfolio of other T. Rowe Price stock and bond funds that represent various asset classes and sectors. The fund's allocation between T. Rowe Price stock and bond funds will change over time in relation to its target retirement date. It is managed based on the specific retirement year (target date 2035) included in its name and assumes a retirement age of 65. While the fund is non-diversified, it invests in diversified underlying holdings.
T. Rowe Price Retirement 2040 Fund Class R This fund seeks the highest total return over time consistent with an emphasis on both capital growth and income. The fund pursues its objective by investing in a diversified portfolio of other T. Rowe Price stock and bond funds that represent various asset classes and sectors. The fund's allocation between T. Rowe Price stock and bond funds will change over time in relation to its target retirement date. It is managed based on the specific retirement year (target date 2040) included in its name and assumes a retirement age of 65. While the fund is non-diversified, it invests in diversified underlying holdings.
T. Rowe Price Retirement 2045 Fund Class R This fund seeks the highest total return over time consistent with an emphasis on both capital growth and income. The fund pursues its objective by investing in a diversified portfolio of other T. Rowe Price stock and bond funds that represent various asset classes and sectors. The fund's allocation between T. Rowe Price stock and bond funds will change over time in relation to its target retirement date. It is managed based on the specific retirement year (target date 2045) included in its name and assumes a retirement age of 65. While the fund is non-diversified, it invests in diversified underlying holdings.
T. Rowe Price Retirement 2050 Fund Class R This fund seeks the highest total return over time consistent with an emphasis on both capital growth and income. The fund pursues its objective by investing in a diversified portfolio of other T. Rowe Price stock and bond funds that represent various asset classes and sectors. The fund's allocation between T. Rowe Price stock and bond funds will change over time in relation to its target retirement date. It is managed based on the specific retirement year (target date 2050) included in its name and assumes a retirement age of 65. While the fund is non-diversified, it invests in diversified underlying holdings.
T. Rowe Price Retirement 2055 Fund Class R This fund seeks the highest total return over time consistent with an emphasis on both capital growth and income. The fund pursues its objective by investing in a diversified portfolio of other T. Rowe Price stock and bond funds that represent various asset classes and sectors. The fund's allocation between T. Rowe Price stock and bond funds will change over time in relation to its target retirement date. It is managed based on the specific retirement year (target date 2055) included in its name and assumes a retirement age of 65. While the fund is non-diversified, it invests in diversified underlying holdings.
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T. Rowe Price Retirement Balanced Fund Class R This fund seeks the highest total return over time consistent with an emphasis on both capital growth and income. The fund invests in a diversified portfolio of other T. Rowe Price stock and bond funds that represent various asset classes and sectors. The fund is intended for retired investors who seek income and relative stability from bonds along with some capital appreciation potential from stocks. The fund's "neutral allocations," which are what T. Rowe Price considers broadly appropriate for investors during their retirement years, are 40% stock funds and 60% bond funds. While the fund is non-diversified, it invests in diversified underlying holdings.
An investment in any of the funds listed above is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. As with any mutual fund investment, there is always a risk that you may lose money on your investment in any of the funds listed above.
Vesting. At all times, you have a fully vested, nonforfeitable interest in your own contributions, adjusted for earnings or losses. Your share of employer nonelective contributions, if any, as adjusted for earnings or losses, becomes vested at 25% after one year of service, and vesting increases by 25% for each subsequent year of service until you become fully vested after four years of service.
Withdrawals and Distributions From the 401(k) Plan
Withdrawals Prior to Termination of Employment. You may receive in-service distributions from the 401(k) Plan. The 401(k) Plan permits in-service withdrawals of rollover contributions at any time. You may also apply for a hardship withdrawal from your salary deferral contributions and employer contributions if you are under age 59 1 / 2 . In order to qualify for a hardship withdrawal, you must have an immediate and substantial need to meet certain expenses and have no other reasonably available resources to meet the financial need. If you qualify for a hardship distribution, the trustee will make the distribution pro rata from the investment funds in which you have invested your own contributions. If you make a hardship withdrawal, your right to make elective deferrals is suspended for six months. Hardship withdrawals may not be paid back to the 401(k) Plan. Once you attain age 59 1 / 2 , all your vested account balances in the 401(k) Plan are eligible for in-service withdrawals. You can also apply for a loan from the 401(k) Plan. You cannot have more than one loan outstanding at a time. You can apply for a minimum loan of $1,000 and a maximum loan of the lesser of $50,000 or 50% of your total vested account balance.
Distribution Upon Retirement or Disability. Participants shall receive benefits as soon as administratively feasible following the close of a valuation period during which the distribution is requested. Distributions are payable to participants in a lump sum or installments, at the participant's election. Certain distributions may also be rolled over to another qualified plan or individual retirement account.
Distribution Upon Death. If you die prior to your benefits being paid from the 401(k) Plan, your benefits will be paid to your surviving spouse or beneficiary under one or more of the forms available under the 401(k) Plan. Certain distributions may also be rolled over to another qualified plan or individual retirement account.
Distribution Upon Termination for Any Other Reason. If you terminate employment for any reason other than retirement, disability or death and your vested account balance exceeds $5,000, the trustee will make your distribution when you attain age 65, unless you request otherwise. If your vested account balance does not exceed $1,000, the trustee will generally distribute your benefits to you as soon as administratively practicable following your termination of employment. If your vested account
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balance is over $1,000 but not more than $5,000, and you have not attained age 65, if you do not make a timely distribution or direct rollover election, your entire vested account balance will automatically be rolled over to a traditional individual retirement account.
Nonalienation of Benefits. Except with respect to federal income tax withholding, federal tax liens and as provided with respect to a qualified domestic relations order, benefits payable under the 401(k) Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to benefits payable under the 401(k) Plan shall be void.
Applicable federal tax law requires the 401(k) Plan to impose substantial restrictions on your right to withdraw amounts held under the plan before your termination of employment with Merrimack Mortgage or its affiliates. Federal law may also impose an additional 10% tax on distributions from the 401(k) Plan before you attain 59 1 / 2 years of age, regardless of whether the withdrawal occurs during your employment with Merrimack Mortgage or its affiliates or after your termination of employment.
Trustee. The board of managers of Merrimack Mortgage has appointed Fidelity Management Trust Company as trustee of the 401(k) Plan. The trustee receives, holds and invests the contributions to the 401(k) Plan in trust and distributes them to participants and beneficiaries in accordance with the terms of the plan and the directions of the plan administrator. The trustee is responsible for investment of the assets of the trust as directed by plan participants.
The plan administrator will furnish you a statement at least quarterly showing (i) the balance in your account as of the end of that period, (ii) the amount of contributions allocated to your account for that period, and (iii) the adjustments to your account to reflect earnings or losses (if any).
Currently, the plan administrator of the 401(k) Plan is Merrimack Mortgage. The plan administrator is responsible for the administration of the 401(k) Plan, interpretation of the provisions of the plan, prescribing procedures for filing applications for benefits, preparation and distribution of information explaining the plan, maintenance of plan records, books of account and all other data necessary for the proper administration of the plan, and preparation and filing of all returns and reports relating to the plan which are required to be filed with the U.S. Department of Labor and the Internal Revenue Service, and for all disclosures required to be made to participants, beneficiaries and others under ERISA.
Merrimack Mortgage intends to continue the 401(k) Plan indefinitely. Nevertheless, Merrimack Mortgage may terminate the 401(k) Plan at any time. If Merrimack Mortgage terminates the 401(k) Plan in whole or in part, then regardless of other provisions in the plan, all participants affected by such termination shall become fully vested in their accounts. Merrimack Mortgage reserves the right to make, from time to time, any amendment or amendments to the 401(k) Plan which do not cause any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries; provided, however, that Merrimack Mortgage may amend the plan as it determines necessary or desirable, with or without retroactive effect, to comply with ERISA or the Internal Revenue Code.
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Merger, Consolidation or Transfer
In the event of the merger or consolidation of the 401(k) Plan with another plan, or the transfer of the trust assets to another plan, the plan requires that you would (if either the plan or the other plan then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit you would have been entitled to receive immediately before the merger, consolidation or transfer (if the plan had then terminated).
Federal Income Tax Consequences
The following is only a brief summary of the material federal income tax aspects of the 401(k) Plan. You should not consider the following as a complete or definitive description of the material federal income tax consequences relating to the 401(k) Plan. Statutory provisions change, as do their interpretations, and their application may vary in individual circumstances. Finally, the consequences under applicable state and local income tax laws may not be the same as under the federal income tax laws. You are urged to consult your tax advisor with respect to any distribution from the 401(k) Plan and transactions involving the 401(k) Plan.
As a "qualified retirement plan," the Internal Revenue Code affords the 401(k) Plan special tax treatment, including:
Merrimack Mortgage will administer the 401(k) Plan to comply with the requirements of the Internal Revenue Code. If Merrimack Mortgage receives an adverse determination letter regarding its tax exempt status from the Internal Revenue Service, all participants would generally recognize income equal to their vested interest in the plan, the participants would not be permitted to transfer amounts distributed from the 401(k) Plan to an individual retirement account or to another qualified retirement plan, and Merrimack Mortgage may be denied certain deductions taken with respect to the 401(k) Plan.
Lump Sum Distribution. A distribution from the 401(k) Plan to a participant or the beneficiary of a participant will qualify as a lump sum distribution if it is made within one taxable year, on account of the participant's death, disability or separation from service, or after the participant attains age 59 1 / 2 , and consists of the balance credited to the participant under the plan. The portion of any lump sum distribution required to be included in your taxable income for federal income tax purposes consists of the entire amount of the lump sum distribution.
HarborOne Bancorp, Inc. Common Stock Included in Lump Sum Distribution. If a lump sum distribution includes HarborOne Bancorp, Inc. common stock, the distribution generally will be taxed in the manner described above, except that the total taxable amount will be reduced by the amount of any net unrealized appreciation with respect to HarborOne Bancorp, Inc. common stock, that is, the excess of the value of HarborOne Bancorp, Inc. common stock at the time of the distribution over its cost or other basis of the securities to the trust. The tax basis of HarborOne Bancorp, Inc. common stock for computing gain or loss on its subsequent sale equals the value of HarborOne Bancorp, Inc. common stock at the time of distribution, less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of HarborOne Bancorp, Inc. common stock, to the extent of the amount of net unrealized appreciation at the time of distribution, will constitute long-term
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capital gain regardless of how long the HarborOne Bancorp, Inc. common stock is held. Any gain on a subsequent sale or other taxable disposition of HarborOne Bancorp, Inc. common stock in excess of the amount of net unrealized appreciation at the time of distribution will be considered either short-term or long-term capital gain, depending upon the length of the holding period of HarborOne Bancorp, Inc. common stock after the date of distribution from the 401(k) Plan. The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or to an IRA. You may roll over virtually all distributions from the 401(k) Plan to another qualified retirement plan or to an individual retirement account.
We have provided you with a brief description of the material federal income tax aspects of the 401(k) Plan which are of general application under the Internal Revenue Code. It is not intended to be a complete or definitive description of the federal income tax consequences of participating in or receiving distributions from the 401(k) Plan. Accordingly, you are urged to consult a tax advisor concerning the federal, state and local tax consequences of participating in and receiving distributions from the 401(k) Plan.
Additional Employee Retirement Income Security Act Considerations
As noted above, the 401(k) Plan is subject to certain provisions of ERISA, including special provisions relating to control over the 401(k) Plan's assets by participants and beneficiaries. The 401(k) Plan's feature that allows you to direct the investment of your account balances is intended to satisfy the requirements of section 404(c) of ERISA relating to control over plan assets by a participant or beneficiary. The effect of this is two-fold. First, you will not be deemed a "fiduciary" because of your exercise of investment discretion. Second, no person who otherwise is a fiduciary, such as HarborOne Bank, as the plan administrator, or the 401(k) Plan's trustee is liable under the fiduciary responsibility provision of ERISA for any loss which results from your exercise of control over the assets in your 401(k) Plan account.
Because you will be entitled to invest a portion of your account balance in the 401(k) Plan in HarborOne Bancorp, Inc. common stock, the regulations under ERISA section 404(c) require that the 401(k) Plan establish procedures that ensure the confidentiality of your decision to purchase, hold, or sell employer securities, except to the extent that disclosure of such information is necessary to comply with federal or state laws not preempted by ERISA. These regulations also require that your exercise of voting and similar rights with respect to the HarborOne Bancorp, Inc. common stock be conducted in a way that ensures the confidentiality of your exercise of these rights.
There are restrictions on resale of shares of HarborOne Bancorp, Inc. common stock applicable to persons who may be "affiliates" of HarborOne Bancorp, Inc., including any person receiving a distribution of shares of common stock under the 401(k) Plan who is an "affiliate" of HarborOne Bancorp under the Securities Act of 1933, as amended. An "affiliate" of HarborOne Bancorp, Inc. is someone who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control, with HarborOne Bancorp, Inc. Normally, a director, principal officer or major shareholder of a corporation may be deemed to be an "affiliate" of that corporation. A person who may be deemed an "affiliate" of HarborOne Bancorp, Inc. at the time of a proposed resale will be permitted to make public resales of the common stock only under a "reoffer" prospectus or in accordance with the restrictions and conditions contained in Rule 144 under the Securities Act, or some other exemption from registration, and will not be permitted to use this prospectus in connection with any such resale. In general, the amount of the common stock which any such affiliate may publicly
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resell under Rule 144 in any three-month period may not exceed the greater of 1% of HarborOne Bancorp, Inc. common stock then outstanding or the average weekly trading volume reported on the Nasdaq Global Market during the four calendar weeks before the sale. Such sales may be made only through brokers without solicitation and only at a time when HarborOne Bancorp, Inc. is current in filing the reports required of it under the Securities Exchange Act of 1934, as amended.
Any person who may be an "affiliate" of HarborOne Bank may wish to consult with counsel before transferring any common stock they own. In addition, participants are advised to consult with counsel as to the applicability of Section 16 of the Securities Exchange Act of 1934, as amended, which may restrict the sale of HarborOne Bancorp, Inc. common stock acquired under the plan, or other sales of HarborOne Bancorp, Inc. common stock.
Persons who are not deemed to be "affiliates" of HarborOne Bancorp, Inc. at the time of resale will be free to resell any shares of HarborOne Bancorp, Inc. common stock distributed to them under the Plan, either publicly or privately, without regard to the registration and prospectus delivery requirements of the Securities Act, or compliance with the restrictions and conditions contained in the exemptive rules under federal law.
SEC Reporting and Short-Swing Profit Liability
Section 16 of the Securities Exchange Act, imposes reporting and liability requirements on officers, directors and persons beneficially owning more than 10% of public companies such as HarborOne Bancorp, Inc. Section 16(a) of the Securities Exchange Act, requires the filing of reports of beneficial ownership. Within ten days of becoming a person required to file reports under Section 16(a), a Form 3 reporting initial beneficial ownership must be filed with the Securities and Exchange Commission, or the SEC. Certain changes in beneficial ownership involving allocation or reallocation of assets held in your 401(k) Plan account must be reported periodically, either on a Form 4 within two days after a transaction, or annually on a Form 5 within 45 days after the close of a company's fiscal year.
In addition to the reporting requirements described above, Section 16(b) of the Securities Exchange Act, or Section 16(b), provides for the recovery by HarborOne Bancorp, Inc. of profits realized by any officer, director or any person beneficially owning more than 10% of the common stock resulting from the purchase and sale or sale and purchase of the common stock within any six-month period.
The SEC has adopted rules that exempt many transactions involving the Plan from the "short-swing" profit recovery provisions of Section 16(b). The exemptions are available if an election to transfer into the HarborOne Bancorp, Inc. Stock Fund is at least six months after an election to transfer out of the HarborOne Bancorp, Inc. Stock Fund, and vice versa.
Except for distributions of the common stock due to death, disability, retirement, termination of employment or under a qualified domestic relations order, persons who are governed by Section 16(b) may, under limited circumstances involving the purchase of common stock within six months of the distribution, be required to hold shares of the common stock distributed from the 401(k) Plan for six months following the distribution date.
The validity of the issuance of the common stock will be passed upon by Goodwin Procter LLP , Boston, Massachusetts. Goodwin Procter LLP has acted as special counsel for HarborOne Bancorp, Inc. in connection with the reorganization of HarborOne Bank into a two-tier mutual holding company and the related HarborOne Bancorp, Inc. initial public offering.
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SUBSCRIPTION AND COMMUNITY
OFFERING PROSPECTUS
HarborOne Bancorp, Inc.
(Proposed Holding Company for HarborOne Bank)
Up to 11,783,475 Shares of Common Stock
(Subject to Increase to up to 13,550,996 Shares)
HarborOne Bancorp, Inc., a newly formed Massachusetts corporation, is offering common stock for sale in connection with the reorganization of HarborOne Bank into the mutual holding company form of organization. The shares we are offering for sale will represent 45.0% of our outstanding shares of common stock. We also intend to contribute cash equal to 0.667% of the gross proceeds raised in the offering and 1.2% of our outstanding shares of common stock to a new charitable foundation to be established in connection with the reorganization. The remainder of our outstanding shares of common stock will be owned by a newly formed mutual holding company that will be our majority shareholder. We expect that our common stock will be listed on the Nasdaq Global Market under the symbol "HONE." There is currently no public market for the shares of our common stock. We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.
We are offering up to 11,783,475 shares of common stock for sale. We must sell a minimum of 8,709,525 shares in order to complete the offering. We may sell up to 13,550,996 shares of common stock because of demand for the shares or changes in market conditions without resoliciting subscribers.
We are offering the shares of common stock in a subscription offering to eligible depositors of HarborOne Bank. Shares of common stock not purchased in the subscription offering may be offered for sale to the general public in a community offering, with a preference given to residents of the communities served by HarborOne Bank. Any shares of common stock not purchased in the subscription or community offerings may be offered to the general public in a syndicated community offering to be managed by Sandler O'Neill & Partners, L.P. Sandler O'Neill will assist us in selling the shares in the subscription offering and any community or syndicated community offering on a best efforts basis, but is not required to purchase any shares of the common stock that are being offered for sale in those offerings. Any shares not purchased in the subscription, community and syndicated community offerings may be offered for sale in a separate firm commitment offering that will be managed by Sandler O'Neill.
The minimum order is 25 shares. Stock orders must be received by us before [ : ] p.m., Eastern time, on [Expiration Date]. We may extend this expiration date without notice to you until [Extension Date #1], unless we receive regulatory approval to extend the offering to a later date, which may not be beyond [Extension Date #2]. Once submitted, orders are irrevocable unless the offering is terminated or is extended beyond [Extension Date #1], or the number of shares of common stock to be sold is increased to more than 13,550,996 shares or decreased to fewer than 8,709,525 shares. If the offering is extended past [Extension Date #1], or the number of shares of common stock to be sold is increased to more than 13,550,996 shares or decreased to fewer than 8,709,525 shares, we will resolicit subscribers, giving them an opportunity to change or cancel their orders. Funds received during the offering will be held in a segregated account at HarborOne Bank, and will earn interest at our statement savings rate, which is currently 0.07% per annum.
We expect that our directors and executive officers, together with their associates, will subscribe for approximately 332,500 shares of our common stock.
This investment involves a high degree of risk, including the possible loss of your investment. Please read the section of this prospectus entitled "Risk Factors" beginning on page 11.
OFFERING SUMMARY
Price: $10.00 per Share
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Minimum | Midpoint | Maximum |
Adjusted
Maximum |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Number of shares |
8,709,525 | 10,246,500 | 11,783,475 | 13,550,996 | |||||||||
Gross offering proceeds |
$ | 87,095,250 | $ | 102,465,000 | $ | 117,834,750 | $ | 135,509,960 | |||||
Estimated offering expenses (excluding selling agent fees and expenses) |
$ | 2,550,000 | $ | 2,550,000 | $ | 2,550,000 | $ | 2,550,000 | |||||
Estimated selling agent fees and expenses (1) |
$ | 901,243 | $ | 1,021,156 | $ | 1,141,069 | $ | 1,278,968 | |||||
Estimated net proceeds |
$ | 83,644,007 | $ | 98,893,844 | $ | 114,143,681 | $ | 131,680,992 | |||||
Estimated net proceeds per share |
$ | 9.60 | $ | 9.65 | $ | 9.69 | $ | 9.72 |
These securities are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the Share Insurance Fund. None of the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, the Massachusetts Commissioner of Banks or any state securities regulator has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
For assistance, please call the Stock Information Center at (508) 895-1015.
The date of this prospectus is [ · ] .
The following summary highlights material information in this prospectus. It may not contain all the information that is important to you. Before making an investment decision, you should read this entire prospectus carefully, including the consolidated financial statements and the notes thereto, and the section of this prospectus entitled "Risk Factors."
In this prospectus, "HarborOne Bancorp" refers to HarborOne Bancorp, Inc. and "HarborOne Bank" or the "Bank" refers to HarborOne Bank. The terms "we," "our," and "us" refer to HarborOne Bancorp or HarborOne Bank, together with their consolidated subsidiaries, unless the context indicates another meaning.
HarborOne Mutual Bancshares. HarborOne Mutual Bancshares will be formed upon completion of the reorganization as a Massachusetts mutual holding company. Upon completion of the offering, HarborOne Mutual Bancshares will own a majority of HarborOne Bancorp's outstanding shares of common stock and, through its board of trustees, will be able to exercise voting control over virtually all matters put to a vote of HarborOne Bancorp's shareholders. HarborOne Mutual Bancshares does not currently intend to engage in any business activities other than those relating to owning a majority of the common stock of HarborOne Bancorp.
HarborOne Bancorp, Inc. This offering is made by HarborOne Bancorp, Inc., a Massachusetts corporation formed by us in 2016 as part of the reorganization. Upon completion of the reorganization, HarborOne Bancorp will own all of HarborOne Bank's common stock. HarborOne Bancorp currently does not intend to engage in any business activities other than those relating to owning all of the common stock of HarborOne Bank.
HarborOne Bank. HarborOne Bank is the largest state-chartered co-operative bank in New England. The Bank was established in 1917 as Brockton Credit Union and converted to a Massachusetts co-operative bank in 2013 to better support our continued growth, including the expansion of our business lending program. In 2015, we acquired Merrimack Mortgage Company, Inc., or "Merrimack Mortgage," an independent residential mortgage company headquartered in Manchester, New Hampshire. At December 31, 2015, HarborOne Bank had assets of $2.20 billion, loans of $1.70 billion, deposits of $1.70 billion, and total retained earnings of $190.7 million.
HarborOne Bank provides financial services to individuals, families, small and mid-size businesses and municipalities throughout Southeastern Massachusetts through our network of 14 full-service branches, two limited service branches and 13 free-standing ATMs, in addition to an ATM at every full-service branch. We also provide a range of educational services through "HarborOne U," with classes on small business, financial literacy and personal enrichment at classroom sites adjacent to the bank's Brockton and Mansfield locations. While our primary deposit-gathering area is concentrated within our branch office communities and surrounding cities and towns, our lending area encompasses the broader market of New England. The Bank maintains a commercial loan office in Providence, Rhode Island, as well as a residential loan office in Westford, Massachusetts. In addition, Merrimack Mortgage maintains 34 offices in Massachusetts, New Hampshire, Connecticut and Maine, and also does business in five additional states.
Our executive offices are located at 770 Oak Street, Brockton, Massachusetts 02301, and the telephone number is (508) 895-1000. Our website address is www.harborone.com . Information on this website is not and should not be considered a part of this prospectus.
We have been operating continuously in and around Brockton, Massachusetts, since 1917. We are committed to meeting the financial needs of consumers and small and middle market businesses in the communities in which we operate, and we are dedicated to providing exceptional personal service to our customers. Since our conversion from a credit union to a bank in 2013, our focus has been on prudently growing our commercial lending, transitioning our portfolio to that of a commercial bank. In addition, we have started offering municipal deposit products, launched a suite of cash management services, opened a commercial loan production office in Providence, Rhode Island, and acquired Merrimack Mortgage. As we continue to grow, we are pursuing the following strategies:
See the section of this prospectus entitled "Business of HarborOne BankBusiness Strategy" for further discussion of our business strategy.
The Reorganization and Offering
Description of the Reorganization and Offering
Currently, HarborOne Bank is a Massachusetts co-operative bank in mutual form, with no shareholders. The Bank's depositors currently have the right to vote on certain matters such as the election of directors and the reorganization. Following the reorganization, HarborOne Bank will be a co-operative bank in stock form, and its capital stock will be wholly-owned by HarborOne Bancorp. Voting rights in HarborOne Bancorp will belong to its shareholders, including HarborOne Mutual Bancshares, our mutual holding company parent that will own a majority of our common stock, our employee stock ownership plan and our charitable foundation.
We are conducting the reorganization and offering under the terms of a plan of reorganization and minority stock issuance, which is subject to approval by the Massachusetts Commissioner of Banks and HarborOne Bank's depositors. In addition, the reorganization and offering are subject to the approval or nonobjection of the Federal Deposit Insurance Corporation, or the "FDIC," and the Board of Governors of the Federal Reserve System, or the "Federal Reserve."
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The following diagram shows our organizational structure following the reorganization and offering:
Reasons for the Reorganization and Offering
Our primary reasons for the reorganization and offering are to:
For further information about our reasons for the reorganization and offering, see "The Reorganization and OfferingReasons for the Reorganization."
Terms of the Offering
We are offering between 8,709,525 and 11,783,475 shares of common stock in the offering. The purchase price of each share of common stock offered for sale in the offering is $10.00, and all investors will pay the same purchase price per share. Investors will not be charged a commission to purchase shares of common stock in the offering.
The number of shares of common stock to be sold may be increased to up to 13,550,996 shares as a result of demand for the shares of common stock in the offering or changes in market conditions. Unless the number of shares of common stock to be offered is increased to more than 13,550,996 shares or decreased to fewer than 8,709,525 shares, or the subscription and community offerings are extended beyond [Extension Date #1], subscribers in the subscription offering and in any community or syndicated community offering will not have the opportunity to change or cancel their stock orders once submitted.
Persons Who May Order Shares of Common Stock in the Subscription and Community Offerings
We are offering the shares of common stock in a subscription offering in the following descending order of priority:
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Shares of common stock not purchased in the subscription offering may be offered for sale to the general public in a community offering, with a preference given first to natural persons and trusts of natural persons residing in the Massachusetts cities and towns of Abington, Attleboro, Avon, Berkley, Braintree, Bridgewater, Brockton, Canton, Carver, Cohasset, Dighton, Duxbury, East Bridgewater, Easton, Foxboro, Halifax, Hanover, Hanson, Hingham, Holbrook, Hull, Kingston, Lakeville, Mansfield, Marshfield, Middleborough, Milton, North Attleboro, Norton, Norwell, Plainville, Pembroke, Plymouth, Plympton, Quincy, Randolph, Raynham, Rehoboth, Rochester, Rockland, Seekonk, Scituate, Sharon, Stoughton, Taunton, Wareham, West Bridgewater, Weymouth and Whitman. The community offering may begin concurrently with, during or promptly after the subscription offering. We also may offer for sale shares of common stock not purchased in the subscription offering and the community offering through a syndicated community offering. Sandler O'Neill & Partners, L.P. will act as sole manager for any syndicated community offering. We have the right to accept or reject, in our sole discretion, orders received in the community or syndicated community offering, and our interpretation of the terms and conditions of the plan of reorganization and minority stock issuance will be final, subject to the authority of the Massachusetts Commissioner of Banks. Any determination to accept or reject stock orders in the community or syndicated community offering will be based on the facts and circumstances available to management at the time of the determination.
If we receive orders for more shares than we are offering, we may not be able to fully or partially fill your order. A detailed description of each of the subscription offering, the community offering and the syndicated community offering, as well as a discussion regarding allocation procedures, can be found in the section of this prospectus entitled "The Reorganization and OfferingProcedure for Purchasing Shares in Subscription and Community Offerings."
How We Determined the Offering Range
The amount of common stock that we are offering is based on an independent appraisal of the estimated market value of HarborOne Bancorp assuming the reorganization and offering are completed. RP Financial, LC., our independent appraiser, has estimated that, as of February 5, 2016, this market value (including the shares to be contributed to our charitable foundation) ranged from $193.5 million to $261.9 million, with a midpoint of $227.7 million, subject to increase up to $301.1 million. Based on this valuation, the 45.0% ownership interest of HarborOne Bancorp being sold in the offering and a $10.00 per share price, the number of shares of common stock being offered for sale by us will range from 8,709,525 shares to 11,783,475 shares, subject to increase to 13,550,996 shares if demand for shares or market conditions warrant. The $10.00 per share price was selected primarily because it is the price most commonly used by financial institutions in offerings of this type.
RP Financial also considered that we intend to contribute to a charitable foundation that we are establishing 1.2% of the shares of our outstanding common stock and cash equal to 0.667% of the gross proceeds raised in the offering. The intended contribution of cash and shares of common stock to our charitable foundation has the effect of reducing our estimated pro forma valuation. See the section of this prospectus entitled "Comparison of Valuation and Pro Forma Information With and Without our Charitable Foundation."
For a more complete discussion of the amount of common stock we are offering for sale and the independent appraisal, see the section of this prospectus entitled "The Reorganization and OfferingDetermination of Share Price and Number of Shares to Be Issued."
Possible Change in the Offering Range
RP Financial will update its appraisal before we complete the offering. If, as a result of demand for the shares or changes in market conditions, RP Financial determines that our pro forma market value has increased, we may sell up to 13,550,996 shares in the offering without further notice to you. If our pro forma market value at that time is either below $193.5 million or above $301.1 million, then, after consulting with our regulators, we may:
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Limits on How Much Common Stock You May Purchase
Our plan of reorganization and minority stock issuance establishes limitations on the purchase of stock in the offering. These limitations include the following:
Subject to regulatory approval, we may increase or decrease the purchase limitations at any time. Our employee stock ownership plan may purchase up to 8.0% of the total number of shares sold in the offering and contributed to our charitable foundation without regard to these purchase limitations.
Please see the section of this prospectus entitled "The Reorganization and OfferingAdditional Limitations on Common Stock Purchases."
How You May Purchase Shares of Common Stock
In order to purchase shares of common stock in the subscription and community offerings, you must submit a completed order form, together with full payment or authorization to withdraw funds from one or more of your deposit accounts held at HarborOne Bank. We are not required to accept incomplete order forms, unsigned order forms, or orders submitted on photocopied or facsimiled order forms. Payment for all shares of common stock will be required to accompany all completed order forms for the purchase to be valid. Payment for shares may be made by:
Regulations prohibit HarborOne Bank from knowingly lending funds or extending credit to any persons to purchase shares of common stock in the offering. You may not use cash or a check drawn on a HarborOne Bank line of credit, and we will not accept third-party checks (a check written by someone other than you) payable to you and endorsed over to HarborOne Bancorp, Inc. Wire transfers will not be accepted without our prior approval. Once we receive your executed order form, it may not be modified, amended or rescinded without our consent, unless the offering is not completed by the expiration date, in which event you may be given the opportunity to increase, decrease or rescind your order(s) for a specified period of time. You may not authorize direct withdrawal from a HarborOne Bank retirement account. See "Using Retirement Account Funds to Purchase Shares of Common Stock" below.
Please see the section of this prospectus entitled "The Reorganization and OfferingProcedure for Purchasing Shares in Subscription and Community Offerings" for a complete description of how to purchase shares in the offering.
Using Individual Retirement Account Funds to Purchase Shares of Common Stock
You may be able to subscribe for shares of common stock using funds in your individual retirement account, or "IRA." If you wish to use funds that are currently in your IRA or other retirement account held at HarborOne Bank, the funds you wish to use will have to be transferred to a self-directed account maintained by an independent trustee, such as a brokerage account with a broker who is willing and able to facilitate your purchase in the offering. It may take several weeks to transfer the funds in your IRA to an independent trustee, so please allow yourself sufficient time to take this action. Depositors interested in using funds in an individual retirement account or any other retirement account to purchase shares of common stock should contact our Stock Information Center as soon as possible, preferably at least two weeks prior to the end of the offering period, because processing such transactions takes additional time, and whether such funds can be used may depend on limitations imposed by the institutions where such funds are currently held. We cannot guarantee that you will be able to use such funds.
Please see the sections of this prospectus entitled "The Reorganization and OfferingProcedure for Purchasing Shares in Subscription and Community OfferingsPayment for Shares" and "Using Individual Retirement Account Funds" for a complete description of how to use IRA funds to purchase shares in the offering.
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Deadline for Orders of Common Stock
The deadline for purchasing shares of common stock in the subscription and community offerings is [ : ] p.m., Eastern Time, on [Expiration Date], unless we extend this deadline. If you wish to purchase shares of common stock, a properly completed and signed original stock order form, together with full payment, must be received (not postmarked) by this time. You may submit your stock order form and payment by mail using the stock order reply envelope provided or by overnight mail to our Stock Information Center, which will be located at [ · ]. You may also hand-deliver stock order forms to the Stock Information Center.
Although we will make reasonable attempts to provide this prospectus and offering materials to holders of subscription rights, the subscription offering and all subscription rights will expire at [ : ] p.m., Eastern Time, on [Expiration Date], whether or not we have been able to locate each person entitled to subscription rights.
See "The Reorganization and OfferingProcedure for Purchasing Shares in Subscription and Community OfferingsExpiration Date" for a complete description of the deadline for purchasing shares in the offering.
Delivery of Shares of Common Stock
All shares of common stock sold will be issued in book entry form. Stock certificates will not be issued. A statement reflecting ownership of shares of common stock issued in the subscription and community offerings will be mailed by our transfer agent to the persons entitled thereto at the registration address noted by them on their stock order forms as soon as practicable following consummation of the stock offering. We expect trading in the stock to begin on the day of completion of the stock offering or the next business day. The stock offering is expected to be completed as soon as practicable following satisfaction of the conditions described below in "Conditions to Completion of the Stock Offering." Until a statement reflecting ownership of shares of common stock is available and delivered to purchasers, purchasers might not be able to sell the shares of common stock that they purchased, even though the common stock will have begun trading. Your ability to sell your shares of common stock before receiving your statement will depend on arrangements you may make with a brokerage firm.
Steps We May Take If We Do Not Receive Orders for the Minimum Number of Shares
If we do not receive orders for at least 8,709,525 shares of common stock (not counting shares to be contributed to our charitable foundation), we may take additional steps to attempt to sell the minimum number of shares of common stock in the offering range. Specifically, we may:
If we extend the offering beyond [Extension Date #1], 2016, we will notify subscribers of the extension of time and of the rights of subscribers to place a new stock order for a specified period of time. If a subscriber does not respond, we will cancel his or her stock order and return his or her subscription funds, with interest at our statement savings rate, and cancel any authorization to withdraw funds from deposit accounts for the purchase of shares of common stock. If a purchase limitation is increased, subscribers in the subscription offering who ordered the maximum amount will be, and, in our sole discretion, some other large subscribers may be, given the opportunity to increase their subscriptions up to the then-applicable limit.
Conditions to Completion of the Offering
We cannot complete the offering unless:
Possible Termination of the Offering
We may terminate the offering at any time prior to the special meeting of depositors of HarborOne Bank that is being called to vote on the plan of reorganization and minority stock issuance, the establishment and funding of the charitable foundation, and the election of corporators of HarborOne Mutual Bancshares, and at any time after depositor approval, with the approval, to the extent such approval is required, of the Massachusetts Commissioner of Banks.
We must sell a minimum of 8,709,525 shares to complete the offering. If we terminate the offering because we fail to sell the minimum number of shares or for any other reason, we will promptly return your funds with interest at our statement savings rate, currently 0.07% per annum, and we will cancel deposit account withdrawal authorizations.
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How We Intend to Use the Proceeds from the Offering
Assuming we sell 10,246,500 shares of common stock in the offering (the midpoint of the offering range) and we have net proceeds of $98.9 million, we intend to distribute the net proceeds as follows:
HarborOne Bancorp may use the funds that it retains to finance potential expansion and diversification of its operations; to repurchase shares of common stock, subject to regulatory approval; to pay cash dividends, subject to regulatory approval; and for other general corporate purposes. HarborOne Bank may use the funds invested in it to fund new loans; to enhance existing products and services and develop new products and services; to expand its banking franchise; and for other general corporate purposes. Initially, a substantial portion of the net proceeds will be invested in short-term investments and other securities. See the section of this prospectus entitled "Use of Proceeds" for more information on the proposed use of proceeds from the offering.
Our Contribution of Cash and Shares of Common Stock to the Charitable Foundation
To further our commitment to our local community, we intend to establish and fund a new charitable foundation as part of the offering. Assuming we receive final regulatory approval to establish and fund the charitable foundation, we intend to contribute cash equal to 0.667% of the gross proceeds raised in the offering and 1.2% of our outstanding shares of common stock. At the midpoint of the offering range, the total value of the charitable foundation contribution would be $3.4 million, and we expect to record an after-tax expense of approximately $2.0 million during the quarter in which the offering is completed.
The charitable foundation will be dedicated exclusively to supporting charitable causes and community development activities in the communities in which we operate. The contribution of common stock and cash to the charitable foundation will:
The amount of common stock that we would offer for sale would be greater if the offering were to be completed without the establishment and funding of the charitable foundation. For a further discussion of the financial impact of the charitable foundation, including its effect on those who purchase shares in the offering, see the sections of this prospectus entitled "Risk FactorsRisks Related to the Contribution to our Charitable FoundationThe contribution to our charitable foundation will dilute your ownership interest and adversely affect net income in the year we complete the offering," "Risk FactorsRisks Related to the Contribution to our Charitable FoundationOur contribution to our charitable foundation may not be tax deductible, which could decrease our profits," "Comparison of Valuation and Pro Forma Information With and Without our Charitable Foundation" and "Our Charitable Foundation."
You May Not Sell or Transfer Your Subscription Rights
Applicable regulations prohibit you from transferring your subscription rights. If you order shares of common stock in the subscription offering, you will be required to certify that you are purchasing the shares of common stock for yourself and that you have no agreement or understanding to sell or transfer your subscription rights. We intend to take legal action, including reporting persons to federal or state regulatory agencies, against anyone who we believe has sold or given away his or her subscription rights. We will not accept your order if we have reason to believe that you have sold or transferred your subscription rights. On the order form, you cannot add the names of others for joint stock registration unless they are also named on the qualifying deposit account, and you cannot delete names of others except in the case of certain orders placed through an IRA, Keogh, 401(k) or similar plan, and except in the event of the death of a named eligible depositor. Doing so may jeopardize your subscription rights. In addition, the stock order form requires that you list all deposit accounts, giving all names on each account and the account number as of the
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eligibility date. Failure to provide this information, or providing incomplete or incorrect information, may result in a loss of part or all of your share allocation if there is an oversubscription.
Purchases by Officers and Directors
We expect our directors and executive officers, together with their associates, to subscribe for 332,500 shares of common stock in the offering, or 3.2% of the total number of shares to be sold in the offering at the midpoint of the offering range and contributed to our charitable foundation. Our directors and executive officers will pay the same $10.00 per share price for the common stock as all other subscribers in the offering. Purchases of the common stock by our directors and executive officers are for investment purposes for these individuals and not with a view towards resale, and pursuant to applicable banking regulations, our directors and executive officers generally will not be permitted to sell any shares of the common stock that they purchase in the offering for a period of at least one year from the closing of the reorganization and offering. See the section of this prospectus entitled "Subscriptions by Directors and Executive Officers."
Benefits to Management and Potential Dilution to Shareholders Following the Offering
Employee Stock Ownership Plan. We expect that our employee stock ownership plan will purchase 8.0% of the total number of shares sold in the offering and contributed to the charitable foundation. The employee stock ownership plan's purchase will be funded by a 20-year loan from HarborOne Bancorp. As the loan is repaid and shares are released from collateral, the plan will allocate shares to the accounts of participating employees. Participants will receive allocations based on their individual compensation as a percentage of total plan compensation. Nonemployee directors are not eligible to participate in the employee stock ownership plan. We will incur additional compensation expense as a result of this plan. See "Pro Forma Data" for an illustration of the effects of this plan.
Equity Incentive Plan. We intend to adopt an equity incentive plan that will provide for grants of stock options and restricted common stock awards. The equity incentive plan will not be established sooner than six months after the reorganization and, if adopted within one year after the reorganization, would require the approval by our shareholders owning two-thirds of the outstanding shares of common stock of HarborOne Bancorp, as well as a majority of the shareholders other than HarborOne Mutual Bancshares. If the equity incentive plan is established more than one year after the offering, it would require the approval of our shareholders by a majority of votes cast. We have not yet determined when we will present an equity incentive plan for shareholder approval. In accordance with applicable regulations, we anticipate that the plan will authorize the grant of a number of stock options and a number of shares of restricted stock, not to exceed 10.0% and 4.0%, respectively, of the shares sold in the offering and issued to the charitable foundation. These limitations will not apply if the plan is implemented more than one year after the reorganization. We will incur additional compensation expense as a result of this plan. See "Pro Forma Data" for an illustration of the effects of this plan.
The following table summarizes at the midpoint of the offering range the total number and value of the shares of common stock that the employee stock ownership plan expects to acquire in the offering and the total value of all restricted stock awards and stock options that are expected to be available under the equity incentive plan (assuming the equity incentive plan is implemented within one year following completion of the offering). The equity incentive plan may award a greater number of options and restricted stock awards if the plan is adopted more than one year after completion of the offering.
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Number of Shares to be
Granted or Purchased |
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Dilution
Resulting from Issuance of Additional Shares(1) |
|
|||||||||||
|
Total
Estimated Value (In Thousands) |
||||||||||||
|
At Midpoint of
Offering Range |
As a Percentage of
Common Stock to be Issued |
|||||||||||
Employee stock ownership plan(2) |
819,720 | 8.0 | % | | % | $ | 9,678 | ||||||
Restricted stock awards(2) |
409,860 | 4.0 | 1.81 | 4,839 | |||||||||
Stock options(3) |
1,024,650 | 10.0 | 4.42 | 3,424 | |||||||||
| | | | | | | | | | | | | |
Total |
2,254,230 | 22.00 | % | 6.08 | % | $ | 17,941 | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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Market for Common Stock
We expect that our common stock will be traded on the Nasdaq Global Market under the symbol "HONE." Sandler O'Neill & Partners, L.P. has advised us that it intends to make a market in our common stock following the offering, but is under no obligation to do so.
Our Policy Regarding Dividends
We do not currently anticipate paying dividends on our common stock. Following completion of the offering, our board of directors will have the authority to declare dividends on our shares of common stock, subject to statutory and regulatory requirements and other considerations.
If HarborOne Bancorp pays dividends to its shareholders, it also will be required to pay dividends to HarborOne Mutual Bancshares, unless HarborOne Mutual Bancshares is permitted by the Federal Reserve to waive the receipt of dividends. The Federal Reserve's current position is to not permit a mutual holding company that is regulated as a bank holding company to waive dividends declared by its subsidiary. In addition, Massachusetts banking regulations prohibit HarborOne Mutual Bancshares from waiving dividends declared and paid by HarborOne Bancorp unless the Massachusetts Commissioner of Banks does not object to the waiver and provided the waiver is not detrimental to the safe and sound operation of HarborOne Bank.
For information regarding our proposed dividend policy, see the section of this prospectus entitled "Dividend Policy."
Material Income Tax Consequences
We have received an opinion of counsel from Goodwin Procter LLP regarding the material federal income tax consequences and the material Massachusetts corporate excise and personal income tax consequences of the reorganization. As a general matter, the reorganization qualifies as a tax-free reorganization. See the section of this prospectus entitled "Material U.S. Income Tax Consequences" for a complete discussion of the income tax consequences of the transaction.
Emerging Growth Company Status
As a company with less than $1 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the "JOBS Act." An emerging growth company may take advantage of specified relief from reporting requirements and other burdens that are applicable to other public companies. These provisions include:
We may remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the "Exchange Act," which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
In addition, pursuant to the JOBS Act, we have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
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How You Can Obtain Additional Information
Our branch office personnel may not, by law, assist with investment-related questions about the offering. If you have any questions regarding the reorganization or the offering, please call our Stock Information Center at [ · ], Monday through Friday between 10:00 a.m. and 4:00 p.m., Eastern time. You may also visit our Stock Information Center, located at [ · ], Massachusetts, which is open Monday through Friday between 10:00 a.m. and 4:00 p.m. The Stock Information Center will be closed on weekends and bank holidays.
Delivery of Prospectus
TO ENSURE THAT EACH PERSON RECEIVES A PROSPECTUS AT LEAST 48 HOURS PRIOR TO THE EXPIRATION DATE OF [EXPIRATION DATE], IN ACCORDANCE WITH FEDERAL LAW, NO PROSPECTUS WILL BE MAILED ANY LATER THAN FIVE DAYS PRIOR TO [EXPIRATION DATE] OR HAND-DELIVERED ANY LATER THAN TWO DAYS PRIOR TO [EXPIRATION DATE].
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Investing in our common stock involves a high degree of risk. Before making your decision to invest in shares of our common stock, you should carefully consider the risks described below, together with the other information contained in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus and the matters addressed in the section of this prospectus titled "Special Note Regarding Forward-Looking Statements" on page 23. The events discussed below could have a material adverse impact on our business, results of operations, financial condition and cash flows. If that were to happen, the trading price of our common stock could decline, and you could lose all or part of your investment.
We may not be able to successfully implement our strategic plan.
Our growth is essential to improving our profitability, and we expect to incur expenses related to the implementation of our strategic plan, including hiring initiatives and the development and marketing of new products and services. In addition, the reorganization will negatively impact our operating results, due to additional costs related to becoming a public company, increased compensation expenses associated with our employee stock ownership plan and the possible implementation of one or more equity incentive plans after the completion of the reorganization. We may not be able to successfully implement our strategic plan, and therefore may not be able to increase profitability in the timeframe that we expect or at all, and could experience a decrease in profitability.
The successful implementation of our strategic plan will require, among other things that we attract new customers that currently bank at other financial institutions in our market area or adjacent markets. In addition, our ability to successfully grow will depend on several factors, including continued favorable market conditions, the competitive responses from other financial institutions in our market area, our ability to attract and retain experienced lenders, and our ability to maintain high asset quality as we increase our loan portfolio. While we believe we have the management resources and internal systems in place to successfully manage our future growth, growth opportunities may not be available and we may not be successful in implementing our business strategy. Further, it will take time to implement our business strategy, especially for our lenders to originate enough loans and for our branch network to attract enough favorably priced deposits to generate the revenue needed to offset the associated expenses. Our strategic plan, even if successfully implemented, may not ultimately produce positive results.
Commercial and commercial real estate loans carry greater credit risk than loans secured by owner occupied one- to four-family real estate.
Since our charter conversion from a credit union to a co-operative bank, our focus has been on prudently growing our commercial and commercial real estate loan portfolio and we expect this focus to continue. At December 31, 2015, $336.0 million, or 19.4%, of our loan portfolio consisted of commercial and commercial real estate loans. Given their larger balances and the complexity of the underlying collateral, commercial and commercial real estate loans generally expose a lender to greater credit risk than loans secured by owner occupied one- to four-family real estate. Also, many of our borrowers or related groups of borrowers have more than one of these types of loans outstanding. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential real estate loan. If loans that are collateralized by real estate or other business assets become troubled and the value of the collateral has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could cause us to increase our provision for loan losses which would in turn adversely affect our operating results and financial condition. Further, if we foreclose on the collateral, our holding period for the collateral may be longer than for one- to four-family real estate loans because there are fewer potential purchasers of the collateral, which can result in substantial holding costs.
The unseasoned nature of our commercial and commercial real estate portfolio may result in changes to our estimates of collectability, which may lead to additional provisions or charge-offs, which could hurt our profits.
Our commercial and commercial real estate portfolio has increased $146.0 million, or 76.9%, from $189.9 million at December 31, 2014 to $336.0 million at December 31, 2015. A large portion of our commercial and commercial real estate portfolio is unseasoned and does not provide us with a significant payment or charge-off history pattern from which to judge future collectability. Currently we estimate potential charge-offs using peer data adjusted for qualitative factors specific to us. As a result, it may be difficult to predict the future performance of this part of our loan portfolio. These loans may have delinquency or charge-off levels above our historical experience or current estimates,
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which could adversely affect our future performance. Further, these types of loans generally have larger balances and involve a greater risk than one- to four-family residential mortgage loans. Accordingly, if we make any errors in judgment in the collectability of our commercial or commercial real estate loans, any resulting charge-offs may be larger on a per loan basis than those incurred historically with our residential mortgage loan or consumer loan portfolios.
Our portfolio of indirect auto lending exposes us to increased credit risks.
At December 31, 2015, $532.1 million, or 30.7% of our total loan portfolio, consisted of auto loans, primarily originated through automobile dealers for the purchase of new or used automobiles. We serve customers that cover a range of creditworthiness and the required terms and rates are reflective of those risk profiles. Auto loans are inherently risky as they are often secured by assets that may be difficult to locate and can depreciate rapidly. In some cases, repossessed collateral for a defaulted auto loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency may not warrant further substantial collection efforts against the borrower. Auto loan collections depend on the borrower's continuing financial stability, and therefore, are more likely to be adversely affected by job loss, divorce, illness, or personal bankruptcy. Additional risk elements associated with indirect lending include the limited personal contact with the borrower as a result of indirect lending through non-bank channels, namely automobile dealers.
Our business may be adversely affected by credit risk associated with residential property.
At December 31, 2015, one- to four-family residential real estate loans comprised $711.0 million, or 41.1% of our total loan portfolio, and second mortgage and equity lines of credit comprised $99.4 million, or 5.7% of our total loan portfolio. One- to four-family residential mortgage lending, whether owner occupied or non-owner occupied, is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations. Declines in real estate values could cause some of our residential mortgages to be inadequately collateralized, which would expose us to a greater risk of loss if we seek to recover on defaulted loans by selling the real estate collateral.
Residential loans with combined higher loan-to-value ratios are more sensitive to declining property values than those with lower combined loan-to-value ratios and therefore may experience a higher incidence of default and severity of losses. In addition, if the borrowers sell their homes, they may be unable to repay their loans in full from the sale proceeds. For those home equity loans and lines of credit secured by a second mortgage, it is unlikely that we will be successful in recovering all or a portion of our loan proceeds in the event of default unless we are prepared to repay the first mortgage loan and such repayment and the costs associated with a foreclosure are justified by the value of the property. For these reasons, we may experience higher rates of delinquencies, default and losses on our home equity loans.
The geographic concentration of our loan portfolio and lending activities makes us vulnerable to a downturn in the local economy.
While there is not a single employer or industry in our market area on which a significant number of our customers are dependent, a substantial portion of our loan portfolio is composed of loans secured by property located in the greater Boston metropolitan area. This makes us vulnerable to a downturn in the local economy and real estate markets. Adverse conditions in the local economy such as unemployment, recession, a catastrophic event or other factors beyond our control could impact the ability of our borrowers to repay their loans, which could impact our net interest income. Decreases in local real estate values caused by economic conditions or other events could adversely affect the value of the property used as collateral for our loans, which could cause us to realize a loss in the event of a foreclosure. For more information about our market area, see the sections of this prospectus entitled "Business of HarborOne BankMarket Area" and "Competition."
If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings and capital could decrease.
At December 31, 2015, our allowance for loan losses totaled $13.7 million, which represented 0.79% of total loans. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for many of our loans. In determining the amount of the allowance for loan losses, we review our loans, loss and delinquency experience, and commercial and commercial real estate peer data and we evaluate other factors including, among other things, current economic conditions. If our assumptions are incorrect, or if delinquencies or non-performing loans increase, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, which would require additions to our allowance, which could materially decrease our net income.
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In addition, our regulators, as an integral part of their examination process, periodically review the allowance for loan losses and may require us to increase the allowance for loan losses by recognizing additional provisions for loan losses charged to income, or to charge off loans, which, net of any recoveries, would decrease the allowance for loan losses. Any such additional provisions for loan losses or charge-offs could have a material adverse effect on our financial condition and results of operations.
Our efficiency ratio is high, and we anticipate that it may remain high, as a result of the ongoing implementation of our business strategy.
Our non-interest expense totaled $78.0 million and $54.3 million for the years ended December 31, 2015 and 2014, respectively. Although we continue to analyze our expenses and pursue efficiencies where available, our efficiency ratio remains high as a result of our implementation of our business strategy. Our efficiency ratio totaled 88.85% and 88.99% for the years ended December 31, 2015 and 2014, respectively. If we are unable to successfully implement our business strategy and increase our revenues, our profitability could be adversely affected.
The building of market share through de novo branching and expansion of our commercial lending capacity will cause our expenses to increase faster than revenues.
We intend to continue to build market share through de novo branching, the establishment of additional loan production offices and the expansion of our commercial lending capacity. There can be considerable costs involved in opening branches and loan production offices and expanding our lending capacity that generally require a period of time to generate the necessary revenues to offset their costs, especially in areas in which we do not have an established presence. Accordingly, any such business expansion can be expected to negatively impact our earnings for some period of time until certain economies of scale are reached. Our expenses could be further increased if we encounter delays in the opening of any of our new branches or loan production offices. Finally, our business expansion may not be successful after establishment.
Our wholesale funding sources may prove insufficient to replace deposits at maturity and support our future growth.
We must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition to deposits and funds from the repayments and maturities of loans and investments. As we continue to grow, we may become more dependent on these sources, which include Federal Home Loan Bank, or "FHLB," advances, borrowings from the Federal Reserve Bank of Boston, proceeds from the sale of loans, and brokered certificates of deposit. At December 31, 2015, we had $249.6 million of FHLB advances outstanding with an additional $341.7 million of available borrowing capacity, and $202.9 million of available borrowing capacity from the Federal Reserve Bank of Boston. If we were no longer considered to be "well capitalized," as defined by applicable federal regulations, it would materially restrict our ability to acquire and retain brokered deposits and could reduce the maximum borrowing limits we currently have available through the FHLB. Additionally, adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources. Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Finally, if we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In this case, our operating margins and profitability would be adversely affected.
Changes in interest rates may hurt our profits and asset value.
Like other financial institutions, we are subject to interest rate risk. Our primary source of income is net interest income, which is the difference between interest earned on loans and investments and interest paid on deposits and borrowings. Changes in the general level of interest rates can affect our net interest income by affecting the difference between the weighted-average yield earned on our interest-earning assets and the weighted-average rate paid on our interest-bearing liabilities, or interest rate spread, and the average life of our interest-earning assets and interest-bearing liabilities. Interest rates are highly sensitive to many factors, including government monetary policies, domestic and international economic and political conditions and other factors beyond our control.
While we pursue an asset/liability strategy designed to mitigate our risk from changes in interest rates, changes in interest rates may still have a material adverse effect on our financial condition and results of operations. Changes in the level of interest rates also may negatively affect our ability to originate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings. For further discussion of how changes in interest rates could impact us, see the section of this prospectus entitled "Management's Discussion and Analysis of Results of Operations and Financial ConditionRisk ManagementInterest Rate Risk Management."
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An increase in interest rates may reduce our mortgage banking revenues, which would negatively impact our non-interest income.
We sell residential mortgage loans in the secondary market, which provides a significant portion of our non-interest income. We generate mortgage revenues primarily from gains on the sale of mortgage loans to investors on a servicing-released and retained basis. We also earn interest on loans held for sale while they are awaiting delivery to our investors. In a rising or higher interest rate environment, our originations of mortgage loans may decrease, resulting in fewer loans that are available to be sold to investors. This would result in a decrease in mortgage banking revenues. In addition, our results of operations are affected by the amount of non-interest expenses associated with mortgage banking activities, such as salaries and employee benefits, occupancy, equipment and data processing expense and other operating costs. During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in mortgage loan origination activity.
We use significant assumptions and estimates in our financial models to determine the fair value of certain assets, including mortgage servicing rights, origination commitments and loans held for sale. If our assumptions or estimates are incorrect, that may have a negative impact on the fair value of such assets and adversely affect our earnings.
We use internal and third party financial models that utilize market data to value certain assets, including mortgage servicing rights when they are initially acquired and on a quarterly basis thereafter. The methodology used to estimate these values is complex and uses asset-specific collateral data and market inputs for interest and discount rates and liquidity dates. Valuations are highly dependent upon the reasonableness of our assumptions and the predictability of the relationships that drive the results of our valuation methodologies. If prepayment speeds increase more than estimated, or if delinquency or default levels are higher than anticipated, we may be required to write down the value of certain assets, which could adversely affect our earnings. Prepayment speeds are significantly impacted by fluctuations in interest rates and are therefore difficult to predict. During periods of declining interest rates, prepayment speeds increase resulting in a decrease in the fair value of the mortgage servicing rights. In addition, there can be no assurance that, even if our models are correct, these assets could be sold for our carrying value should we chose or be forced to sell them in the open market.
Strong competition within our market area could hurt our profits and slow growth.
We face intense competition in making loans and attracting deposits. Price competition for loans and deposits sometimes results in us charging lower interest rates on our loans and paying higher interest rates on our deposits and may reduce our net interest income. Competition also makes it more difficult and costly to attract and retain qualified employees. Many of the institutions with which we compete have substantially greater resources and lending limits than we have and may offer services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. If we are not able to effectively compete in our market area, our profitability may be negatively affected. The greater resources and broader offering of deposit and loan products of some of our competitors may also limit our ability to increase our interest-earning assets or deposits. For more information about our market area and the competition we face, see the sections of this prospectus entitled "Business of HarborOne BankMarket Area" and "Competition."
We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance.
We are a community bank and our reputation is one of the most valuable components of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our market area and nearby Boston, Massachusetts, and Providence, Rhode Island. As a community bank, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. If our reputation is negatively affected by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to current or prospective customers, or by events beyond our control, our business and operating results may be adversely affected.
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Our banking business is highly regulated, which could limit or restrict our activities and impose financial requirements or limitations on the conduct of our business.
We are subject to regulation and supervision by the Federal Reserve, and HarborOne Bank is subject to regulation and supervision by the Massachusetts Commissioner of Banks and the FDIC. Federal and state laws and regulations govern numerous matters affecting us, including changes in the ownership or control of banks and bank holding companies, maintenance of adequate capital and the financial condition of a financial institution, permissible types, amounts and terms of extensions of credit and investments, permissible non-banking activities, the level of reserves against deposits and restrictions on dividend payments. The FDIC and the Massachusetts Commissioner of Banks have the power to issue cease and desist orders to prevent or remedy unsafe or unsound practices or violations of law by banks subject to their regulation, and the Federal Reserve possesses similar powers with respect to bank holding companies. These and other restrictions limit the manner in which we and HarborOne Bank may conduct business and obtain financing.
Our banking business is also affected by the monetary policies of the Federal Reserve. Changes in monetary or legislative policies may affect the interest rates HarborOne Bank must offer to attract deposits and the interest rates it must charge on loans, as well as the manner in which it offers deposits and makes loans. These monetary policies have had, and are expected to continue to have, significant effects on the operating results of depository institutions generally, including HarborOne Bank.
Because our business is highly regulated, the laws, rules, regulations, and supervisory guidance and policies applicable to us are subject to regular modification and change. It is impossible to predict the competitive impact that any such changes would have on the banking and financial services industry in general or on our business in particular. Such changes may, among other things, increase the cost of doing business, limit permissible activities, or affect the competitive balance between banks and other financial institutions. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the "Dodd-Frank Act," instituted major changes to the banking and financial institutions regulatory regimes in light of government intervention in the financial services sector following the 2008 financial crisis. Other changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes, regulations, or policies, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit the types of financial services and products we may offer, and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil money penalties, and/or reputation damage, which could have a material adverse effect on our business, financial condition, and results of operations. See the section of this prospectus entitled "Supervision and Regulation" for a discussion of the regulations to which we are subject.
We have become subject to more stringent capital requirements.
The federal banking agencies have issued a joint final rule, or the "Final Capital Rule," that implemented the Basel III capital standards and established the minimum capital levels required under the Dodd-Frank Act. As of January 1, 2015, we are required to comply with the Final Capital Rule, which provides for a common equity Tier 1 ratio of at least 4.5%, a Tier 1 ratio of at least 6.0%, a total capital ratio of at least 8.0%, and a leverage ratio of at least 4.0%. In addition, because HarborOne Bank obtained FDIC deposit insurance in 2013, it is treated as a de novo institution and is required by the FDIC to maintain a leverage ratio of not less than 8.0% for the first seven years of operation following the effectiveness of its deposit insurance. Additionally, subject to a transition period, the Final Capital Rule requires an institution to maintain a 2.5% common equity Tier 1 capital conservation buffer above the minimum risk-based capital requirements to avoid restrictions on the ability to pay dividends, discretionary bonuses, and engage in share repurchases. The Final Capital Rule increased the required capital for certain categories of assets, including high-volatility construction real estate loans and certain exposures related to securitizations; however, the Final Capital Rule retained the current capital treatment of residential mortgages. Under the Final Capital Rule, we made a one-time, permanent election in the first quarter of 2015 to continue to exclude accumulated other comprehensive income from capital.
In addition, under the Federal Reserve's rules, a bank holding company is considered "well capitalized" if the bank holding company (i) has a total risk based capital ratio of at least 10.0%, (ii) has a Tier 1 risk-based capital ratio of at least 6.0%, and (iii) is not subject to any written agreement order, capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. Under the FDIC's revised rules, which became effective January 1, 2015, an insured state nonmember bank, such as HarborOne Bank, is considered "well capitalized" if it (i) has a total risk-based capital ratio of 10.0% or greater; (ii) a Tier 1 risk-based capital ratio of 8.0% or greater; (iii) a common Tier 1 equity ratio of 6.5% or greater, (iv) a leverage capital ratio of 5.0% or greater;
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and (iv) is not subject to any written agreement, order, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure.
Implementation of these standards, or any other new regulations, may adversely affect our ability to pay dividends, or require us to reduce business levels or raise capital, including in ways that may adversely affect our results of operations or financial condition.
An increase in FDIC or Co-operative Central Bank insurance assessments could significantly increase our expenses.
The Dodd-Frank Act eliminated the maximum Deposit Insurance Fund ratio of 1.5% of estimated deposits, and the FDIC has established a long-term ratio of 2.0%. The FDIC has the authority to increase assessments in order to maintain the Deposit Insurance Fund ratio at particular levels. In addition, if our regulators issue downgraded ratings of HarborOne Bank in connection with their examinations, the FDIC could impose significant additional fees and assessments on us. All Massachusetts-chartered co-operative banks are required to be members of the Co-operative Central Bank, which maintains the Share Insurance Fund that insures co-operative bank deposits in excess of federal deposit insurance coverage. The Co-operative Central Bank is authorized to charge co-operative banks an annual assessment fee on deposit balances in excess of amounts insured by the FDIC. Increases in assessments by either the FDIC or the Co-operative Central Bank could significantly increase our expenses.
If we are required to repurchase mortgage loans that we have previously sold, it would negatively affect our earnings.
In connection with selling residential mortgage loans in the secondary market, our agreements with investors contain standard representations and warranties and early payment default clauses that could require us to repurchase mortgage loans sold to these investors or reimburse the investors for losses incurred on loans in the event of borrower default within a defined period after origination (generally 90 days) or, in the event of breaches of contractual representations or warranties made at the time of sale that are not remedied within a defined period after we receive notice of such breaches (generally 90 days), or refund the profit received from the sale of a loan to an investor if the borrower pays off the loan within a defined period after origination (generally 120 days). If we are required to repurchase mortgage loans or provide indemnification or other recourse, this could significantly increase our costs and thereby affect our future earnings.
Changes in the valuation of our securities could adversely affect us.
Most of the securities in our portfolio are classified as available-for-sale. Accordingly, a decline in the fair value of our securities could cause a material decline in our reported equity and/or net income. At least quarterly, and more frequently when warranted by economic or market conditions, management evaluates all securities classified as available-for-sale with a decline in fair value below the amortized cost of the investment to determine whether the impairment is deemed to be other-than-temporary, or "OTTI." For impaired debt securities that are intended to be sold, or more likely than not will be required to be sold, the full amount of market decline is recognized as OTTI through earnings. Credit-related OTTI for all other impaired debt securities is recognized through earnings. Non-credit related OTTI for such debt securities is recognized in other comprehensive income, net of applicable taxes. A decline in the market value of our securities portfolio could adversely affect our earnings.
Changes in the valuation of goodwill could adversely affect us.
When the purchase price of an acquired business exceeds the fair value of its tangible assets, the excess is allocated to goodwill and other identifiable intangible assets. The amount of the purchase price that is allocated to goodwill is determined by the excess of the purchase price over the net identifiable assets acquired. At December 31, 2015, our goodwill and net intangible assets totaled $13.9 million. Under current accounting standards, if we determine goodwill or intangible assets are impaired, we will be required to write down the value of these assets. We may be required to take impairment charges in the future, which would have a negative effect on our shareholders' equity and financial results.
Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed or the cost of that capital may be very high.
We are required by our regulators to maintain adequate levels of capital to support our operations. We believe the net proceeds of the offering will be sufficient to permit HarborOne Bank to maintain regulatory capital compliance for the foreseeable future. Nonetheless, we may at some point need to raise additional capital to support continued growth.
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Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial condition and performance. Accordingly, we may not be able to raise additional capital if needed on terms that are acceptable to us, or at all. If we cannot raise additional capital when needed, our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected. In addition, if we are unable to raise additional capital when required by the Massachusetts Commissioner of Banks or the Federal Reserve, we may be subject to adverse regulatory action. See the section of this prospectus entitled "Supervision and Regulation."
We may incur fines, penalties and other negative consequences from regulatory violations, possibly even inadvertent or unintentional violations.
We maintain systems and procedures designed to ensure that we comply with applicable laws and regulations. However, some legal and regulatory frameworks provide for the imposition of fines or penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though there was in place at the time systems and procedures designed to ensure compliance. There may be negative consequences resulting from a finding of noncompliance, including restrictions on certain activities. Such a finding may also damage our reputation and could restrict the ability of institutional investment managers to invest in our securities.
Systems failures, interruptions or breaches of security could have an adverse effect on our financial condition and results of operations.
We are subject to certain operational risks, including, but not limited to, data processing system failures and errors, inadequate or failed internal processes, customer or employee fraud and catastrophic failures resulting from terrorist acts or natural disasters. We depend upon data processing, software, communication, and information exchange on a variety of computing platforms and networks and over the Internet, and we rely on the services of a variety of vendors to meet our data processing and communication needs. Despite instituted safeguards, we cannot be certain that all of our systems are entirely free from vulnerability to attack or other technological difficulties or failures. Information security risks have increased significantly due to the use of online, telephone and mobile banking channels by customers and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties. Our technologies, systems, networks and our customers' devices have been subject to, and are likely to continue to be the target of, cyber-attacks, computer viruses, malicious code, phishing attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers' confidential, proprietary and other information, the theft of customer assets through fraudulent transactions or disruption of our or our customers' or other third parties' business operations. If information security is breached or other technology difficulties or failures occur, information may be lost or misappropriated, services and operations may be interrupted and we could be exposed to claims from customers. While we maintain a system of internal controls and procedures, any of these results could have a material adverse effect on our business, financial condition, results of operations or liquidity.
We rely on other companies to provide key components of our business infrastructure.
Third-party vendors provide key components of our business infrastructure such as internet connections, network access and core application processing. While we have selected these third party vendors carefully, we do not control their actions. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to our customers or otherwise conduct our business efficiently and effectively. Replacing these third party vendors could also entail significant delay and expense.
If our risk management framework does not effectively identify or mitigate our risks, we could suffer losses.
Our risk management framework seeks to mitigate risk and appropriately balance risk and return. We have established processes and procedures intended to identify, measure, monitor and report the types of risk to which we are subject, including credit risk, operations risk, compliance risk, reputation risk, strategic risk, market risk and liquidity risk. We seek to monitor and control our risk exposure through a framework of policies, procedures and reporting requirements. Management of our risks in some cases depends upon the use of analytical and/or forecasting models. If the models used to mitigate these risks are inadequate, we may incur losses. In addition, there may be risks that exist, or that develop in the future, that we have not appropriately anticipated, identified or mitigated. If our risk management framework does not effectively identify or mitigate our risks, we could suffer unexpected losses and could be materially adversely affected.
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Risks Related to This Offering
The future price of the shares of common stock may be less than the purchase price in the offering.
If you purchase shares of common stock in the offering, you may not be able to sell them later at or above the purchase price in the offering. After the shares begin trading, the trading price of our common stock will be determined by the marketplace, and may be influenced by many factors, including prevailing interest rates, the overall performance of the economy, changes in federal tax laws, new regulations, investor perceptions and the outlook for the financial services industry in general. Publicly traded stocks, including stocks of financial institutions, often experience substantial market price volatility. These market fluctuations might not be related to the operating performance of particular companies whose shares are traded.
The purchase price in the offering is based upon an independent third-party appraisal of the pro forma market value of HarborOne Bank, pursuant to banking regulations. The independent appraisal is not intended, and should not be construed, as a recommendation of any kind as to the advisability of purchasing shares of our common stock, and such appraisal is based on certain estimates, assumptions and projections, all of which are subject to change from time to time. Our aggregate pro forma market value as reflected in the final independent appraisal may exceed the market price of our shares of common stock after the completion of the offering, which may result in our stock trading below the initial offering price of $10.00 per share.
We have broad discretion in allocating the net proceeds of the offering. Our failure to effectively utilize such net proceeds may have an adverse effect on our financial performance and the value of our common stock.
We intend to (i) invest a portion of the proceeds in HarborOne Bank, (ii) fund a loan to the employee stock ownership plan to purchase shares of common stock in the offering and (iii) contribute cash and shares of common stock to our charitable foundation. We intend to invest between $41.8 million and $57.1 million of the net proceeds of the offering (or $65.8 million at the adjusted maximum of the offering range) in HarborOne Bank. We may use the net proceeds we retain to pay dividends, repurchase shares of common stock, or for other general corporate purposes, including additional investments in HarborOne Bank. HarborOne Bank may use the net proceeds it receives to fund new loans, enhance existing products and services, invest in short-term investments, expand its banking franchise by opening de novo branches or loan production offices or acquiring new branches or by acquiring other financial institutions or other financial services companies, or for other general corporate purposes. However, with the exception of the loan to the employee stock ownership plan and contributions to our charitable foundation, we have not allocated specific amounts of the net proceeds for any of these purposes, and we will have significant flexibility in determining the amount of the net proceeds we apply to different uses and the timing of such applications. Also, certain of these uses, such as opening new branches or acquiring other financial institutions, paying dividends and repurchasing common stock, may require the approval of the Massachusetts Commissioner of Banks or the Federal Reserve. We have not established a timetable for investing the net proceeds, and, accordingly, we may not invest the net proceeds at the time that is most beneficial to HarborOne Bancorp, HarborOne Bank or the shareholders. For additional information see the section of this prospectus entitled "Use of Proceeds."
There may be a limited trading market in our common stock, which would hinder your ability to sell our common stock and may lower the market price of the stock.
We have never issued capital stock and there is no established market for our common stock. We expect that our common stock will be listed on The Nasdaq Global Market under the symbol "HONE" upon the completion of the offering. Sandler O'Neill & Partners, L.P. has advised us that it intends to make a market in our common stock following the offering, but it is under no obligation to do so or to continue to do so once it begins. The development of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control, or that of any market maker. The number of active buyers and sellers of the shares of common stock at any particular time may be limited. Under such circumstances, you could have difficulty selling your shares of common stock on short notice, and, therefore, you should not view the shares of common stock as a short-term investment. In addition, our public "float," which is the total number of our outstanding shares less the shares held by our mutual holding company, employee stock ownership plan and our directors and executive officers, is likely to be limited. As a result, it is possible that an active trading market for the common stock will not develop or that, if it develops, it will not continue. If you purchase shares of common stock, you may not be able to sell them at or above $10.00 per share. Purchasers of common stock in this offering should have long-term investment intent and should recognize that there will be a limited trading market in the common stock. This may make it difficult to sell the common stock after the offering and may have an adverse impact on the price at which the common stock can be sold.
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Our return on equity may be low following the offering. This could negatively affect the trading price of our shares of common stock.
Net income divided by average shareholders' equity, known as "return on equity," is a ratio many investors use to compare the performance of financial institutions. Our return on equity may be low until we are able to leverage the additional capital we receive from the offering. Our return on equity will be negatively affected by added expenses associated with our employee stock ownership plan and the equity incentive plan we intend to adopt. Until we increase our net interest income and non-interest income and deploy the capital raised in the offering, we expect our return on equity to be low, which may reduce the market price of our shares of common stock.
The ability of HarborOne Mutual Bancshares, our majority shareholder, to exercise voting control over virtually all matters put to a vote of our shareholders, and to be able to prevent our shareholders from forcing a sale or second-step conversion transaction, may adversely affect the price at which our common stock will trade after the offering.
Upon the completion of the offering, HarborOne Mutual Bancshares, our mutual holding company, will own a majority of the shares of our common stock, and therefore will control the election of our directors and any decision to enter into a corporate transaction that requires the approval of our shareholders. The same directors and officers who manage HarborOne Bancorp and HarborOne Bank will also manage HarborOne Mutual Bancshares. So long as HarborOne Mutual Bancshares continues to hold a majority of our outstanding common stock, it will have the ability to control the election of our directors and the outcome of virtually all other matters being voted on by our shareholders. For example, HarborOne Mutual Bancshares, through its board of trustees, may exercise its voting control to defeat a shareholder nominee for election to our board of directors. In addition, our shareholders will not be able to force a merger or second-step conversion without HarborOne Mutual Bancshares' consent. HarborOne Mutual Bancshares' voting control over us may adversely affect the price at which our common stock will trade after the offering as compared to the common stock of fully converted banking companies.
Our equity incentive plans will increase our costs, which will reduce our income.
We anticipate that our employee stock ownership plan will purchase 8.0% of the total shares of common stock sold in the offering and contributed to our charitable foundation, with funds borrowed from HarborOne Bancorp. We will record annual employee stock ownership plan expense in an amount equal to the fair value of shares of common stock committed to be released to employees. If shares of common stock appreciate in value over time, compensation expense relating to the employee stock ownership plan will increase.
We also intend to adopt an equity incentive plan after the offering that will allow us to award participants restricted shares of our common stock (at no cost to them) and/or options to purchase shares of our common stock. We have not yet determined when we will present an equity incentive plan for shareholder approval within one year or more than one year following the offering. If an equity incentive plan is adopted within one year after the completion of the offering, the number of shares of restricted stock or options to purchase shares of our common stock reserved for issuance may not exceed 4.0% and 10.0%, respectively, of the number of shares sold in the offering and contributed to our charitable foundation. If an equity incentive plan is adopted more than one year following the offering, we may reserve for issuance shares of restricted stock and options to purchase shares of our common stock in excess of these amounts. The estimated grant-date fair value of the options utilizing a Black-Scholes option pricing analysis is $2.83 per option granted. Assuming this value is amortized over a five-year vesting period, the corresponding annual pre-tax expense associated with the options would be $787,000 at the adjusted maximum of the offering range. In addition, assuming that all shares of restricted stock are awarded at a price of $10.00 per share, and that the awards vest over a five-year period, the corresponding annual pre-tax expense associated with restricted stock awarded under the equity incentive plan would be $1.1 million at the adjusted maximum of the offering range. However, if we grant shares of common stock or options to purchase shares of our common stock in excess of these amounts, such grants would increase our costs further.
The shares of restricted stock granted under the equity incentive plan will be expensed by us over their vesting period at the fair market value of the shares on the date they are awarded. If the shares of restricted stock to be granted under the plan are repurchased in the open market (rather than issued directly from authorized but unissued shares by HarborOne Bancorp) and cost the same as the purchase price in the offering, the reduction to shareholders' equity due to the plan would be between $3.6 million at the minimum of the offering range and $5.6 million at the adjusted maximum of the offering range. To the extent we purchase shares of common stock in the open market to fund the grants of shares under the plan, and the price of such shares exceeds the offering price of $10.00 per share, the reduction to stockholders' equity would exceed the range described above. Conversely, to the extent the price of such shares is below the offering price of $10.00 per share, the reduction to stockholders' equity would be less than the range described above.
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The implementation of an equity incentive plan may dilute your ownership interest.
We intend to adopt, and request shareholder approval of, an equity incentive plan, which will allow us to award participants restricted shares of our common stock (at no cost to them) and/or options to purchase shares of our common stock. If equity incentive plan is funded from the issuance of authorized but unissued shares of common stock, shareholders would experience a reduction in ownership interest totaling 6.1% based on the adjusted maximum of the offering range.
We have entered into employment agreements and plan to enter into change in control agreements with certain of our officers, which may increase our compensation costs upon the occurrence of certain events.
We have entered into an employment agreement with each of James W. Blake, our President and Chief Executive Officer, and Joseph F. Casey, our Executive Vice President, Chief Financial Officer and Chief Operating Officer, and plan to enter into change in control agreements with each of our other executive officers. In the event of termination of employment other than for cause, or in the event of certain types of termination following a change in control, as set forth in the employment agreements, the employment agreements will provide for cash severance benefits equal to approximately $4.0 million in the aggregate based on information as of December 31, 2015. For additional information see the section of this prospectus entitled "Executive and Director CompensationEmployment and Change in Control Arrangements."
We are an "emerging growth company," as defined in the JOBS Act, and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors and adversely affect the market price of our common stock.
For so long as we remain an "emerging growth company," we may take advantage of certain exemptions from various requirements applicable to public companies that are not "emerging growth companies" including:
We may take advantage of these exemptions until we are no longer an "emerging growth company." We would cease to be an "emerging growth company" upon the earliest of: (i) the first fiscal year following the fifth anniversary of this offering; (ii) the first fiscal year after our annual gross revenues are $1 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt securities; or (iv) as of the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year.
We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile and may decline.
We will incur increased costs as a result of operating as a public company and our management will be required to devote substantial time to new compliance initiatives.
Upon completion of the offering, and particularly after we are no longer an "emerging growth company," we will incur significant legal, accounting and other expenses associated with being a public company. In addition, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the Nasdaq Stock Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and
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other personnel will need to devote a substantial amount of time to these compliance initiatives, which could divert their attention from our core operations, and we may also need to hire additional compliance, accounting and financial staff with appropriate public company experience and technical knowledge. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us, as and when required, conducted in connection with Section 404 of the Sarbanes-Oxley Act, or "Section 404," or any subsequent testing by our independent registered public accounting firm, as and when required, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.
Pursuant to Section 404, we will be required to furnish a report by our management on our internal control over financial reporting. However, as an "emerging growth company," we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm until we are no longer an emerging growth company. There is a risk that we will not be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
We have elected to delay the adoption of new and revised accounting pronouncements, which means that our financial statements may not be comparable to those of other public companies.
As an "emerging growth company" we have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
If we declare dividends on our common stock, HarborOne Mutual Bancshares will be prohibited from waiving the receipt of dividends.
Our board of directors will have the authority to declare dividends on our common stock, subject to statutory and regulatory requirements. If we pay dividends to our shareholders, we also will be required to pay dividends to HarborOne Mutual Bancshares, unless HarborOne Mutual Bancshares is permitted by the Federal Reserve to waive the receipt of dividends. The Federal Reserve's current position is to not permit a bank holding company to waive dividends declared by its subsidiary. In addition, Massachusetts banking regulations prohibit HarborOne Mutual Bancshares from waiving dividends declared and paid by us unless the Massachusetts Commissioner of Banks does not object to the waiver and provided the waiver is not detrimental to the safe and sound operation of HarborOne Bank. Accordingly, because dividends will be required to be paid to HarborOne Mutual Bancshares along with all other shareholders, the amount of dividends available for all other shareholders will be less than if HarborOne Mutual Bancshares were permitted to waive the receipt of dividends.
You may not revoke your decision to purchase HarborOne Bancorp common stock in the subscription or community offerings after you send us your order.
Funds submitted or automatic withdrawals authorized in connection with the purchase of shares of common stock in the subscription and community offerings will be held by us until the completion or termination of the offering, including any extension of the expiration date and consummation of any syndicated community offering or firm commitment offering. Because completion of the offering will be subject to regulatory approvals and an update of the independent appraisal prepared by RP Financial, among other factors, there may be one or more delays in completing the offering.
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Orders submitted in the subscription and community offerings are irrevocable, and purchasers will have no access to their funds unless the offering is terminated, or extended beyond [Extension Date #2], 2016, or the number of shares to be sold in the offering is increased to more than 13,550,996 shares or decreased to fewer than 8,709,525 shares.
The distribution of subscription rights could have adverse income tax consequences.
If the subscription rights granted to certain current or former depositors of HarborOne Bank are deemed to have an ascertainable value, receipt of such rights may be taxable in an amount equal to such value. Whether subscription rights are considered to have ascertainable value is an inherently factual determination. We have received an opinion of counsel from Goodwin Procter LLP that it is more likely than not that such rights have no value; however, such opinion is not binding on the Internal Revenue Service.
Risks Related to the Contribution to our Charitable Foundation
The contribution to our charitable foundation will dilute your ownership interest and adversely affect net income in the year we complete the offering.
We intend to establish and fund a charitable foundation in connection with the reorganization and offering. We intend to contribute cash equal to 0.667% of the gross proceeds raised in the offering and 1.2% of our outstanding shares of common stock to a charitable foundation that we are establishing. The contribution will have an adverse effect on our net income for the quarter and year in which we make the contribution to our charitable foundation. The after-tax expense of the contribution will reduce net income in the year in which we complete the offering by approximately $2.7 million of the maximum of the offering range. Persons purchasing shares in the offering will have their ownership and voting interests in HarborOne Bancorp diluted by 1.2% due to the issuance of shares of common stock to our charitable foundation.
Our contribution to our charitable foundation may not be tax deductible, which could decrease our profits.
We believe that the contribution to our charitable foundation will be deductible for federal income tax purposes. However, the Internal Revenue Service may disagree with our determination and not grant tax-exempt status to our charitable foundation. If the contribution is not deductible, we would not receive any tax benefit from the contribution. It is expected that the value of the contribution of cash and shares will be $3.9 million of the maximum of the offering range, which would result in after-tax expense of approximately $2.4 million. In the event that the Internal Revenue Service does not grant tax-exempt status to our charitable foundation or the contribution to our charitable foundation is otherwise not tax deductible, we would recognize as after-tax expense the full value of the entire contribution.
In addition, even if the contribution is tax deductible, we may not have sufficient profits to be able to use the deduction fully. Pursuant to the Internal Revenue Code of 1986, as amended, or the "Code," an entity is permitted to deduct charitable contributions up to 10.0% of its taxable income prior to the charitable contribution deduction in any one year. Any contribution in excess of the 10.0% limit may be deducted for federal and state income tax purposes over each of the five years following the year in which the charitable contribution is made. Accordingly, a charitable contribution could, if necessary, be deducted over a six-year period. Our pre-tax income over this period may not be sufficient to fully use this deduction. With certain exceptions, Massachusetts tax law follows the federal income tax laws and taxable income is recomputed using state taxable income on a combined reporting basis.
22
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements, which are based on certain current assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions. These statements include, among others, statements regarding our strategy, goals and expectations; evaluations of future interest rate trends and liquidity; expectations as to growth in assets, deposits and results of operations, future operations, market position and financial position; and prospects, plans and objectives of management. You should not place undue reliance on our forward-looking statements. You should exercise caution in interpreting and relying on forward-looking statements because they are subject to significant risks, uncertainties and other factors which are, in some cases, beyond our control.
Forward-looking statements are based on the current assumptions and beliefs of management and are only expectations of future results. HarborOne Bancorp's actual results could differ materially from those projected in the forward-looking statements as a result of, among others, factors referenced herein under the section captioned "Risk Factors"; adverse conditions in the capital and debt markets and the impact of such conditions on our business activities; changes in interest rates; competitive pressures from other financial institutions; the effects of general economic conditions on a national basis or in the local markets in which we operate, including changes that adversely affect borrowers' ability to service and repay our loans; changes in the value of securities in our investment portfolio; changes in loan default and charge-off rates; fluctuations in real estate values; the adequacy of loan loss reserves; decreases in deposit levels necessitating increased borrowing to fund loans and investments; changes in government regulation; changes in accounting standards and practices; the risk that goodwill and intangibles recorded in our financial statements will become impaired; demand for loans in our market area; our ability to attract and maintain deposits; risks related to the implementation of acquisitions, dispositions, and restructurings; the risk that we may not be successful in the implementation of our business strategy; and changes in assumptions used in making such forward-looking statements. Forward-looking statements speak only as of the date on which they are made. HarborOne Bancorp does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.
23
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The summary financial information presented below is derived in part from our consolidated financial statements. The following is only a summary and you should read it in conjunction with the consolidated financial statements and notes beginning on page F-1. The information at December 31, 2015 and 2014 and for the years ended December 31, 2015 and 2014 is derived in part from the audited consolidated financial statements that appear in this prospectus. The information at December 31, 2013, 2012 and 2011 and for the years ended December 31, 2013, 2012 and 2011 is derived in part from our audited consolidated financial statements that do not appear in this prospectus.
|
At December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||
Financial Condition Data: |
||||||||||||||||
Total assets |
$ | 2,163,142 | $ | 2,041,879 | $ | 1,957,671 | $ | 1,871,335 | $ | 1,869,920 | ||||||
Cash and cash equivalents |
40,652 | 52,983 | 75,342 | 108,196 | 76,296 | |||||||||||
Securities available for sale, at fair value |
128,541 | 148,015 | 135,418 | 125,194 | 148,211 | |||||||||||
Securities held to maturity, at cost |
63,579 | 58,384 | 57,277 | 5,560 | 7,117 | |||||||||||
Mortgage loans held for sale, at fair value(1) |
63,797 | 3,525 | 2,061 | 11,497 | 2,930 | |||||||||||
Loans receivable, net |
1,729,388 | 1,651,894 | 1,591,814 | 1,518,021 | 1,530,668 | |||||||||||
Deposits |
1,691,212 | 1,500,115 | 1,414,960 | 1,328,720 | 1,330,516 | |||||||||||
Borrowings |
249,598 | 329,602 | 339,606 | 344,609 | 351,112 | |||||||||||
Total equity |
190,688 | 183,458 | 180,803 | 175,896 | 167,751 |
|
For the Years Ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||
Selected Operating Data: |
||||||||||||||||
Interest and dividend income |
$ | 66,800 | $ | 61,079 | $ | 59,973 | $ | 66,702 | $ | 71,545 | ||||||
Interest expense |
14,575 | 15,878 | 16,381 | 20,311 | 24,273 | |||||||||||
| | | | | | | | | | | | | | | | |
Net interest income |
52,225 | 45,201 | 43,592 | 46,391 | 47,272 | |||||||||||
Provision for loan losses |
1,257 | 2,589 | 2,235 | 3,839 | 4,024 | |||||||||||
| | | | | | | | | | | | | | | | |
Net interest income, after provision for loan losses |
50,968 | 42,612 | 41,357 | 42,552 | 43,248 | |||||||||||
Mortgage banking income(1) |
20,092 | 1,429 | 1,617 | 7,844 | 1,296 | |||||||||||
Gains on sale and calls of securities |
295 | 483 | 794 | 204 | 360 | |||||||||||
Other noninterest income |
14,986 | 13,698 | 13,837 | 13,017 | 13,540 | |||||||||||
Noninterest expense |
78,014 | 54,302 | 53,370 | 54,900 | 51,433 | |||||||||||
| | | | | | | | | | | | | | | | |
Income before income taxes |
8,327 | 3,920 | 4,235 | 8,717 | 7,011 | |||||||||||
Income tax expense (benefit)(2) |
2,559 | 1,350 | (2,909 | ) | N/A | N/A | ||||||||||
| | | | | | | | | | | | | | | | |
Net income |
$ | 5,768 | $ | 2,570 | $ | 7,144 | $ | 8,717 | $ | 7,011 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
24
|
At or For the Years Ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2015 | 2014 | 2013 | 2012(1) | 2011(1) | |||||||||||
Performance Ratios: |
||||||||||||||||
Return on average assets (ratio of net income to average total assets) |
0.27 | % | 0.13 | % | 0.38 | % | 0.46 | % | 0.38 | % | ||||||
Return on average equity (ratio of net income to average equity) |
3.04 | % | 1.38 | % | 3.98 | % | 5.01 | % | 4.27 | % | ||||||
Interest rate spread(1) |
2.50 | % | 2.26 | % | 2.23 | % | 2.34 | % | 2.45 | % | ||||||
Net interest margin(2) |
2.60 | % | 2.38 | % | 2.36 | % | 2.51 | % | 2.65 | % | ||||||
Efficiency ratio(3) |
88.85 | % | 88.99 | % | 88.88 | % | 81.11 | % | 82.04 | % | ||||||
Average interest-earning assets to average interest-bearing liabilities |
115.38 | % | 115.72 | % | 115.73 | % | 115.29 | % | 114.65 | % | ||||||
Average equity to average total assets |
8.93 | % | 9.40 | % | 9.54 | % | 9.23 | % | 8.96 | % | ||||||
Asset Quality Ratios: |
||||||||||||||||
Non-performing assets to total assets |
1.47 | % | 1.87 | % | 1.90 | % | 2.19 | % | 2.46 | % | ||||||
Non-performing loans to total loans |
1.69 | % | 2.12 | % | 2.13 | % | 2.57 | % | 2.77 | % | ||||||
Allowance for loan losses to non-performing loans |
46.56 | % | 39.49 | % | 42.44 | % | 43.73 | % | 41.61 | % | ||||||
Allowance for loan losses to total loans |
0.79 | % | 0.84 | % | 0.90 | % | 1.12 | % | 1.15 | % | ||||||
Net loans charged off as a percent of average loans outstanding |
0.09 | % | 0.20 | % | 0.32 | % | 0.28 | % | 0.19 | % | ||||||
Capital Ratios(4): |
||||||||||||||||
Common equity tier 1 to risk weighted assets |
10.8 | % | N/A | N/A | N/A | N/A | ||||||||||
Tier 1 capital to risk weighted assets |
10.8 | % | 12.2 | % | 14.0 | % | N/A | N/A | ||||||||
Total capital to risk weighted assets |
11.7 | % | 13.1 | % | 13.0 | % | N/A | N/A | ||||||||
Tier 1 capital to average assets |
8.3 | % | 8.9 | % | 9.1 | % | N/A | N/A |
25
The following table shows how we intend to use the net proceeds of the offering. Although we cannot determine what the actual net proceeds from the sale of the shares of common stock in the offering will be until the offering is completed, we anticipate that the net proceeds will be between $83.6 million and $114.1 million, or $131.7 million if the offering range is increased by 15.0%. See the section of this prospectus entitled "Pro Forma Data" for the assumptions used to arrive at these amounts.
|
Based Upon the Sale at $10.00 Per Share of | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Minimum of
Offering Range 8,709,525 Shares |
Midpoint of Offering
Range 10,246,500 Shares |
Maximum of Offering
Range 11,783,475 Shares |
Adjusted Maximum
of Offering Range 13,550,996 Shares(1) |
|||||||||||||||||||||
|
Amount |
Percent
of Net Proceeds |
Amount |
Percent
of Net Proceeds |
Amount |
Percent
of Net Proceeds |
Amount |
Percent
of Net Proceeds |
|||||||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||||||||||
Offering proceeds |
$ | 87,095 | $ | 102,465 | $ | 117,835 | $ | 135,510 | |||||||||||||||||
Less offering expenses |
(3,451 | ) | (3,571 | ) | (3,691 | ) | (3,829 | ) | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net offering proceeds |
$ | 83,644 | 100.0 | % | $ | 98,894 | 100.0 | % | $ | 114,144 | 100.0 | % | $ | 131,681 | 100.0 | % | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Use of net proceeds: |
|||||||||||||||||||||||||
To HarborOne Bank |
$ | 41,822 | 50.0 | % | $ | 49,447 | 50.0 | % | $ | 57,072 | 50.0 | % | $ | 65,840 | 50.0 | % | |||||||||
Contributed to charitable foundation |
581 | 0.7 | % | 683 | 0.7 | % | 786 | 0.7 | % | 903 | 0.7 | % | |||||||||||||
Capitalize HarborOne Mutual Bancshares |
100 | 0.1 | % | 100 | 0.1 | % | 100 | 0.1 | % | 100 | 0.1 | % | |||||||||||||
To fund loan to employee stock ownership plan |
7,153 | 8.6 | % | 8,416 | 8.5 | % | 9,678 | 8.5 | % | 11,130 | 8.5 | % | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Retained by HarborOne Bancorp. |
$ | 33,988 | 40.6 | % | $ | 40,248 | 40.7 | % | $ | 46,508 | 40.7 | % | $ | 53,707 | 40.8 | % | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Payments for shares of common stock made through withdrawals from deposit accounts at HarborOne Bank will reduce deposits and will not result in the receipt of new funds for investment. The net proceeds may vary because the total expenses relating to the offering may be more or less than our estimates. For example, our expenses would increase if a syndicated community offering or firm commitment offering were used to sell shares of common stock not purchased in the subscription and community offerings.
We may use the proceeds that we retain from the offering as follows:
With the exception of the funding of the loan to the employee stock ownership plan and the contribution to our charitable foundation, we have not quantified our plans for use of the retained net proceeds for each of the foregoing purposes. Initially, we intend to invest a substantial portion of the retained net proceeds in short-term investments, investment-grade debt obligations and mortgage-backed securities.
Under currently applicable regulations, we may not repurchase shares of our common stock during the first three years following the reorganization, except to fund equity benefit plans other than stock options or except when extraordinary circumstances exist and with prior regulatory approval. See "Dividend Policy" for a discussion of our expected dividend policy following the completion of the offering.
26
We expect HarborOne Bank will receive a capital contribution equal to 50.0% of the net proceeds of the offering, which it may use as follows:
HarborOne Bank has not quantified its plans for use of the offering proceeds for any of the foregoing purposes. The use of the proceeds outlined above may change based on many factors, including, but not limited to, changes in interest rates, equity markets, laws and regulations affecting the financial services industry, our relative position in the financial services industry, the attractiveness of opportunities to expand our operations through establishing or acquiring new branches, our ability to receive regulatory approval for any such expansion activities, and overall market conditions. Initially, HarborOne Bank intends to invest a substantial portion of the offering proceeds it receives in short-term investments, investment-grade debt obligations and mortgage-backed securities.
27
We do not currently anticipate paying dividends on our common stock. Following completion of the offering, our board of directors will have the authority to declare dividends on our shares of common stock, subject to statutory and regulatory requirements and other considerations.
Specifically, the Federal Reserve has issued a policy statement providing that dividends should be paid only out of current earnings and only if our prospective rate of earnings retention is consistent with our capital needs, asset quality and overall financial condition. Regulatory guidance also provides for prior regulatory consultation with respect to capital distributions in certain circumstances, such as where a holding 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 a holding company's overall rate of earnings retention is inconsistent with its capital needs and overall financial condition. In determining whether to pay a cash dividend in the future and the amount of any cash dividend, the board of directors is expected to take into account a number of factors, including regulatory capital requirements, our financial condition and results of operations, other uses of funds for the long-term value of shareholders, tax considerations, statutory and regulatory limitations and general economic conditions.
If HarborOne Bancorp pays dividends to its shareholders, it also will be required to pay dividends to HarborOne Mutual Bancshares, unless HarborOne Mutual Bancshares is permitted by the Federal Reserve to waive the receipt of dividends. The Federal Reserve's current position is to not permit a mutual holding company that is regulated as a bank holding company to waive dividends declared by its subsidiary. In addition, Massachusetts banking regulations prohibit HarborOne Mutual Bancshares from waiving dividends declared and paid by HarborOne Bancorp unless the Massachusetts Commissioner of Banks does not object to the waiver and provided the waiver is not detrimental to the safe and sound operation of HarborOne Bank. See "Risk FactorsRisks Related to This OfferingIf we declare dividends on our common stock, HarborOne Mutual Bancshares will be prohibited from waiving the receipt of dividends."
Dividends we can declare and pay will depend, in part, upon receipt of dividends from HarborOne Bank, because initially we will have no source of income other than dividends from HarborOne Bank, earnings from the investment of proceeds from the sale of shares of common stock, and interest payments received in connection with the loan to the employee stock ownership plan. Massachusetts banking law and FDIC regulations impose significant limitations on "capital distributions" by depository institutions. See the sections of this prospectus entitled "Supervision and RegulationMassachusetts Banking Laws and SupervisionDividends" and "Supervision and RegulationFederal Banking RegulationsPrompt Corrective Action Regulations." In addition, HarborOne Bank's ability to pay dividends will be limited if it does not have the capital conservation buffer required by the new capital rules, which may limit our ability to pay dividends to shareholders. See the section of this prospectus entitled "Supervision and RegulationFederal Banking RegulationCapital Requirements." No assurances can be given that any dividends will be paid or that, if paid, will not be reduced or eliminated in the future. Special cash dividends, stock dividends or returns of capital, to the extent permitted by regulations and policies of the Federal Reserve and the Massachusetts Commissioner of Banks, may be paid in addition to, or in lieu of, regular cash dividends.
Pursuant to our articles of organization, we are authorized to issue preferred stock. If we issue preferred stock, the holders of the preferred stock may have dividend preferences over the holders of common stock.
28
We have not previously issued common stock and there is currently no established market for our common stock. We intend to apply for approval to list our common stock on the Nasdaq Global Market under the symbol "HONE." In order to list our common stock on the Nasdaq Global Market, we are required to have at least three broker-dealers who will make a market in our common stock. Sandler, O'Neill & Partners, L.P. has advised us that it intends to make a market in our common stock following the reorganization and offering, but it is under no obligation to do so or to continue to do so if it begins. Sandler, O'Neill & Partners, L.P. also may assist us, if needed, in obtaining other market makers after the offering. We cannot assure you that other market makers will be obtained or that an active and liquid trading market for the common stock will develop or, if developed, will be maintained.
The development and maintenance of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control, or that of any market maker. The number of active buyers and sellers of the shares of common stock at any particular time may be limited. Under such circumstances, you could have difficulty selling your shares of common stock on short notice, and, therefore, you should not view the shares of common stock as a short-term investment. Furthermore, we cannot assure you that, if you purchase shares of common stock, you will be able to sell them at or above $10.00 per share. Purchasers of common stock in the offering should have long-term investment intent and should recognize that there may be a limited trading market in the common stock. This may make it difficult to sell the common stock after the offering and may have an adverse impact on the price at which the common stock can be sold.
29
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
At December 31, 2015, HarborOne Bank exceeded all applicable regulatory capital requirements. The table below sets forth the historical equity capital and regulatory capital of HarborOne Bank at December 31, 2015, and the pro forma regulatory capital of HarborOne Bank, after giving effect to the sale of shares of common stock at a $10.00 per share purchase price. The table assumes the receipt by HarborOne Bank of 50.0% of the net offering proceeds. See the section of this prospectus entitled "Use of Proceeds."
|
|
|
Pro Forma at December 31, 2015
Based Upon the Sale in the Offering of |
||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Historical
at December 31, 2015 |
8,709,525 Shares
(Minimum of Offering Range) |
10,246,500 Shares
(Midpoint of Offering Range) |
11,783,475 Shares
(Maximum of Offering Range) |
13,550,996 Shares
(Adjusted Maximum of Offering Range)(1) |
||||||||||||||||||||||||||
|
Amount |
Percent
of Assets(2) |
Amount |
Percent
of Assets(2) |
Amount |
Percent
of Assets(2) |
Amount |
Percent
of Assets(2) |
Amount |
Percent
of Assets(2) |
|||||||||||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||||||||||||||||
Capital and Retained Earnings |
$ | 190,688 | 8.81 | % | $ | 221,780 | 10.07 | % | $ | 227,511 | 10.30 | % | $ | 233,243 | 10.52 | % | $ | 239,834 | 10.78 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common equity tier 1 capital(3) |
$ | 177,809 | 8.30 | % | $ | 208,901 | 9.58 | % | $ | 214,632 | 9.81 | % | $ | 220,364 | 10.04 | % | $ | 226,955 | 10.31 | % | |||||||||||
Common equity tier 1 requirement(4) |
107,082 | 5.00 | % | 108,994 | 5.00 | % | 109,344 | 5.00 | % | 109,693 | 5.00 | % | 110,095 | 5.00 | % | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Excess |
$ | 70,727 | 3.30 | % | $ | 99,907 | 4.58 | % | $ | 105,288 | 4.81 | % | $ | 110,671 | 5.04 | % | $ | 116,860 | 5.31 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tier 1 leverage capital(3) |
$ | 177,809 | 10.84 | % | $ | 208,901 | 12.68 | % | $ | 214,632 | 13.02 | % | $ | 220,364 | 13.35 | % | $ | 226,955 | 13.74 | % | |||||||||||
Tier 1 leverage requirement(4) |
171,331 | 8.00 | % | 174,390 | 8.00 | % | 174,950 | 8.00 | % | 175,509 | 8.00 | % | 176,153 | 8.00 | % | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Excess |
$ | 6,478 | 2.84 | % | $ | 34,511 | 4.68 | % | $ | 39,682 | 5.02 | % | $ | 44,855 | 5.35 | % | $ | 50,802 | 5.74 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tier 1 risk-based capital(3) |
$ | 191,509 | 11.68 | % | $ | 222,601 | 13.51 | % | $ | 228,332 | 13.85 | % | $ | 234,064 | 14.18 | % | $ | 240,655 | 14.57 | % | |||||||||||
Tier 1 risk-based requirement(4) |
164,001 | 10.00 | % | 164,766 | 10.00 | % | 164,906 | 10.00 | % | 165,045 | 10.00 | % | 165,206 | 10.00 | % | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Excess |
$ | 27,508 | 1.68 | % | $ | 57,835 | 3.51 | % | $ | 63,426 | 3.85 | % | $ | 69,019 | 4.18 | % | $ | 75,449 | 4.57 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total risk-based capital(3) |
$ | 177,809 | 10.84 | % | $ | 208,901 | 12.68 | % | $ | 214,632 | 13.02 | % | $ | 220,364 | 13.35 | % | $ | 226,955 | 13.74 | % | |||||||||||
Total risk-based requirement(4) |
106,601 | 6.50 | % | 107,098 | 6.50 | % | 107,189 | 6.50 | % | 107,280 | 6.50 | % | 107,384 | 6.50 | % | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Excess |
$ | 71,208 | 4.34 | % | $ | 101,803 | 6.18 | % | $ | 107,443 | 6.52 | % | $ | 113,084 | 6.85 | % | $ | 119,571 | 7.24 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation:
|
|
|
|
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net proceeds invested in HarborOne Bank |
$ | 41,822 | $ | 49,447 | $ | 57,072 | $ | 65,840 | |||||
Less: Common stock acquired by employee stock ownership plan |
(7,153 | ) | (8,416 | ) | (9,678 | ) | (11,130 | ) | |||||
Less: Common stock acquired by equity incentive plan |
(3,577 | ) | (4,208 | ) | (4,839 | ) | (5,565 | ) | |||||
| | | | | | | | | | | | | |
Pro forma increase in Tier 1 and total risk-based capital |
$ | 31,092 | $ | 36,823 | $ | 42,555 | $ | 49,145 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The table below sets forth the pro forma equity capital and regulatory capital of HarborOne Bancorp after giving effect to the sale of shares of common stock at $10.00 per share. At December 31, 2015, HarborOne Bancorp would have exceeded all of the applicable consolidated regulatory capital requirements and would have been considered "well capitalized." The table below assumes that we will contribute 50.0% of the net offering proceeds to HarborOne Bank, contribute a portion of the net proceeds to our charitable foundation, capitalize HarborOne Mutual Bancshares,
30
fund a loan to the employee stock ownership plan with a portion of the net proceeds, and retain the rest of the proceeds. See "Use of Proceeds."
|
|
|
Pro Forma at December 31, 2015
Based Upon the Sale in the Offering of |
||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Historical
at December 31, 2015 |
8,709,525 Shares
(Minimum of Offering Range) |
10,246,500 Shares
(Midpoint of Offering Range) |
11,783,475 Shares
(Maximum of Offering Range) |
13,550,996 Shares
(Adjusted Maximum of Offering Range)(1) |
||||||||||||||||||||||||||
|
Amount |
Percent
of Assets(2) |
Amount |
Percent
of Assets(2) |
Amount |
Percent
of Assets(2) |
Amount |
Percent
of Assets(2) |
Amount |
Percent
of Assets(2) |
|||||||||||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||||||||||||||||
Capital and Retained Earnings |
$ | 190,688 | 8.81 | % | $ | 221,732 | 10.06 | % | $ | 227,463 | 10.29 | % | $ | 233,195 | 10.50 | % | $ | 239,786 | 10.78 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tier 1 leverage capital(3) |
$ | 177,593 | 8.29 | % | $ | 208,685 | 9.57 | % | $ | 214,416 | 9.81 | % | $ | 220,148 | 10.04 | % | $ | 226,739 | 10.30 | % | |||||||||||
Tier 1 leverage requirement(4) |
107,071 | 5.00 | % | 108,983 | 5.00 | % | 109,333 | 5.00 | % | 109,682 | 5.00 | % | 110,084 | 5.00 | % | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Excess |
$ | 70,522 | 3.29 | % | $ | 99,702 | 4.57 | % | $ | 105,083 | 4.81 | % | $ | 110,466 | 5.04 | % | $ | 116,655 | 5.30 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tier 1 risk-based capital(3) |
$ | 177,593 | 10.74 | % | $ | 208,685 | 12.57 | % | $ | 214,416 | 12.90 | % | $ | 220,148 | 13.23 | % | $ | 226,739 | 13.62 | % | |||||||||||
Tier 1 risk-based requirement(4) |
171,313 | 8.00 | % | 174,373 | 8.00 | % | 174,932 | 8.00 | % | 175,492 | 8.00 | % | 176,135 | 8.00 | % | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Excess |
$ | 6,280 | 2.74 | % | $ | 34,312 | 4.57 | % | $ | 39,484 | 4.90 | % | $ | 44,656 | 5.23 | % | $ | 50,604 | 5.62 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total risk-based capital(3) |
$ | 191,293 | 11.57 | % | $ | 222,385 | 13.39 | % | $ | 228,116 | 13.73 | % | $ | 233,848 | 14.06 | % | $ | 240,439 | 14.44 | % | |||||||||||
Total risk-based requirement(4) |
165,295 | 10.00 | % | 166,059 | 10.00 | % | 166,199 | 10.00 | % | 166,339 | 10.00 | % | 166,500 | 10.00 | % | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Excess |
$ | 25,999 | 1.57 | % | $ | 56,326 | 3.39 | % | $ | 61,917 | 3.73 | % | $ | 67,509 | 4.06 | % | $ | 73,939 | 4.44 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common equity tier 1 capital(3) |
$ | 177,593 | 10.74 | % | $ | 208,685 | 12.57 | % | $ | 214,416 | 12.90 | % | $ | 220,148 | 13.23 | % | $ | 226,739 | 13.62 | % | |||||||||||
Common equity tier 1 requirement(4) |
107,441 | 6.50 | % | 107,939 | 6.50 | % | 108,030 | 6.50 | % | 108,120 | 6.50 | % | 108,225 | 6.50 | % | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Excess |
$ | 70,152 | 4.24 | % | $ | 100,746 | 6.07 | % | $ | 106,386 | 6.40 | % | $ | 112,028 | 6.73 | % | $ | 118,514 | 7.12 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
31
The following table presents the historical consolidated capitalization of HarborOne Bank at December 31, 2015 and the pro forma consolidated capitalization of HarborOne Bancorp, after giving effect to the reorganization and offering, based upon the assumptions set forth in the section of this prospectus entitled "Pro Forma Data."
|
|
HarborOne Bancorp Pro Forma Based
Upon the Sale in the Offering at $10.00 per Share of |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in thousands)
|
Historical
at December 31, 2015 |
8,709,525
Shares (Minimum of Offering Range) |
10,246,500
Shares (Midpoint of Offering Range) |
11,783,475
Shares (Maximum of Offering Range) |
13,550,996
Shares (Adjusted Maximum of Offering Range)(1) |
|||||||||||
Deposits(2) |
$ | 1,691,212 | $ | 1,691,212 | $ | 1,691,212 | $ | 1,691,212 | $ | 1,691,212 | ||||||
Borrowings |
249,598 | 249,598 | 249,598 | 249,598 | 249,598 | |||||||||||
| | | | | | | | | | | | | | | | |
Total deposits and borrowed funds |
$ | 1,940,810 | $ | 1,940,810 | $ | 1,940,810 | $ | 1,940,810 | $ | 1,940,810 | ||||||
Shareholders' equity: |
|
|
|
|
|
|||||||||||
Common stock, $0.01 par value, 90,000,000 shares authorized; assuming shares outstanding as shown(3) |
$ | | $ | 1,935 | $ | 2,277 | $ | 2,619 | $ | 3,011 | ||||||
Additional paid-in capital(4) |
| 84,031 | 99,349 | 114,667 | 132,284 | |||||||||||
Retained earnings(5) |
191,280 | 191,280 | 191,280 | 191,280 | 191,280 | |||||||||||
Plus: |
||||||||||||||||
Tax benefit of contribution to charitable foundation |
| 1,161 | 1,366 | 1,571 | 1,807 | |||||||||||
Assets retained by HarborOne Mutual Bancshares |
| (100 | ) | (100 | ) | (100 | ) | (100 | ) | |||||||
Accumulated other comprehensive income |
(592 | ) | (592 | ) | (592 | ) | (592 | ) | (592 | ) | ||||||
Less: |
||||||||||||||||
Common stock to be acquired by employee stock ownership plan(6) |
| (7,153 | ) | (8,416 | ) | (9,678 | ) | (11,130 | ) | |||||||
Common stock to be acquired by equity incentive plan(7) |
| (3,577 | ) | (4,208 | ) | (4,839 | ) | (5,565 | ) | |||||||
Expense of contribution of stock to charitable foundation |
| (2,323 | ) | (2,732 | ) | (3,142 | ) | (3,614 | ) | |||||||
Expense of cash contribution to charitable foundation |
| (581 | ) | (683 | ) | (786 | ) | (903 | ) | |||||||
| | | | | | | | | | | | | | | | |
Total shareholders' equity |
$ | 190,688 | $ | 264,082 | $ | 277,541 | $ | 291,000 | $ | 306,478 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Pro forma shares outstanding |
||||||||||||||||
Total shares outstanding |
| 19,354,500 | 22,770,000 | 26,185,500 | 30,113,325 | |||||||||||
Shares issued to HarborOne Mutual Bancshares |
| 10,412,721 | 12,250,260 | 14,087,799 | 16,200,969 | |||||||||||
Shares issued to foundation |
| 232,254 | 273,240 | 314,226 | 361,360 | |||||||||||
Shares offered for sale |
| 8,709,525 | 10,246,500 | 11,783,475 | 13,550,996 | |||||||||||
Total equity as a percentage of total assets |
8.82 |
% |
11.81 |
% |
12.34 |
% |
12.86 |
% |
13.45 |
% |
||||||
Tangible equity as a percentage of total tangible assets |
8.24 | % | 11.27 | % | 11.80 | % | 12.33 | % | 12.93 | % |
32
common stock sold in the offering and contributed to our charitable foundation will be reserved for issuance upon the exercise of stock options and for issuance as restricted stock awards, respectively. See the section of this prospectus entitled "Executive and Director CompensationEquity Incentive Plan."
33
The following tables summarize historical data of HarborOne Bank and pro forma data of HarborOne Bancorp at and for the year ended December 31, 2015. The information provided illustrates our pro forma net income and shareholders' equity based on the sale of common stock at the minimum, midpoint, maximum and 15.0% above the maximum of the offering range. The actual net proceeds from the sale of the common stock cannot be determined until the offering is completed and may vary from our estimates.
Net proceeds indicated in the following tables are based upon the following assumptions:
We calculated pro forma consolidated net income for the year ended December 31, 2015, as if the estimated net proceeds had been invested at an assumed interest rate of 1.76% (1.06% on an after-tax basis). This represents the yield on the five-year United States Treasury Note at December 31, 2015, which, in light of current market interest rates, we consider to more accurately reflect the pro forma reinvestment rate than the arithmetic average of the weighted average yield earned on our interest earning assets and the weighted average rate paid on our deposits, which is the reinvestment rate generally required by federal regulators.
We calculated historical and pro forma per share amounts by dividing historical and pro forma consolidated net income and shareholders' equity by the indicated number of shares of common stock. We computed per share amounts as if the shares of common stock were outstanding at the beginning of the period, but we did not adjust per share historical or pro forma shareholders' equity to reflect the earnings on the estimated net proceeds.
The pro forma tables give effect to the implementation of an equity incentive plan. Subject to the receipt of shareholder approval, we have assumed that the equity incentive plan will acquire for restricted stock awards a number of shares of common stock equal to 4.0% of the shares of common stock sold in the offering and issued to the charitable foundation at the same price for which they were sold in the offering. We assume that shares of common stock are granted under the plans in awards that vest over a five-year period.
We have also assumed that options to acquire shares of common stock equal to 10.0% of the shares of common stock sold in the offering and issued to the charitable foundation will be granted under the equity incentive plan. In preparing the tables below, we assumed that shareholder approval was obtained, that the exercise price of the stock options and the market price of the stock at the date of grant were $10.00 per share and that the stock options had a term of 10 years and vested over five years. We applied the Black-Scholes option pricing model to estimate a grant-date fair value of $2.83 for each option. In addition to the terms of the options described above, the Black-Scholes option pricing model assumed an estimated volatility rate of 14.49% for the shares of common stock, a dividend yield of 0.0%, an expected option life of 10 years and a risk-free interest rate of 2.27%.
We may grant options and award shares of common stock under an equity incentive plan in excess of 10.0% and 4.0%, respectively, of the shares of common stock sold in the offering and issued to the charitable foundation if the equity incentive plan is adopted more than one year following the offering. In addition, we may grant options and award shares that vest sooner than over a five-year period if the equity incentive plan is adopted more than one year following the offering.
As discussed under the section of this prospectus entitled "Use of Proceeds," we intend to contribute 50.0% of the net proceeds to HarborOne Bank, to contribute a portion of the net proceeds to our charitable foundation, to capitalize HarborOne Mutual Bancshares, and to fund a loan to the employee stock ownership plan with a portion of the net proceeds. We intend to retain the rest of the proceeds for future use.
34
The pro forma table does not give effect to:
The following pro forma information may not represent the financial effects of the offering at the date on which the offering actually occurs and you should not use the table to indicate future results of operations. Pro forma shareholders' equity represents the difference between the stated amount of our assets and liabilities, computed in accordance with generally accepted accounting principles. We did not increase or decrease shareholders' equity to reflect the difference between the carrying value of loans and other assets and their market value. Pro forma shareholders' equity is not intended to represent the fair market value of the shares of common stock and may be different than the amounts that would be available for distribution to shareholders if we liquidated. Pro forma
35
shareholders' equity does not give effect to the impact of intangible assets or the liquidation account we will establish in the reorganization.
|
At or For the Year Ended December 31, 2015
Based Upon the Sale at $10.00 Per Share of |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
8,709,525 Shares
(Minimum of Offering Range) |
10,246,500 Shares
(Midpoint of Offering Range) |
11,783,475 Shares
(Maximum of Offering Range) |
13,550,996 Shares
(Adjusted Maximum Offering of Range)(1) |
|||||||||
|
(Dollars in thousands, except per share amounts)
|
||||||||||||
Gross proceeds of offering |
$ | 87,095 | $ | 102,465 | $ | 117,835 | $ | 135,510 | |||||
Less: Expenses |
3,451 | 3,571 | 3,691 | 3,829 | |||||||||
| | | | | | | | | | | | | |
Estimated net proceeds |
$ | 83,644 | $ | 98,894 | $ | 114,144 | $ | 131,681 | |||||
Less: Funding of HarborOne Mutual Bancshares |
(100 | ) | (100 | ) | (100 | ) | (100 | ) | |||||
Less: Cash contribution to charitable foundation |
(581 | ) | (683 | ) | (786 | ) | (903 | ) | |||||
Less: Common stock purchased by employee stock ownership plan(2) |
(7,153 | ) | (8,416 | ) | (9,678 | ) | (11,130 | ) | |||||
Less: Common stock awarded under equity incentive plan(3) |
(3,577 | ) | (4,208 | ) | (4,839 | ) | (5,565 | ) | |||||
| | | | | | | | | | | | | |
Estimated net proceeds, as adjusted |
$ | 72,233 | $ | 85,487 | $ | 98,741 | $ | 113,983 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net income: |
|
|
|
|
|||||||||
Historical |
$ | 5,768 | $ | 5,768 | $ | 5,768 | $ | 5,768 | |||||
Pro forma income on net proceeds |
763 | 903 | 1,043 | 1,204 | |||||||||
Pro forma employee stock ownership plan adjustment(2) |
(215 | ) | (252 | ) | (290 | ) | (334 | ) | |||||
Pro forma stock award adjustment(3) |
(429 | ) | (505 | ) | (581 | ) | (668 | ) | |||||
Pro forma stock option adjustment(4) |
(455 | ) | (536 | ) | (616 | ) | (709 | ) | |||||
| | | | | | | | | | | | | |
Pro forma net income |
$ | 5,432 | $ | 5,378 | $ | 5,324 | $ | 5,261 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Per basic share net income: |
|
|
|
|
|||||||||
Historical |
$ | 0.31 | $ | 0.26 | $ | 0.23 | $ | 0.20 | |||||
Pro forma income on net proceeds |
0.04 | 0.04 | 0.04 | 0.04 | |||||||||
Pro forma employee stock ownership plan adjustment(2) |
(0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | |||||
Pro forma stock award adjustment(3) |
(0.02 | ) | (0.02 | ) | (0.02 | ) | (0.02 | ) | |||||
Pro forma stock option adjustment(4) |
(0.02 | ) | (0.02 | ) | (0.02 | ) | (0.02 | ) | |||||
| | | | | | | | | | | | | |
Pro forma net income per basic share(5) |
0.30 | $ | 0.25 | $ | 0.22 | $ | 0.19 | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Offering price as a multiple of pro forma net earnings per share |
33.33x | 40.00x | 45.45x | 52.63x | |||||||||
Number of shares outstanding for pro forma net income per share calculations(5) |
18,674,925 | 21,970,500 | 25,266,075 | 29,055,986 | |||||||||
Shareholders' equity: |
|
|
|
|
|||||||||
Historical |
$ | 190,688 | $ | 190,688 | $ | 190,688 | $ | 190,688 | |||||
Estimated net proceeds |
83,644 | 98,894 | 114,144 | 131,681 | |||||||||
Less: Capitalization of HarborOne Mutual Bancshares |
(100 | ) | (100 | ) | (100 | ) | (100 | ) | |||||
Plus: Market value of shares issued to charitable foundation |
2,323 | 2,732 | 3,142 | 3,614 | |||||||||
Less: Expense of contribution of stock to charitable foundation(6) |
(2,323 | ) | (2,732 | ) | (3,142 | ) | (3,614 | ) | |||||
Less: Expense of cash contribution to charitable foundation(6) |
(581 | ) | (683 | ) | (786 | ) | (903 | ) | |||||
Plus: Tax benefit of contribution to charitable foundation |
1,162 | 1,366 | 1,571 | 1,807 | |||||||||
Less: Common stock acquired by employee stock ownership plan(2) |
(7,153 | ) | (8,416 | ) | (9,678 | ) | (11,130 | ) | |||||
Less: Common stock awarded under equity incentive plan(3)(4) |
(3,577 | ) | (4,208 | ) | (4,839 | ) | (5,565 | ) | |||||
| | | | | | | | | | | | | |
Pro forma shareholders' equity |
$ | 264,082 | $ | 277,541 | $ | 291,000 | $ | 306,478 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Intangible assets |
(13,674 | ) | (13,674 | ) | (13,674 | ) | (13,674 | ) | |||||
| | | | | | | | | | | | | |
Pro forma tangible shareholders' equity |
$ | 250,408 | $ | 263,867 | $ | 277,326 | $ | 292,804 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Shareholders' equity per share: |
|
|
|
|
|||||||||
Historical |
$ | 9.85 | $ | 8.37 | $ | 7.28 | $ | 6.33 | |||||
Estimated net proceeds |
4.32 | 4.34 | 4.35 | 4.37 | |||||||||
Less: Capitalization of HarborOne Mutual Bancshares |
(0.01 | ) | (0.00 | ) | 0.00 | 0.00 | |||||||
Plus: Market value of shares issued to charitable foundation |
0.12 | 0.12 | 0.12 | 0.12 | |||||||||
Less: Expense of contribution of stock to charitable foundation |
(0.12 | ) | (0.12 | ) | (0.12 | ) | (0.12 | ) | |||||
Less: Expense of cash contribution to charitable foundation |
(0.03 | ) | (0.03 | ) | (0.03 | ) | (0.03 | ) | |||||
Plus: Tax benefit of contribution to charitable foundation |
0.06 | 0.06 | 0.06 | 0.06 | |||||||||
Less: Common stock acquired by employee stock ownership plan(2) |
(0.37 | ) | (0.37 | ) | (0.37 | ) | (0.37 | ) | |||||
Less: Common stock awarded under equity incentive plan(3)(4) |
(0.18 | ) | (0.18 | ) | (0.18 | ) | (0.18 | ) | |||||
| | | | | | | | | | | | | |
Pro forma shareholders' equity per share(7) |
$ | 13.64 | $ | 12.19 | $ | 11.11 | $ | 10.18 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Intangible assets |
(0.70 | ) | (0.60 | ) | (0.52 | ) | (0.45 | ) | |||||
| | | | | | | | | | | | | |
Pro forma tangible shareholders' equity per share |
$ | 12.94 | $ | 11.59 | $ | 10.59 | $ | 9.73 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Offering price as a percentage of pro forma shareholders' equity per share |
73.31 | % | 82.03 | % | 90.01 | % | 98.23 | % | |||||
Offering price as a percentage of pro forma tangible stockholders' equity per share |
77.28 | % | 86.28 | % | 94.43 | % | 102.77 | % | |||||
Number of shares outstanding for pro forma book value per share calculations |
19,354,500 | 22,770,000 | 26,185,500 | 30,113,325 |
36
committed to be released to employees. The pro forma adjustments assume that the employee stock ownership plan shares are allocated in 20 equal annual installments, the fair value of the common stock remains equal to the subscription price and the employee stock ownership plan expense reflects an effective combined federal and state tax rate of 40.0%. The unallocated employee stock ownership plan shares are reflected as a reduction of shareholders' equity. No reinvestment is assumed on proceeds contributed to fund the employee stock ownership plan. The pro forma net income assumes that 35,767, 42,079, 48,391 and 55,649 shares were committed to be released during the year ended December 31, 2015, at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively. In accordance with ASC 718-40-30, only the employee stock ownership plan shares committed to be released during the period were considered outstanding for purposes of income per share calculations.
(In thousands, except per share data)
|
Minimum of
Offering Range |
Midpoint of
Offering Range |
Maximum of
Offering Range |
Maximum, as
adjusted, of Offering Range |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
For the year ended December 31, 2015: |
|||||||||||||
Before tax expense of contribution |
$ |
(2,904 |
) |
$ |
(3,415 |
) |
$ |
(3,928 |
) |
$ |
(4,517 |
) |
|
Estimated after tax expense of contribution |
$ | (1,742 | ) | $ | (2,049 | ) | $ | (2,357 | ) | $ | (2,710 | ) | |
Pro forma net income |
$ | 3,690 | $ | 3,329 | $ | 2,967 | $ | 2,551 | |||||
Pro forma net income per share |
$ | 0.20 | $ | 0.15 | $ | 0.12 | $ | 0.09 | |||||
Pro forma tax benefit |
$ | 1,162 | $ | 1,366 | $ | 1,571 | $ | 1,807 |
37
COMPARISON OF VALUATION AND PRO FORMA INFORMATION
WITH AND WITHOUT OUR CHARITABLE FOUNDATION
As reflected in the table below, if our charitable foundation is not established and funded as part of the offering, RP Financial estimates that our pro forma valuation would be greater and, as a result, a greater number of shares of common stock would be offered in the offering. At the minimum, midpoint, maximum and adjusted maximum of the valuation range, our pro forma valuation is $193.5 million, $227.7 million, $261.9 million and $301.1 million, respectively, with our charitable foundation, as compared to $195.5 million, $230.0 million, $264.5 million and $304.2 million, respectively, without our charitable foundation. There is no assurance that in the event our charitable foundation were not formed, the appraisal prepared at that time would conclude that our pro forma market value would be the same as that estimated in the table below. Any appraisal prepared at that time would be based on the facts and circumstances existing at that time, including, among other things, market and economic conditions.
For comparative purposes only, set forth below are certain pricing ratios and financial data and ratios at and for the year ended December 31, 2015 at the minimum, midpoint, maximum and adjusted maximum of the offering range, assuming the offering was completed at the beginning of the year, with and without our charitable foundation.
|
Minimum of Offering
Range |
Midpoint of Offering
Range |
Maximum of Offering
Range |
Adjusted Maximum of
Offering Range |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
With
Foundation |
Without
Foundation |
With
Foundation |
Without
Foundation |
With
Foundation |
Without
Foundation |
With
Foundation |
Without
Foundation |
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(Dollars in thousands, except per share amounts)
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Estimated offering amount |
$ | 87,095 | $ | 90,321 | $ | 102,465 | $ | 106,260 | $ | 117,835 | $ | 122,199 | $ | 135,510 | $ | 140,529 | |||||||||
Estimated enterprise value |
193,545 | 195,500 | 227,700 | 230,000 | 261,855 | 264,500 | 301,133 | 304,175 | |||||||||||||||||
Total assets |
2,236,536 | 2,239,046 | 2,249,995 | 2,252,948 | 2,263,454 | 2,266,850 | 2,278,932 | 2,282,837 | |||||||||||||||||
Total liabilities |
1,972,718 | 1,972,718 | 1,972,718 | 1,972,718 | 1,972,718 | 1,972,718 | 1,972,718 | 1,972,718 | |||||||||||||||||
Pro forma shareholders' equity |
264,082 | 266,592 | 277,541 | 280,494 | 291,000 | 294,396 | 306,478 | 310,383 | |||||||||||||||||
Pro forma net income |
5,432 | 5,459 | 5,378 | 5,410 | 5,324 | 5,361 | 5,261 | 5,304 | |||||||||||||||||
Pro forma shareholders' equity per share |
13.64 | 13.63 | 12.19 | 12.19 | 11.11 | 11.13 | 10.18 | 10.21 | |||||||||||||||||
Pro forma net income per share |
0.30 | 0.30 | 0.25 | 0.25 | 0.22 | 0.22 | 0.19 | 0.19 | |||||||||||||||||
Pro forma pricing ratios : |
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|
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|
|
|
|
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Offering price as a percentage of pro forma shareholders' equity per share |
73.31 | % | 73.37 | % | 82.03 | % | 82.03 | % | 90.01 | % | 89.85 | % | 98.23 | % | 97.94 | % | |||||||||
Offering price to pro forma net income per share |
33.33x | 33.33x | 40.00x | 40.00x | 45.45x | 45.45x | 52.63x | 52.63x | |||||||||||||||||
Pro forma financial ratios : |
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|
|
|
|
|
|
|
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Return on assets |
0.24 | % | 0.24 | % | 0.24 | % | 0.24 | % | 0.24 | % | 0.24 | % | 0.23 | % | 0.23 | % | |||||||||
Return on equity |
2.06 | % | 2.05 | % | 1.94 | % | 1.93 | % | 1.83 | % | 1.82 | % | 1.72 | % | 1.71 | % | |||||||||
Equity to assets |
11.81 | % | 11.91 | % | 12.34 | % | 12.45 | % | 12.86 | % | 12.99 | % | 13.45 | % | 13.60 | % | |||||||||
Total shares issued |
19,354,500 |
19,550,000 |
22,770,000 |
23,000,000 |
26,185,500 |
26,450,000 |
30,113,325 |
30,417,500 |
38
BUSINESS OF HARBORONE BANCORP, INC.
HarborOne Bancorp, Inc., a Massachusetts corporation, will become the stock holding company of HarborOne Bank upon completion of the reorganization. HarborOne Bancorp has not engaged in any business to date. Following completion of the reorganization, HarborOne Bancorp's business activities will be the ownership of all of the outstanding capital stock of HarborOne Bank and management of the investment of offering proceeds retained from the reorganization and offering. It is expected that HarborOne Bancorp will contribute 50.0% of the net proceeds of the offering to HarborOne Bank as additional capital and will also lend a portion of the net proceeds to HarborOne Bank's employee stock ownership plan to fund the purchase of HarborOne Bancorp's common stock. HarborOne Bancorp intends to invest the remainder of the net proceeds of the offering as discussed under "Use of Proceeds."
HarborOne Bancorp is authorized to pursue other business activities permitted by applicable laws and regulations for bank holding companies, and may, in the future, acquire other financial institutions or organize other operating subsidiaries; however, there are no current plans, arrangements, agreements or understandings, written or oral, to do so. See the section of this prospectus entitled "Supervision and RegulationHolding Company Regulation" for a discussion of the activities that are permitted for bank holding companies.
Following the reorganization and offering, HarborOne Bancorp's cash flows will primarily depend on earnings from the investment of the net proceeds its retains from the offering, payments received on the ESOP loan and any dividends received from HarborOne Bank. Initially, HarborOne Bancorp will not own or lease any property, but instead will use the premises, equipment and other property of HarborOne Bank, as well as the support staff of HarborOne Bank, with the payment of appropriate fees and expenses, as required by applicable law and regulations, under the terms of an expense allocation agreement that HarborOne Bancorp and HarborOne Bank will enter into upon completion of the reorganization as a result of their status as members of an affiliated group under the Internal Revenue Code of 1986, as amended.
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General
HarborOne Bank is the largest state-chartered co-operative bank in New England. The Bank was established in 1917 as Brockton Credit Union and converted to a Massachusetts co-operative bank in 2013 to better support our continued growth, including the expansion of our business lending program.
Our bank business consists primarily of taking deposits from the general public and investing those deposits, together with borrowings and funds generated from operations, in commercial and commercial real estate loans, one- to four-family residential real estate loans, and auto loans and, to a lesser extent, home equity loans and lines of credit, and construction and land loans. We offer a variety of traditional deposit accounts, including checking accounts, savings accounts, money market accounts and certificate of deposit accounts, and remain on the forefront of electronic delivery channels. We conduct our bank business from our main office in Brockton, Massachusetts, and 14 full-service branches (including ATMs) located in Abington, Attleboro, Bridgewater, Brockton, Canton, Easton, Mansfield, Middleboro, Plymouth, Randolph and Raynham, Massachusetts. We also operate limited-service branches at Brockton High School, and at a technology firm in Attleboro, Massachusetts, loan production offices in Westford, Massachusetts, and Providence, Rhode Island, and 13 free-standing ATMs. We provide a range of educational services through "HarborOne U," with classes on small business, financial literacy and personal enrichment at classroom sites adjacent to our Brockton and Mansfield locations.
In 2015, we acquired Merrimack Mortgage, an independent residential mortgage company headquartered in Manchester, New Hampshire. Merrimack Mortgage's mortgage banking operations include the origination and sale of single family residential real estate loans, the servicing of certain sold loans, and the purchase of loans from third parties. Merrimack Mortgage utilizes a line of credit provided by HarborOne Bank as its primary source of funds. Merrimack Mortgage maintains 34 offices in Massachusetts, New Hampshire, Connecticut and Maine, and also does business in five additional states. Merrimack Mortgage is operated as a wholly-owned subsidiary of the Bank.
Our corporate office is located at 770 Oak Street, Brockton, Massachusetts 02301, and our telephone number is (508) 895-1000. Our website address is www.harborone.com . Information on our website is not and should not be considered part of this prospectus.
Business Strategy
We have been operating continuously in and around Brockton, Massachusetts, since 1917. We are committed to meeting the financial needs of consumers and small and middle market businesses in the communities in which we operate, and we are dedicated to providing exceptional personal service to our customers.
As a credit union, we were limited to offering our services to individuals who resided, worked or had a place of business in Barnstable, Bristol, Norfolk or Plymouth County. Each year, due to geographic limitations, we turned away millions of dollars in loan opportunities. Furthermore, under federal law, as a credit union our business loans were limited to the lesser of 12.25% of total assets or 1.75% of our net worth. In addition, as a credit union, we could not expand our branch network outside of the four county area, even though many of our members worked or lived in neighboring communities in the Greater Boston area.
As a co-operative bank, we offer loans to individuals and businesses throughout Massachusetts and other states. Since our conversion from a credit union to a bank in 2013, our focus has been on prudently growing our commercial lending and transitioning our portfolio to that of a commercial bank. In addition, we have started offering municipal deposit products, launched a suite of cash management services, opened a commercial loan production office in Providence, Rhode Island, and acquired Merrimack Mortgage. As we continue to grow, we are pursuing the following strategies:
Continue to expand our commercial lending platform. In 2010, we established a commercial lending platform targeting the financial needs of small and middle-market business owners as well as professional real estate investors and developers. Since our conversion from a credit union to a bank, we have hired 11 commercial team members, including lenders, cash management personnel and credit support staff. We opened our first commercial loan production office in Providence, Rhode Island, in the second quarter of 2015. As a result of these efforts, our commercial lending portfolio has increased from 5.5% of our total loan portfolio at December 31, 2013 to 19.4% of our total loan portfolio at December 31, 2015. We plan to continue to grow these portfolios and expect to hire additional staff and open additional loan offices in the future.
Maintain measured growth of our mortgage banking capabilities. Historically, we have been a residential mortgage lender, and we intend to continue to grow our mortgage lending operations. In addition, we acquired Merrimack
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Mortgage on July 1, 2015, resulting in a substantial expansion of our mortgage banking operations. At December 31, 2015, Merrimack Mortgage had 34 loan offices and 231 employees in four states, and is focused primarily on the residential lending markets of New Hampshire and Massachusetts. We plan to continue to grow these portfolios and expect to hire additional staff in the future. The Bank opened a loan production office in Westford, Massachusetts, in the first quarter of 2016.
Maintain measured growth of our auto loan platform. We are the largest community bank originator of auto loans in the Commonwealth of Massachusetts, with an active network of approximately 275 dealers at December 31, 2015. From time to time, we have executed sales of pools of auto loans while retaining the servicing rights, thus generating service fee income. At December 31, 2015, we were servicing $40.4 million in auto loans for others. We plan to continue to originate and service auto loans, and from time to time sell pools of auto loans, in order to continue to benefit from loan sale gains and servicing fee income.
Increase business and municipal deposits. We expect the growth in our commercial lending coupled with our cash management capabilities to increase our business and municipal deposits. Our business deposits at December 31, 2015 were $77.7 million, an increase from $50.6 million at December 31, 2014. In 2013, we established a municipal banking department and at December 31, 2015, had relationships with 50 cities and towns and $246.6 million in municipal deposits. We plan to continue to grow business and municipal deposits through the sale of additional products and services, including our recent expansion of online and mobile banking capabilities, in order to better serve our customers.
Expand our franchise through de novo branching, branch acquisitions and the possible acquisition of other financial institutions. We believe that there are branch expansion opportunities within our market area and in adjacent markets. We will evaluate branch expansion opportunities by taking innovative approaches to designing and establishing de novo branches, making strategic branch acquisitions, and/or undertaking the acquisition of other financial institutions, as they arise. In addition to full service branches, Merrimack Mortgage and the Bank expect to open additional loan offices in the future. We currently have no understandings or agreements with respect to establishing a new branch or loan production office, acquiring any branches or acquiring a financial institution.
We have decided to pursue the reorganization and offering to support our efforts in accomplishing these strategies, and these strategies will guide our investment of the net proceeds of the offering. See the section of this prospectus entitled "The Reorganization and OfferingReasons for the Reorganization" for more information on our reasons for the reorganization and offering. We intend to continue to pursue our business strategy after the reorganization and offering, subject to changes necessitated by future market conditions, regulatory restrictions and other factors.
Market Area
HarborOne Bank. HarborOne Bank provides financial services to individuals, families, small and mid-size businesses and municipalities throughout Southeastern Massachusetts. While our primary deposit-gathering area is concentrated within our branch office communities and surrounding cities and towns, our lending area encompasses the broader market of New England, including loans originated through our commercial loan office in Providence, Rhode Island. The Bank occasionally purchases commercial loans or participation interests in commercial real estate loans.
Due to its proximity to Boston, our primary market area benefits from the presence of numerous institutions of higher learning, medical care and research centers and the corporate headquarters of several investment and financial services companies. The greater Boston metropolitan area also has many life science and high technology companies employing personnel with specialized skills, which impacts the demand for residential homes, residential construction, office buildings, shopping centers, and other commercial properties in our market area. Communities within our market area include many older residential commuter towns, which function partially as business and service centers.
Approximately 94.0% of our deposits and 84.0% of our loans are sourced from customers in Plymouth, Norfolk and Bristol Counties, Massachusetts. Population and household data indicates the area population has been stable over the last five years, with a significant portion of the population comprised of a well-educated commuter work force with easy access to Boston. The income markets of the three counties are diverse, with the median household income of Plymouth and Norfolk Counties above the 2014 state median of $67,846, while Bristol County's median household income was below the state median. The unemployment rates of the three counties reflect this diversity, with October 2015 unemployment rates for Plymouth and Norfolk Counties at 4.6% and 4.0%, respectively, while Bristol County's unemployment rate was 5.5%. In October 2015, the federal unemployment rate was 5.0% and the Massachusetts unemployment rate was 4.6%.
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Although our current operations are not focused in Boston, we are affected by economic conditions in the greater Boston metropolitan area because many persons who reside in our market area are employed in Boston and the operations of our commercial loan customers depend in part on sales of products and services to individuals or other businesses located in greater Boston. We intend to expand our lending operations, particularly commercial and commercial real estate lending, to customers located in the greater Boston metropolitan area, which may result in further impact from economic conditions in the greater Boston metropolitan area.
Merrimack Mortgage. Merrimack Mortgage has 34 loan offices located in New Hampshire, Massachusetts, Maine and Connecticut, and is currently doing business in five additional states: Vermont, Rhode Island, Florida, Pennsylvania and New Jersey.
Competition
HarborOne Bank. We face significant competition for deposits and loans. Our most direct competition for deposits has historically come from banking institutions operating in our primary market area and from other financial service companies such as securities brokerage firms, credit unions, and insurance companies. We also face competition for investors' funds from money market funds and mutual funds. At June 30, 2015, which is the most recent date for which data is available from the FDIC, we held 11.32% of the deposits in Plymouth County, which was the 3 rd largest market share out of 23 financial institutions with offices in Plymouth County; 2.93% of the deposits in Bristol County and 1.02% of the deposits in Norfolk County. Many of the banks that operate in our primary market area are owned by large national and regional holding companies, are larger than we are and therefore may have greater resources or offer a broader range of products and services.
Our competition for loans comes from financial institutions, including credit unions, in our primary market area and from other financial service providers, such as mortgage companies, mortgage brokers and the finance arms of auto makers. Competition for loans also comes from non-depository financial service companies entering the mortgage market, such as insurance companies, securities companies and specialty finance companies.
We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks and other financial services companies to expand their geographic reach by providing services over the internet, and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks. Increased competition for deposits and the origination of loans could limit our growth in the future.
Merrimack Mortgage. Merrimack Mortgage faces competition for originating loans both directly within the markets in which it operates and from entities that provide services throughout the United States through internet services. Merrimack Mortgage's competition comes principally from other mortgage banking firms, as well as from commercial banks, savings institutions and credit unions.
Lending Activities
The scope of the discussion included under "Lending Activities" is limited to lending operations related to loans originated for investment. A discussion of the lending activities related to loans originated for sale is included under "Mortgage Banking Activity."
Residential Real Estate Loans. We offer residential real estate loans to enable borrowers to purchase homes or refinance loans on existing homes, most of which serve as the primary residence of the owner. At December 31, 2015, residential mortgage loans were $711.0 million, or 41.1% of total loans, and consisted of $629.5 million and $81.5 million of fixed-rate and adjustable-rate loans, respectively.
We offer fixed-rate and adjustable-rate residential mortgage loans with terms up to 30 years. Generally, most of the HarborOne Bank originations conform to Federal National Mortgage Association, or "Fannie Mae," and Federal National Home Loan Mortgage Corporation, or "Freddie Mac," underwriting guidelines, and longer-term fixed-rate loans are originated with the intention to sell. Our adjustable-rate mortgage loans generally adjust annually or after an initial fixed period that ranges from three to seven years. Interest rates and payments on our adjustable-rate loans generally are adjusted to a rate equal to a specified percentage above the LIBOR or U.S. Treasury index. Depending on the loan type, the maximum amount by which the interest rate may be increased or decreased is generally 2.0% per adjustment period and the lifetime interest rate caps range from 5.0% to 6.0% over the initial interest rate of the loan.
Borrower demand for adjustable-rate compared to fixed-rate loans is a function of the level of interest rates, the expectations of changes in the level of interest rates, and the difference between the interest rates and loan fees
42
offered for fixed-rate mortgage loans as compared to the interest rates and loan fees for adjustable-rate loans. The relative amount of fixed-rate and adjustable-rate mortgage loans that can be originated at any time is largely determined by the demand for each in a competitive environment. The loan fees, interest rates and other provisions of mortgage loans are determined by us on the basis of our own pricing criteria and competitive market conditions.
While residential mortgage loans are normally originated with up to 30-year terms, such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full either upon sale of the property pledged as security or upon refinancing the original loan. Therefore, average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans. Additionally, our current practice is generally to sell to the secondary market newly originated 15-year or longer term conforming fixed-rate residential mortgage loans, and hold in our portfolio nonconforming loans, shorter-term fixed-rate loans and adjustable-rate loans. Generally, conforming fixed-rate loans are sold to third parties. We generally retain the servicing other than for specialized governmental programs that require servicing to be released. We generally do not (i) originate "interest only" mortgage loans on one- to four-family residential properties, (ii) offer loans that provide for negative amortization of principal such as "option ARM" loans where the borrower can pay less than the interest owed on their loan, (iii) offer "subprime" loans (loans that are made with low down payments to borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies or borrowers with questionable repayment capacity) or (iv) offer "Alt-A" loans (loans to borrowers having less than full documentation).
We will sometimes make loans with loan-to-value ratios above 80.0%; however, we generally require private mortgage insurance for residential loans secured by a first mortgage with a loan-to-value ratio over 80.0%. We generally require all properties securing mortgage loans to be appraised by a licensed real estate appraiser. We generally require title insurance on all first mortgage loans. Exceptions to these lending policies are based on an evaluation of credit risk related to the borrower and the size of the loan. Borrowers must obtain hazard insurance, and flood insurance is required for loans on properties located in a flood zone.
In an effort to provide financing for first-time buyers, we offer adjustable- and fixed-rate loans to qualified individuals and originate the loans using modified underwriting guidelines, reduced interest rates and loan conditions and reduced closing costs.
Second Mortgages and Equity Lines of Credit. We offer second mortgages and equity lines of credit, which are secured by owner-occupied residences. At December 31, 2015, second mortgages and equity lines of credit were $99.4 million, or 5.7% of total loans. Second mortgages are made at fixed interest rates and terms of up to fifteen years. Equity lines of credit have adjustable rates of interest that are indexed to the Prime rate as published in The Wall Street Journal plus or minus a margin, and generally are subject to an interest rate floor, with 10-year draws and repayment terms of between five and twenty years. We offer second mortgages and equity lines of credit with cumulative loan-to-value ratios generally up to 80.0%, when taking into account both the balance of the home equity loan and first mortgage loan. We hold a first mortgage position on the homes that secure second mortgages or equity lines of credit in approximately one-third of the portfolio.
The procedures for underwriting home equity lines of credit include an assessment of the applicant's payment history on other debts and ability to meet existing obligations and payments on the proposed loan. Although the applicant's creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral to the proposed loan amount. The procedures for underwriting residential mortgage loans apply equally to second mortgages and equity lines of credit.
Auto and Other Consumer Loans. We primarily focus on the origination of auto loans through indirect loans and lease assignments from Credit Union Leasing of America, or "CULA." At December 31, 2015, auto loans and assigned leases were $532.1 million, or 30.7% of total loans and 96.9% of consumer loans. At December 31, 2015, the auto loan portfolio consisted of auto loans of $334.7 million and assigned leases of $197.4 million. Other consumer loans, consisting primarily of unsecured lines of credit and personal loans, were $16.9 million, or 1.0% of total loans.
We originate auto loans through a network of approximately 275 auto dealers secured by new and used vehicles primarily in Massachusetts and Rhode Island. Our primary considerations when originating these loans are the borrower's ability to repay the loan and the value of the underlying collateral. As of December 31, 2015, the borrowers of our auto loans had a weighted average FICO score of 755; more than 85.0% of the borrowers of our auto loans had credit scores of 700 or higher. We have been originating auto loans indirectly through auto dealers for 20 years and historically have had low loss rates. By policy, no more than 5.0% of our loan portfolio may be comprised of loans to borrowers having a FICO score below 620.
An indirect auto loan is originated when the borrower purchases a motor vehicle at an auto dealership and elects to finance a portion of that purchase over a period time. The auto loan is fully amortized over the term of the loan and the borrower owns the vehicle outright after payment in full.
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An indirect auto lease is originated when a customer, the lessee, agrees to lease a vehicle where the lessee is guaranteed use of the vehicle over a specified term. The lease payment consists of the monthly depreciation of the vehicle, interest, and if applicable, depending on the state, sales tax. At the end of the lease term, the lessee has the option of returning the vehicle, purchasing it outright for the agreed upon contractual residual value or purchasing the vehicle and financing it by means of a conventional fully amortizing auto loan. The Bank is assigned leases through an agreement with CULA. At the origination of the lease, the car dealership sells the lease and related vehicle to CULA. CULA simultaneously assigns the lease and grants a security interest in the vehicle to the Bank.
Assigned auto leases generally have a higher rate of return than indirect auto loans because interest rates on leases are higher, the leases tend to last for their full term, and lessees typically have higher credit scores. Lease terms vary between 12 and 60 months, but typically average 36 to 39 months in duration. Due to these advantages, the Bank has concentrated its recent origination efforts in assigned auto leases, and expects to continue to do so depending on market conditions.
The procedures for underwriting consumer loans include an assessment of the applicant's payment history on other debts and ability to meet existing obligations and payments on the proposed loan. Although the applicant's creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan amount.
Commercial Real Estate Loans. We originate fixed- and adjustable-rate commercial real estate loans for terms up to 20 years. At December 31, 2015, commercial real estate loans were $265.5 million, or 15.3% of total loans, and consisted of $115.0 million of fixed-rate loans and $150.5 million of adjustable rate loans.
Interest rates and payments on our adjustable-rate loans adjust typically every three, five or seven years and generally are adjusted to a rate equal to a specified percentage above the corresponding FHLB Classic Advance borrowing rate. Most of our adjustable-rate commercial real estate loans adjust every five years and amortize over a 25-year term. Loan amounts generally do not exceed 80.0% of the property's appraised value at the time the loan is originated.
We currently focus our commercial real estate efforts on small- and mid-size owner occupants and investors in our market area seeking loans between $350,000 and $20 million. Our commercial real estate loans are generally secured by properties used for business purposes such as office buildings, retail development, manufacturing facilities, warehouse distribution, hospitality and apartment buildings. In addition to originating these loans, we participate in commercial real estate loans with other financial institutions located primarily in Massachusetts and sell participation interests in commercial real estate loans to local financial institutions, primarily the portion of loans that exceed our borrowing limits or are in an amount that is considered prudent to manage our credit risk.
At December 31, 2015, the average loan size of our outstanding commercial real estate loans was $1.7 million, and our four largest credits ranged from $8.9 million to $16.0 million. These loans were performing in accordance with their original terms at December 31, 2015.
Commercial Loans. We make commercial loans primarily in Massachusetts and Rhode Island to a variety of professionals, sole proprietorships and small- to medium-sized businesses with sales up to $50 million and borrowing needs up to $20 million. At December 31, 2015, commercial loans were $70.5 million, or 4.1% of total loans.
Commercial loans are made with either variable or fixed rates of interest. Variable rates are based on a margin over the LIBOR index or the Prime rate as published in The Wall Street Journal , plus a margin. Fixed-rate business loans are generally indexed to a corresponding FHLB rate, plus a margin. Commercial loans typically have shorter maturity terms and higher interest spreads than real estate loans, but generally involve more credit risk because of the type and nature of the collateral. We generally require that our commercial customers maintain a deposit relationship with the Bank.
When making commercial loans, we consider the financial statements and the experience of the borrower, our lending history with the borrower, the debt service capabilities of the borrower, the projected cash flows of the business and the value of the collateral, primarily accounts receivable, inventory and equipment. Commercial loan amounts are determined based on the capacity for debt service and an evaluation of the age, condition and collectability of the collateral but generally, advance rates for certain asset classes would not exceed 80%.
At December 31, 2015, our largest commercial loan exposure was $6 million, of which $3.3 million was outstanding at December 31, 2015. This loan is secured by all business assets of the borrower and was performing according to its original terms at December 31, 2015. No other commercial loan or commercial line of credit exceeded $2.6 million at December 31, 2015.
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Construction Loans. We originate construction loans to professional developers, contractors and builders, and to a lesser extent, individuals, to finance the construction of residential dwellings. We also make construction loans for commercial development projects, including industrial buildings and retail and office buildings. At December 31, 2015, construction loan balances were $35.8 million, or 2.1% of total loans. Commercial construction balances were $25.8 million and homeowner construction balances were $10.0 million. At December 31, 2015, our construction loan portfolio consisted of $23.3 million in loan balances that were secured by residential real estate speculative loan projects, $10.0 million in loans that were secured by owner-occupied residential real estate, and $2.4 million in loans that were secured by commercial real estate speculative projects.
Our construction loans generally are fixed-rate loans that provide for the payment of interest only during the construction phase, which is usually 12-36 months. At the end of the construction phase, the loan may be paid in full or converted to a permanent mortgage loan. Before making a commitment to fund a construction loan, we generally require an appraisal of the property by an independent licensed appraiser. Our loan policy dictates a minimum equity contribution by the borrower of 20.0% and loan-to-value ratio not greater than 80.0% of the appraised market value estimated upon completion of the project. All borrowers are underwritten and evaluated for creditworthiness based on past experience, debt service ability, net worth analysis including available liquidity, and other credit factors. Advances are only made following an inspection of the property confirming completion of the required progress on the project and an update to the title completed by a bank approved attorney.
At December 31, 2015, our largest outstanding construction loan relationship was $7.0 million. This project is secured by a first mortgage on developed commercial real estate. This relationship was performing according to its original repayment terms at December 31, 2015.
Loan Underwriting Risks.
Residential Real Estate Loans. Due to historically low interest rate levels, borrowers generally have preferred fixed-rate loans in recent years. While we anticipate that our adjustable-rate loans will better offset the adverse effects on our net interest income of an increase in interest rates as compared to fixed-rate loans, the increased mortgage payments required of adjustable-rate loans in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a high interest rate environment. In addition, although adjustable-rate loans help make our asset base more responsive to changes in interest rates, the extent of this interest sensitivity is limited by the annual and lifetime interest rate adjustment limits.
Consumer Loans. Consumer loans entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections depend on the borrower's continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.
Commercial Real Estate Loans. Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than residential mortgage loans. Of primary concern in commercial real estate lending is the borrower's creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject to adverse conditions in the real estate market or the economy to a greater extent than residential real estate loans. To monitor cash flows on income properties, we require borrowers and loan guarantors, where applicable, to provide annual financial statements on commercial real estate loans. In reaching a decision on whether to make a commercial real estate loan, we consider the net operating income of the property, the borrower's expertise, credit history, profitability and the value of the underlying property. We generally require an independent appraisal or valuation, an environmental survey and a property condition report for commercial real estate loans.
Commercial Loans. Commercial loans also involve a greater degree of risk than residential mortgage loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from his or her employment or other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial loans are typically made on the basis of the borrower's ability to make repayment from the cash flows of the borrower's business. As a result, the availability of funds for the repayment of commercial loans may depend substantially on the success of the business itself. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value.
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Construction Loans. Construction financing is considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property's value at completion of construction or development and the estimated cost (including interest) of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the development. If the estimate of value proves to be inaccurate, we may be confronted, at or before the maturity of the loan, with a project having a value which is insufficient to assure full repayment. As a result of the foregoing, construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of the borrower or guarantor to repay principal and interest. If we are forced to foreclose on a project before or at completion due to a default, we may not be able to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs.
Loan Originations, Purchases and Sales. Loan originations come from a number of sources. The primary source of loan originations are our in-house loan originators, and to a lesser extent, local mortgage brokers and third party originators of residential loans, advertising and referrals from customers. We occasionally purchase commercial business loans or participation interests in commercial real estate loans.
Additionally, our current practice is generally (1) to sell to the secondary market newly originated 15-year or longer term conforming fixed-rate residential mortgage loans and all loans originated by our mortgage banking subsidiary and (2) to hold in our portfolio nonconforming loans, shorter-term fixed-rate loans and adjustable-rate residential mortgage loans. Our decision to sell loans is based on prevailing market interest rate conditions and interest rate risk management. Loans are sold to third parties with servicing either retained or released. In addition, we sell participation interests in commercial real estate loans to local financial institutions, primarily the portion of loans that exceed our borrowing limits or are in an amount that is considered prudent to manage our credit risk.
For the years ended December 31, 2015 and 2014, we originated loans of $1.17 billion and $547.7 million of loans, respectively. During the same periods, we sold $707.8 million and $98.5 million of loans, respectively.
Loan Participations. We look to form relationships with other financial institutions and mitigate risk of our lending activities by participating either as the lead bank or as a participant in various loan transactions. We joined a community bank lending network operated by BancAlliance in 2014 in order to have the opportunity to participate in commercial loans and lines of business referred by the network. HarborOne Bank has adopted a loan policy specifically for loans originated through this program that provides for underwriting standards and limits maximum loans to one entity to $2.5 million as well as a total portfolio of $40 million. As of December 31, 2015, outstanding commitments for this program totaled $32.5 million comprising 18 credits, all of which were performing in accordance with their payment terms. At December 31, 2015, the outstanding balances of loan participations purchased outside of the BancAlliance network totaled $23.3 million and loan participation balances sold outside of the BancAlliance network totaled $18.1 million.
Loan Approval Procedures and Authority. Our lending activities follow written, nondiscriminatory underwriting standards and loan origination procedures established by our board of directors and management. Our board of directors has granted loan approval authority to certain executive officers. Commercial loans in excess of any officer's individual authority must be approved by a lending committee comprised of several executive officers. Commercial loans in excess of the lending committee authority must be approved by the board of directors or by the security committee, which is comprised of our president and chief executive officer and three independent members of our Board of Directors. Commercial loans in excess of the "in-house limit" must be approved by the board of directors. The security committee of the board of directors reviews all commercial and commercial real estate loan requests greater than $3 million. All mortgage and commercial real estate loans to any single borrower that exceed $3 million and commercial loans that exceed $3 million must be approved by the board of directors.
Loans-to-One Borrower Limit. The maximum amount that the Bank may lend to one borrower and the borrower's related entities is generally limited, by statute, to 20.0% of the Bank's capital, which is defined under Massachusetts law as the sum of the Bank's capital stock, surplus account and undivided profits. At December 31, 2015, the Bank's regulatory limit on loans-to-one borrower was $38.1 million. At that date, our largest lending relationship totaled $23.4 million and was comprised of two loans secured by commercial real estate. These loans were performing in accordance with their original repayment terms at December 31, 2015. As a result of the offering, our regulatory loans-to-one borrower limit will increase, and we expect to increase our internal loans-to-one borrower limit, which is currently $28.5 million.
Loan Commitments. We issue commitments for fixed- and adjustable-rate mortgage loans conditioned upon the occurrence of certain events. Commitments to originate mortgage loans are legally binding agreements to lend to our customers. Generally, our loan commitments expire after 30 days.
46
Mortgage Banking Activity
In addition to the lending activities previously discussed, we also originate residential mortgage loans for sale in the secondary market through Merrimack Mortgage. Between July 1, 2015, when the Bank acquired Merrimack Mortgage, and December 31, 2015, Merrimack Mortgage originated $547.8 million in mortgage loans. Merrimack Mortgage sells loans on both a servicing-released and a servicing-retained basis. Merrimack Mortgage has contracted with a third party to service the loans for which it retains servicing.
Our overall margin can be affected by the mix of both loan type (conventional loans versus governmental) and loan purpose (purchase versus refinance). Conventional loans include loans that conform to Fannie Mae and Freddie Mac standards, whereas governmental loans are those loans guaranteed by the federal government, such as a Federal Housing Authority loan.
Loan Portfolio
The following table sets forth the composition of our loan portfolio at the dates indicated:
|
At December 31, | ||||||||||||||||||||||||||||||
|
2015 | 2014 | 2013 | 2012 |
2011
|
||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) |
Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate: |
|||||||||||||||||||||||||||||||
One- to four-family |
$ | 710,969 | 41.1 | % | $ | 768,129 | 46.5 | % | $ | 806,371 | 50.7 | % | $ | 781,445 | 51.4 | % | $ | 776,002 | 50.6 | % | |||||||||||
Second mortgages and equity lines of credit |
99,374 | 5.7 | 95,465 | 5.8 | 96,194 | 6.0 | 104,766 | 6.9 | 122,845 | 8.0 | |||||||||||||||||||||
Commercial real estate |
265,482 | 15.3 | 142,452 | 8.6 | 63,795 | 4.0 | 42,694 | 2.8 | 26,553 | 1.7 | |||||||||||||||||||||
Construction |
35,830 | 2.1 | 26,125 | 1.6 | 29,822 | 1.9 | 20,476 | 1.3 | 13,867 | 0.9 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total mortgage loans on real estate |
1,111,655 | 64.2 | 1,032,171 | 62.5 | 996,182 | 62.6 | 949,381 | 62.4 | 939,267 | 61.2 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial |
70,472 | 4.1 | 47,453 | 2.9 | 22,969 | 1.4 | 16,473 | 1.1 | 15,513 | 1.0 | |||||||||||||||||||||
Consumer: |
|||||||||||||||||||||||||||||||
Auto |
532,071 | 30.7 | 556,095 | 33.7 | 559,661 | 35.2 | 544,206 | 35.8 | 568,079 | 37.0 | |||||||||||||||||||||
Personal |
16,873 | 1.0 | 15,968 | 1.0 | 12,826 | 0.8 | 10,889 | 0.7 | 11,054 | 0.7 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total consumer |
548,944 | 31.7 | 572,063 | 34.6 | 572,487 | 36.0 | 555,095 | 36.5 | 579,133 | 37.8 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total loans |
1,731,071 | 100.0 | % | 1,651,687 | 100.0 | % | 1,591,638 | 100.0 | % | 1,520,949 | 100.0 | % | 1,533,913 | 100.0 | % | ||||||||||||||||
Deferred loan origination costs, net |
12,017 | 14,141 | 14,705 | 14,326 | 14,628 | ||||||||||||||||||||||||||
Allowance for loan losses |
(13,700 | ) | (13,934 | ) | (14,529 | ) | (17,254 | ) | (17,873 | ) | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans, net |
$ | 1,729,388 | $ | 1,651,894 | $ | 1,591,814 | $ | 1,518,021 | $ | 1,530,668 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
47
Loan Originations
The following table sets forth our loan originations, sales, purchases and principal repayment activities during the periods indicated.
|
Years Ended December 31, | |||||||||
(In thousands) |
2015 | 2014 |
2,013
|
|||||||
| | | | | | | | | | |
Total loans and loans held for sale at beginning of period (excluding net deferred loan costs) |
$ | 1,655,212 | $ | 1,593,699 | $ | 1,532,446 | ||||
Loan originations: |
||||||||||
Residential real estate: |
||||||||||
One- to four-family residentialBank |
156,403 | 105,344 | 252,195 | |||||||
One- to four-family residentialMerrimack Mortgage |
547,795 | | | |||||||
Second mortgages and lines of credit |
32,725 | 28,881 | 22,890 | |||||||
Commercial real estate |
132,053 | 78,394 | 20,706 | |||||||
Construction |
28,263 | 29,523 | 44,702 | |||||||
| | | | | | | | | | |
Total mortgage loans on real estate |
897,239 | 242,142 | 340,493 | |||||||
| | | | | | | | | | |
Commercial |
19,143 | 13,766 | 13,558 | |||||||
Consumer |
254,444 | 291,832 | 285,281 | |||||||
| | | | | | | | | | |
Total loans originations |
1,170,826 | 547,740 | 639,331 | |||||||
| | | | | | | | | | |
Loan purchases:(1) |
||||||||||
Residential real estate: |
||||||||||
One- to four-family residential acquired from MMC on July 1, 2015 |
81,410 | | | |||||||
Commercial real estate |
33,018 | 6,977 | | |||||||
| | | | | | | | | | |
Total mortgage loans on real estate |
114,428 | 6,977 | | |||||||
| | | | | | | | | | |
Commercial |
12,985 | 23,133 | | |||||||
| | | | | | | | | | |
Total loan purchases |
127,413 | 30,110 | | |||||||
| | | | | | | | | | |
Loan sales:(2) |
||||||||||
Residential real estate: |
||||||||||
One- to four-family residentialBank |
(103,886 | ) | (57,843 | ) | (111,576 | ) | ||||
One- to four-family residentialMerrimack Mortgage |
(567,663 | ) | | | ||||||
Commercial |
(4,930 | ) | | | ||||||
| | | | | | | | | | |
Total mortgage loans on real estate |
(676,479 | ) | (57,843 | ) | (111,576 | ) | ||||
| | | | | | | | | | |
Consumer |
(31,337 | ) | (40,697 | ) | | |||||
| | | | | | | | | | |
Total loan sales |
(707,816 | ) | (98,540 | ) | (111,576 | ) | ||||
| | | | | | | | | | |
Other: |
||||||||||
Principal repayments, net |
(393,587 | ) | (382,393 | ) | (428,514 | ) | ||||
Unadvanced funds on originations |
(54,736 | ) | (32,742 | ) | (33,561 | ) | ||||
Transfer to other real estate owned |
(2,444 | ) | (2,662 | ) | (4,428 | ) | ||||
| | | | | | | | | | |
Total other |
(450,767 | ) | (417,797 | ) | (466,503 | ) | ||||
| | | | | | | | | | |
Net loan activity |
139,656 | 61,513 | 61,253 | |||||||
| | | | | | | | | | |
Total loans and loans held for sale at end of period (excluding net deferred loan costs) |
$ | 1,794,868 | $ | 1,655,212 | $ | 1,593,699 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Loan Maturity
The following table set forth certain information at December 31, 2015 regarding scheduled contractual maturities during the period indicated. The table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand
48
loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less. The amounts shown below exclude net deferred loan fees.
(In thousands) |
One- to
Four-Family Residential Real Estate |
Second Mortgage
and Equity Lines of Credit |
Commercial
Real Estate |
Construction | Commercial | Consumer |
Total
Loans |
|||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Due during the years ending December 31, |
||||||||||||||||||||||
2016 |
$ | 161 | $ | 122 | $ | 191 | $ | 965 | $ | 13,657 | $ | 28,254 | $ | 43,350 | ||||||||
2017 |
261 | 350 | 4,952 | 974 | 2,941 | 76,656 | 86,134 | |||||||||||||||
2018 |
4,978 | 1,216 | 11,585 | 617 | 4,632 | 146,188 | 169,216 | |||||||||||||||
2019 to 2020 |
21,491 | 5,859 | 25,669 | | 25,274 | 245,660 | 323,953 | |||||||||||||||
2021 to 2025 |
67,105 | 39,882 | 190,815 | 17,714 | 20,152 | 48,997 | 384,665 | |||||||||||||||
2026 to 2030 |
158,178 | 23,479 | 22,523 | 5,599 | 896 | 2,041 | 212,716 | |||||||||||||||
2031 and beyond |
458,795 | 28,466 | 9,747 | 9,961 | 2,920 | 1,148 | 511,037 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total |
$ | 710,969 | $ | 99,374 | $ | 265,481 | $ | 35,831 | $ | 70,472 | $ | 548,944 | $ | 1,731,071 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Fixed vs. Adjustable Rate Loans
The following table sets forth the dollar amount of all scheduled maturities of loans at December 31, 2015 and have either fixed interest rates or adjustable interest rates. The amounts shown below exclude net deferred loan fees.
(In thousands) |
Fixed
Rates |
Adjustable
Rates |
Total
|
|||||||
| | | | | | | | | | |
Residential real estate loans: |
||||||||||
One- to four-family residential |
$ | 629,466 | $ | 81,503 | $ | 710,969 | ||||
Second mortgages and equity lines of credit |
22,313 | 77,061 | 99,374 | |||||||
Commercial real estate |
114,992 | 150,490 | 265,482 | |||||||
Construction |
25,244 | 10,586 | 35,830 | |||||||
Commercial |
23,387 | 47,085 | 70,472 | |||||||
Consumer |
548,944 | | 548,944 | |||||||
| | | | | | | | | | |
Total |
$ | 1,364,346 | $ | 366,725 | $ | 1,731,071 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Investment Activities
General. The goals of our investment policy are to provide and maintain liquidity to meet deposit withdrawal and loan funding needs, to help mitigate interest rate and market risk, to diversify our assets, and to generate a reasonable rate of return on funds within the context of our interest rate and credit risk objectives. Our board of directors approves our investment policy which is reviewed annually by the board of directors and our finance committee. Authority to make investments under the approved investment policy guidelines is delegated to our chief financial officer and chief executive officer. All investment transactions are reviewed at the next regularly scheduled meeting of the board of directors. We classify the majority of our securities as available-for-sale.
We have legal authority to invest in various types of securities, including U.S. Treasury obligations, securities of various government-sponsored enterprises and municipal governments, deposits at the FHLB, certificates of deposit of federally insured institutions and investment grade corporate bonds. We also are required to maintain an investment in FHLB stock. While we have the authority under applicable law to invest in marketable equity securities and derivative securities, we had no investments in such securities at December 31, 2015.
Investment Securities. The following table sets forth the amortized cost and fair values of our securities portfolio at the dates indicated.
49
|
At December 31, | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2015 | 2014 | 2013 | ||||||||||||||||
(In thousands)
|
Amortized
Cost |
Fair
Value |
Amortized
Cost |
Fair
Value |
Amortized
Cost |
Fair
Value |
|||||||||||||
Securities available for sale: |
|||||||||||||||||||
Debt securities: |
|||||||||||||||||||
U.S. government and government-sponsored enterprise obligations |
$ | 5,000 | $ | 4,967 | $ | 4,891 | $ | 4,983 | $ | 14,571 | $ | 14,308 | |||||||
U.S. government-sponsored mortgage-backed and collateralized mortgage obligations |
93,071 | 93,086 | 127,016 | 127,392 | 121,683 | 121,110 | |||||||||||||
SBA asset-backed securities |
30,258 | 30,488 | 15,539 | 15,640 | | | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total securities available for sale |
$ | 128,329 | $ | 128,541 | $ | 147,446 | $ | 148,015 | $ | 136,254 | $ | 135,418 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Securities held to maturity: |
|
|
|
|
|
|
|||||||||||||
Debt securities: |
|||||||||||||||||||
U.S. government and government-sponsored enterprise obligations |
$ | 9,954 | $ | 9,940 | $ | | $ | | $ | | $ | | |||||||
U.S. government-sponsored mortgage-backed and collateralized mortgage obligations |
27,594 | 27,563 | 32,088 | 32,372 | 31,234 | 30,055 | |||||||||||||
Other bonds and obligations: |
|||||||||||||||||||
State and political subdivisions |
26,031 | 27,703 | 26,296 | 27,933 | 26,043 | 25,913 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total securities held to maturity |
$ | 63,579 | $ | 65,206 | $ | 58,384 | $ | 60,305 | $ | 57,277 | $ | 55,968 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
U.S. Government and Government-Sponsored Enterprise Obligations. At December 31, 2015, we had U.S. government and agency securities totaling $14.9 million, which constituted 7.8% of our securities portfolio. While these securities generally provide lower yields than other investments in our securities investment portfolio, we maintain these investments, to the extent we deem appropriate, for liquidity purposes, as collateral for borrowings and for prepayment protection.
U.S. Government-Sponsored Mortgage-Backed and Collateralized Mortgage Obligations ("CMOs"). At December 31, 2015, we had mortgage-backed securities and CMOs totaling $120.7 million, which constituted 63.8% of our securities portfolio. Mortgage-backed securities and CMOs are securities issued in the secondary market that are collateralized by pools of residential 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 multi-family mortgages. The issuers of such securities pool and resell the participation interests in the form of securities to investors such as the Bank. 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 the Government National Mortgage Association, or "Ginnie Mae," a U.S. government agency, or government-sponsored enterprises, such as Fannie Mae and Freddie Mac.
Residential mortgage-backed securities issued by U.S. 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.
U.S. Small Business Administration Asset-Backed Securities. At December 31, 2015, we had investments in participation certificates issued and guaranteed by the U.S. Small Business Administration totaling $30.3 million.
Tax Exempt Municipal Bonds. At December 31, 2015, we had $26.0 million invested in 30 issues of a diversified municipal bond portfolio. All but one of these bonds are rated in the top four tiers in terms of credit ratings by Moody's and S&P and the lowest rated bond is rated A1 by Moody's and is in the amount of $562,000.
50
In addition to our securities portfolio, we also have investments in FHLB stock and bank-owned life insurance.
FHLB Stock. In connection with our borrowing activities, we held common stock of the FHLB totaling $18.7 million at December 31, 2015. The FHLB common stock is carried at cost and classified as a restricted equity security. We may be required to purchase additional FHLB stock if we increase borrowings in the future.
Bank-Owned Life Insurance. We invest in bank-owned life insurance to provide us with a funding source for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-taxable. At December 31, 2015, our balance in bank-owned life insurance totaled $38.3 million and was issued by four highly rated insurance companies.
Investment Portfolio Maturities and Yields. The following table sets forth the stated maturities and weighted average yields of investment securities at December 31, 2015.
|
One Year or Less |
More than One Year
to Five Years |
More than Five
Years to Ten Years |
More than Ten Years |
Total
|
||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) |
Amortized
Cost |
Weighted
Average Yield |
Amortized
Cost |
Weighted
Average Yield |
Amortized
Cost |
Weighted
Average Yield |
Amortized
Cost |
Weighted
Average Yield |
Amortized
Cost |
Weighted
Average Yield |
|||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Securities available for sale: |
|||||||||||||||||||||||||||||||
Debt securities: |
|||||||||||||||||||||||||||||||
U.S. government and government-sponsored enterprise obligations |
$ | | | % | $ | | | % | $ | 5,000 | 2.65 | % | $ | | 0 | % | $ | 5,000 | 2.65 | % | |||||||||||
U.S. government-sponsored mortgage-backed and collateralized mortgage obligations |
| | | | 5,634 | 2.41 | % | 87,437 | 2.06 | % | 93,071 | 2.08 | % | ||||||||||||||||||
SBA asset-backed securities |
| | | | 7,239 | 1.68 | % | 23,019 | 2.73 | % | 30,258 | 2.48 | % | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total debt securities |
$ | | | % | $ | | | % | $ | 17,873 | 2.18 | % | $ | 110,456 | 2.20 | % | $ | 128,329 | 2.20 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Securities held to maturity: |
|||||||||||||||||||||||||||||||
Debt securities: |
|||||||||||||||||||||||||||||||
U.S. government and government-sponsored enterprise obligations |
$ | | | % | $ | | | % | $ | | | % | $ | 9,954 | 2.98 | % | $ | 9,954 | 2.98 | % | |||||||||||
U.S. government-sponsored mortgage-backed and collateralized mortgage obligations |
| | | | | | 27,593 | 2.40 | % | 27,593 | 2.40 | % | |||||||||||||||||||
Other bonds and obligations: |
|||||||||||||||||||||||||||||||
State and political subdivisions |
| | | | 2,911 | 2.69 | % | 23,120 | 3.90 | % | 26,031 | 3.76 | % | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total debt securities |
$ | | | % | $ | | | % | $ | 2,911 | 2.69 | % | $ | 60,668 | 3.07 | % | $ | 63,579 | 3.05 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
At December 31, 2015, we had no investments in a single company or entity, other than government and government agency securities, that had an aggregate book value in excess of 10% of our equity.
Sources of Funds
General. Deposits, borrowings and loan repayments are the major sources of our funds for lending and other investment purposes. Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions.
51
Deposit Accounts. Deposits are attracted from within our market area by sales efforts of our commercial loan and retail officers, advertising and through our website. We offer a broad selection of deposit instruments, including noninterest-bearing demand deposits (such as checking accounts), interest-bearing demand accounts (such as NOW and money market accounts), savings accounts and term certificates of deposit. We have utilized a deposit listing service which targets institutional funds throughout the country. We generally prohibit the withdrawal of our listing service deposits prior to maturity. At December 31, 2015, we had $54.1 million of institutional deposits, which represented 3.2% of total deposits at December 31, 2015 with such funds having a weighted average remaining term to maturity of 1.5 years. We have not utilized brokered deposits in the past but plan to consider their use when appropriate. In a rising rate environment, we may be unwilling or unable to pay a competitive rate. To the extent that such deposits do not remain with us, they may need to be replaced with borrowings, which could increase our cost of funds and negatively impact our interest rate spread, financial condition and results of operation.
Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, our liquidity needs, profitability to us, and customer preferences and concerns. We generally review our deposit mix and pricing on a weekly basis. Our deposit pricing strategy has generally been to offer competitive rates and to offer periodically special rates in order to attract deposits of a specific type or term.
The following table sets forth the average balances and weighted average rates of our deposit products at the dates indicated.
|
For the Years Ended December 31,
|
|||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
2015 | 2014 |
2013
|
|||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) |
Average
Balance |
Percent |
Weighted
Average Rate |
Average
Balance |
Percent |
Weighted
Average Rate |
Average
Balance |
Percent |
Weighted
Average Rate |
|||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Deposit type: |
||||||||||||||||||||||||||||
Noninterest-bearing demand |
$ | 167,517 | 10.4 | % | | % | $ | 137,475 | 9.2 | % | | % | $ | 122,400 | 9.1 | % | | % | ||||||||||
NOW accounts |
109,674 | 6.8 | 0.07 | 101,642 | 6.8 | 0.07 | 96,487 | 7.2 | 0.07 | |||||||||||||||||||
Regular savings and club |
286,381 | 17.7 | 0.17 | 270,776 | 18.2 | 0.19 | 261,700 | 19.5 | 0.21 | |||||||||||||||||||
Money market |
559,745 | 34.7 | 0.44 | 440,597 | 29.6 | 0.42 | 331,887 | 24.7 | 0.39 | |||||||||||||||||||
Certificates of deposit |
491,235 | 30.4 | 1.15 | 537,149 | 36.1 | 1.20 | 529,600 | 39.5 | 1.27 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
$ | 1,614,552 | 100.0 | % | 0.51 | % | $ | 1,487,639 | 100.0 | % | 0.58 | % | $ | 1,342,074 | 100.0 | % | 0.65 | % | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following table sets forth our certificates of deposit classified by interest rate as of the dates indicated.
|
At December 31,
|
|||||||||
| | | | | | | | | | |
(Dollars in thousands) |
2015 | 2014 |
2013
|
|||||||
| | | | | | | | | | |
Less than 0.50% |
$ | 94,273 | $ | 111,573 | $ | 120,164 | ||||
0.50% to 0.99% |
113,948 | 135,185 | 129,551 | |||||||
1.00% to 1.49% |
115,203 | 113,040 | 137,694 | |||||||
1.50% to 1.99% |
113,826 | 100,432 | 90,434 | |||||||
2.00% to 2.99% |
25,247 | 41,258 | 46,802 | |||||||
3.00% and greater |
95 | 16,480 | 36,711 | |||||||
| | | | | | | | | | |
Total |
$ | 462,592 | $ | 517,968 | $ | 561,356 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The following table sets forth the amount and maturities of our certificates of deposit by interest rate at December 31, 2015.
|
Period to Maturity | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) |
Less than
One Year |
More than
One Year to Two Years |
More Than
Two Years to Three Years |
More Than
Three Years to Four Years |
More than
Four Years |
Total |
% of Total
Certificate Accounts |
|||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Less than 0.50% |
$ | 91,319 | $ | 2,954 | $ | | $ | | $ | | $ | 94,273 | 20.4 | % | ||||||||
0.50% to 0.99% |
88,591 | 20,644 | 4,714 | | | 113,949 | 24.6 | % | ||||||||||||||
1.00% to 1.49% |
27,556 | 52,777 | 24,641 | 5,238 | 4,990 | 115,202 | 24.9 | % | ||||||||||||||
1.50% to 1.99% |
3,581 | 71,097 | 14,107 | 14,824 | 10,217 | 113,826 | 24.6 | % | ||||||||||||||
2.00% to 2.99% |
19,927 | 807 | 291 | 3,465 | 757 | 25,247 | 5.5 | % | ||||||||||||||
3.00% and greater |
95 | | | | | 95 | | % | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total |
$ | 231,069 | $ | 148,279 | $ | 43,753 | $ | 23,527 | $ | 15,964 | $ | 462,592 | 100.00 | % | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
52
As of December 31, 2015, the aggregate amount of our term certificates of deposit in amounts greater than or equal to $100,000 was approximately $214.7 million. The following table sets forth the maturity of these certificates as of December 31, 2015.
(In thousands)
Maturity Period |
Amount | |||
---|---|---|---|---|
Three months or less |
$ | 27,105 | ||
Over three through six months |
37,564 | |||
Over six months through one year |
33,860 | |||
Over one year to three years |
96,260 | |||
Over three years |
19,874 | |||
| | | | |
Total |
$ | 214,662 | ||
| | | | |
| | | | |
| | | | |
Business and Municipal Banking and Cash Management Services. We also offer a variety of deposit accounts designed for businesses and municipalities operating in our market area. Our business banking deposit products include a commercial checking account and checking accounts specifically designed for small businesses. We also offer remote deposit capture products for business customers to meet their online banking needs. Additionally, we offer sweep accounts and money market accounts for businesses.
Borrowings. We may utilize advances from the FHLB to supplement our supply of investable funds. The FHLB functions as a central reserve bank providing credit for its member financial institutions. As a member, we are required to own capital stock in the FHLB and are authorized to apply for advances on the security of such stock and certain of our whole first mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution's net worth or on the FHLB's assessment of the institution's creditworthiness. At December 31, 2015, we had $249.6 million in outstanding advances from the FHLB. At December 31, 2015, based on available collateral and our ownership of FHLB stock, and based upon our internal policy, we had access to additional FHLB advances of up to $341.7 million. All of our borrowings from the FHLB are secured by a blanket lien on residential real estate and government-sponsored enterprises and mortgage-backed securities obligations.
The Share Insurance Fund of the Co-operative Central Bank provides for borrowings for liquidity purposes and is available to all co-operative member banks. Loan advances will generally be made on an unsecured basis provided that the aggregate loan balance is less than 5.0% of total deposits of the member bank; the member bank's primary capital ratio is in excess of 5.0%; the member bank meets the required CAMELS rating; and the quarterly and year-to-date net income before extraordinary items is positive. At December 31, 2015, we had $5.0 million of borrowing capacity with the Co-operative Central Bank, none of which was outstanding.
Borrowings. The following table sets forth information concerning balances and interest rates on our borrowings at the dates and for the periods indicated.
|
At or For the Years Ended
December 31, |
|||||||||
| | | | | | | | | | |
(Dollars in thousands) |
2015 | 2014 |
2013
|
|||||||
| | | | | | | | | | |
FHLB Advances: |
||||||||||
Balance outstanding at end of year |
$ | 249,598 | $ | 329,602 | $ | 339,606 | ||||
Average amount outstanding during the year |
$ | 296,016 | $ | 293,316 | $ | 343,840 | ||||
Maximum outstanding at any month end |
$ | 334,602 | $ | 329,602 | $ | 369,607 | ||||
Weighted average interest rate during the year |
1.98 | % | 2.33 | % | 2.31 | % | ||||
Weighted average interest rate at end of year |
2.08 | % | 1.81 | % | 2.21 | % |
Properties
At December 31, 2015, the Bank conducted its business from its corporate headquarters located at 770 Oak St, Brockton, Massachusetts and fourteen full service branches, one loan production office and two limited service branches located in Plymouth, Norfolk and Bristol counties in eastern Massachusetts and Providence, Rhode Island. In addition to its corporate headquarters, the bank owns ten of these locations and leases five branches and the loan production offices.
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Merrimack Mortgage conducts its business from its headquarters in Manchester, New Hampshire and 34 offices in New Hampshire, Maine, Connecticut, and Massachusetts. All of these locations are leased facilities.
Personnel
As of December 31, 2015, HarborOne Bank had 302 full-time and 85 part-time employees and Merrimack Mortgage had 222 full-time and 11 part-time employees, none of whom is represented by a collective bargaining unit. We believe our relationship with our employees is good.
Subsidiaries
In addition to Merrimack Mortgage, HarborOne Bank has two other wholly-owned subsidiaries, HarborOne Security Corporation, LLC and Oak Street Security Corporation, LLC, each a Massachusetts limited liability company, which are engaged in buying, selling, dealing in and holding securities.
Legal Proceedings
We are not currently a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.
54
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section is intended to help potential investors understand the financial performance of HarborOne Bank and its subsidiaries through a discussion of our financial condition at December 31, 2015 and December 31, 2014, and our results of operations for the years ended December 31, 2015 and 2014. This information has been derived from the audited Consolidated Financial Statements, which appear beginning on page F-1 of this prospectus. This section should be read in conjunction with the business and financial information of HarborOne Bank and the financial statements provided in this prospectus.
Overview
Prior to July 1, 2015, our business was comprised entirely of the operations of HarborOne Bank. On July 1, 2015, we acquired Merrimack Mortgage, which we operate as a wholly-owned subsidiary of HarborOne Bank. The purchase price for the acquisition was $20.2 million and we recognized $10.2 million in goodwill. For further information about the acquisition, see Note 20 to the Consolidated Financial Statements included in this prospectus. We manage this mortgage banking subsidiary as a separate segment of our business; accordingly, we now have two operating segments: the HarborOne Bank segment, which consists of the historical banking operations of HarborOne Bank, and the Merrimack Mortgage segment, comprising the operations of Merrimack Mortgage.
HarborOne Bank's business consists primarily of taking deposits from the general public and investing those deposits, together with borrowings and funds generated from operations, in commercial and consumer loans. HarborOne Bank's results of operations depend primarily on its net interest income, as well as the provision for loan losses and the expenses incurred in delivering, funding, and managing those banking services. Net interest income is the difference between the interest income HarborOne Bank earns on our interest-earning assets and the interest it pays on interest-bearing liabilities. HarborOne Bank's interest-earning assets consist of loans and securities. Interest-bearing liabilities consist primarily of deposit accounts and borrowings from the FHLB.
Merrimack Mortgage's mortgage banking operations include the origination and sale of single family residential real estate loans as well as the servicing of certain sold loans. Merrimack Mortgage's results of operations depend primarily on gains on sales of the mortgage loans it originates, as well as servicing income and the expenses incurred in its operations.
The HarborOne Bank segment generates the substantial majority of our consolidated net interest income and all of our provision for loan losses. The Merrimack Mortgage segment generates a significant portion of our non-interest income and our noninterest expense. Accordingly, we have provided below a discussion of the discussion of the consolidated operations of HarborOne Bank, but have also included a discussion of the material results of operations of Merrimack Mortgage on a separate basis, which focuses on a discussion of non-interest income and non-interest expense.
Critical Accounting Policies
Certain of our accounting policies, which are important to the portrayal of our financial condition, require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers. Our significant accounting policies are discussed in detail in Note 1 to our Consolidated Financial Statements included elsewhere in this prospectus.
The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an "emerging growth company" we have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes that the most critical accounting policies, which involve the most complex or subjective decisions or assessments, are as follows:
Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the
55
provision for loan losses, which is charged to income. The allowance consists of general, allocated and unallocated components. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: the likelihood of default; the loss exposure at default; the amount and timing of future cash flows on impaired loans; the value of collateral; and the determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance at least quarterly and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation. In addition, the FDIC and the Massachusetts Commissioner of Banks, as an integral part of their examination process, periodically review our allowance for loan losses and may require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings. See Note 6 of the Notes to Consolidated Financial Statements included in this prospectus.
Goodwill. The assets (including identifiable intangible assets) and liabilities acquired in a business combination are recorded at fair value at the date of acquisition. Goodwill is recognized for the excess of the acquisition cost over the fair values of the net assets acquired and is not subsequently amortized. Identifiable intangible assets include non-compete contracts and are being amortized on a straight-line basis over their estimated lives. Management assesses the recoverability of goodwill at least on an annual basis and all intangible assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The impairment test uses a combined qualitative and quantitative approach. The initial qualitative approach assesses whether the existence of events or circumstances led to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after this assessment, we determine that it is more likely than not that the fair value is less than the carrying value, the two step quantitative impairment test is performed. Step one of the quantitative impairment test compares book value to the fair value of the reporting unit. If test one is failed, a more detailed analysis is performed, which involves measuring the excess of the fair value of the reporting unit, as determined in step one, over the aggregate fair value of the individual assets, liabilities, and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the carrying amount exceeds fair value, an impairment charge is recorded through earnings. Management has identified two reporting units for purposes of testing goodwill for impairment. Our reporting units are the same as the segments used for segment reportingHarborOne Bank and Merrimack Mortgage.
Deferred Tax Assets. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. Management reviews deferred tax assets on a quarterly basis to identify any uncertainties pertaining to realization of such assets. In determining whether a valuation allowance is required against deferred tax assets, management assesses historical and forecasted operating results, including a review of eligible carryforward periods, tax planning opportunities and other relevant considerations. We believe the accounting estimate related to the valuation allowance is a critical estimate because the underlying assumptions can change from period to period. For example, tax law changes or variances in future projected operating performance could result in a change in the valuation allowance. Should actual factors and conditions differ materially from those used by management, the actual realization of net deferred tax assets could differ materially from the amounts recorded in the financial statements. If we were not able to realize all or part of our deferred tax assets in the future, an adjustment to the related valuation allowance would be charged to income tax expense in the period such determination was made and could have a negative impact on earnings. In addition, if actual factors and conditions differ materially from those used by management, we could incur penalties and interest imposed by taxing authorities.
Comparison of Financial Condition at December 31, 2015 and 2014
Total Assets. Total assets increased $121.3 million, or 5.9%, to $2.16 billion at December 31, 2015 from $2.04 billion at December 31, 2014.
Loans Held for Sale. Loans held for sale at December 31, 2015 were $63.8, an increase of $60.3 million from $3.5 at December 31, 2014, primarily due to the acquisition of Merrimack Mortgage on July 1, 2015. Of the loans held for sale at December 31, 2015, $60.8 million were originated by Merrimack Mortgage and $3.0 million were originated by HarborOne Bank.
56
Loans Held for Investment. At December 31, 2015, loans held for investment were $1.73 billion, an increase of $77.5 million, or 4.7%, from $1.65 billion at December 31, 2014, primarily due to an increase in the Bank's commercial loan originations partially offset by a decrease in residential and consumer loans. Total commercial loans at December 31, 2015 were $336.0 million, an increase of $146.1 million, or 76.9%, from $189.9 million at December 31, 2014, reflecting the execution of our business strategy to increase commercial lending. Our residential and consumer loan portfolios decreased by $57.2 million and $39.1 million, respectively, for the same period primarily due to sales of $24.0 million and $31.3 million of residential and consumer loans, respectively, with servicing retained by us.
Securities. Total investment securities at December 31, 2015 were $192.1 million, a decrease of $14.3 million, or 6.9%, primarily due to the sale of $35.7 million of securities as well as maturities, prepayments, calls and amortizations not being fully replaced. The decline in investments continues our strategy to change the composition of our balance sheet to higher yielding loans.
Deposits. Deposits increased $191.1 million, or 12.7%, to $1.69 billion at December 31, 2015 from $1.50 billion at December 31, 2014. The growth in deposits was primarily driven by an increase of $135.8 million in municipal money market deposits, $67.7 million in checking account deposits, and $27.5 million in savings account deposits, partially offset by a decline of $55.4 million in certificates of deposit. During 2015, we focused on growing our business, retail and municipal non-certificate deposits in order to better manage our cost of funds and to expand our customer relationships.
Borrowings. Total borrowings from the FHLB were $249.6 million at December 31, 2015, a decrease of $80.0 million from $329.6 million at December 31, 2014. During 2015, we prepaid $45.0 in borrowings from the FHLB that had an average cost of 2.51% and incurred $980 thousand in prepayment fees, in order to manage our cost of funds by replacing borrowings with lower-rate core deposits.
Comparison of Results of Operations for the Years Ended December 31, 2015 and 2014
The table below shows the results of operations for HarborOne Bank for the years ended December 31, 2014 and 2015 (excluding Merrimack Mortgage), the increase or decrease in those results, and the results of operations for Merrimack Mortgage for the six months ended December 31, 2015.
|
HarborOne Bank |
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Merrimack
Mortgage Company |
|||||||||||||||
|
For the years ended
December 31, |
|
|
|||||||||||||
|
Increase (Decrease) | |||||||||||||||
|
For the six months
ended December 31, 2015 |
|||||||||||||||
(In thousands)
|
2015 | 2014 | Dollars | Percent | ||||||||||||
Net interest income |
$ | 51,137 | $ | 45,201 | $ | 5,936 | 13 | % | $ | 1,088 | ||||||
Provision for loan losses |
1,257 | 2,589 | (1,332 | ) | (51 | )% | | |||||||||
| | | | | | | | | | | | | | | | |
Net interest income after the provision for loan losses |
49,880 | 42,612 | 7,268 | 17 | % | 1,088 | ||||||||||
Noninterest income |
17,346 | 15,610 | 1,736 | 11 | % | 18,027 | ||||||||||
Noninterest expense |
61,249 | 54,302 | 6,947 | 13 | % | 16,765 | ||||||||||
| | | | | | | | | | | | | | | | |
Income before provision for income taxes |
5,977 | 3,920 | 2,057 | 52 | % | 2,350 | ||||||||||
Income tax provision |
1,631 | 1,350 | 281 | 21 | % | 928 | ||||||||||
| | | | | | | | | | | | | | | | |
Net income |
$ | 4,346 | $ | 2,570 | $ | 1,776 | 69 | % | $ | 1,422 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
HarborOne Bank Consolidated
Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated, on a consolidated basis. No tax-equivalent yield adjustments were made during the periods presented. All average balances are daily average balances. Non-accrual 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 expense.
57
|
For the Years Ended December 31,
|
|||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
2015 | 2014 |
2013
|
|||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) |
Average
Outstanding Balance |
Interest
Earned/ Paid |
Average
Yield/ Rate |
Average
Outstanding Balance |
Interest
Earned/ Paid |
Average
Yield/ Rate |
Average
Outstanding Balance |
Interest
Earned/ Paid |
Average
Yield/ Rate |
|||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-earning assets: |
||||||||||||||||||||||||||||
Loans(1) |
$ | 1,746,346 | $ | 61,413 | 3.52 | % | $ | 1,618,958 | $ | 56,379 | 3.48 | % | $ | 1,566,556 | $ | 56,007 | 3.58 | % | ||||||||||
Investment securities(2) |
229,296 | 5,606 | 2.44 | % | 228,747 | 4,876 | 2.13 | % | 184,463 | 3,080 | 1.67 | % | ||||||||||||||||
Other interest-earning assets |
35,479 | 98 | 0.28 | % | 54,128 | 137 | 0.25 | % | 58,489 | 148 | 0.25 | % | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-earning assets |
2,011,120 | 67,117 | 3.34 | % | 1,901,834 | 61,392 | 3.23 | % | 1,809,508 | 59,235 | 3.27 | % | ||||||||||||||||
Noninterest-earning assets |
110,501 | 83,965 | 73,076 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets |
$ | 2,121,621 | $ | 1,985,798 | $ | 1,882,584 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: |
||||||||||||||||||||||||||||
Savings accounts |
$ | 286,381 | 492 | 0.17 | % | $ | 270,776 | 515 | 0.19 | % | $ | 261,700 | 652 | 0.25 | % | |||||||||||||
NOW accounts |
109,674 | 69 | 0.06 | % | 101,642 | 67 | 0.07 | % | 96,487 | 72 | 0.07 | % | ||||||||||||||||
Money market accounts |
559,745 | 2,417 | 0.43 | % | 440,597 | 1,907 | 0.43 | % | 331,887 | 1,192 | 0.36 | % | ||||||||||||||||
Certificates of deposit |
491,235 | 5,722 | 1.16 | % | 537,149 | 6,544 | 1.22 | % | 529,600 | 6,518 | 1.23 | % | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-bearing deposits |
1,447,036 | 8,700 | 0.60 | % | 1,350,164 | 9,033 | 0.67 | % | 1,219,674 | 8,434 | 0.69 | % | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
FHLB advances |
296,016 | 5,875 | 1.98 | % | 293,316 | 6,845 | 2.33 | % | 343,840 | 7,947 | 2.31 | % | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-bearing liabilities |
1,743,051 | 14,575 | 0.84 | % | 1,643,480 | 15,878 | 0.97 | % | 1,563,514 | 16,381 | 1.05 | % | ||||||||||||||||
Noninterest-bearing liabilities: |
||||||||||||||||||||||||||||
Noninterest-bearing deposits |
167,517 | 137,475 | 122,400 | |||||||||||||||||||||||||
Other noninterest-bearing liabilities |
21,596 | 18,185 | 17,144 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities |
1,932,164 | 1,799,140 | 1,703,058 | |||||||||||||||||||||||||
Total equity |
189,457 | 186,658 | 179,526 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and equity |
$ | 2,121,621 | $ | 1,985,798 | $ | 1,882,584 | ||||||||||||||||||||||
Net interest income |
$ | 52,542 | $ | 45,514 | $ | 42,854 | ||||||||||||||||||||||
Interest rate spread(3) |
2.50 | % | 2.26 | % | 2.23 | % | ||||||||||||||||||||||
Less: tax equivalent adjustment |
316 | 313 | 123 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income as reported |
$ | 52,225 | $ | 45,201 | $ | 42,731 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest-earning assets(4) |
$ | 268,069 | $ | 258,354 | $ | 245,994 | ||||||||||||||||||||||
Net interest margin(5) |
2.60 | % | 2.38 | % | 2.36 | % | ||||||||||||||||||||||
Tax equivalent effect |
0.01 | % | 0.01 | % | 0.01 | % | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest margin on a fully tax equivalent basis |
2.61 | % | 2.39 | % | 2.37 | % | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ratio of interest-earning assets to interest-bearing liabilities |
115.38x | 115.72x | 115.73x |
58
Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated, on a consolidated basis. 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.
Interest and Dividend Income. Interest and dividend income increased $5.7 million, or 9.4%, to $66.8 million for the year ended December 31, 2015, compared to $61.1 million for the year ended December 31, 2014. The increase was primarily due to a $5.0 million, or 8.9%, increase in interest on loans and loans held for sale to $61.4 million for the year ended December 31, 2015 from $56.4 million for the year ended December 31, 2014. The increase in loan interest income was as result of a 5.8% increase in average loans outstanding as well as the shift in mix to higher yielding commercial loans. Interest and dividend income on securities rose by $559,000, or 13.2%, from $4.2 million for the year ended December 31, 2014 to $4.8 million for the year ended December 31, 2015. The increase in investment income in 2015 was primarily due to repositioning the portfolio during the year, which increased the portfolio yield by 31 basis points to 2.44% for the year ended 2015 compared to 2.13% for 2014.
Interest Expense. Interest expense decreased $1.3 million, or 8.2%, to $14.6 million for the year ended December 31, 2015 from $15.9 million for the year ended December 31, 2014. The decrease resulted from a $970,000 decrease in interest expense on borrowings as well as a $333,000 decrease in interest expense on interest-bearing deposits. The decrease in interest expense on borrowings resulted from the early pre-payment of higher cost FHLB borrowings, which lowered the cost of borrowings from 2.33% in 2014 to 1.98% in 2015. HarborOne Bank incurred a prepayment fee of $980,000 in order to terminate these fixed-rate borrowings prior to maturity. The decrease in interest expense on deposits resulted from a change in the mix of deposits due to an increase in non-certificates of deposit. Average non-certificates of deposit increased by $172.9 million, or 18.2%, to an average balance of $1.1 billion for the year ended December 31, 2015 compared to $950.5 million for the year ended December 31, 2014. The cost of interest-bearing non-certificates of deposit remained the same at 31 basis points in 2015 as in 2014, versus the cost of certificates of deposits, which declined to 1.16% in 2015 from 1.22% in 2014.
Net Interest and Dividend Income. Net interest and dividend income increased $7.0 million, or 15.5%, to $52.2 million for the year ended December 31, 2015 from $45.2 million for the year ended December 31, 2014. Growth in higher yielding commercial loans was primarily funded with lower cost non-certificates of deposit. The net interest spread increased 24 basis to 2.50% in 2015 from 2.26% in 2014 and net interest margin rose by 22 basis points to 2.61% in 2015 from 2.39% in 2014.
59
HarborOne Bank Segment
Net Income. Bank net income increased by $1.8 million to $4.3 million for the year ended December 31, 2015 from $2.6 million for the year ended December 31, 2014, with pre-tax income increasing by $2.1 million to $6.0 million in 2015 from $3.9 million in 2014. The increases in pre-tax and net income reflected a $7.3 million increase in net interest income, a $1.7 million increase in noninterest income and a $1.3 million decrease in the provision for loan losses, partially offset by a $6.9 million increase in noninterest expenses and a $281,000 increase in the provision for income taxes.
Provision for Loan Losses. We recorded a provision for loan losses of $1.3 million for the year ended December 31, 2015 and $2.6 million for the year ended December 31, 2014. The decrease in provision reflects a decrease in the level of net charge offs to $1.5 million in 2015 from $3.2 million in 2014. Additionally, credit quality improved as nonaccrual loans declined to $29.4 million at December 31, 2015 from $35.3 million at December 31, 2014, and loans delinquent 90 days or more declined to $11.3 million as of December 31, 2015 from $16.2 million at December 31, 2014. The continued improvement in credit quality factors was partially offset by the continued shift in the composition of the loan portfolio to a higher percentage of commercial lending which requires a higher level of loan loss reserve than loans secured by autos and residential property.
Noninterest Income. Noninterest income increased $1.7 million, or 11.1% to $17.3 million for the year ended December 31, 2015 compared to $15.6 million for the year ended December 31, 2014. The increase was driven by an increase in bank-owned life insurance income of $778,000, an increase in commercial loan swap fee income of $474,000 recorded in other income. There were no commercial loan swaps recorded in 2014.
Noninterest Expense. Noninterest expense increased $6.9 million, or 12.8%, to $61.2 million for the year ended December 31, 2015 from $54.3 million for the year ended December 31, 2014. Elements of the increase in noninterest expense included increased salaries and benefit costs of $4.6 million, as HarborOne Bank continued its hiring of additional commercial lending and credit support staff during 2015, and opened its first commercial loan production office. Occupancy and equipment expense increased $814,000, or 10.7%, due to the unprecedented snowfall in 2015, resulting in an increase of $409,000 related to snow removal costs.
Income Tax Provision. Provision for income taxes increased $281,000 to $1.6 million for the year ended December 31, 2015 from $1.4 million for the year ended December 31, 2014. The increased provision for income taxes was mainly due to the $2.1 million increase in pre-tax earnings in 2015, offset by a decrease in the effective rate to 27.3% from 34.4%.
Merrimack Mortgage Segment
Results of Operations Since Acquisition on July 1, 2015 to December 31, 2015.
Results of operations for Merrimack Mortgage are discussed below. HarborOne Bank acquired Merrimack Mortgage on July 1, 2015.
Merrimack Mortgage's results were benefited by the continuation of a low interest rate environment through 2015, which aided home affordability and refinance activity. Merrimack Mortgage had favorable gain on sales due to higher retail, government and purchase activity. In the six months ending December 31, 2015, Merrimack Mortgage originated loans totaling $547.8 million. Merrimack Mortgage's loan servicing portfolio grew from $466.3 million at June 30, 2015 to $708.7 million at December 31, 2015.
Non-interest Income. During the six months ended December 31, 2015, non-interest income totaled $18.0 million. Included in this amount were gains on sales of mortgage loans and derivative gains and losses of $15.0 million and loan fees, including servicing related income, of $2.9 million.
Merrimack Mortgage originated $547.8 million of residential mortgage loans and experienced gross revenue of 2.74% of the underlying mortgage amount during the six months ended December 31, 2015. The following tables provide additional detail (dollars presented in thousands):
Source
|
Loan Amount | No. of Loans | % of Total No. | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Retail Offices |
$ | 428,835 | 1,810 | 75.7 | % | |||||
Third Party |
118,963 | 581 | 24.3 | % | ||||||
| | | | | | | | | | |
Total |
$ | 547,797 | 2,391 | 100.0 | % | |||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
60
Product Type
|
Loan Amount | No. of Loans | % of Total No. | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Conventional |
$ | 301,783 | 1,275 | 53.3 | % | |||||
Government |
184,843 | 874 | 36.6 | % | ||||||
State Housing Agency |
33,851 | 202 | 8.4 | % | ||||||
Jumbo |
26,992 | 37 | 1.5 | % | ||||||
Seconds |
327 | 3 | 0.1 | % | ||||||
| | | | | | | | | | |
Total |
$ | 547,797 | 2,391 | 100.0 | % | |||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Purpose
|
Loan Amount | No. of Loans | % of Total No. | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Purchase |
$ | 412,682 | 1,851 | 77.4 | % | |||||
Refinance |
133,008 | 534 | 22.3 | % | ||||||
Construction |
2,108 | 6 | 0.3 | % | ||||||
| | | | | | | | | | |
Total |
$ | 547,797 | 2,391 | 100.0 | % | |||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Included in the gain on mortgage sales was $2.6 million of originated mortgage servicing rights. During the six months ended December 31, 2015, Merrimack Mortgage sold $259.0 million of loans to Freddie Mac, Fannie Mae and Ginnie Mae and recorded an average originated mortgage servicing right gain of 1.02% of the underlying mortgage amount.
Merrimack Mortgage's mortgage loan servicing income of $2.9 million for the six months ended December 31, 2015 consisted of $1.9 million in processing, underwriting and closing fees from customers and secondary market loan servicing fees net of loan guarantee fees of $728,000. As of December 31, 2015, the unpaid balance of the servicing portfolio totaled $708.7 million as compared to $466.3 million at June 30, 2015. In addition, the fair value adjustments on mortgage servicing rights assets totaled $283,000 for the six months ended December 31, 2015. The increase in the fair value was driven primarily by the increase in market interest rates during the six month period. Increasing interest rates generally result in increased mortgage servicing rights values as the assumption for prepayment speeds of the underlying mortgage loans tends to decrease.
Non-Interest Expense. Salary and benefits expenses totaled $12.5 million for the six months ended December 31, 2015. Salary expense was primarily commission-related expenses of $7.1 million, or 1.31% of closed loan volume.
Loan expenses totaled $2.8 million for the six months ended December 31, 2015, and included direct loan origination expenses of $1.9 million associated with the origination of $547.8 million of mortgage loans, $333,000 for sub-servicing related expenses including $59,000 expense for the transfer of sub-servicing providers and $200,000 in repurchase reserve expense.
Occupancy expense totaled $853,000 for the six months ended December 31, 2015, and primarily consisted of rent and other expenses associated with the retail branch network and corporate office.
Risk Management
Overview. Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk exposures are credit risk, interest rate risk, market risk and liquidity risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or security when it is due. Interest rate risk is the potential reduction of net interest income as a result of changes in interest rates. Market risk arises from fluctuations in interest rates that may result in changes in the values of financial instruments, such as available-for-sale securities that are recorded at fair value. Liquidity risk is the possible inability to fund obligations to depositors, lenders or borrowers when due. Other risks that we face are operational risks and reputation risk. Operational risks include risks related to fraud, regulatory compliance, processing errors, technology and disaster recovery. Reputation risk is the risk that negative publicity or press, whether true or not, could cause a decline in our customer base or revenue.
Credit Risk Management. Our strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing prompt attention to potential problem loans. This strategy also emphasizes conservative loan-to-value and debt coverage ratios. In addition, during each calendar year, we engage an outside loan review firm to perform a thorough review of our commercial real estate and commercial loan portfolio. This review involves analyzing the majority of our large borrowing relationships, delinquency trends and loan collateral valuation and credit documentation in order to identify any deficiencies in our underwriting process and credit administration.
61
When a borrower fails to make a required loan payment, management takes a number of steps to have the borrower cure the delinquency and restore the loan to current status. As a general rule, we make initial contact with the borrower when the loan becomes 15 days past due. If payment is not then received by the 30 th day of delinquency, additional letters and phone calls generally are made, and a plan of collection is pursued for each individual loan based on the loan type and risk level. An assessment of the borrower's prospects to bring the loan current, the financial strength and commitment of any guarantors, the type and value of the collateral securing the loan and other factors are considered in the collection process. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property securing the loan generally is sold at foreclosure or acquired by us at foreclosure and later sold. We may consider loan workout arrangements with certain borrowers under certain circumstances or we may sell the nonperforming loans. If collection activity is unsuccessful, loans will be charged off when deemed uncollectible and in accordance with regulatory guidelines. The board of directors is provided a delinquency status of the loan portfolio on a monthly basis.
Nonperforming Assets. We consider foreclosed and repossessed assets, loans that are maintained on a nonaccrual basis and loans that are past 90 days or more and still accruing to be nonperforming assets. Loans are generally placed on nonaccrual status when they are classified as impaired or when they become 90 days or more past due. Loans are classified as impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Included in impaired loans are performing troubled debt restructurings. At the time a loan is placed on nonaccrual status, the accrual of interest ceases and interest income previously accrued on such loans is reversed against current period interest income. Payments received on a nonaccrual loan are either applied to the outstanding principal balance or reported as income according to management's judgment as to the collectability of principal.
Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned until it is sold. When property is acquired it is recorded at the lower of its cost or fair market value at the date of foreclosure. Any holding costs and declines in fair value after acquisition of the property result in charges against income. Repossessed assets includes automobiles to be sold which are recorded at estimated fair value, less costs to sell, with the initial charge to the allowance for loan losses and the subsequent gain or loss on sale recorded to foreclosed and repossessed assets expense.
Troubled debt restructurings occur when we grant borrowers concessions that we would not otherwise grant but for economic or legal reasons pertaining to the borrower's financial difficulties. We may modify the terms of loans to lower interest rates (which may be at below market rates) or to provide for temporary interest-only terms, or to defer the payment of interest. 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. We generally do not forgive principal on loans. Once the borrower has demonstrated sustained performance with the modified terms, the loan may be upgraded from its classified and/or nonperforming status.
62
The following table provides information with respect to our nonperforming assets, including troubled debt restructurings, at the dates indicated. We did not have any accruing loans past due 90 days or more at the dates presented.
|
At December 31,
|
|||||||||||||||
| | | | | | | | | | | | | | | | |
(Dollars in thousands) |
2015 | 2014 | 2013 | 2012 |
2011
|
|||||||||||
| | | | | | | | | | | | | | | | |
Nonaccrual loans: |
||||||||||||||||
Residential real estate: |
||||||||||||||||
One- to four-family |
$ | 25,841 | $ | 31,333 | $ | 29,729 | $ | 33,991 | $ | 35,911 | ||||||
Second mortgages and equity lines of credit |
2,386 | 1,102 | 2,301 | 2,126 | 2,166 | |||||||||||
Commercial real estate |
| 1,241 | 654 | 373 | 2,711 | |||||||||||
Construction |
136 | | 482 | 1,677 | 1,677 | |||||||||||
Commercial |
731 | 1,053 | 897 | 721 | | |||||||||||
Consumer |
333 | 555 | 175 | 568 | 489 | |||||||||||
| | | | | | | | | | | | | | | | |
Total nonaccrual loans(1) |
29,427 | 35,284 | 34,238 | 39,456 | 42,954 | |||||||||||
Repossessed Assets: |
||||||||||||||||
One- to four-family residential |
2,286 | 2,915 | 2,884 | 1,308 | 2,961 | |||||||||||
| | | | | | | | | | | | | | | | |
Other repossessed assets |
61 | 11 | 11 | 140 | 46 | |||||||||||
| | | | | | | | | | | | | | | | |
Total nonperforming assets |
31,774 | 38,210 | 37,133 | 40,904 | 45,961 | |||||||||||
| | | | | | | | | | | | | | | | |
Performing troubled debt restructurings |
24,963 | 26,814 | 31,492 | 32,971 | 9,440 | |||||||||||
| | | | | | | | | | | | | | | | |
Total nonperforming assets and performing troubled debt restructurings |
$ | 56,737 | $ | 65,024 | $ | 68,625 | $ | 73,875 | $ | 55,401 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Total nonperforming loans to total loans(2) |
1.69 | % | 2.12 | % | 2.13 | % | 2.57 | % | 2.77 | % | ||||||
Total nonperforming assets and performing troubled debt restructurings to total assets |
2.62 | % | 3.18 | % | 3.51 | % | 3.95 | % | 2.96 | % | ||||||
Total nonperforming assets to total assets |
1.47 | % | 1.87 | % | 1.90 | % | 2.19 | % | 2.46 | % |
Income related to nonaccrual loans included in interest income for the years ended December 31, 2015 and 2014, amounted to $3.1 million and $2.7 million, respectively.
Classified Assets. Federal regulations require us to review and classify assets on a regular basis. In addition, the FDIC and the Massachusetts Commissioner of Banks have the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. "Substandard assets" must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. "Doubtful assets" have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified as "loss" is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. When management classifies a loan as substandard or doubtful, a specific allowance for loan losses may be established. If management classifies a loan as loss, an amount equal to 100.0% of the portion of the loan classified loss is charged to the allowance for loan losses. The regulations also provide for a "special mention" category, described as loans that do not currently expose us to a sufficient degree of risk to warrant classification, but do possess credit deficiencies or potential weaknesses deserving our close attention. We utilize a ten grade internal loan rating system for commercial real estate, commercial construction and commercial loans. See Note 6 to the Consolidated Financial Statements.
63
The following table presents our risk rated loans considered classified or special mention in accordance with our internal risk rating system.
|
At December 31,
|
|||||||||
| | | | | | | | | | |
(In thousands) |
2015 | 2014 |
2013
|
|||||||
| | | | | | | | | | |
Classified loans: |
||||||||||
Substandard |
$ | 645 | $ | 2,040 | $ | 25 | ||||
Doubtful |
393 | 551 | 561 | |||||||
Loss |
| | 26 | |||||||
| | | | | | | | | | |
Total classified loans |
1,038 | 2,591 | 612 | |||||||
| | | | | | | | | | |
Special mention |
3,362 | 1,064 | 1,956 | |||||||
| | | | | | | | | | |
Total criticized loans |
$ | 4,400 | $ | 3,655 | $ | 2,568 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
None of the special mention assets at December 31, 2015 were on nonaccrual.
Other than as disclosed in the above tables, there are no other loans where management has serious doubts about the ability of the borrowers to comply with the present loan repayment terms.
Delinquencies. The following table provides information about delinquencies in our loan portfolio at the dates indicated.
|
At December 31,
|
|||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
2015 | 2014 | 2013 | 2012 |
2011
|
|||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Days Past Due | Days Past Due | Days Past Due | Days Past Due |
Days Past Due
|
|||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) |
30 - 59 | 60 - 89 |
90 or
more |
30 - 59 | 60 - 89 |
90 or
more |
30 - 59 | 60 - 89 |
90 or
more |
30 - 59 | 60 - 89 |
90 or
more |
30 - 59 | 60 - 89 |
90 or
more |
|||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate: |
||||||||||||||||||||||||||||||||||||||||||||||
One- to four-family |
$ | 5,779 | $ | 419 | $ | 9,978 | $ | 8,072 | $ | 1,455 | $ | 14,670 | $ | 10,658 | $ | 5,599 | $ | 12,776 | $ | 11,118 | $ | 718 | $ | 18,126 | $ | 10,328 | $ | 2,378 | $ | 15,402 | ||||||||||||||||
Second mortgages and equity lines of credit |
610 | 164 | 844 | 937 | 645 | 590 | 1,174 | 817 | 429 | 933 | 373 | 1,159 | 725 | 439 | 1,109 | |||||||||||||||||||||||||||||||
Commercial real estate |
| | 173 | | | 279 | | 296 | 357 | 303 | | 373 | 1,026 | 2,947 | 373 | |||||||||||||||||||||||||||||||
Construction |
| | 136 | | | | | | 481 | | | 1,456 | | | 1,677 | |||||||||||||||||||||||||||||||
Commercial |
18 | | | 2,466 | 39 | 349 | 17 | | 572 | | 3 | 718 | 550 | 312 | | |||||||||||||||||||||||||||||||
Consumer |
2,272 | 385 | 193 | 3,429 | 532 | 328 | 4,916 | 423 | 175 | 4,663 | 642 | 538 | 4,204 | 691 | 475 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
$ | 8,679 | $ | 968 | $ | 11,324 | $ | 14,904 | $ | 2,671 | $ | 16,216 | $ | 16,765 | $ | 7,135 | $ | 14,790 | $ | 17,017 | $ | 1,736 | $ | 22,370 | $ | 16,833 | $ | 6,767 | $ | 19,036 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the 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: (1) an allocated component related to impaired loans; (2) a general component related to the remainder of the loan portfolio and (3) an unallocated component related to overall uncertainties that could affect management's estimate of probable losses. Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available for the entire portfolio.
General Component. The general component of the allowance for loan losses relates to loans that are not determined to be impaired. Management determines the appropriate loss factor for each group of loans with similar risk characteristics within the portfolio based on loss experience and qualitative and environmental factors for loans in each group. Loan categories will represent groups of loans with similar risk characteristics and may include types of loans categorized by product, large credit exposures, concentrations, loan grade, or any other characteristic that causes a loan's risk profile to be similar to another. We consider qualitative or environmental factors that are likely to cause estimated credit losses associated with our existing portfolio to differ from historical loss experience, including changes in lending policies and procedures; changes in the nature and volume of the loan portfolio; changes in experience, ability and depth of loan management; changes in the volume and severity of past due loans, nonaccrual loans and adversely graded or classified loans; changes in the quality of the loan review system; changes in the value of underlying collateral for collateral dependent loans; the existence of or changes in concentrations of credit; changes in economic or business conditions; and the effect of competition, legal and regulatory requirements on estimated credit losses. Our qualitative, environmental factors and historical loss experience are reviewed on a quarterly basis to ensure they are reflective of current conditions in our loan portfolio and the economy.
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Allocated Component. The allocated component of the allowance for loan losses relates to loans that are individually evaluated and determined to be impaired. The allowance for each impaired loan is determined by either the present value of expected future cash flows discounted at the loan's effective interest rate or, if the loan is collateral dependent, by the fair value of the collateral. We identify a loan as impaired when, based upon current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Management evaluates individual loans other than smaller-balance homogeneous loans for impairment. If a loan is determined to be impaired, an individual loss assessment is performed to determine the probability of a loss and, if applicable, the estimated measurement of the loss. Smaller-balance homogeneous loans, such as residential real estate loans and consumer loans, are generally excluded from an individual impairment analysis and are collectively evaluated by management to estimate losses inherent in those loans. However, certain smaller-balance homogeneous loans will be individually evaluated for impairment when they reach nonperforming status or become subject to a restructuring agreement.
Unallocated Component. Management maintains an unallocated component within the allowance for loan losses to cover uncertainties that could affect our overall estimate of probable losses. This component recognizes the imprecision inherent in the assumptions used in the methodologies for estimating the allocated and general components of the allowance, and is generally not a significant component of the overall allowance.
We identify loans that may need to be charged off as a loss by reviewing all impaired loans and related loss analyses. Loan losses are charged against the allowance when we believe the uncollectibility of the loan balance is confirmed. A borrower's inability to make payments under the terms of the loan and a shortfall in collateral value would generally result in our charging off the loan to the extent of the loss deemed to be confirmed.
At December 31, 2015, our allowance for loan losses was $13.7 million, or 0.79% of total loans and 46.6% of nonperforming loans. At December 31, 2014, our allowance for loan losses was $13.9 million, or 0.84% of total loans and 39.5% of nonperforming loans. Nonperforming loans at December 31, 2015 were $29.4 million, or 1.69% of total loans, compared to $35.3 million, or 2.12% of total loans, at December 31, 2014 and $34.2 million, or 2.13% of total loans, at December 31, 2013. The allowance for loan losses is maintained at a level that represents management's best estimate of losses in the loan portfolio at the balance sheet date. However, there can be no assurance that the allowance for loan losses will be adequate to cover losses which may be realized in the future or that additional provisions for loan losses will not be required.
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 our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that the FDIC and the Massachusetts Commissioner of Banks, in reviewing our loan portfolio, will not require us to increase our allowance for loan losses based on judgments different from ours. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operation.
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The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated.
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Analysis of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated.
|
For the Year Ended December 31,
|
|||||||||||||||
| | | | | | | | | | | | | | | | |
(Dollars in thousands) |
2015 | 2014 | 2013 | 2012 |
2011
|
|||||||||||
| | | | | | | | | | | | | | | | |
Allowance at beginning of period |
$ | 13,934 | $ | 14,529 | $ | 17,254 | $ | 17,873 | $ | 16,736 | ||||||
| | | | | | | | | | | | | | | | |
Provision for loan losses |
1,257 | 2,589 | 2,235 | 3,839 | 4,024 | |||||||||||
| | | | | | | | | | | | | | | | |
Charge offs: |
||||||||||||||||
Residential real estate: |
||||||||||||||||
One- to four-family |
(860 | ) | (2,223 | ) | (2,977 | ) | (2,430 | ) | (1,193 | ) | ||||||
Second mortgages and equity lines of credit |
(161 | ) | (352 | ) | (385 | ) | (950 | ) | (356 | ) | ||||||
Commercial real estate |
| (67 | ) | (41 | ) | | (116 | ) | ||||||||
Construction |
| (67 | ) | (631 | ) | (221 | ) | | ||||||||
Commercial |
| (229 | ) | (110 | ) | | (212 | ) | ||||||||
Consumer: |
(1,007 | ) | (949 | ) | (1,146 | ) | (1,191 | ) | (1,361 | ) | ||||||
| | | | | | | | | | | | | | | | |
Total charge-offs |
(2,028 | ) | (3,887 | ) | (5,290 | ) | (4,792 | ) | (3,238 | ) | ||||||
| | | | | | | | | | | | | | | | |
Recoveries: |
||||||||||||||||
Residential real estate: |
||||||||||||||||
One- to four-family |
358 | 393 | 54 | 114 | 154 | |||||||||||
Second mortgages and equity lines of credit |
| | | | | |||||||||||
Commercial real estate |
| | | | | |||||||||||
Construction |
| 130 | | | | |||||||||||
Commercial |
7 | 2 | | | 1 | |||||||||||
Consumer: |
172 | 178 | 276 | 220 | 196 | |||||||||||
| | | | | | | | | | | | | | | | |
Total recoveries |
537 | 703 | 330 | 334 | 351 | |||||||||||
| | | | | | | | | | | | | | | | |
Net charge-offs |
1,491 | 3,184 | 4,960 | 4,458 | 2,887 | |||||||||||
| | | | | | | | | | | | | | | | |
Allowance at end of period |
$ | 13,700 | $ | 13,934 | $ | 14,529 | $ | 17,254 | $ | 17,873 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Total loans outstanding(1) |
$ | 1,743,088 | $ | 1,665,828 | $ | 1,606,343 | $ | 1,535,275 | $ | 1,548,541 | ||||||
Average loans outstanding |
$ | 1,746,346 | $ | 1,618,958 | $ | 1,566,556 | $ | 1,585,499 | $ | 1,499,741 | ||||||
Allowance for loan losses as a percent of total loans outstanding(1) |
0.79 | % | 0.84 | % | 0.90 | % | 1.12 | % | 1.15 | % | ||||||
Net loans charged off as a percent of average loans outstanding |
0.09 | % | 0.20 | % | 0.32 | % | 0.28 | % | 0.19 | % | ||||||
Allowance for loan losses to nonperforming loans |
46.56 | % | 39.49 | % | 42.44 | % | 43.73 | % | 41.61 | % |
Provision for loan losses has declined steadily from 2011 to 2015, from $4.0 million for the year ended December 31, 2011 to $1.3 million for the year ended December 31, 2015. This decline generally reflects declines in nonaccrual and impaired loans over the same period and declines in net charge offs since 2013. Charge off rates, as the basis for residential real estate and consumer loan general reserve allocations, directly impacts the allowance for loan loss analysis as does lower allocated reserves resulting from the improved credit quality. These improvements have recently been somewhat offset by commercial and commercial real estate loan growth.
Interest Rate Risk Management. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment on our profitability. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Our strategy for managing interest rate risk emphasizes originating 15-year and shorter fixed-rate and adjustable-rate loans for retention in our loan portfolio and selling long-term fixed-rate residential loans in the secondary market when appropriate. We also originate short-term auto loans, promote core deposit products, and use an appropriate mix and duration of investments and borrowings to help maintain the match on our balance sheet. We currently do not participate in balance sheet hedging programs, interest rate swaps (other than certain commercial loan level swaps) or other activities involving the use of derivative financial instruments.
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We have an asset/liability committee, which includes members of management, to communicate, coordinate and control all aspects involving asset-liability management. The committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.
Net Interest Income Analysis. Income simulation is the primary tool for measuring interest-rate risk inherent in our balance sheet at a given point in time by showing the effect on net interest income, over specified time frames and using different interest rate shocks and ramps. The assumptions include, but are not limited to, management's best assessment of the effect of changing interest rates on the prepayment speeds of certain assets and liabilities, projections for account balances in each of the product lines offered and the historical behavior of deposit rates and balances in relation to changes in interest rates. These assumptions are inherently changeable, and as a result, the model is not expected to precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from the simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in the balance sheet composition as well as market conditions. Assumptions are supported with quarterly back testing of the model to actual market rate shifts.
As of December 31, 2015, net interest income simulation indicated that our exposure to changing interest rates was within our internal and regulatory guidelines. The following table presents the estimated impact of interest rate shock on our estimated net interest income over the period indicated:
At December 31, 2015 | |||||
---|---|---|---|---|---|
Changes in Interest Rates
(basis points)(1) |
|
Change in Net Interest Income
Year One (% change From Year One Base) |
|||
+300 | 6.08% | ||||
100 | 2.90% |
Economic Value of Equity Analysis. We also use the net present value of equity at risk, or "EVE," methodology. This methodology calculates the difference between the present value of expected cash flows from assets and liabilities. The comparative scenarios assume an immediate parallel shift in the yield curve up 300 basis points and down 100 basis points.
The board of directors and management review the methodology's measurements for both net interest income and EVE on a quarterly basis to determine whether the exposure resulting from the changes in interest rates remains within established tolerance levels and develops appropriate strategies to manage this exposure.
The table below sets forth, as of December 31, 2015, the estimated changes in the net economic value of equity that would result from the designated changes in the United States Treasury yield curve under an instantaneous parallel shift for the Bank. 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.
At December 31, 2015 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
EVE as Percentage of
Economic Value of Assets |
|||||||||||||
|
|
Estimated Increase
(Decrease) in EVE |
|||||||||||||||
Changes in Interest
Rates (basis points)(1) |
Estimated
EVE |
EVE Ratio(2) |
Changes in
Basis Points |
||||||||||||||
Amount | Percent | ||||||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||
+300 | $ | 212,690 | $ | (50,907 | ) | (19.3 | )% | 10.6 | % | (1.41 | ) | ||||||
0 | $ | 263,597 | | | 12.0 | % | | ||||||||||
100 | $ | 252,941 | $ | (10,656 | ) | (4.0 | )% | 11.4 | % | (0.69 | ) |
The table above indicates that at December 31, 2015, in the event of an instantaneous parallel 100 basis point decrease in interest rates, we would experience a 4.0% decrease in net portfolio value. In the event of an instantaneous 300 basis point increase in interest rates, we would experience a 19.3% decrease in net portfolio value.
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Depending on the relationship between long-term and short-term interest rates, market conditions and consumer preference, we may place greater emphasis on maximizing our net interest margin than on strictly matching the interest rate sensitivity of our assets and liabilities. We believe that the increased net income which may result from an acceptable mismatch in the actual maturity or re-pricing of our assets and liabilities can, during periods of declining or stable interest rates, provide sufficient returns to justify an increased exposure to sudden and unexpected increases in interest rates. We believe that our level of interest rate risk is acceptable using this approach.
Liquidity Management and Capital Resources. Liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of securities, and borrowings from the FHLB. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, calls of investment securities and borrowed funds and prepayments on loans are greatly influenced by general interest rates, economic conditions and competition.
Management regularly adjusts our investments in liquid assets based upon an assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of our interest-rate risk and investment policies.
Our cash flows are composed of three primary classifications: cash flows from operating activities, investing activities and financing activities. Net cash provided by operating activities was $29.4 million and $18.5 million for the years ended December 31, 2015 and 2014, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations and loan purchases, the purchase of securities and the purchase of time deposits with other banks, offset by principal collections on loans, proceeds from the sale of securities, proceeds from redemption of time deposits and proceeds from maturing securities and sales of other real estate owned, and pay downs on mortgage-backed securities, was $79.6 million and $116.4 million for the years ended December 31, 2015 and 2014, respectively. Net cash provided by financing activities, consisting primarily of the activity in deposit accounts and FHLB advances, was $37.9 million and $75.0 million for the years ended December 31, 2015 and 2014, respectively, resulting from our strategy of managing growth and cash flows to preserve capital ratios and reduce expenses.
HarborOne Bank is subject to various regulatory capital requirements. At December 31, 2015, HarborOne Bank exceeded all regulatory capital requirements and is considered "well capitalized" under regulatory guidelines. See "Supervision and RegulationFederal Banking RegulationCapital Requirements" and Note 18 to our Consolidated Financial Statements included elsewhere in this prospectus.
At December 31, 2015, we had outstanding commitments to originate loans of $62.4 million and unadvanced funds on loans of $155.2 million. We anticipate that we will have sufficient funds available to meet our current loan origination commitments. Certificates of deposit that are scheduled to mature in less than one year from December 31, 2015 totaled $231.1 million. Management expects, based on historical experience, 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 advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.
Off-Balance Sheet Arrangements
In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers' requests for funding and take the form of loan commitments and lines of credit. For information about our loan commitments and unused lines of credit, see Note 14 to our Consolidated Financial Statements included elsewhere in this prospectus.
For the years ended December 31, 2015 and 2014, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.
Impact of Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see Note 1 to our Consolidated Financial Statements included elsewhere in this prospectus.
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Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented in this prospectus have been prepared according to generally accepted accounting principles in the United States, which require the measurement of financial position and operating results in terms of historical dollars without considering the change 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 and the effect that general inflation may have on both short-term and long-term interest rates. Virtually all 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 do general levels of inflation. Although inflation expectations do affect interest rates, 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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General
HarborOne Bank is a Massachusetts stock co-operative bank and will be the wholly-owned subsidiary of HarborOne Bancorp, Inc., a Massachusetts corporation that will be majority owned by HarborOne Mutual Bancshares, a Massachusetts mutual holding company. HarborOne Mutual Bancshares and HarborOne Bancorp will become registered bank holding companies in connection with the reorganization. HarborOne Bank's deposits are insured up to applicable limits by the FDIC and by the Share Insurance Fund established by Massachusetts General Laws, or the "MGL," for amounts in excess of the FDIC insurance limits. HarborOne Bank is subject to extensive regulation by the Massachusetts Commissioner of Banks, as its chartering agency, and by the FDIC, its primary federal regulator and deposit insurer. HarborOne Bank is required to file reports with, and is periodically examined by, the FDIC and the Massachusetts Commissioner of Banks concerning its activities and financial condition and must obtain regulatory approvals prior to entering into certain transactions, including, but not limited to, mergers with or acquisitions of other financial institutions. HarborOne Bank must comply with consumer protection regulations issued by the CFPB. HarborOne Bank is a member of and owns stock in the FHLB of Boston, which is one of the 12 regional banks in the FHLB System.
As a bank holding company, HarborOne Bancorp will be subject to examination and supervision by, and be required to file certain reports with, the Federal Reserve. HarborOne Bancorp will also be subject to the rules and regulations of the SEC under the federal securities laws.
The federal and state regulatory and supervisory structure establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of depositors and the deposit insurance funds, rather than for the protection of other creditors or shareholders. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies concerning the establishment of deposit insurance assessment fees, classification of assets and establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulatory requirements and policies, whether by the Massachusetts legislature, the Massachusetts Commissioner of Banks, the FDIC, the Federal Reserve or the United States Congress, could have a material adverse impact on the financial condition and results of operations of HarborOne Bancorp and HarborOne Bank. As is further described below, the Dodd-Frank Act has significantly changed the bank regulatory structure and may affect the lending, investment and general operating activities of depository institutions and their holding companies.
Set forth below are certain material regulatory requirements that are applicable to HarborOne Bank and will be applicable to HarborOne Bancorp. This description of statutes and regulations is not intended to be a complete description of such statutes and regulations and their effects on HarborOne Bancorp and HarborOne Bank.
Holding Company Regulation
General. In connection with the reorganization, HarborOne Bancorp will become a bank holding company within the meaning of the Bank Holding Company Act of 1956, or BHCA. As such, HarborOne Bancorp will be registered with the Federal Reserve and subject to regulation, examination, supervision and reporting requirements applicable to bank holding companies. In addition, the Federal Reserve will have enforcement authority over HarborOne Bancorp. Among other things, this authority will enable the Federal Reserve to restrict or prohibit activities that are determined to be a serious risk to HarborOne Bank.
Permissible Activities. A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5.0% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities that the Federal Reserve had determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto as of November 11, 1999. Some of the principal activities that the Federal Reserve had determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings association whose direct and indirect activities are limited to those permitted for bank holding companies. A bank holding company that is well capitalized and well managed within the meaning of applicable regulations and whose subsidiary depository institutions are well capitalized, well managed and meet certain additional requirements, may elect to become a "financial holding company." Such an election allows a bank holding company to engage in a broader array of financial activities, including insurance and investment banking activities.
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Acquisition of Control. The BHCA provides that no company may directly or indirectly acquire control of a bank without the prior approval of the Federal Reserve. Any company that acquires control of a bank becomes a "bank holding company" subject to registration, examination and regulation by the Federal Reserve. Pursuant to federal regulations, the term "company" is defined to include banks, corporations, partnerships, associations, and certain trusts and other entities, and a company has "control" of a bank or other company if the company owns, controls or holds with power to vote 25.0% or more of any class of voting stock of the bank or other company, controls in any manner the election of a majority of the directors of the bank or other company or if the Federal Reserve determines, after notice and opportunity for hearings that HarborOne Bancorp has the power to exercise a controlling influence over the management or policies of the bank or other company. In addition, a bank holding company must obtain Federal Reserve approval prior to acquiring voting securities of a bank or bank holding company if, after such acquisition, the bank holding company would control more than 5.0% of any class of voting stock of the bank or bank holding company.
In evaluating applications by bank holding companies to acquire banks or bank holding companies, the Federal Reserve must consider, among other things, the financial and managerial resources and future prospects of the company and institutions involved, the convenience and needs of the community, the extent to which a proposed acquisition, merger or consolidation would result in greater or more concentrated risks to the stability of the United States banking or financial system, and competitive factors. The Federal Reserve may not approve a transaction that would result in a monopoly and may not approve a transaction that would substantially lessen competition in any banking market unless it finds that the anticompetitive effects are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. In addition to the approval of the Federal Reserve, prior approval may also be necessary from other agencies having supervisory jurisdiction over the bank to be acquired before any bank acquisition can be completed.
Under the federal Change in Bank Control Act, no person, directly or indirectly or acting in concert with one or more other persons, may acquire control of an insured depository institution or a depository institution holding company unless the appropriate federal banking agency has been given 60 days' prior written notice and has not issued a notice disapproving the proposed acquisition. The Federal Reserve is the appropriate federal banking agency with respect to an acquisition of control of a bank holding company. Acquisitions subject to approval under the BHCA are exempt from the prior notice requirement. Control, as defined under the Change in Bank Control Act, as implemented by the Federal Reserve with respect to bank holding companies, means the power to directly or indirectly direct the management or policies of a bank holding company or to vote 25.0% or more of any class of voting securities of the bank holding company. Acquisition of more than 10.0% of any class of a bank holding company's voting stock is subject to a rebuttable presumption of control by the Federal Reserve if the bank holding company has registered securities under section 12 of the Securities Exchange Act or if no other person will own, control or hold the power to vote a greater percentage of that class of voting stock immediately after the acquisition. There are also rebuttable presumptions in the regulations concerning whether a group is "acting in concert," including presumed concerted action among members of an "immediate family." Accordingly, the filing of a notice with the Federal Reserve would be required before any person or group of persons acting in concert could acquire 10.0% or more of the common stock of HarborOne Bancorp, unless the person or group of persons files a rebuttal of control that is accepted by the Federal Reserve.
The Federal Reserve may prohibit a proposed acquisition of control if it finds, among other things, that:
Capital. HarborOne Bancorp will be subject to the Federal Reserve's capital adequacy regulations for bank holding companies (on a consolidated basis). These capital standards have historically been similar to, though less stringent than, those of the FDIC for HarborOne Bank. Subject to certain exceptions, including an exception for bank holding companies with less than $1 billion of assets, the Dodd-Frank Act required the Federal Reserve to establish, for all bank holding companies, minimum consolidated capital requirements that are as stringent as those required for insured depository institutions. Under regulations enacted by the Federal Reserve and generally effective January 1, 2015, all such bank holding companies are subject to regulatory capital requirements that are the same as or more stringent than the capital requirements applicable to HarborOne Bank. These capital requirements include provisions
72
that, when applicable, might limit the ability of HarborOne Bancorp to pay dividends to its shareholders or repurchase its shares. For a description of these capital requirements, see "Federal Banking RegulationCapital Requirements."
Source of Strength. Federal Reserve policy requires bank holding companies to act as a source of financial and managerial strength to their depository institution subsidiaries. The Dodd-Frank Act codified the requirement that holding companies act as a source of financial strength. As a result, HarborOne Bancorp will be expected to commit resources to support HarborOne Bank, including at times when HarborOne Bancorp may not be in a financial position to provide such resources.
Dividends. The Federal Reserve has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank 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 or earnings retention is inconsistent with the company's capital needs and overall financial condition. The policy statement also states that a bank holding company should inform and consult with the Federal Reserve supervisory staff prior to redeeming or repurchasing common stock or perpetual preferred stock if the bank 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 HarborOne Bancorp to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions. In addition, the ability of HarborOne Bancorp to pay dividends may be restricted if HarborOne Bank becomes undercapitalized.
Massachusetts Holding Company Regulation. Under the Massachusetts banking laws, a company owning or controlling two or more banking institutions, including a co-operative bank, is regulated as a bank holding company. The term "company" is defined by the Massachusetts banking laws similarly to the definition of "company" under the Bank Holding Company Act. Each Massachusetts bank holding company: (i) must obtain the approval of the Massachusetts Board of Bank Incorporation before engaging in certain transactions, such as the acquisition of more than 5.0% of the voting stock of another banking institution; (ii) must register and file reports with the Massachusetts Commissioner of Banks; and (iii) is subject to examination by the Massachusetts Commissioner of Banks. Recent legislation enacted in Massachusetts provides an exemption from the requirement to obtain Board of Bank Incorporation approval for certain transactions involving a bank merger or consolidation subject to approval by the Massachusetts Commissioner of Banks. In addition, for a period of three years following completion of a stock issuance by a subsidiary of a mutual holding company, no person may directly or indirectly offer to acquire or acquire beneficial ownership of more than 10.0% of any class of equity security of such subsidiary without prior written approval of the Massachusetts Commissioner of Banks.
Federal Banking Regulation
Business Activities. Under federal law, all state-chartered FDIC-insured banks, including co-operative banks, have been limited in their activities as principal and in their equity investments to the type and the amount authorized for national banks, notwithstanding state law. Federal law permits exceptions to these limitations. The maximum permissible investment is the lesser of 100.0% of Tier 1 capital or the maximum amount permitted by Massachusetts law. Such grandfathered authority may be terminated under certain circumstances, including a change in charter or a determination by the FDIC that such investments pose a safety and soundness risk.
The FDIC is also authorized to permit state banks to engage in state authorized activities or investments not permissible for national banks (other than non-subsidiary equity investments) if they meet all applicable capital requirements and it is determined that such activities or investments do not pose a significant risk to the FDIC insurance fund. The FDIC has adopted regulations governing the procedures for institutions seeking approval to engage in such activities or investments. The Gramm-Leach-Bliley Act of 1999 specified that a state bank may control a subsidiary that engages in activities as principal that would only be permitted for a national bank to conduct in a "financial subsidiary," if a bank meets specified conditions and deducts its investment in the subsidiary for regulatory capital purposes.
Capital Requirements. The Federal Reserve has issued risk-based and leverage capital rules applicable to bank holding companies such as HarborOne Bancorp, and the FDIC has issued similar rules that apply to insured state nonmember banks, such as HarborOne Bank. These guidelines are intended to reflect the relationship between the banking organization's capital and the degree of risk associated with its operations based on transactions recorded
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on-balance sheet as well as off-balance sheet items. The Federal Reserve and the FDIC may from time to time require that a banking organization maintain capital above the minimum levels discussed below, due to the banking organization's financial condition or actual or anticipated growth.
The capital adequacy rules define qualifying capital instruments and specify minimum amounts of capital as a percentage of assets that banking organizations are required to maintain. Common equity Tier 1 capital for banks and bank holding companies consists of common stockholders' equity and related surplus. Tier 1 capital for banks and bank holding companies generally consists of the sum of common shareholders' equity, non-cumulative perpetual preferred stock, and related surplus and, in certain cases and subject to limitations, minority interest in consolidated subsidiaries, less goodwill, other non-qualifying intangible assets and certain other deductions. Tier 2 capital generally consists of hybrid capital instruments, perpetual debt and mandatory convertible debt securities, cumulative perpetual preferred stock, term subordinated debt and intermediate-term preferred stock, and, subject to limitations, allowances for loan losses. The sum of Tier 1 and Tier 2 capital less certain required deductions represents qualifying total risk-based capital.
Under the capital rules, risk-based capital ratios are calculated by dividing Tier 1 and total risk-based capital, respectively, by risk-weighted assets. Assets and off-balance sheet credit equivalents are assigned to one of several risk-weight categories, based primarily on relative risk. The rules require banks and bank holding companies to maintain a minimum common equity Tier 1 capital ratio of 4.5%, a minimum Tier 1 capital ratio of 6.0%, a total capital ratio of 8.0% and a leverage ratio of 4.0%. Additionally, subject to a transition schedule, the capital rules require a bank holding company to establish a capital conservation buffer of common equity Tier 1 capital in an amount above the minimum risk-based capital requirements equal to 2.5% of total risk weighted assets, or face restrictions on the ability to pay dividends, pay discretionary bonuses, and to engage in share repurchases.
Under rules effective January 1, 2015, a bank holding company, such as HarborOne Bancorp, is considered "well capitalized" if the bank holding company (i) has a total risk based capital ratio of at least 10.0%, (ii) has a Tier 1 risk-based capital ratio of at least 6.0%, and (iii) is not subject to any written agreement order, capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. In addition, the FDIC has amended its prompt corrective action rules to reflect the revisions made by the revised capital rules described above. Under the FDIC's revised rules, which became effective January 1, 2015, an insured state nonmember bank is considered "well capitalized" if it (i) has a total risk-based capital ratio of 10.0% or greater; (ii) a Tier 1 risk-based capital ratio of 8.0% or greater; (iii) a common Tier 1 equity ratio of 6.5% or greater, (iv) a leverage capital ratio of 5.0% or greater; and (iv) is not subject to any written agreement, order, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure.
HarborOne Bank is considered "well capitalized" under all regulatory definitions, and HarborOne Bancorp is expected to be "well capitalized" upon completion of the reorganization and stock issuance.
Bank Dividends. A state non-member bank may not make a capital distribution that would reduce its regulatory capital below the amount required by the FDIC's regulatory capital regulations or for the liquidation account established in connection with its conversion to stock form. In addition, beginning in 2016, HarborOne Bank's ability to pay dividends will be limited if HarborOne Bank does not have the capital conservation buffer required by the new capital rules, which may limit the ability of HarborOne Bancorp to pay dividends to its shareholders. See "Capital Requirements."
Community Reinvestment Act and Fair Lending Laws. All institutions have a responsibility under the Community Reinvestment Act, or the "CRA," 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 state non-member bank, the FDIC is required to assess the institution's record of compliance with the CRA. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA does require the FDIC, in connection with its examination of a state non-member bank, to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution, including applications to acquire branches and other financial institutions. The CRA requires the FDIC to provide a written evaluation of an institution's CRA performance utilizing a four-tiered descriptive rating system. An institution's failure to comply with the provisions of the CRA could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. The CRA requires all institutions insured by the FDIC to publicly disclose their rating. HarborOne Bank received a "Satisfactory" CRA rating in its most recent federal examination.
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Massachusetts has its own statutory counterpart to the CRA that is applicable to HarborOne Bank. The Massachusetts version is generally similar to the CRA but uses a five-tiered descriptive rating system. Massachusetts law requires the Massachusetts Commissioner of Banks to consider, but not be limited to, a bank's record of performance under Massachusetts law in considering any application by the bank to establish a branch or other deposit-taking facility, to relocate an office or to merge or consolidate with or acquire the assets and assume the liabilities of any other banking institution. HarborOne Bank's most recent rating under Massachusetts law was "Satisfactory."
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 FDIC, as well as other federal regulatory agencies and the Department of Justice.
Transactions with Related Parties. An insured depository institution'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, is controlled by or is under common control with an insured depository institution such as HarborOne Bank; however, a subsidiary of a bank that engages in bank permissible activities is generally not treated as an affiliate. HarborOne Mutual Bancshares and HarborOne Bancorp will be affiliates of HarborOne Bank because of their control of HarborOne Bank. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. Transactions with affiliates also must be consistent with safe and sound banking practices, generally not involve the purchase of low-quality assets and be on terms that are as favorable to the insured depository institution as comparable transactions with non-affiliates.
HarborOne Bank's authority to extend credit to its directors, executive officers and 10.0% 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. Among other things, these provisions generally require that extensions of credit to insiders:
In addition, extensions of credit in excess of certain limits must be approved by HarborOne Bank's loan committee or board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved.
Enforcement. The FDIC has extensive enforcement responsibility over state non-member banks and has authority to bring enforcement actions 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 an institution. Formal enforcement action by the FDIC 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 is required, with certain exceptions, to appoint a receiver or conservator for an insured state non-member bank if that bank was "critically undercapitalized" on average during the calendar quarter beginning 270 days after the date on which the institution became "critically undercapitalized." The FDIC may also appoint itself as conservator or receiver for an insured state non-member bank under specified circumstances, including: (1) insolvency; (2) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; (4) insufficient capital; or (5) the incurrence of losses that will deplete substantially all of the institution's capital with no reasonable prospect of replenishment without federal assistance. The FDIC also has the authority to terminate deposit insurance.
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
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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 bank holding companies to acquire banks in any state, subject to Federal Reserve 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, pursuant to the Dodd-Frank Act, banks are now permitted to establish de novo branches on an interstate basis provided that branching is authorized by the law of the host state for banks chartered by the host state.
Prompt Corrective Action Regulations. The FDIC is required by law to take supervisory action against undercapitalized institutions under its jurisdiction, the severity of which depends upon the institution's level of capital.
An institution that 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 common equity Tier 1 ratio of less than 4.5% or a Tier 1 leverage ratio of less than 4.0% is considered to be "undercapitalized." An institution that 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 common equity Tier 1 ratio of less than 3.0% or a Tier 1 leverage ratio of less than 3.0% is considered to be "significantly undercapitalized." An institution that has a tangible capital to assets ratio equal to or less than 2.0% is deemed to be "critically undercapitalized."
Generally, a receiver or conservator must be appointed for an institution that is "critically undercapitalized" within specific time frames. The regulations also provide that a capital restoration plan must be filed with the FDIC within 45 days of the date that an institution is deemed to have received notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." Any holding company of an institution that is required to submit a capital restoration plan must guarantee performance under the plan in an amount of up to the lesser of 5.0% of the institution's assets at the time it was deemed to be undercapitalized by the FDIC or the amount necessary to restore the institution to adequately capitalized status. This guarantee remains in place until the FDIC notifies the institution that it has maintained adequately capitalized status for each of four consecutive calendar quarters. Institutions that are undercapitalized become subject to certain mandatory measures such as a restrictions on capital distributions and asset growth. The FDIC may also take any one of a number of discretionary supervisory actions against undercapitalized institutions, including the issuance of a capital directive and the replacement of senior executive officers and directors.
Insurance of Deposit Accounts. The Deposit Insurance Fund of the FDIC insures deposits at FDIC-insured depository institutions such as HarborOne Bank. Deposit accounts in HarborOne Bank are insured by the FDIC up to a maximum of $250,000 per separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts. The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund.
Under the FDIC's risk-based assessment system, small institutions (generally, those with less than $10 billion of assets) 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. Stronger institutions pay lower rates while riskier institutions pay higher rates. Assessments are based on an institution's average consolidated total assets minus average tangible equity. 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 volume of deposits.
In addition to the FDIC assessments, the Financing Corporation, or 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. As of September 30, 2015, the annualized FICO assessment was equal to 0.600 basis points of total assets less tangible capital.
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 HarborOne Bank. Management cannot predict what assessment rates will be in the future.
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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 currently know of any practice, condition or violation that may lead to termination of our deposit insurance.
Prohibitions Against Tying Arrangements. State non-member banks are prohibited, subject to certain exceptions, from extending credit 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.
Federal Reserve System. Federal Reserve regulations require depository institutions to maintain noninterest-earning reserves against their transaction accounts (primarily NOW and regular checking accounts). HarborOne Bank's required reserves can be in the form of vault cash and, if vault cash does not fully satisfy the required reserves, in the form of a balance maintained with the Federal Reserve Bank of Boston. The Federal Reserve regulations currently require that reserves be maintained against aggregate transaction accounts except for transaction accounts up to $15.2 million, which are exempt. Transaction accounts greater than $15.2 million up to $110.2 million have a reserve requirement of 3.0%, and those greater than $110.2 million have a reserve requirement of approximately $2.85 million plus 10.0% of the amount over $110.2 million. The Federal Reserve generally makes annual adjustments to the tiered reserves. HarborOne Bank is in compliance with these requirements.
Federal Home Loan Bank System. HarborOne Bank is a member of the FHLB of Boston, which is one of the 12 regional Federal Home Loan Banks comprising the FHLB System. Each FHLB serves as a central credit facility primarily for its member institutions as well as other entities involved in home mortgage lending. As a member of the FHLB, HarborOne Bank is required to acquire and hold shares of capital stock in the FHLB. As of June 30, 2015, HarborOne Bank was in compliance with this requirement. Based on redemption provisions of the FHLB, the stock has no quoted market value and is carried at cost. HarborOne Bank reviews for impairment based on the ultimate recoverability of the cost basis of the FHLB stock. As of December 31, 2015, no impairment has been recognized.
At its discretion, the FHLB may declare dividends on the stock. The Federal Home Loan Banks are required to provide funds for certain purposes including the resolution of insolvent thrifts in the late 1980s and to contributing funds for affordable housing programs. These requirements could reduce the amount of dividends that the Federal Home Loan Banks pay to their members and result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members. As a result of losses incurred, the Federal Home Loan Bank of Boston suspended and did not pay dividends in 2009 and 2010. However, the FHLB resumed payment of quarterly dividends in 2011 equal to an annual yield of 0.30% and continued to pay quarterly dividends in 2012 equal to an annual yield of 0.50% and in 2013 equal to an annual yield of 0.38%. In 2014 and 2015, the Federal Home Loan Bank of Boston paid quarterly dividends with an annual yield of 1.49% and 2.54%, respectively. There can be no assurance that such dividends will continue in the future. Further, there can be no assurance that the impact of recent or future legislation on the Federal Home Loan Banks also will not cause a decrease in the value of the FHLB stock held by HarborOne Bank.
Massachusetts Banking Laws and Supervision
General. As a Massachusetts stock co-operative bank, HarborOne Bank is subject to supervision, regulation and examination by the Massachusetts Commissioner of Banks and to various Massachusetts statutes and regulations which govern, among other things, investment powers, lending and deposit-taking activities, borrowings, maintenance of surplus and reserve accounts and payment of dividends. In addition, HarborOne Bank is subject to Massachusetts consumer protection and civil rights laws and regulations. The approval of the Massachusetts Commissioner of Banks is required for a Massachusetts-chartered bank to establish or close branches, merge with other financial institutions, issue stock and undertake certain other activities. Any Massachusetts bank that does not operate in accordance with the regulations, policies and directives of the Massachusetts Commissioner of Banks may be sanctioned. The Massachusetts Commissioner of Banks may suspend or remove directors or officers of a bank who have violated the law, conducted a bank's business in a manner that is unsafe, unsound or contrary to the depositors' interests, or been negligent in the performance of their duties. In addition, the Massachusetts Commissioner of Banks has the authority to appoint a receiver or conservator if it is determined that the bank is conducting its business in an unsafe or unauthorized manner, and under certain other circumstances.
Lending Activities. A Massachusetts co-operative bank may make a wide variety of mortgage loans including fixed-rate loans, adjustable-rate loans, variable-rate loans, participation loans, graduated payment loans, construction and development loans, condominium and co-operative loans, second mortgage loans and other types of loans that may be made in accordance with applicable regulations. Commercial loans may be made to corporations and other
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commercial enterprises with or without security. Consumer and personal loans may also be made with or without security.
Insurance Sales. A Massachusetts bank may engage in insurance sales activities if the Massachusetts Commissioner of Banks has approved a plan of operation for insurance activities and the bank obtains a license from the Massachusetts Division of Insurance. A bank may be licensed directly or indirectly through an affiliate or a subsidiary corporation established for this purpose. HarborOne Bank does not sell or refer insurance products, and has not sought approval for insurance sales activities.
Dividends. A Massachusetts co-operative bank may declare cash dividends from net profits not more frequently than quarterly. Non-cash dividends may be declared at any time. No dividends may be declared, credited or paid if the bank's capital stock is impaired. The approval of the Massachusetts Commissioner of Banks is required if the total of all dividends declared in any calendar year exceeds the total of its net profits for that year combined with its retained net profits of the preceding two years. Net profits for this purpose means the remainder of all earnings from current operations plus actual recoveries on loans and investments and other assets after deducting current operating expenses, actual losses, accrued dividends on preferred stock, if any, and all federal and state taxes.
Parity Authority. A Massachusetts bank may, after providing 30 days' prior notice to the Massachusetts Commissioner of Banks, exercise any power and engage in any activity that has been authorized for national banks, federal savings associations or state banks in a state other than Massachusetts, provided that the activity is permissible under applicable federal law and not specifically prohibited by Massachusetts law. Such powers and activities must be subject to the same limitations and restrictions imposed on the national bank, federal thrift or out-of-state bank that exercised the power or activity.
Loans-to-One Borrower Limitations. Massachusetts banking law grants broad lending authority. However, with certain limited exceptions, total obligations to one borrower may not exceed 20.0% of the total of the bank's capital stock, surplus and undivided profits.
Loans to a Bank's Insiders. Massachusetts banking law prohibits any executive officer or director of a bank from borrowing or guaranteeing extensions of credit by such bank except to the extent permitted by federal law.
Regulatory Enforcement Authority. Any Massachusetts co-operative bank that does not operate in accordance with the regulations, policies and directives of the Massachusetts Commissioner of Banks may be subject to sanctions for non-compliance, including revocation of its charter. The Massachusetts Commissioner of Banks may, under certain circumstances, suspend or remove officers or directors who have violated the law, conducted the bank's business in an unsafe or unsound manner or contrary to the depositors interests or been negligent in the performance of their duties. Upon finding that a bank has engaged in an unfair or deceptive act or practice, the Massachusetts Commissioner of Banks may issue an order to cease and desist and impose a fine on the bank concerned. The Massachusetts Commissioner of Banks also has authority to take possession of a bank and appoint a liquidating agent under certain conditions such as an unsafe and unsound condition to transact business, the conduct of business in an unsafe or unauthorized manner of impaired capital. In addition, Massachusetts consumer protection and civil rights statutes applicable to HarborOne Bank permit private individual and class action law suits and provide for the rescission of consumer transactions, including loans, and the recovery of statutory and punitive damage and attorney's fees in the case of certain violations of those statutes.
Co-operative Central Bank and Share Insurance Fund. All Massachusetts-chartered co-operative banks are required to be members of the Co-operative Central Bank, which maintains the Share Insurance Fund that insures co-operative bank deposits in excess of federal deposit insurance coverage. The Co-operative Central Bank is authorized to charge co-operative banks an annual assessment fee on deposit balances in excess of amounts insured by the FDIC. Assessment rates are based on the institution's risk category, similar to the method currently used to determine assessments by the FDIC discussed above under "Federal Banking RegulationInsurance of Deposit Accounts."
Protection of Personal Information. Massachusetts has adopted regulatory requirements intended to protect personal information. The requirements, which became effective March 1, 2010, are similar to existing federal laws such as the Gramm-Leach-Bliley Act that require organizations to establish written information security programs to prevent identity theft. The Massachusetts regulation also contains technology system requirements, especially for the encryption of personal information sent over wireless or public networks or stored on portable devices.
Massachusetts has additional statutes and regulations that are similar to certain of the federal provisions discussed below.
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Other Regulations
Interest and other charges collected or contracted for by HarborOne Bank are subject to state usury laws and federal laws concerning interest rates. HarborOne Bank's operations are also subject to federal laws applicable to credit transactions, such as the:
In addition, the CFPB issues regulations and standards under these federal consumer protection laws that affect our consumer businesses. These include regulations setting "ability to repay" and "qualified mortgage" standards for residential mortgage loans and mortgage loan servicing and originator compensation standards. HarborOne Bank is evaluating recent regulations and proposals, and devotes significant compliance, legal and operational resources to compliance with consumer protection regulations and standards.
The operations of HarborOne Bank also are subject to the:
Federal Securities Laws
Our common stock will be registered with the SEC under the Exchange Act. As a result of the registration, we will be subject to the periodic reporting requirements, proxy solicitation, insider trading restrictions and other provisions of the Exchange Act.
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All of the shares sold in this offering will be freely tradable unless purchased by our affiliates. Shares purchased by our affiliates will be subject to the resale restrictions of Rule 144 under the Securities Act. In general, under Rule 144, beginning 90 days after the date of this prospectus, a person who is our affiliate or who was our affiliate at any time during the preceding six months, and who has beneficially owned restricted securities for at least six months, including the holding period of any prior owner other than one of our affiliates, is entitled to sell within any three-month period a number of shares that does not exceed the greater of:
Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements.
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Shared Management Structure
Each of the directors of HarborOne Bancorp is also a director of HarborOne Bank. Additionally, each executive officer of HarborOne Bancorp is an executive officer of HarborOne Bank. We expect that HarborOne Bancorp and HarborOne Bank will continue to have common executive officers and directors until there is a business reason to establish separate management structures.
Directors
The following table provides information regarding our directors as of December 31, 2015:
Name
|
Age | Position(s) | Director Since | ||||
---|---|---|---|---|---|---|---|
Joseph F. Barry | 74 | Director | 1987 | ||||
James W. Blake | 65 | President, Chief Executive Officer, Clerk and Director | 1995 | ||||
David P. Frenette, Esq.(1) | 60 | Director | 2007 | ||||
Gordon Jezard(1) | 81 | Director | 1983 | ||||
Edward F. Kent(2) | 85 | Director | 1983 | ||||
Barry R. Koretz | 70 | Director | 1987 | ||||
Timothy R. Lynch(3) | 60 | Chairman of the Board | 2011 | ||||
Wallace H. Peckham, III(1)(2)(3) | 73 | Director | 1981 | ||||
Michael Sullivan(2)(3) | 61 | Director | 2015 |
The following includes a brief biography for each of our directors. The biography of each director also includes information regarding the experience, qualifications, attributes or skills that caused our board of directors to determine that such member of our board of directors should serve as a director. There are no family relationships among any of our directors or executive officers. Unless otherwise stated, each director has held his or her current occupation for the last five years.
Joseph F. Barry retired in 2003 as Senior Vice President of HMI, Inc., a travel marketing firm located in Norwood, Massachusetts, after 14 years with the company. Before joining HMI, Inc., Mr. Barry was Vice President at Knapp Shoes, Inc. from 1986 to 1989 and Vice President at Herman Shoe International, Inc. from 1983 to 1986. Mr. Barry was selected to serve as a director because of his business experience and ability to assist us in strategic planning.
James W. Blake has served as President and Chief Executive Officer of HarborOne Bank since 1995, after serving as Chief Operating Officer in 1993. Prior to joining HarborOne Bank, Mr. Blake was Senior Vice President of Retail Banking and Marketing at Mechanics Bank in Worcester, Massachusetts, from 1986 to 1993. Mr. Blake has served on the Community Depository Institutions Advisory Council of the Federal Reserve Bank of Boston. Since 2011, he has served on the Signature Healthcare Executive Business Council, and the YMCA Foundation. He also currently serves on the board of the Connecticut Online Computer Center, a position he has held since 2003. He also served on the board of the Massachusetts Credit Union League, from 1998 to 2012. As President and Chief Executive Officer, Mr. Blake is familiar with our banking operations and provides the board of directors with insight into our challenges, opportunities and operations. In addition, he was selected to serve as a director because of his extensive banking experience and familiarity with our market area.
David P. Frenette, Esq. is an attorney in solo practice in Brockton, Massachusetts, focusing primarily on elder care law, estate planning, residential and commercial real estate and business organization. Mr. Frenette has practiced law for nearly 25 years. Mr. Frenette was a partner at Frenette & Dukess from 1995 to 2012 and with Wheatley, Frenette & Dukess from 1990 to 1995, specializing in real estate closings for local banks, including HarborOne Bank. Mr. Frenette has served on the Board of Trustees of Signature Healthcare Brockton Hospital, since 1999, as well as on the Boards at the Old Colony YMCA since 1993. He is also an active member at Rotary Club of Brockton. Mr. Frenette was selected to serve as a director because of his extensive experience in the practice of law, particularly in real estate, and because of his involvement and knowledge of the local community.
Gordon Jezard retired in 2012 after a 28-year career in the automotive parts and supplies retail business, as owner of and director of operations at Bettridge Auto Parts, Inc. in Brockton, Massachusetts, which he sold in 2012. Prior to
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his tenure at Bettridge Auto Parts, Inc., Mr. Jezard held management positions at Eastern Edison Co., an electric company in Brockton, Massachusetts. Mr. Jezard is a graduate of Northeastern University with degrees in Business Management and Electrical Engineering. Mr. Jezard was selected to serve as a director because of his knowledge of and experience working with small businesses.
Edward F. Kent retired in 1999. Prior to retiring, Mr. Kent served as Vice President, Regulatory Affairs at Mitek Surgical Products Inc., a Johnson & Johnson Company, in Norwood, Massachusetts, and held management positions at Accumetrics, Inc., a healthcare company in San Diego, California, providing diagnostic testing, Beaver Surgical in Norwood, Massachusetts, and Acufex Microsurgical, Inc. in Norwood, Massachusetts. Mr. Kent is also the former owner of Kent Products Inc., a manufacturing company in Easton, Massachusetts. He graduated from Wentworth Institute of Technology with an aerospace engineering license and Boston University with a B.S. degree in aeronautical engineering. Mr. Kent also served in the U.S. Navy, receiving an honorable discharge in 1955. He has been an active member in the community, including having been a member of the board of the Goddard Hospital from 1983 to 1987, and a tutor at Trinity Catholic Academy in Brockton, Massachusetts and the Adult Learning Center in Brockton, Massachusetts. Mr. Kent was selected to serve as a director because of his knowledge of and service to our local community.
Barry R. Koretz is President and founder of BKA Architects, Inc. in Brockton, Massachusetts, a full-service commercial architecture and design firm he started in 1974. As President of BKA Architects, Inc., Mr. Koretz is responsible for matters related to finance, administration, business development and project management of the 50-person firm with approximately $7 million in annual billings. Mr. Koretz has served as co-chair of the Signature Healthcare Executive Business Council since 2012 and the Signature Healthcare Capital Campaign Steering Committee since 2015, and as a director of the Brockton Boys and Girls Club since 2000. Previously, Mr. Koretz was a member of the Board of Trustees of Brockton Hospital and the boards of directors of Metro South Chamber of Commerce and the United Way of Greater Plymouth County. Mr. Koretz was selected to serve as a director because of his experience owning and managing a business in our market area, which, together with his knowledge of and service to our local community, provides a unique perspective on the needs of customers in our market area.
Timothy R. Lynch has served as Chief Medical Officer at South Shore Physician Ambulatory Enterprise (SSPAE) in Weymouth, Massachusetts, since 2015, and practicing internist at South Shore Medical Center since 2013. Prior to joining SSPAE, Dr. Lynch was Lead Hospital Physician, South Region at Atrius Health from 2013 to 2015. From 1996 to 2013, Dr. Lynch held the following positions at Signature Healthcare: Vice President of Quality from 2011 to 2013; Vice President of the Medical Staff from 2010 to 2013; Vice Chairman, Physician Hospital Organization Board of Directors from 2003 to 2008; Trustee, Signature Healthcare Corporation from 2002 to 2013; Trustee, Signature Healthcare Brockton Hospital Incorporated from 2002 to 2013; and Patient Care Assessment Coordinator from 1996 to 2013. Dr. Lynch currently serves as a member of the board of directors of Health Provider Services Organization. Dr. Lynch was selected to serve as a director because of his management experience, including strategic planning, budget development and state, federal and industry regulatory compliance.
Wallace H. Peckham, III retired in 2015 from Conley & Wood, CPA's P.C., in South Easton, Massachusetts, where he had worked since 2013 following its merger with the company he founded in 2010, Peckham & Eidlin, CPA's, P.C., in Brockton, Massachusetts. Mr. Peckham has been self-employed since 1982 as a certified public accountant in private practice throughout Brockton, Massachusetts, providing professional services to individuals and the business community. Mr. Peckham has been a member of the Board of Trustees of Signature Healthcare, Brockton Hospital since 2007 and served as chairman from 2013 to 2014. He is a member of the Rotary Club of Brockton. Mr. Peckham was selected to serve as a director because of his financial and accounting experience, which provides a unique perspective with respect to the preparation and review of our financial statements, the supervision of our independent auditors and the review and oversight of our financial controls and procedures, accounting practices and tax matters.
Michael Sullivan has been a partner at the Ashcroft Law Firm, LLC in Boston, Massachusetts since 2009. Mr. Sullivan is recognized as an expert in government investigations, corporate compliance and ethics, fraud, corruption, health care and corporate security, with extensive policy and regulatory experience. Prior to joining the Ashcroft Law Firm, LLC, Mr. Sullivan was a United States Attorney for the District of Massachusetts from 2001 to 2009. From 2006 through 2008, Mr. Sullivan served as Director of the Bureau of Alcohol, Tobacco, Firearms and Explosives in Washington, DC and from 1995 to 2001 he served as the District Attorney for Plymouth County, Massachusetts. Mr. Sullivan has been a member of the board of directors of Signature Healthcare since May 2009, Old Colony YMCA since 1995, Continuing Education Institute from 1989 to 1994 and Consumer Credit Counseling Services from 1986 to 1989. Mr. Sullivan was selected to serve as a director because of his extensive policy and regulatory legal experience and continued service to the community.
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Executive Officers
The following table provides information regarding our executive officers who were not directors as of December 31, 2015. Our executive officers serve at the discretion of our board of directors and hold office until their successors are duly elected and qualified or until the earlier of their death, resignation or removal.
Name
|
Age | Position(s) | ||
---|---|---|---|---|
Joseph F. Casey | 55 | Executive Vice President, Chief Operating Officer and Chief Financial Officer at HarborOne Bancorp and HarborOne Bank | ||
Leo C. Donahue | 66 | Senior Vice PresidentRetail Officer at HarborOne Bank | ||
Wayne F. Dunn | 60 | Senior Vice PresidentChief Technology Officer at HarborOne Bank | ||
Christopher K. Gibbons | 63 | Senior Vice PresidentConsumer Lending at HarborOne Bank | ||
Mark T. Langone | 48 | Senior Vice PresidentChief Enterprise Risk Officer at HarborOne Bank | ||
Peter F. Makowiecki | 55 | Senior Vice PresidentResidential Lending at HarborOne Bank | ||
David B. Reilly | 50 | Senior Vice PresidentOperations at HarborOne Bank | ||
H. Scott Sanborn | 52 | Senior Vice PresidentCommercial Lending at HarborOne Bank | ||
David E. Tryder | 50 | Senior Vice President and Chief Marketing Officer at HarborOne Bank | ||
Patricia M. Williams | 55 | Senior Vice PresidentHuman Resources at HarborOne Bank |
The following is a brief biography of each of our executive officers.
Joseph F. Casey joined HarborOne Bank in 2004 and has served as Executive Vice President, Chief Operating Officer and Chief Financial Officer since 2015. Prior to his current position, he served as Executive Vice President and Chief Financial Officer from 2006 to 2015 and Senior Vice President and Chief Financial Officer from 2004 to 2006. Before joining HarborOne Bank, Mr. Casey was Vice President at Seacoast Financial Services in New Bedford, Massachusetts and Senior Vice President, Chief Financial Officer and Treasurer at Compass Bank for Savings in New Bedford, Massachusetts from 2003 to 2004, and prior to that held various titles, including Chief Financial Officer, Treasurer, Controller and Internal Auditor during his 17 years with Andover Bancorp, Inc. in Andover, Massachusetts.
Leo C. Donahue has served as Senior Vice PresidentRetail Officer since joining HarborOne Bank in 2007. Prior to joining HarborOne Bank, Mr. Donahue was a self-employed consultant from 2005 to 2007; Senior Vice PresidentDivision Manager, Personal Banking Group at North Shore Bank in Peabody, Massachusetts from 2003 - 2004; and Senior Vice PresidentDivision Manager, Personal Banking Group at Warren Five Cent Savings Bank in Peabody, Massachusetts from 1987 to 2003.
Wayne F. Dunn has served as Senior Vice PresidentChief Technology Officer since joining HarborOne Bank in 2008. Prior to joining HarborOne Bank, Mr. Dunn was Director, Enterprise Solutions at NWN Corporation in Waltham, Massachusetts from 2007 to 2008; Chief Technology Officer at Clearway Technology Partners in Medway, Massachusetts in 2007; and Senior Director, Enterprise Computing and Principal Consultant at AimNet Solutions, Inc. (acquired by Cognizant Technology Solutions Corporation) in Holliston, Massachusetts from 2001 to 2007.
Christopher K. Gibbons joined HarborOne bank in August 1994 and has been the Senior Vice PresidentConsumer Lending since 1999. Prior to his current position, he served as Senior Vice PresidentConsumer Lending & Collections from 1999 to 2015 and Vice PresidentConsumer Lending from 1994 to 1999. Before joining HarborOne Bank, Mr. Gibbons worked at several banks in Abington, Massachusetts and Brockton, Massachusetts as Vice PresidentConsumer Lending.
Mark T. Langone has served as Senior Vice PresidentChief Enterprise Risk Officer since joining HarborOne Bank in 2015. Prior to joining HarborOne Bank, Mr. Langone was a bank examiner at the FDIC in Foxboro, Massachusetts, from 1990 to 2003 and 2012 to 2015; Senior Vice PresidentDirector of Risk Governance and Senior Vice PresidentCredit Risk Management at Sovereign Bank (now Santander Bank, N.A.) in Boston, Massachusetts from 2004 to 2012; and Senior Vice PresidentSenior Risk Management at Compass Bank for Savings in New Bedford, Massachusetts, from 2003 to 2004.
Peter F. Makowiecki has served as Senior Vice PresidentResidential Lending since joining HarborOne Bank in 2013. Prior to joining HarborOne Bank, Mr. Makowiecki held various titles, including Senior Vice PresidentSales & Marketing and President of MetLife Home Loans, at MetLife Bank in Irving, Texas, from 2008 to 2010. Mr. Makowiecki was President and Chief Executive Officer of First Horizon Home Loan Corporation from 2005 to 2008 and Senior Executive Vice PresidentChief Financial Officer of First Horizon Home Loan Corporation from 2000 to 2005.
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David B. Reilly has served as Senior Vice PresidentOperations since joining HarborOne Bank in 2008. Prior to joining HarborOne Bank, Mr. Reilly was Senior Vice PresidentOperations from 2004 to 2008 and Vice PresidentDirector Alternative Delivery and Customer Service in 2004 at Rockland Trust Company in Rockland, Massachusetts; Technology Integration On-Site Coordinator at Citizens Bank in Providence, Rhode Island in 2003; and Director, Information Technology from 2000 to 2003 and Vice PresidentCall Center Operations and Retail Delivery from 1996 to 2003 at Cambridgeport Bank in Cambridge, Massachusetts.
H. Scott Sanborn has served as Senior Vice PresidentCommercial Lending since joining HarborOne Bank in 2014. Prior to joining HarborOne Bank, Mr. Sanborn was Regional Vice PresidentMetro Boston & Rhode Island/Southeastern Massachusetts from 2011 to 2014 and Professionals Group Leader, Wealth from 2010 to 2011 at TD Bank in Boston, Massachusetts and Senior Vice PresidentRegional Executive & Professionals Market Leader from 2005 to 2010 and Senior Vice PresidentMarket Manager from 2000 to 2004 at Sovereign Bank (now Santander Bank, N.A.) based in Boston, Massachusetts.
David E. Tryder has served as Senior Vice PresidentChief Marketing Officer since joining HarborOne Bank in 2014. Prior to joining HarborOne Bank, Mr. Tryder was DirectorDigital Strategy Group in 2013, DirectorInteractive & Relationship Marketing from 2009 to 2013, and Senior ManagerInteractive Marketing from 2005 to 2009 at Dunkin' Donuts in Canton, Massachusetts; Vice PresidentMarketing Director at Modem Media in Norwalk, Connecticut, from 2004 to 2005; Vice PresidentMarketing Director at Digitas, LLC in Boston, Massachusetts, from 2000 to 2004; and Product ManagerATM Network and Online Banking at Fleet Bank in Boston, Massachusetts, from 1997 to 2000.
Patricia M. Williams , Senior Vice President of Human Resources, joined HarborOne in 1986. During her tenure she has held the leadership role in the Human Resources Division and has been responsible for the development, implementation and oversight of Human Resources policies, training and development, benefits, talent acquisition and retention and culture.
Board Composition
Our articles of organization provide that the size of our board of directors will be determined from time to time by resolution of our board of directors. Our board of directors currently consists of nine directors.
Our articles of organization provide for a classified board of directors consisting of three classes of directors. At each annual meeting of shareholders, a class of directors will be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. Our directors are divided among the three classes as follows:
The classification of our board of directors may have the effect of delaying or preventing changes in control of our company. We expect that additional directorships resulting from an increase in the number of directors, if any, will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.
Independence of the Board of Directors and Board Committees
The Nasdaq listing rules requires that independent directors compose a majority of a listed company's board of directors. In addition, the Nasdaq listing rules require that, subject to specified exceptions, each member of a listed company's audit, compensation, and nominating and corporate governance committees be independent and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act. Under Nasdaq listing rules, a director will only qualify as an "independent director" if, in the opinion of our board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent under the Exchange Act, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board committee: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries. In addition to satisfying general independence requirements under the Nasdaq
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listing rules, a member of a compensation committee of a listed company may not, other than in his or her capacity as a member of the compensation committee, the board of directors or any other board committee, accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries. Additionally, the board of directors of the listed company must consider whether the compensation committee member is an affiliated person of the listed company or any of its subsidiaries and, if so, must determine whether such affiliation would impair the director's judgment as a member of the compensation committee.
Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family and other relationships, including those relationships described under the section of this prospectus entitled "Transactions with Related Parties," our board of directors determined that each of our directors, with the exception of James W. Blake, is "independent" under the Nasdaq listing rules. Mr. Blake is not considered independent because he currently serves as our president and chief executive officer. Our board of directors also determined that each member of the audit, compensation, and nominating and corporate governance committees satisfies the independence standards for such committees established by the SEC and the Nasdaq listing rules, as applicable. In making these determinations on the independence of our directors, our board of directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining independence.
Board Leadership Structure and the Role of the Board in Risk Oversight
Board Leadership Structure. The positions of our chairman of the board and chief executive officer are separated. Separating these positions allows our chief executive officer to focus on our day-to-day business, while allowing the chairman of the board to lead our board of directors in its fundamental role of providing advice to and independent oversight of management. Our board of directors recognizes the time, effort and energy that the chief executive officer must devote to his position in the current business environment, as well as the commitment required to serve as our chairman, particularly as our board of directors' oversight responsibilities continue to grow. Our board of directors also believes that this structure ensures a greater role for the independent directors in the oversight of the company and active participation of the independent directors in setting agendas and establishing priorities and procedures for the work of our board of directors.
Although our bylaws do not require that we separate the chairman of the board and chief executive officer positions, our board of directors believes that having separate positions is the appropriate leadership structure for us at this time. Our board recognizes that depending on the circumstances, other leadership models, such as combining the role of chairman of the board with the role of chief executive officer, might be appropriate. Accordingly, our board may periodically review its leadership structure. Our board of directors believes its administration of its risk oversight function has not affected its leadership structure.
Our independent directors will meet alone in executive session periodically. The purpose of these executive sessions is to promote open and candid discussion among the independent directors.
Role of the Board in Risk Oversight. The board of directors is actively involved in oversight of risks that could affect HarborOne Bancorp including credit risk, interest rate risk, liquidity risk, operational risk, strategic risk and reputation risk. This oversight is conducted in part through committees of the board of directors, but the full board of directors has retained responsibility for general oversight of risks. The board of directors satisfies this responsibility through reports by each committee regarding its considerations and actions, regular reports from officers responsible for oversight of particular risks within HarborOne Bancorp as well as through internal and external audits. Risks relating to the direct operations of HarborOne Bank are further overseen by the board of directors of HarborOne Bank, who are the same individuals who serve on the board of directors of HarborOne Bancorp. Further, the board of directors oversees risks through the establishment of policies and procedures that are designed to guide daily operations in a manner consistent with applicable laws, regulations and risks acceptable to the organization.
Committees of the Board
Our board of directors has a standing audit committee, compensation committee and nominating and corporate governance committee. The composition and responsibilities of each committee are described below. Members serve on these committees until their resignation or until otherwise determined by our board.
Audit Committee. The audit committee assists our board of directors in its oversight of the integrity of our financial statements, the qualifications and independence of our independent registered public accounting firm, and our internal financial and accounting controls. The audit committee has direct responsibility for the appointment, compensation, retention (including termination) and oversight of our independent registered public accounting firm,
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and our independent registered public accounting firm report directly to the audit committee. The audit committee also prepares the audit committee report that the SEC requires to be included in our annual proxy statement.
The members of the audit committee are Wallace H. Peckham, III, Edward F. Kent and Michael Sullivan, with Mr. Peckham serving as chair. Each member of the audit committee qualifies as an independent director under the corporate governance standards of the Nasdaq listing rules and the independence requirements of the Exchange Act. Our board of directors has determined that Mr. Peckham qualifies as an "audit committee financial expert" as such term is currently defined under SEC Rules. The audit committee has adopted a written charter that satisfies the applicable standards of the SEC and the Nasdaq listing rules, which upon completion of this offering we will post on our website.
Compensation Committee. The compensation committee approves our compensation objectives, approves the compensation of the chief executive officer and approves or recommends to our board of directors for approval the compensation of other executives. The compensation committee reviews all compensation components, including base salary, bonus, benefits and other perquisites.
The members of the compensation committee are David P. Frenette, Gordon Jezard and Wallace H. Peckham, III, with Mr. Frenette serving as chair. Each member of the compensation committee is a "non-employee director" under the Exchange Act and an "outside director" as defined by Section 162(m) of the Code, and each is an independent director as defined by the Nasdaq listing rules. The compensation committee has adopted a written charter that satisfies the applicable standards of the SEC and the Nasdaq listing rules, which upon completion of this offering we will post on our website.
Nominating and Corporate Governance Committee. The nominating and corporate governance committee recommends to our board of directors candidates for directorships and the structure and composition of our board and the board committees. In addition, the nominating and corporate governance committee develops and recommends to our board corporate governance guidelines and advises our board on corporate governance matters.
The members of the nominating and corporate governance committee are Wallace H. Peckham, III, Timothy R. Lynch and Michael Sullivan, with Mr. Peckham serving as chair. Each member of the nominating and corporate governance committee is a "non-employee director" under the Exchange Act, and each is an independent director as defined by the Nasdaq listing rules. The nominating and corporate governance committee has adopted a written charter that satisfies the applicable standards of the Nasdaq listing rules, which upon completion of this offering we will post on our website.
Our board of directors may establish other committees from time to time.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 2015, the members of the compensation committee were David P. Frenette, Gordon Jezard and Wallace H. Peckham, III, each of which are independent directors. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee (or other committee performing equivalent functions) of any entity that has one or more executive officers serving on our board of directors or compensation committee. No interlocking relationship exists between any member of the board of directors or compensation committee (or other committee performing equivalent functions) and any executive, member of our board of directors or member of the compensation committee (or other committee performing equivalent functions) of any other company.
Code of Business Conduct and Ethics
Prior to the completion of this offering, we will adopt a code of business conduct and ethics that applies to all of our employees, officers and directors including those officers responsible for financial reporting. Upon completion of this offering, we will post the code of business conduct and ethics on our website. We intend to disclose future amendments to the code or any waivers of its requirements on our website to the extent permitted by the applicable rules and exchange requirements.
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EXECUTIVE AND DIRECTOR COMPENSATION
Executive Compensation
Summary Compensation Table. The following table sets forth information regarding compensation awarded to, earned by or paid to our Chief Executive Officer and the two most highly compensated executive officers (other than the Chief Executive Officer) who were serving as executive officers at the end of the year ended December 31, 2015. Each of these individuals is referred to as a "named executive officer."
Name and
Principal Position |
Year |
Salary
($) |
Bonus
($) |
All Other
Compensation ($)(3) |
Total
($) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
James W. Blake |
2015 | $ | 646,673 | $ | 420,339 | (1) | $ | 86,411 | $ | 1,153,423 | ||||||
President and Chief Executive Officer |
||||||||||||||||
Joseph F. Casey |
2015 |
$ |
390,748 |
$ |
105,502 |
(2) |
$ |
52,385 |
$ |
548,635 |
||||||
Executive Vice President, Chief Financial |
||||||||||||||||
Officer and Chief Operating Officer |
||||||||||||||||
H. Scott Sanborn |
2015 |
$ |
237,542 |
$ |
53,447 |
$ |
23,521 |
$ |
314,510 |
|||||||
Senior Vice President, Commercial Lending |
Name
|
401(k) Employer
Contributions ($) |
Country Club
Membership ($) |
Auto Allowance
& Fuel Reimbursement ($) |
Life & LTD
Insurance Premiums ($) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mr. Blake |
$ | 32,331 | $ | 750 | $ | 29,234 | $ | 24,096 | |||||
Mr. Casey |
$ | 32,331 | $ | | $ | 10,800 | $ | 9,254 | |||||
Mr. Sanborn |
$ | | $ | 16,631 | $ | 5,760 | $ | 1,130 |
Employment and Change in Control Agreements
Employment Agreements. HarborOne Bank and HarborOne Bancorp are parties to an employment agreement with each of James W. Blake, President and Chief Executive Officer, and Joseph F. Casey, Executive Vice President, Chief Financial Officer and Chief Operating Officer.
Mr. Blake's employment agreement provides for a minimum annual base salary of $662,480 and Mr. Casey's employment agreement provides for a minimum annual base salary of $416,289. The employment agreements also provide for discretionary incentive and/or bonus compensation, participation on generally applicable terms and conditions in other compensation and fringe benefit plans, and certain perquisites, including for Mr. Blake, the use of an automobile and reimbursement of automobile-related expenses, club membership, travel to and attendance at industry conferences and seminars, five weeks paid vacation, life insurance equal to three times the executive's base salary, technology assistance for remote access to HarborOne Bank's and HarborOne Bancorp's systems, and supplemental medical insurance upon reaching age 65, and for Mr. Casey, a monthly automobile allowance of $900, four weeks paid vacation, life insurance equal to three times the executive's base salary, technology assistance for remote access to HarborOne Bank's and HarborOne Bancorp's systems, and supplemental medical insurance upon reaching age 65. HarborOne Bank and HarborOne Bancorp may terminate the executive's employment, and the executive may resign, at any time with or without good reason. In the event of termination without cause, HarborOne Bank and HarborOne Bancorp will pay to the executive, for a period of two years, severance benefits equal to his monthly base salary in effect at the time of his termination and annual incentive compensation equal to the average incentive compensation received by the executive during the three full fiscal years immediately preceding termination. HarborOne Bank and HarborOne Bancorp will also make an additional payment to the executive in an amount equal to the aggregate amount of employer contributions that would have been made to any qualified pension, profit sharing or 401(k) or similar plan on behalf of the executive if the executive had remained an employee of HarborOne Bank
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and HarborOne Bancorp for an additional 24-month period. In addition, HarborOne Bank and HarborOne Bancorp will make a monthly cash payment for 18 months or the executive's COBRA health continuation period, whichever ends earlier, in the amount that HarborOne Bank and HarborOne Bancorp would have made to provide health insurance to the executive. The same severance benefits would be payable if the executive resigns for good reason, which includes a failure to continue in his current position; a material change in responsibilities, functions or duties; any reassignment to a place of business more than 50 miles from Brockton, Massachusetts; or a material breach of the contract by HarborOne Bank and HarborOne Bancorp that is not cured within 30 days. In the event the executive's employment is involuntarily terminated for reasons other than for cause, disability or death, or the executive voluntary resigns for good reason, in either case after a change in control of HarborOne Bancorp, the severance benefits increase from two times the sum of the executive's base salary and average three-year bonus to three times the sum of the executive's base salary and average three-year bonus, and will be paid in a lump sum. Any payments required under the employment agreements will be reduced to the extent necessary to avoid penalties under Section 280G of the Code if such reduction would result in a higher after-tax amount to Mr. Blake or Mr. Casey. The employment agreements provide for certain post-employment obligations with respect to the executive's ability to compete with HarborOne Bank and HarborOne Bancorp and to solicit customers and employees of HarborOne Bank and HarborOne Bancorp.
Change in Control Agreements. In connection with the reorganization, HarborOne Bank and HarborOne Bancorp will enter into one-year change in control agreements with each of Leo Donahue, SVP, Retail Banking; Wayne F. Dunn, SVP, Chief Technology Officer; Christopher K. Gibbons, SVP, Consumer Lending; Mark Langone, SVP, Chief Enterprise Risk Officer; Peter Makowiecki, SVP, Residential Lending, Mortgage Servicing; David B. Reilly, SVP, Operations; H. Scott Sanborn, SVP, Commercial Lending; David Tryder, SVP, Chief Marketing Officer; and Patricia M. Williams, SVP, Human Resources. The agreements for all nine officers are substantially similar, and provide that if the executive's employment is involuntarily terminated for reasons other than for cause, disability or death, or the executive voluntary resigns for "good reason" on or within 12 months after the effective date of a change in control of HarborOne Bancorp, the executive would be entitled to a severance payment equal to his or her base salary and average three-year bonus. Such payment would be payable in a lump sum within ten days following the executive's date of termination. In addition, HarborOne Bank will make a monthly cash payment for 18 months or the executive's COBRA health continuation period, whichever ends earlier, in the amount that HarborOne Bank would have made to provide health insurance to the executive. Any payments required under the agreements will be reduced to the extent necessary to avoid penalties under Section 280G of the Code if such reduction would result in a higher after-tax amount to the executive.
Nonqualified Retirement Benefits
Split Dollar Life Insurance Arrangements. In 2000, HarborOne Bank entered into a collateral assignment split dollar life insurance arrangement with Mr. Blake in order to provide a death benefit to the executive's beneficiaries and to allow the executive access to the cash surrender value of the policy in excess of the amount of premiums paid by the Bank upon his retirement from HarborOne Bank. Since 2000, HarborOne Bank has paid $1,296,574 in premiums and the cash surrender value of the policy has increased to $1,809,669. In anticipation of the reorganization, HarborOne Bank terminated this arrangement with Mr. Blake, and Mr. Blake has transferred the ownership of the life insurance policy to HarborOne Bank. To compensate Mr. Blake for the loss in benefits as a result of the termination of the collateral assignment split dollar life insurance policy, HarborOne Bank made a payment to Mr. Blake of a one-time cash bonus in the amount of $928,678. In addition, HarborOne Bank and Mr. Blake have entered into a new endorsement split dollar life insurance agreement that will provide Mr. Blake with a $1,400,000 lifetime death benefit, which is equal to the death benefit that would have been provided to Mr. Blake under the old collateral assignment split dollar life insurance arrangement after adjusting for the amount received through the one-time cash bonus.
Supplemental Executive Retirement Plan Agreements. HarborOne Bank maintains a supplemental executive retirement plan agreement with Mr. Blake. Upon Mr. Blake's separation from service (other than termination for cause), disability or death, Mr. Blake (or his beneficiary in the case of death) shall receive a lump sum payment in an amount equal to the actuarial equivalent of a single life annuity equal to 60.0% of Mr. Blake's final average three-year salary and bonus reduced by the primary Social Security benefits payable upon Mr. Blake's separation from service and the amount payable to Mr. Blake from HarborOne Bank's 401(k) plan attributable to employer contributions. This lump sum payment is further reduced by the amount paid by HarborOne Bank to Mr. Blake when he reached age 65 in 2015 pursuant to his 2008 supplemental executive retirement plan agreement, with interest at a rate of 3.0% per year from the date of payment.
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HarborOne Bank is party to a supplemental executive retirement plan agreement with Mr. Casey, which was amended and restated in anticipation of the reorganization. Upon the earliest of attaining age 65, termination other than for cause, disability, death or a change in control of HarborOne Bank, Mr. Casey shall receive a lump sum payment equal to the actuarial equivalent value of a single life annuity equal to 60.0% of the executive's average three-year salary and bonus reduced by projected social security benefits and the amount payable to the executive from HarborOne Bank's 401(k) Plan attributable to employer contributions.
Senior Management Long Term Incentive Plan. Under the HarborOne Bank Senior Management Long Term Incentive Plan, all executive officers of HarborOne Bank with a title of Senior Vice President or above, including Mr. Blake and Mr. Casey, are granted cash awards equal to a percentage of the executive's base salary. Such awards are payable three years following the award, subject to the executive's continued employment with HarborOne Bank. Awards are immediately payable upon death, disability, retirement or separation from service within 24 months of a change in control of HarborOne Bank. HarborOne Bank anticipates that this plan will be discontinued upon the implementation of an equity incentive plan.
ESOP Restoration Plan. In connection with the reorganization, HarborOne Bank plans to adopt an ESOP Restoration Plan for the benefit of selected executives whose annual compensation exceeds the amount of annual compensation, currently $265,000, permitted to be recognized under the ESOP by the Code. Under the ESOP Restoration Plan, eligible participants would receive a credit each year equal to the amount they would have received under the ESOP but for the Internal Revenue Service-imposed compensation limit. Any benefits earned under the ESOP Restoration Plan would become payable the earliest of six months and a day after the participant's separation from service from the Bank, the participant's death, a change in control of HarborOne Bancorp or upon the termination of the ESOP Restoration Plan.
Benefit Plans
401(k) Profit Sharing Plans. HarborOne Bank currently maintains the HarborOne 401(k) Plan (the "HarborOne 401(k) Plan"), and Merrimack Mortgage maintains the Merrimack Mortgage, LLC Retirement Plan (the "Merrimack 401(k) Plan" and together with the HarborOne 401(k) Plan, the "401(k) Plans"), which are tax-qualified profit sharing plans with salary deferral features under Section 401(k) of the Code. All employees of the Bank who have attained age 21 and have completed three months of service are eligible to participate in the HarborOne401(k) Plan and make salary deferrals. All employees of the Bank who have attained age 21 and have completed one year of service are eligible to share in the Bank contributions to the HarborOne 401(k) Plan. All employees, other than seasonal employees, union employees, and nonresident alien employees of Merrimack Mortgage who have completed three months of service are eligible to participate in the Merrimack 401(k) Plan and make salary deferrals. Seasonal employees of Merrimack Mortgage who have attained age 21 and completed 1,000 hours of service are eligible to participate in the Merrimack 401(k) Plan.
A participant may contribute up to 100.0% of his or her compensation to the HarborOne 401(k) Plan on a pre-tax or after-tax basis, subject to the limitations imposed by the Code. A participant may contribute up to 75.0% of his or her compensation to the Merrimack 401(k) Plan on a pre-tax basis, subject to the limitations imposed by the Code. For 2016, the deferral contribution limit is $18,000. A participant over age 50 may contribute an additional $6,000 to the 401(k) Plans. A participant in the HarborOne 401(k) Plan is always 100.0% vested in his or her salary deferral contributions, and will become vested in his or her share of Bank contributions under a six-year vesting schedule with 20.0% vesting after completion of two years of service, and increased by 20.0% for each subsequent year of service. A participant in the Merrimack 401(k) Plan is always 100.0% vested in his or her salary deferral contributions, and will become vested in his or her share of employer contributions under a four-year vesting schedule with 25.0% vesting after completion of one year of service, and increased by 25.0% for each subsequent year of service.
Both 401(k) Plans provide certain in-service withdrawals, including hardship withdrawals and full withdrawals after age 59 1 / 2 . Distributions from both 401(k) Plans are available in a lump sum or installments upon a participant's retirement, termination of employment, death or disability.
The 401(k) Plans permit a participant to direct the investment of his or her own account into various investment options. In connection with the Reorganization, it is expected that participants will be allowed to invest all or a portion of their account balances in the 401(k) Plans in common stock of the Stock Holding Company, and may use such funds to purchase shares in the offering, subject to the purchase priorities in the 401(k) Plans. Participants in the 401(k) Plans may also be allowed to invest future elective deferrals in common stock of the Stock Holding Company.
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Employee Stock Ownership Plan. In connection with the reorganization, HarborOne Bank plans to adopt the HarborOne Bank Employee Stock Ownership Plan, or the "ESOP." Employees who have attained age 21 and have completed one year of service will be eligible to participate in the ESOP. Participants will vest in the benefits allocated under the ESOP pursuant to a six-year vesting schedule, with 20.0% vesting after completion of two years of service, and increased by 20.0% for each subsequent completed year of service. A participant will also become fully vested at retirement, upon death or disability or upon termination of the ESOP. Any unvested shares that are forfeited upon a participant's termination of employment will be reallocated among the remaining ESOP participants.
It is anticipated that HarborOne Bank will engage an independent third party trustee to purchase, on behalf of the ESOP, shares equal to 8.0% of the shares sold in the offering and contributed to the charitable foundation. It is anticipated that the ESOP will fund 100.0% of its purchase of shares in the offering through a loan from HarborOne Bancorp, which will be repaid principally from HarborOne Bank's contributions to the ESOP and dividends payable on common stock held by the ESOP over the term of the loan. ESOP shares will be held in a suspense account and released as the loan is repaid. Discretionary contributions to the ESOP and shares released from the suspense account will be allocated among participants in accordance with compensation, on a pro rata basis.
Participants may direct the plan trustee how to vote common stock credited to their accounts. The plan trustee will vote allocated shares held in the ESOP as instructed by the plan participants, and all unallocated shares and allocated shares for which no instructions are received will be voted in the same ratio on any matter as those shares for which instructions are given, subject to the fiduciary responsibilities of the trustee.
Under applicable accounting requirements, compensation expense for a leveraged ESOP is recorded at the fair market value of the ESOP shares when committed to be released to participants' accounts.
Equity Incentive Plan
Following the reorganization and offering, we intend to adopt an equity incentive plan that will provide for grants of stock options and restricted stock awards. In accordance with applicable regulations, we anticipate that the plan will authorize the grant of stock options and shares of restricted stock, not to exceed 10.0% and 4.0%, respectively, of the shares sold in the offering and issued to the charitable foundation. These limitations will not apply if the plan is implemented more than one year after the reorganization.
The equity incentive plan will not be established sooner than six months after the reorganization and, if adopted within one year after the reorganization, would require the approval by our shareholders owning two-thirds of the outstanding shares of common stock of HarborOne Bancorp. If the equity incentive plan is established more than one year after the reorganization, it would require the approval of our shareholders by a majority of votes cast. The following additional restrictions would apply to our equity incentive plan only if the plan is adopted within one year after the offering:
If an equity incentive plan is adopted more than one year but less than three years following the offering, it will be subject to other regulatory requirements.
We have not yet determined whether we will present an equity incentive plan for shareholder approval within one year or more than one year following the offering. In the event of changes in applicable regulations or policies regarding equity incentive plans, including any regulations or policies restricting the size of awards and vesting of benefits as described above, the restrictions described above may not be applicable.
We may obtain the shares needed for our equity incentive plan by issuing additional shares of common stock from authorized but unissued shares or through stock repurchases.
Director Compensation
Director Fees. During the year ending December 31, 2016, each non-employee director will receive an annual base retainer of $34,800, and the Chairman shall receive a retainer of $44,796, which shall be paid in equal monthly
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installments. In addition, our non-employee directors will receive the following cash compensation for their board service, as applicable:
The following table sets forth information concerning compensation accrued or paid to our non-employee directors during the year ended December 31, 2015 for their service on our board. Directors who are also our employees receive no additional compensation for their service as directors and are not set forth in the table below.
Name
|
Fees Earned or
Paid in Cash(1) ($) |
All Other
Compensation(2) ($) |
Total ($) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Joseph F. Barry |
$ | 49,400 | $ | 126 | $ | 49,526 | ||||
David P. Frenette, Esq. |
57,466 | 6,821 | 64,287 | |||||||
Gordon Jezard |
60,800 | 690 | 61,490 | |||||||
Edward F. Kent |
48,800 | 690 | 49,490 | |||||||
Barry R. Koretz |
52,200 | 6,446 | 58,646 | |||||||
Timothy R. Lynch |
62,530 | 252 | 62,782 | |||||||
Wallace H. Peckham, III |
53,600 | 690 | 54,290 | |||||||
Michael Sullivan(3) |
18,100 | 105 | 18,205 |
Director Retirement Plan. Directors of HarborOne Bank may participate in the HarborOne Bank Director Retirement Plan, which provides for annual payments to directors who have completed six or more years of service, and who have reached the retirement age specified in the participation agreement, of a specified percentage of the total director fees paid to the director in his or her final year serving as director, as follows: 30.0% annually for five years, for directors with at least six years of service; 45.0% annually for 10 years, for directors with at least 11 years of service or 60.0% annually for 10 years, for directors with at least 21 years of service. HarborOne Bank anticipates that this plan will be discontinued upon the implementation of an equity incentive plan.
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TRANSACTIONS WITH RELATED PERSONS
The following is a description of transactions, since January 1, 2013, to which we have been a party or will be a party, in which the amount involved exceeded or will exceed $120,000, and in which any of our executive officers or directors, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest, other than compensation, termination and change in control arrangements, which are described under "Executive and Director Compensation."
Loans and Extensions of Credit. The Sarbanes-Oxley Act of 2002 generally prohibits loans to our executive officers and directors. However, the Sarbanes-Oxley Act contains a specific exemption from such prohibition for loans by HarborOne Bank to its executive officers and directors in compliance with federal banking regulations. Federal regulations require that all loans or extensions of credit to executive officers and directors of insured institutions must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with persons not related to HarborOne Bank and must not involve more than the normal risk of repayment or present other unfavorable features. The aggregate amount of our loans to our directors, executive officers and their related entities was $1.4 million, $1.8 million and $1.3 million at December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, these loans were performing according to their original terms.
Other Transactions. Since the beginning of our last fiscal year, there have been no transactions and there are no currently proposed transactions in which we were or are to be a participant and the amount involved exceeds $120,000, and in which any of our executive officers or directors had or will have a direct or indirect material interest.
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SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding intended common stock subscriptions by each of our directors and executive officers, including their associates, and by all directors, executive officers and their associates as a group. However, there can be no assurance that any such person or group will purchase any specific number of shares of our common stock. In the event the individual maximum purchase limitation is increased, persons subscribing for the maximum amount may increase their purchase order. Directors and executive officers will purchase shares of common stock at the same $10.00 purchase price per share and on the same terms as other purchasers in the offering. This table excludes shares of common stock to be purchased by the employee stock ownership plan, as well as any stock awards or stock option grants that may be made no earlier than six months after the completion of the offering. The directors and executive officers have indicated their intention to subscribe in the offering for an aggregate of 332,500 shares of common stock, equal to 3.2% of the number of shares of common stock to be sold in the offering at the midpoint of the offering range and contributed to our charitable foundation, assuming shares are available. Purchases by directors, executive officers and their associates will be included in determining whether the required minimum number of shares has been subscribed for in the offering. The shares being acquired by the
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directors, executive officers and their associates are being acquired for investment purposes, and not with a view towards resale.
Name(1)
|
Number of
Shares |
Aggregate
Purchase Price |
Percent at
Minimum of Offering Range |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Joseph F. Barry, |
10,000 | $ | 100,000 | * | ||||||
Director |
||||||||||
James W. Blake, |
80,000 |
$ |
800,000 |
* |
||||||
President, Chief Executive Officer and Director |
||||||||||
Joseph F. Casey, |
60,000 |
$ |
600,000 |
* |
||||||
Executive Vice President, Chief Operating Officer and Chief Financial Officer |
||||||||||
Leo C. Donahue, |
20,000 |
$ |
200,000 |
* |
||||||
Senior Vice President, Retail Banking |
||||||||||
Wayne F. Dunn, |
1,000 |
$ |
10,000 |
* |
||||||
Senior Vice President, Chief Technology Officer |
||||||||||
David P. Frenette, |
20,000 |
$ |
200,000 |
* |
||||||
Director |
||||||||||
Christopher K. Gibbons, |
30,000 |
$ |
300,000 |
* |
||||||
Senior Vice President, Consumer Lending |
||||||||||
Gordon Jezard, |
10,000 |
$ |
100,000 |
* |
||||||
Director |
||||||||||
Edward F. Kent, |
10,000 |
$ |
100,000 |
* |
||||||
Director |
||||||||||
Barry R. Koretz, |
15,000 |
$ |
150,000 |
* |
||||||
Director |
||||||||||
Mark T. Langone, |
7,500 |
$ |
75,000 |
* |
||||||
Chief Enterprise Risk Officer |
||||||||||
Timothy R. Lynch, |
2,500 |
$ |
25,000 |
* |
||||||
Director |
||||||||||
Peter F. Makowiecki, |
30,000 |
$ |
300,000 |
* |
||||||
Senior Vice President, Residential Lending |
||||||||||
Wallace H. Peckham, III, |
10,000 |
$ |
100,000 |
* |
||||||
Director |
||||||||||
David B. Reilly, |
10,000 |
$ |
100,000 |
* |
||||||
Senior Vice President, Operations |
||||||||||
H. Scott Sanborn, |
5,000 |
$ |
50,000 |
* |
||||||
Senior Vice President, Commercial Lending |
||||||||||
Michael J. Sullivan, |
10,000 |
$ |
100,000 |
* |
||||||
Director |
||||||||||
David E. Tryder, |
500 |
$ |
5,000 |
* |
||||||
Senior Vice President and Chief Marketing Officer |
||||||||||
Patricia M. Williams, |
1,000 |
$ |
10,000 |
* |
||||||
Senior Vice President, Human Resources |
||||||||||
| | | | | | | | | | |
All directors and executive officers as a group (19 persons) |
332,500 | $ | 3,325,000 | 3.81 | % |
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THE REORGANIZATION AND OFFERING
The board of directors of HarborOne Bank have approved the plan of reorganization and minority stock issuance, which we refer to in this document as the plan of reorganization. The plan of reorganization will be subject to the approval of the depositors of HarborOne Bank. We have filed applications with respect to the reorganization and offering with the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve. The final approval or nonobjection of the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve is required before we can consummate the offering. Any approval or nonobjection by the Massachusetts Commissioner of Banks, the FDIC or the Federal Reserve does not constitute a recommendation or endorsement of the plan of reorganization.
General
The board of directors of HarborOne Bank adopted the plan of reorganization on January 27, 2016. When the offering is completed, purchasers in the offering will own 45.0% of our outstanding shares of common stock, HarborOne Mutual Bancshares will own 53.8% of our outstanding shares of common stock and our charitable foundation will own 1.2% of our shares of common stock. A diagram of our corporate structure before and after the reorganization and offering is set forth in the section of this prospectus entitled "Summary."
Pursuant to the plan of reorganization, we will offer shares of common stock for sale in the subscription offering to our eligible account holders, our tax-qualified employee benefit plans, including the employee stock ownership plan that we are establishing in connection with the reorganization and HarborOne Bank's 401(k) plan, and our employees, officers and directors. In addition, we may offer common stock for sale in a community offering to members of the general public, with a preference given to natural persons and trusts of natural persons residing in the Massachusetts cities and towns of Abington, Attleboro, Avon, Berkley, Braintree, Bridgewater, Brockton, Canton, Carver, Cohasset, Dighton, Duxbury, East Bridgewater, Easton, Foxboro, Halifax, Hanover, Hanson, Hingham, Holbrook, Hull, Kingston, Lakeville, Mansfield, Marshfield, Middleborough, Milton, North Attleboro, Norton, Norwell, Plainville, Pembroke, Plymouth, Plympton, Quincy, Randolph, Raynham, Rehoboth, Rochester, Rockland, Seekonk, Scituate, Sharon, Stoughton, Taunton, Wareham, West Bridgewater, Weymouth and Whitman.
We have the right to accept or reject, in whole or in part, any orders to purchase shares of the common stock received in the community offering. The community offering will begin at the same time as the subscription offering and must be completed within 45 days after the completion of the subscription offering unless otherwise extended by the Massachusetts Commissioner of Banks. See "Community Offering."
We also may offer for sale shares of common stock not purchased in the subscription or community offerings through a syndicated community offering in which Sandler O'Neill & Partners, L.P. will be sole book-running manager. See "Syndicated Community Offering or Firm Commitment Underwritten Offering" herein.
We intend to retain between $33.6 million and $46.1 million of the net proceeds of the offering (or $53.2 million at the adjusted maximum of the offering) and to invest between $41.1 million and $56.7 million of the net proceeds (or $65.4 million at the adjusted maximum of the offering) in HarborOne Bank. The offering will be consummated only upon the issuance of 8,709,525 shares of our common stock offered pursuant to the plan of reorganization.
We determined the number of shares of common stock to be offered in the offering based upon an independent valuation appraisal of the estimated pro forma market value of HarborOne Bancorp. All shares of common stock to be sold in the offering will be sold at $10.00 per share. Investors will not be charged a commission to purchase shares of common stock. The independent valuation will be updated and the final number of the shares of common stock to be issued in the offering will be determined at the completion of the offering. See "Determination of Share Price and Number of Shares to Be Issued" for more information as to the determination of the estimated pro forma market value of the common stock.
The following is a brief summary of the offering and is qualified in its entirety by reference to the provisions of the plan of reorganization. A copy of the plan of reorganization is available for inspection at each branch office of HarborOne Bank. The plan of reorganization is also filed as an exhibit to HarborOne Bancorp's regulatory applications, copies of which may be obtained from the Federal Reserve, the FDIC, or inspected, without charge, at the Massachusetts Division of Banks. The plan of reorganization is also filed as an exhibit to the registration statement we have filed with the Securities and Exchange Commission, of which this prospectus is a part. Copies of the registration statement may be obtained from the Securities and Exchange Commission or online at the Securities and Exchange Commission's website, www.sec.gov . See "Where You Can Find Additional Information."
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Reasons for the Reorganization
Our primary reasons for the reorganization and offering are to:
Approvals Required
The affirmative vote of a majority of the depositors of HarborOne Bank present and voting at a special meeting called for such purpose is required to approve the plan of reorganization. We have filed applications with respect to the reorganization and minority stock offering with the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve and the approval of the Massachusetts Commissioner of Banks and the Federal Reserve is required before we can consummate the offering.
Effects of Reorganization
Continuity. While the reorganization is being accomplished, our normal business of accepting deposits and making loans will continue without interruption. After the reorganization, we will continue to offer existing services to depositors, borrowers and other customers. The directors serving as the directors of HarborOne Bank at the time of the reorganization will be the directors of HarborOne Bank and of HarborOne Bancorp after the reorganization.
Effect on Deposit Accounts. Pursuant to the plan of reorganization, each depositor of HarborOne Bank at the time of the reorganization will automatically continue as a depositor after the reorganization, and the deposit balance, interest rate and other terms of such deposit accounts will not change as a result of the reorganization. Each such account will be insured by the FDIC to the same extent as before the reorganization, and each such account will continue to be insured in full for amounts in excess of FDIC limits by the Co-operative Central Bank, which maintains the Share Insurance Fund for co-operative bank deposits. Depositors will continue to hold their existing certificates of deposit, passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from HarborOne Bank will be affected by the reorganization, and the amount, interest rate, maturity and security for each loan will remain as it was contractually fixed prior to the reorganization.
Tax Effects. We will receive opinions of our counsel and tax advisor with regard to federal and state income tax consequences of the reorganization to the effect that the reorganization will not be taxable for federal or state income tax purposes to HarborOne Bank, HarborOne Bancorp, HarborOne Mutual Bancshares or Eligible Account Holders. See the section of this prospectus entitled "Material U.S. Income Tax Consequences" for more information.
Effect on Liquidation Rights. Following the completion of the reorganization, all depositors who had liquidation rights with respect to HarborOne Bank as of the effective date of the reorganization will continue to have such rights solely with respect to HarborOne Mutual Bancshares so long as they continue to hold deposit accounts with HarborOne Bank. In addition, all persons who become depositors of HarborOne Bank subsequent to the reorganization will have such liquidations rights with respect to HarborOne Mutual Bancshares.
Determination of Share Price and Number of Shares to Be Issued
The plan of reorganization and Massachusetts regulations require that the aggregate purchase price of the common stock sold in the offering be based on the appraised pro forma market value of the common stock, as determined by an independent valuation. We have retained RP Financial to prepare an independent valuation appraisal. RP Financial received $10,000 upon execution of the engagement letter with us. For its services in preparing the initial valuation and subsequent updates to the appraisal, RP Financial will receive a fee of $100,000 for the initial
96
valuation and $10,000 for each subsequent update, and will be reimbursed for its reasonable out-of-pocket expenses up to $7,500. We have agreed to indemnify RP Financial and its affiliates, members, officers, agents and employees against specified losses, including any losses in connection with claims under the federal securities laws arising out of its services as independent appraiser, except where such liability results from its negligence or bad faith.
The independent valuation was prepared by RP Financial in reliance upon the information contained in this prospectus, including our consolidated financial statements. RP Financial also considered the following factors, among others:
The appraisal is based in part on an analysis of a peer group of ten publicly traded saving institutions that RP Financial considered comparable to us.
The peer group consists of the following ten companies with assets between $1.1 billion and $3.4 billion as of September 30, 2015 (the latest date for which complete financial data is publicly available). The peer group companies selected for HarborOne Bancorp consisted of fully-converted stock institutions that were not subject to an actual or rumored acquisition and that had been in fully-converted form for a least one year.
Company Name and Ticker Symbol | Headquarters | Total Assets ($) | ||||||
---|---|---|---|---|---|---|---|---|
|
|
|
(Dollars in millions)
|
|||||
BSB Bancorp, Inc. |
BLMT | Belmont, MA | $ | 1,692 | ||||
Blue Hills Bancorp, Inc. |
BHBK | Norwood, MA | $ | 1,934 | ||||
Clifton Bancorp Inc. |
CSBK | Clifton, NJ | $ | 1,154 | ||||
Meridian Bancorp, Inc. |
EBSB | Peabody, MA | $ | 3,376 | ||||
ESSA Bancorp, Inc. |
ESSA | Stroudsburg, PA | $ | 1,607 | ||||
First Connecticut Bancorp, Inc. |
FBNK | Farmington, CT | $ | 2,708 | ||||
OceanFirst Financial Corp. |
OCFC | Toms River, NJ | $ | 2,558 | ||||
Ocean Shore Holding Co. |
OSHC | Ocean City, NJ | $ | 1,067 | ||||
SI Financial Group, Inc. |
SIFI | Willimantic, CT | $ | 1,454 | ||||
Westfield Financial, Inc. |
WFD | Westfield, MA | $ | 1,357 |
The following are various averages for the peer group companies:
RP Financial sought to provide meaningful comparative data to limit the need to perform subjective valuation adjustments with respect to institutions that did not share common characteristics with HarborOne Bank. As a result, a comparable institution's dissimilar asset size may be outweighed by similarities with respect to other characteristics that are more exemplary of an institution's value than asset size.
As noted in the appraisal report, the selection process for the peer group involved two geographic screens to the universe of all public savings institutions that were eligible for inclusion in the peer group.
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selection criteria to publicly traded full-stock savings institutions: (i) assets between $1 billion and $5 billion, (ii) tangible equity-to-assets ratios greater than 8.0% and (iii) positive core earnings. Six companies met the selection criteria and all six were included in the peer group.
The independent valuation appraisal considered the pro forma effect of the offering. Consistent with federal appraisal guidelines, the appraisal applied three primary methodologies: (1) the pro forma price-to-book value approach applied to both reported book value and tangible book value; (2) the pro forma price-to-core earnings approach applied to reported and core earnings; and (3) the pro forma price-to-assets approach. The market value ratios applied in the three methodologies were based on the current market valuations of the peer group companies. RP Financial placed the greatest emphasis on the price-to-earnings and price-to-book approaches in estimating pro forma market value. RP Financial did not consider a pro forma price-to-assets approach to be meaningful in preparing the appraisal, as this approach is more meaningful when a company has low equity or earnings. The price-to-assets approach is less meaningful for a company like us, as we have equity in excess of regulatory capital requirements and positive reported and core earnings.
The following table presents a summary of selected pricing ratios for HarborOne Bancorp and the peer group companies identified by RP Financial. Ratios, presented on a fully converted basis, are based on financial data for the 12 months ended December 31, 2015 (or the last 12 months for which data is available) and stock price information as of February 5, 2016. Compared to the average pricing ratios of the peer group, our pro forma pricing ratios at the maximum of the offering range indicated a discount of 41.8% on a price-to-book basis, a discount of 41.8% on a price-to-tangible book basis and a premium of 165.1% on a price-to-earnings basis. Our board of directors, in reviewing and approving the valuation, considered the range of price-to-earnings ratios, price-to-book value ratios and price-to-tangible book value ratios at the different amounts of shares to be sold in the offering.
|
Price-to-core
earnings multiple(1) |
Price-to-book
value ratio |
Price-to-tangible
book value ratio |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
HarborOne Bancorp (pro forma) |
||||||||||
Maximum, as adjusted |
66.01x | 67.80 | % | 69.98 | % | |||||
Maximum |
55.76x | 63.69 | % | 65.92 | % | |||||
Midpoint |
47.31x | 59.56 | % | 61.77 | % | |||||
Minimum |
39.26x | 54.73 | % | 56.95 | % | |||||
Valuation of peer group companies using stock prices as of February 5, 2016 |
|
|
|
|||||||
Averages |
21.03x | 109.43 | % | 113.20 | % | |||||
Medians |
18.76x | 105.16 | % | 106.58 | % |
RP Financial advised the board of directors that the appraisal was prepared in conformance with the regulatory appraisal methodology. That methodology requires a valuation based on an analysis of the trading prices of comparable public companies whose stocks have traded for at least one year prior to the valuation date, and as a result of this analysis, RP Financial determined that our pro forma price-to-book and price-to-tangible book ratios were lower than the peer group companies.
The independent appraisal does not indicate per share market value. Do not assume or expect that the valuation of HarborOne Bancorp as indicated above means that, after the reorganization and offering, the shares of common stock will trade at or above the $10.00 offering price. Furthermore, the pricing ratios presented above were utilized by RP Financial to estimate our market value and not to compare the relative value of shares of our common stock with the value of the capital stock of the peer group. The value of the capital stock of a particular company may be affected by a number of factors such as financial performance, asset size and market location.
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The independent valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing shares of our common stock. RP Financial did not independently verify our consolidated financial statements and other information, which we provided to them, nor did RP Financial independently value our assets or liabilities. The independent valuation considers HarborOne Bank as a going concern and should not be considered as an indication of the liquidation value of HarborOne Bank. Moreover, because the valuation is necessarily based upon estimates and projections of a number of matters, all of which may change from time to time, no assurance can be given that persons purchasing our common stock in the offering will thereafter be able to sell their shares at prices at or above the $10.00 offering price per share.
Following commencement of the subscription offering, the maximum of the valuation range may be increased by up to 15.0%, or up to $301.1 million, without resoliciting subscribers, which would result in a corresponding increase of up to 15.0% in the maximum of the offering range to up to 13,550,996 shares, to reflect changes in the market, our financial condition or the demand for the shares. We will not decrease the minimum of the valuation range and the minimum of the offering range without a resolicitation of subscribers. The subscription price of $10.00 per share will remain fixed. See "Additional Limitations on Common Stock Purchases" as to the method of distribution and allocation of additional shares that may be issued in the event of an increase in the offering range to fill unfilled orders in the offering.
If the update to the independent valuation at the conclusion of the offering results in an increase in the maximum of the valuation offering range to more than $135.5 million and a corresponding increase in the offering range to more than 13,550,996 shares (excluding shares issued to our charitable foundation), or a decrease in the minimum of the valuation offering range to less than $87.1 million and a corresponding decrease in the offering range to fewer than 8,709,525 shares (excluding shares issued to our charitable foundation), then we may promptly return with interest at our current statement savings rate of interest all funds previously delivered to us to purchase shares of common stock and cancel deposit account withdrawal authorizations, and, after consulting with the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve, we may terminate the plan of reorganization. Alternatively, we may hold a new offering, establish a new offering range, extend the offering period and commence a resolicitation of subscribers or take other actions as permitted, to the extent that permission is required, by the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve, in order to complete the reorganization and offering. In the event that a resolicitation is commenced, we will notify subscribers of the extension of time and of the rights of subscribers to place a new stock order for a specified period of time. If a person does not respond, we will cancel his or her stock order and return his or her subscription funds, with interest, and cancel any authorization to withdraw funds from deposit accounts for the purchase of shares of common stock. Any resolicitation following the conclusion of the subscription and community offerings would not exceed 45 days unless further extended with the approval, to the extent approval is required, of the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve, for periods of up to 90 days.
An increase in the number of shares to be sold in the offering would decrease both a subscriber's ownership interest and our pro forma earnings and stockholders' equity on a per share basis while increasing pro forma earnings and stockholders' equity on an aggregate basis. A decrease in the number of shares to be sold in the offering would increase both a subscriber's ownership interest and our pro forma earnings and stockholders' equity on a per share basis, while decreasing pro forma earnings and stockholders' equity on an aggregate basis. For a presentation of the effects of these changes, see the section of this prospectus entitled "Pro Forma Data."
A copy of the appraisal report of RP Financial, including any amendments made to it, and the detailed memorandum of the appraiser setting forth the method and assumptions for such appraisal are available for inspection at the main office of HarborOne Bank and as specified under the section of this prospectus entitled "Where You Can Find Additional Information."
Subscription Offering and Subscription Rights
In accordance with the plan of reorganization, rights to subscribe for shares of common stock in the subscription offering have been granted in the following descending order of priority. The filling of all subscriptions that we receive will depend on the availability of common stock after satisfaction of all subscriptions of all persons having prior rights in the subscription offering and on the purchase and ownership limitations set forth in the plan of reorganization and as described below under "Additional Limitations on Common Stock Purchases."
Priority 1: Eligible Account Holders. Each depositor of HarborOne Bank, with aggregate deposit account balances of $50 or more (a "Qualifying Deposit") on December 31, 2014 (an "Eligible Account Holder") will receive, without payment therefor, nontransferable subscription rights to purchase, subject to the overall purchase limitations, up to the greater of 60,000 shares of our common stock, 0.10% of the total number of shares of common stock issued in the
99
offering, or 15 times the product obtained by multiplying the number of subscription shares offered multiplied by a fraction of which the numerator is the aggregate Qualifying Deposit account balances of the Eligible Account Holder and the denominator is the aggregate Qualifying Deposit account balances of all Eligible Account Holders (approximately $1.525 million at December 31, 2014). See "Additional Limitations on Common Stock Purchases." If there are not sufficient shares available to satisfy all subscriptions, shares will first be allocated so as to permit each Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares or the number of shares for which he or she subscribed. Thereafter, unallocated shares will be allocated to each Eligible Account Holder whose subscription remains unfilled in the proportion that the amount of his or her Qualifying Deposit bears to the total amount of Qualifying Deposits of all subscribing Eligible Account Holders whose subscriptions remain unfilled. If an amount so allocated exceeds the amount subscribed for by any one or more Eligible Account Holders, the excess shall be reallocated (one or more times as necessary) among those Eligible Account Holders whose subscriptions are not fully satisfied until all available shares have been allocated.
To ensure proper allocation of shares of our common stock, each Eligible Account Holder must list on his or her stock order form all deposit accounts in which he or she had an ownership interest on December 31, 2014. In the event of oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed. In the event of an oversubscription, the subscription rights of Eligible Account Holders who are also our officers and directors, or any of their associates, will be subordinated to the subscription rights of other Eligible Account Holders to the extent attributable to increased deposits during the year preceding December 31, 2014.
Priority 2: Tax-Qualified Plans. Our tax-qualified employee plans, including the employee stock ownership plan that we are establishing in connection with the reorganization and HarborOne Bank's and Merrimack Mortgage's 401(k) plans, will receive, without payment therefor, nontransferable subscription rights to purchase in the aggregate up to 10.0% of the shares of common stock issued in the offering, including shares contributed to the Foundation. We expect our employee stock ownership plan to purchase 8.0% of the shares of common stock issued in the offering, including shares contributed to our charitable foundation. If the employee stock ownership plan is not able to fill its order in the offering, the employee stock ownership plan may purchase shares of common stock in the open market following the completion of the reorganization and the offering in order to fund all or a portion of the plan.
Priority 3: Employees, Officers and Directors. To the extent that there are sufficient shares of common stock remaining after satisfaction of subscriptions by Eligible Account Holders and tax-qualified plans, each employee, officer and director of HarborOne Bank, or any subsidiary of HarborOne Bank, at the time of the offering who is not eligible in the first priority shall receive, at no cost, non-transferable subscription rights to subscribe for up to 60,000 shares of common stock; provided, however, that the aggregate number of shares of common stock that may be purchased by employees, officers and directors in the reorganization shall be limited to 25.0% of the total number of shares of common stock issued in the reorganization (including shares purchased by employees, officers and directors under this priority and under the preceding priority categories, but not including shares purchased by the employee stock ownership plan). Subscriptions of officers and directors are also subject to an additional overall purchase limitation. See "Additional Limitations on Common Stock Purchases." In the event that persons in this category subscribe for more shares of stock than are available for purchase by them, shares will be allocated among such subscribing persons on an equitable basis, such as by giving weight to the period of service, compensation and position of the individual subscriber.
Expiration Date. The subscription offering will expire at [ : ] p.m., Eastern time, on [Expiration Date], unless extended by us for up to 45 days or such additional periods with the approval of the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve, if necessary. Subscription rights will expire whether or not each eligible depositor can be located. We may decide to extend the expiration date of the subscription offering for any reason, whether or not subscriptions have been received for shares at the minimum, midpoint or maximum of the offering range. Subscription rights that have not been exercised prior to the expiration date will become void.
We will not execute orders until we have received orders to purchase at least the minimum number of shares of common stock. If we have not received orders to purchase at least 8,709,525 shares within 45 days after the expiration date and the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve have not consented to an extension, all funds delivered to us to purchase shares of common stock in the offering will be returned promptly to the subscribers with interest at our passbook savings rate and all deposit account withdrawal authorizations will be canceled. If an extension beyond [Extension Date #1] is granted by the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve, we will resolicit subscribers, giving them an opportunity to confirm, change or cancel their orders. We will notify subscribers of the extension of time and of the rights of subscribers to place a new stock order for a specified period of time. If a subscriber does not respond, we will cancel his or her stock order and return his or her subscription funds, with interest, and cancel any authorization to withdraw funds from deposit accounts for
100
the purchase of shares of common stock. Extensions may not go beyond [Extension Date #2], which is twenty-four months after the depositors of HarborOne Bank adopted the plan of reorganization.
Persons in Non-qualified States or Foreign Countries. We will make reasonable efforts to comply with the securities laws of all states in the United States in which persons entitled to subscribe for stock pursuant to the plan of reorganization reside. However, we are not required to offer stock in the subscription offering to any person who resides in a foreign country.
Restrictions on Transferability of Subscription Rights. Subscription rights are non-transferable. See "Restrictions on Transfer of Subscription Rights and Shares" below for more information.
Community Offering
To the extent that shares of common stock remain available for purchase after satisfaction of all subscriptions in the subscription offering, we may offer shares pursuant to the plan of reorganization to members of the general public in a community offering. Shares may be offered with a preference to natural persons, and trusts of natural persons, residing in our local community, consisting of the Massachusetts cities and towns of Abington, Attleboro, Avon, Berkley, Braintree, Bridgewater, Brockton, Canton, Carver, Cohasset, Dighton, Duxbury, East Bridgewater, Easton, Foxboro, Halifax, Hanover, Hanson, Hingham, Holbrook, Hull, Kingston, Lakeville, Mansfield, Marshfield, Middleborough, Milton, North Attleboro, Norton, Norwell, Plainville, Pembroke, Plymouth, Plympton, Quincy, Randolph, Raynham, Rehoboth, Rochester, Rockland, Seekonk, Scituate, Sharon, Stoughton, Taunton, Wareham, West Bridgewater, Weymouth and Whitman.
Subscribers in the community offering may purchase up to 60,000 shares of common stock, subject to the overall purchase limitations. See "Additional Limitations on Common Stock Purchases." The opportunity to purchase shares of common stock in the community offering category is subject to our right, in our sole discretion, to accept or reject any such orders in whole or in part either at the time of receipt of an order or as soon as practicable following the expiration date of the offering. We have not established any set criteria for determining whether to accept or reject a purchase order in the community offering, and, accordingly, any determination to accept or reject purchase orders in the community offering will be based on the facts and circumstances known to us at the time.
If we do not have sufficient shares of common stock available to fill the orders in the community offering, we will allocate the available shares among those persons in a manner that permits each of them, to the extent possible, to purchase the lesser of 100 shares, or the number of shares subscribed for by such person, not to exceed 2.0% of the shares issued in the offering. Thereafter, unallocated shares will be allocated among natural persons, and trusts of natural persons, residing in the counties listed above, whose orders remain unsatisfied on an equal number of shares basis per order or on such other reasonable basis as we may determine. If, after the allocation of shares to natural persons, and trusts of natural persons, residing in the counties listed above, we do not have sufficient shares of common stock available to fill the orders of other members of the general public, we will allocate the available shares among those persons in a manner that permits each of them, to the extent possible, to purchase the lesser of 100 shares or the number of shares subscribed for by such person, and thereafter, unallocated shares will be allocated among members of the general public whose orders remain unsatisfied on an equal number of shares basis per order or on such other reasonable basis as we may determine.
The term "residing" or "resident" as used in this prospectus means any person who occupies a dwelling within the counties listed above, has a present intent to remain within the community for a period of time and manifests the genuineness of that intent by establishing an ongoing physical presence within the community, together with an indication that this presence within the community is something other than merely transitory in nature. We may utilize deposit or loan records or other evidence provided to us to decide whether a person is a resident. In all cases, however, the determination shall be in our sole discretion.
Expiration Date. The community offering may begin at the same time as, during or after the subscription offering, although it must terminate no more than 45 days following the subscription offering. We may decide to extend the community offering for any reason and are not required to give purchasers notice of any such extension unless such period extends beyond [Extension Date #1]. If an extension beyond [Extension Date #1] is granted by the Federal Reserve, the FDIC and the Massachusetts Commissioner of Banks, we will cancel stock orders accepted in the community offering and return purchase funds, with interest, and cancel any authorization to withdraw funds from deposit accounts for the purchase of shares of common stock. We will then resolicit persons whose orders we accept in the community offering, giving them an opportunity to place a new order. These extensions may not go beyond [Extension Date #2], which is twenty-four months after the board of directors of HarborOne Bank adopted the plan of reorganization.
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Syndicated Community Offering or Firm Commitment Underwritten Offering
If feasible, our board of directors may decide to offer for sale shares of common stock not subscribed for or purchased in the subscription and community offerings in a syndicated community offering or firm commitment underwritten offering, subject to such terms, conditions and procedures as we may determine, in a manner that will achieve a wide distribution of our shares of common stock.
If a syndicated community offering or firm commitment underwritten offering is held, Sandler O'Neill & Partners, L.P. will serve as sole book-running manager. In the event that shares of common stock are sold in a syndicated or firm commitment underwritten offering, we will pay fees of 5.0% of the aggregate amount of common stock sold in the syndicated or firm commitment underwritten offering to Sandler O'Neill & Partners, L.P. and any other broker-dealers included in the syndicated or firm commitment underwritten offering. The shares of common stock will be sold at the same price per share ($10.00 per share) that the shares are sold in the subscription offering and the community offering.
In the event of a syndicated community offering, it is currently expected that investors would follow the same general procedures applicable to purchasing shares in the subscription and community offerings (the use of order forms and the submission of funds directly to HarborOne Bancorp for the payment of the purchase price of the shares ordered) except that payment must be in immediately available funds (bank checks, money orders, deposit account withdrawals from accounts at HarborOne Bank or wire transfers). See "Procedure for Purchasing Shares in Subscription and Community Offerings." "Sweep" arrangements and delivery versus payment settlement will only be used in a syndicated community offering to the extent consistent with Rules 10b-9 and 15c2-4 and then-existing guidance and interpretations thereof of the Securities and Exchange Commission regarding the conduct of "min/max" offerings. Under a "sweep" arrangement, a customer's brokerage account at the applicable participating broker-dealer will be debited in the amount of the purchase price for the shares of common stock that such customer intends to purchase in the syndicated community offering on the closing date. Customers must authorize participating broker-dealers to debit their brokerage accounts and must have the funds for full payment in their accounts on, but not before, the debit date.
In the event of a firm commitment underwritten offering, the proposed underwriting agreement will not be entered into with Sandler O'Neill & Partners, L.P., HarborOne Bancorp and HarborOne Bank until immediately prior to the completion of the firm commitment underwritten offering. At that time, Sandler O'Neill & Partners, L.P. and any other broker-dealers included in the firm commitment underwritten offering will represent that they have received sufficient indications of interest to complete the offering. Pursuant to the terms of the underwriting agreement, and subject to certain customary provisions and conditions to closing, upon execution of the underwriting agreement, Sandler O'Neill & Partners, L.P. and any other underwriters will be obligated to purchase all the shares subject to the firm commitment underwritten offering.
If for any reason we cannot effect a syndicated community offering or firm commitment underwritten offering of shares of common stock not purchased in the subscription and community offerings, or in the event that there are an insignificant number of shares remaining unsold after such offerings, we will try to make other arrangements for the sale of unsubscribed shares. The Massachusetts Commissioner of Banks, the FDIC, the Federal Reserve and the Financial Industry Regulatory Authority, Inc., or "FINRA," must approve any such arrangements.
Additional Limitations on Common Stock Purchases
The plan of reorganization includes the following limitations on the number of shares of common stock that may be purchased in the offering:
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Depending upon market or financial conditions, our board of directors, with the approval of the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve, and without further approval of our members, may decrease or increase the purchase limitations; provided that the purchase limitations (i) may not be increased to a percentage that is more than 5.0% of the common stock offered for sale and may not be decreased to a percentage that is less than one-tenth of a percent (0.10%) of the common stock offered for sale in the reorganization, and (ii), in the case of our tax-qualified employee plans, may not be increased to more than 10.0% of the shares offered for sale. If a purchase limitation is increased, subscribers in the subscription offering who ordered the maximum amount and who indicated a desire to be resolicited on the stock order form will be given the opportunity to increase their subscriptions up to the then-applicable limit. The effect of this type of resolicitation would be an increase in the number of shares of common stock owned by subscribers who choose to increase their subscriptions. If the maximum purchase limitation is increased to 5.0% of the shares sold in the offering, such limitation may be further increased to 9.99%, provided that orders for shares of common stock exceeding 5.0% of the shares sold in the offering will not exceed in the aggregate 10.0% of the total shares sold in the offering.
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In the event of an increase in the offering range of up to 15.0% of the total number of shares of common stock offered in the offering, shares will be allocated in the following order of priority in accordance with the plan of reorganization:
(1) to fill our tax-qualified employee benefit plans' subscriptions for up to 10.0% of the total number of shares of common stock issued in the offering;
(2) in the event that there is an oversubscription at the Eligible Account Holder level, to fill unfulfilled subscriptions of these subscribers according to their respective priorities;
(3) in the event that there is an oversubscription by our employees, officers and directors in the third priority of the subscription offering, to fill unfulfilled subscriptions of these subscribers on an equitable basis, such as by giving weight to the period of service, compensation and position of the individual subscriber; and
(4) to fill unfulfilled subscriptions in the community offering, with preference given first to natural persons, and trusts of natural persons, residing in the Massachusetts cities and towns of Abington, Attleboro, Avon, Berkley, Braintree, Bridgewater, Brockton, Canton, Carver, Cohasset, Dighton, Duxbury, East Bridgewater, Easton, Foxboro, Halifax, Hanover, Hanson, Hingham, Holbrook, Hull, Kingston, Lakeville, Mansfield, Marshfield, Middleborough, Milton, North Attleboro, Norton, Norwell, Plainville, Pembroke, Plymouth, Plympton, Quincy, Randolph, Raynham, Rehoboth, Rochester, Rockland, Seekonk, Scituate, Sharon, Stoughton, Taunton, Wareham, West Bridgewater, Weymouth and Whitman.
The term "associate" of a person means:
(1) any corporation or organization (other than HarborOne Bank, or a majority-owned subsidiary of any of those entities), of which the person is a senior officer, partner or is, directly or indirectly, the beneficial owner of 10.0% or more of any class of equity securities;
(2) any trust or other estate in which the person has a substantial beneficial interest or serves as a trustee or in a fiduciary capacity, excluding any employee stock benefit plan in which the person has a substantial beneficial interest or serves as trustee or in a fiduciary capacity; and
(3) any relative or spouse of the person, or any relative of the spouse, who either has the same home as the person or who is a director or officer of HarborOne Bank, HarborOne Bancorp or HarborOne Mutual Bancshares.
The following relatives of directors and officers will be considered "associates" of these individuals regardless of whether they share a household with the director or officer: any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law. This also includes adoptive relationships.
The term "acting in concert" means persons seeking to combine or pool their voting or other interests in the securities of an issuer for a common purpose, pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. When persons act together for such purpose, their group is deemed to have acquired their stock. The determination of whether a group is acting in concert shall be made solely by us and may be based on any evidence upon which we choose to rely, including, without limitation, joint account relationships or the fact that such persons have filed joint Schedules 13D with the Securities and Exchange Commission with respect to other companies; provided, however, that the determination of whether a group is acting in concert remains subject to review by the Massachusetts Commissioner of Banks. Persons who have the same address, whether or not related, will be deemed to be acting in concert unless we determine otherwise. Our directors are not treated as associates of each other solely because of their membership on the board of directors.
Common stock purchased in the offering will be freely transferable except for shares purchased by directors and certain officers of HarborOne Bank and except as described below. Any purchases made by any associate of HarborOne Bank for the explicit purpose of meeting the minimum number of shares of common stock required to be sold in order to complete the offering shall be made for investment purposes only and not with a view toward redistribution. In addition, under FINRA guidelines, members of FINRA and their associates are subject to certain restrictions on transfer of securities purchased in accordance with subscription rights and to certain reporting requirements upon purchase of these securities. For a further discussion of limitations on purchases of our shares of common stock at the time of offering and thereafter, see "Certain Restrictions on Purchase or Transfer of Our Shares After the Offering" and "Restrictions on Acquisition of HarborOne Bancorp, Inc."
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Plan of Distribution; Selling Agent and Underwriter Compensation
Subscription and Community Offerings. To assist in the marketing of our shares of common stock in the subscription and community offerings, we have retained Sandler O'Neill & Partners, L.P., which is a broker-dealer registered with the FINRA. Sandler O'Neill & Partners, L.P. will assist us on a best efforts basis in the subscription and community offerings by:
For these services, Sandler O'Neill & Partners, L.P. will receive a fee of 0.85% of the aggregate purchase price all shares of common stock sold in the subscription and community offerings. No fee will be payable to Sandler O'Neill & Partners, L.P. with respect to shares purchased by directors, officers, employees or their immediate families and their personal trusts, shares purchased by our employee benefit plans or trusts established for the benefit of our directors, officers and employees, and shares issued to the charitable foundation.
Syndicated Community Offering or Firm Commitment Offering. In the event that shares of common stock are sold in a syndicated community offering or a firm commitment underwritten offering, we will pay fees of 5.0% of the aggregate purchase price of common stock sold in the syndicated community offering or firm commitment offering to Sandler O'Neill & Partners, L.P. and any other broker-dealers included in the syndicated community offering or a firm commitment underwritten offering.
Expenses. Sandler O'Neill & Partners, L.P. also will be reimbursed for reasonable expenses, including legal fees, in an amount not to exceed $110,000. If the plan of reorganization is terminated or if Sandler O'Neill & Partners, L.P.'s engagement is terminated in accordance with the provisions of the agency agreement, Sandler O'Neill & Partners, L.P. will only receive reimbursement of its reasonable out-of-pocket expenses and will return any amounts paid or advanced by us in excess of these amounts.
Records Management
We have also engaged Sandler O'Neill & Partners, L.P. as records agent in connection with the subscription and community offerings. In its role as records agent, Sandler O'Neill & Partners, L.P. will assist us in the offering by:
Sandler O'Neill & Partners, L.P. will receive fees of $90,000 for these services. Sandler O'Neill & Partners, L.P. also will be reimbursed for reasonable expenses in an amount not to exceed $50,000.
Indemnity
We will indemnify Sandler O'Neill & Partners, L.P. against liabilities and expenses, including legal fees, incurred in connection with certain claims or litigation arising out of or based upon untrue statements or omissions contained in the offering materials for the common stock, including liabilities under the Securities Act of 1933, as amended, as well as certain other claims and litigation arising out of Sandler O'Neill & Partners, L.P.'s engagement with respect to the offering.
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Solicitation of Offers by Officers and Directors
Some of our directors and executive officers may participate in the solicitation of offers to purchase common stock in the subscription and community offerings. These persons will be reimbursed for their reasonable out-of-pocket expenses incurred in connection with the solicitation. Other regular employees of HarborOne Bank may assist in the offering, but only in ministerial capacities, and may provide clerical work in effecting a sales transaction. No offers or sales may be made by tellers or at the teller counters. Investment-related questions of prospective purchasers will be directed to executive officers or registered representatives of Sandler O'Neill & Partners, L.P. Our other employees have been instructed not to solicit offers to purchase shares of common stock or provide advice regarding the purchase of common stock. We will rely on Rule 3a4-1 under the Exchange Act and sales of common stock will be conducted within the requirements of Rule 3a4-1, so as to permit officers, directors and employees to participate in the sale of common stock. None of our officers, directors or employees will be compensated in connection with their participation in the offering.
Procedure for Purchasing Shares in Subscription and Community Offerings
Expiration Date. The subscription offering will expire at [ : ] p.m., Eastern time, on [Expiration Date], unless we extend it for up to 45 days. This extension may be approved by us, in our sole discretion, without further approval or additional notice to purchasers in the offering. Any extension of the subscription and/or community offering beyond [Extension Date #1] would require the Massachusetts Commissioner of Banks', the FDIC's and the Federal Reserve's approval. If an extension beyond [Extension Date #1] is granted by the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve, we will cancel all stock orders and return subscription funds, with interest, and cancel any authorization to withdraw funds from deposit accounts for the purchase of shares of common stock. We will then resolicit subscribers, giving them an opportunity to place new orders. We will notify these persons of the extension of time and of their ability to place a new stock order for a specified period of time. If we have not received orders to purchase the minimum number of shares offered in the offering by the expiration date or any extension thereof, we may terminate the offering and promptly refund all funds received for shares of common stock with interest at our passbook savings rate. If the number of shares offered is reduced below the minimum of the offering range, or increased above the adjusted maximum of the offering range, subscribers may be resolicited with the approval of the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve.
To ensure that each purchaser receives a prospectus at least 48 hours before [Expiration Date], the expiration date of the offering, in accordance with Rule 15c2-8 of the Securities Exchange Act of 1934, as amended, no prospectus will be mailed any later than five days prior to the expiration date or hand delivered any later than two days prior to the expiration date. Execution of an order form will confirm receipt of delivery in accordance with Rule 15c2-8. Order forms will be distributed only with a prospectus. Subscription funds will be maintained in a segregated account at HarborOne Bank and will earn interest at our passbook savings rate from the date the order form is processed.
We have the right to reject any order submitted in the offering by a person who we believe is making false representations or who we otherwise believe, either alone or acting in concert with others, is violating, evading, circumventing, or intends to violate, evade or circumvent the terms and conditions of the plan of reorganization.
Use of Order Forms. In order to purchase shares of common stock in the subscription and community offering, you must complete an original order form and remit full payment. We are not required to accept orders submitted on photocopied or facsimiled order forms. All order forms must be received (not postmarked) before [ : ] p.m., Eastern Time, on [Expiration Date]. We are not required to accept order forms that are not received by that time, are executed defectively or are received without full payment or without appropriate deposit account withdrawal instructions. We are not required to notify subscribers of incomplete or improperly executed order forms. We have the right to permit the correction of incomplete or improperly executed order forms or waive immaterial irregularities. We do not represent, however, that we will do so and we have no affirmative duty to notify any prospective subscriber of any such defects. You may submit your order form and payment by mail using the return envelope provided, by bringing your order form to our Stock Information Center, or by overnight delivery to the indicated address on the order form. We will not accept stock order forms at any other branch offices. Once tendered, an order form cannot be modified or revoked without our consent. If you are ordering shares, you must represent that you are purchasing shares for your own account and that you have no agreement or understanding with any person for the sale or transfer of the shares. We have the right to reject any order submitted in the offering by a person who we believe is making false representations or who we otherwise believe, either alone or acting in concert with others, is violating, evading, circumventing, or intends to violate, evade or circumvent the terms and conditions of the plan of reorganization. Our interpretation of the terms and conditions of the plan of reorganization and of the acceptability of
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the order forms will be final, subject to the authority of the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve.
By signing the order form, you will be acknowledging that the common stock is not a deposit or savings account and is not federally insured or otherwise guaranteed by HarborOne Bank, HarborOne Bancorp, the FDIC, the federal government or the Share Insurance Fund, and that you received a copy of this prospectus. However, signing the order form will not result in you waiving your rights under the Securities Act or the Exchange Act.
Payment for Shares. Payment for all shares of common stock will be required to accompany all completed order forms for the purchase to be valid. Payment for shares may be made by:
(1) personal check, bank check or money order, payable to HarborOne Bancorp, Inc.; or
(2) authorization of withdrawal from the types of HarborOne Bank deposit accounts permitted on the order form.
Appropriate means for designating withdrawals from deposit accounts at HarborOne Bank are provided on the order form. The funds designated for withdrawal from a HarborOne Bank deposit account must be available in the account(s) at the time the order form is received. A hold will be placed on these designated deposit account funds, making them unavailable to the depositor. Funds authorized for withdrawal will continue to earn interest within the account at the contractual rate until the offering is completed, at which time the designated withdrawal will be made. Interest penalties for early withdrawal applicable to certificate of deposit accounts will not apply to withdrawals authorized for the purchase of shares of common stock; however, if a withdrawal results in a certificate of deposit account with a balance less than the applicable minimum balance requirement, the certificate of deposit will be canceled at the time of withdrawal without penalty and the remaining balance will be transferred to a savings account and earn interest at our passbook savings rate subsequent to the withdrawal. In the case of payments made by check or money order, these funds must be available in the account(s) and will be immediately cashed and placed in a segregated account at HarborOne Bank and will earn interest at our passbook savings rate from the date payment is received until the offering is completed or terminated.
You may not remit cash, HarborOne Bank line of credit checks or any type of third-party checks (including those payable to you and endorsed over to HarborOne Bancorp, Inc.). Wire transfers will not be accepted without our prior approval. Additionally, you may not designate a direct withdrawal from HarborOne Bank accounts with check-writing privileges. Please provide a check instead. If you request that we directly withdraw the funds, we reserve the right to interpret that as your authorization to treat those funds as if we had received a check for the designated amount, and we will immediately withdraw the amount from your account. In the event we resolicit large subscribers, as described above in "Additional Limitations on Common Stock Purchases," those purchasers who wish to increase their purchases will not be able to use personal checks to pay for the additional shares, but instead must pay for the additional shares using immediately available funds. We may accept wire transfers at our sole discretion.
Once your executed stock order form is received, it may not be modified, amended or rescinded without our consent, unless the offering is not completed by [Extension Date #1]. In such event, unless an extension is approved by the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve, stock orders will be cancelled and funds delivered to us to purchase shares of common stock in the subscription offering will be returned promptly, with interest at [interest rate]% per annum. Additionally, all deposit account withdrawal authorizations will be cancelled. If an extension is granted, we will resolicit subscribers for a specified period of time, as described under "Subscription Offering and Subscription Rights."
Regulations prohibit HarborOne Bank from lending funds or extending credit to any persons to purchase shares of common stock in the offering.
We shall have the right, in our sole discretion, to permit institutional investors to submit irrevocable orders together with the legally binding commitment for payment and to thereafter pay for the shares of common stock for which they subscribe in the community offering at any time prior to 48 hours before the completion of the offering. This payment may be made by wire transfer.
If our employee stock ownership plan purchases shares in the offering, it will not be required to pay for such shares until completion of the offering, provided that there is a loan commitment from an unrelated financial institution or HarborOne Bancorp to lend to the employee stock ownership plan the necessary amount to fund the purchase. In addition, if our 401(k) plan purchases shares in the offering, it will not be required to pay for such shares until completion of the offering.
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Using Individual Retirement Account Funds. If you are interested in using funds in your individual retirement account or other retirement account to purchase shares of common stock, you must do so through a self-directed retirement account. By regulation, HarborOne Bank's retirement accounts are not self-directed, so they cannot be invested in our shares of common stock. Therefore, if you wish to use funds that are currently in a retirement account held at HarborOne Bank, you may not designate on the order form that you wish funds to be withdrawn from the account for the purchase of common stock. The funds you wish to use for the purchase of common stock will instead have to be transferred to an independent trustee or custodian, such as a brokerage firm, offering self-directed retirement accounts. The purchase must be made through that account. If you do not have such an account, you will need to establish one before placing a stock order. A one-time and/or annual administrative fee may be payable to the independent trustee or custodian. There will be no early withdrawal or Internal Revenue Service interest penalties for these transfers. Individuals interested in using funds in an individual retirement account or any other retirement account, whether held at HarborOne Bank or elsewhere, to purchase shares of common stock should contact our Stock Information Center for guidance as soon as possible, preferably at least two weeks prior to the [Expiration Date] offering deadline. Processing such transactions takes additional time, and whether such funds can be used may depend on limitations imposed by the institutions where such funds are currently held. We cannot guarantee that you will be able to use such funds.
Delivery of Shares of Common Stock. All shares of common stock sold will be issued in book entry form. Stock certificates will not be issued. A statement reflecting ownership of shares of common stock issued in the subscription and community offerings will be mailed by our transfer agent to the persons entitled thereto at the registration address noted by them on their stock order forms as soon as practicable following consummation of the offering. We expect trading in the stock to begin on the day of completion of the offering or the next business day. Until a statement reflecting ownership of shares of common stock is available and delivered to purchasers, purchasers might not be able to sell the shares of common stock that they ordered, even though the shares of common stock will have begun trading. Your ability to sell the shares of common stock before receiving your statement will depend on arrangements you may make with a brokerage firm.
Other Restrictions. Notwithstanding any other provision of the plan of reorganization, no person is entitled to purchase any shares of common stock to the extent the purchase would be illegal under any federal or state law or regulation, including state "blue sky" regulations, or would violate regulations or policies of FINRA, particularly those regarding free riding and withholding. We may ask for an acceptable legal opinion from any purchaser as to the legality of his or her purchase and we may refuse to honor any purchase order if an opinion is not timely furnished. In addition, we are not required to offer shares of common stock to any person who resides in a foreign country, or in a State of the United States with respect to which any of the following apply:
(1) a small number of persons otherwise eligible to subscribe for shares under the plan of reorganization reside in such state;
(2) the offer or sale of shares of common stock to such persons would require us or our employees to register, under the securities laws of such state, to register as a broker or dealer or to register or otherwise qualify our securities for sale in such state; or
(3) such registration or qualification would be impracticable for reasons of cost or otherwise.
Restrictions on Transfer of Subscription Rights and Shares
Applicable banking regulations prohibit any person with subscription rights, including the Eligible Account Holders and employees, officers and directors, from transferring or entering into any agreement or understanding to transfer the legal or beneficial ownership of the subscription rights issued under the plan of reorganization or the shares of common stock to be issued upon their exercise. These rights may be exercised only by the person to whom they are granted and only for his or her account. When registering your stock purchase on the order form, you cannot add the name(s) of others for joint stock registration unless they are also named on the qualifying deposit account, and you cannot delete names of others except in the case of certain orders placed through an IRA, Keogh, 401(k) or similar plan, and except in the event of the death of a named eligible depositor. Doing so may jeopardize your subscription rights. Each person exercising subscription rights will be required to certify that he or she is purchasing shares solely for his or her own account and that he or she has no agreement or understanding regarding the sale or transfer of such shares. The regulations also prohibit any person from offering or making an announcement of an offer or intent to make an offer to purchase subscription rights or shares of common stock to be issued upon their exercise prior to completion of the offering.
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We will pursue any and all legal and equitable remedies in the event we become aware of the transfer of subscription rights, and we will not honor orders that we believe involve the transfer of subscription rights.
Stock Information Center
If you have any questions regarding the reorganization or the offering, please call our Stock Information Center at [ · ], Monday through Friday between 10:00 a.m. and 4:00 p.m., Eastern time. You may also visit our Stock Information Center, located at [ · ], Massachusetts, which is open Monday through Friday between 10:00 a.m. and 4:00 p.m. The Stock Information Center will be closed on weekends and bank holidays.
Certain Restrictions on Purchase or Transfer of Our Shares After the Offering
All shares of common stock purchased in the offering by a director or certain officers of HarborOne Bank, as well as their associates, generally may not be sold for a period of one year following the closing of the offering, except in the event of the death or substantial disability of the individual or upon the prior written approval of the Massachusetts Commissioner of Banks. Instructions will be issued to the effect that any transfer within this time period of any record ownership of the shares other than as provided above is a violation of the restriction. Any shares of common stock issued at a later date as a stock dividend, stock split, or otherwise, with respect to the restricted stock will be similarly restricted. The directors and executive officers of HarborOne Bancorp also will be restricted by the insider trading rules under the Exchange Act.
Purchases of shares of our common stock by any of our directors, certain officers, corporators and their associates, during the three-year period following the closing of the offering may be made only through a broker or dealer registered with the Securities and Exchange Commission, except with the prior written approval of the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve, if required. This restriction does not apply, however, to negotiated transactions involving more than 1.0% of our outstanding common stock or to purchases of our common stock by our stock option plan or any of our tax-qualified employee stock benefit plans or non-tax-qualified employee stock benefit plans, including any restricted stock plans.
Certain Restrictions on Stock Repurchases
Federal regulations prohibit HarborOne Bancorp from repurchasing its shares of common stock during the first year following offering unless compelling business reasons exist for such repurchases, or to fund management recognition plans that have been ratified by shareholders (with regulatory approval) or tax-qualified employee stock benefit plans. In addition, the repurchase of shares of common stock is subject to Federal Reserve policy related to repurchases of shares by financial institution holding companies. Massachusetts regulations prohibit HarborOne Bancorp from repurchasing its shares of our common stock during the first three years following the completion of the offering unless the repurchase is part of a general repurchase made on a pro rata basis pursuant to an offer approved by the Massachusetts Commissioner of Banks and made to all shareholders of HarborOne Bancorp, or to fund tax-qualified or nontax-qualified employee stock benefit plans, or in an amount not greater than 5.0% of our outstanding shares of common stock where compelling and valid business reasons are established to the satisfaction of the Massachusetts Commissioner of Banks.
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MATERIAL U.S. INCOME TAX CONSEQUENCES
Completion of the reorganization is subject to the prior receipt of an opinion of counsel with respect to federal and Massachusetts tax consequences of the reorganization to HarborOne Mutual Bancshares, HarborOne Bancorp, HarborOne Bank and Eligible Account Holders. We have received an opinion of counsel Goodwin Procter LLP as to the federal and Massachusetts tax consequences of the reorganization.
Goodwin Procter LLP has issued an opinion to HarborOne Mutual Bancshares, HarborOne Bancorp, HarborOne Bank that (i) the reorganization will constitute a "reorganization" under Section 368 of the Internal Revenue Code of 1986, as amended; (ii) for federal income and Massachusetts corporate excise and personal income tax purposes, neither HarborOne Mutual Bancshares, HarborOne Bancorp nor HarborOne Bank will recognize any gain or loss as a result of the reorganization, and (iii) provided the subscription rights have no value at the time of receipt, the Eligible Account Holders will not recognize income, gain or loss for federal income or Massachusetts corporate excise or personal income tax purposes in connection with the reorganization or the receipt of subscription rights.
The tax opinion with respect to the Eligible Account Holders is based on the position that subscription rights to be received by Eligible Account Holders do not have any economic value at the time of distribution. However, the issue of whether or not the nontransferable subscription rights have value is based on all the facts and circumstances. If the subscription rights granted to Eligible Account Holders are deemed to have value, receipt of these rights could result in taxable gain to the Eligible Account Holders in an amount equal to their value. Eligible Account Holders are encouraged to consult with their own tax advisors as to the tax consequences in the event that subscription rights are deemed to have value.
We also have received a letter from RP Financial stating its belief that as an ascertainable factual matter the subscription rights do not have any market value and that the price at which the subscription rights are exercisable will not be more or less than the fair market value of the shares on the date of the exercise. This position is based on the fact that these rights are acquired by the recipients without cost, are nontransferable and of short duration, and afford the recipients the right only to purchase the common stock at the same price as will be paid by members of the general public in any community offering.
We do not plan to apply for a private letter ruling from the Internal Revenue Service concerning the transactions described herein. Unlike private letter rulings issued by the Internal Revenue Service, opinions of counsel are not binding on the Internal Revenue Service or any state tax authority, and such authorities may disagree with such opinions. In the event of such disagreement, there can be no assurance that the conclusions reached in an opinion of counsel would be sustained by a court if contested by the Internal Revenue Service.
The tax opinion has been filed with the Securities and Exchange Commission as an exhibit to HarborOne Bancorp's registration statement.
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General
In furtherance of our commitment to our local communities, we intend to establish a new charitable foundation, the HarborOne Bank Charitable Foundation, in connection with the reorganization. The foundation will be established as a non-stock, non-profit corporation in connection with the offering. The new charitable foundation will be funded with shares of our common stock and cash, as further described below.
By further enhancing our visibility and reputation in our local communities, we believe that our charitable foundation will enhance the long-term value of HarborOne Bank's community banking franchise. The offering presents us with a unique opportunity to provide a substantial and continuing benefit to our communities through HarborOne Bank's charitable foundation.
Purpose of our Charitable Foundation
In connection with the closing of the offering, we intend to contribute to our charitable foundation 0.667% of the gross proceeds raised in the offering and 1.2% of our outstanding shares of common stock. The purpose of our charitable foundation is to provide financial support to charitable organizations in the communities in which we operate and to enable our communities to share in our long-term growth. Our charitable foundation will be dedicated to community activities and the promotion of charitable causes, and may be able to support such activities in ways that are not presently available to us. Our charitable foundation will also support our ongoing obligations to the community under the Community Reinvestment Act.
Funding our charitable foundation with shares of our common stock in addition to cash is also intended to allow our communities to share in our potential growth and success after the offering is completed because our charitable foundation will benefit directly from any increases in the value of our shares of common stock. In addition, our charitable foundation will maintain close ties with HarborOne Bank, thereby forming a partnership within the communities in which HarborOne Bank operates.
Structure of our Charitable Foundation
Our charitable foundation will be incorporated under Massachusetts law as a non-stock, nonprofit corporation. The articles of organization of our charitable foundation will provide that the corporation is organized exclusively for charitable purposes as set forth in Section 501(c)(3) of the Code. The articles of organization will further provide that no part of the net earnings of our charitable foundation will inure to the benefit of, or be distributable to, its members, directors or officers or to private individuals.
Our charitable foundation will be governed by a board of directors, initially consisting of at least two individuals that are directors of HarborOne Bancorp and HarborOne Bank. We will also select one additional person to serve on our charitable foundation's board of directors who will not be one of our officers or directors and who will have experience with local charitable organizations and grant making. For five years after the offering, one seat on our charitable foundation's board of directors will be reserved for a person from our local community who has experience with local community charitable organizations and grant making and who is not one of our officers, directors or employees, and at least one seat on our charitable foundation's board of directors will be reserved for one of HarborOne Bank's directors. Except as described below in "Regulatory Requirements Imposed on our Charitable Foundation," on an annual basis, directors of our charitable foundation will elect the board to serve for one-year terms.
The board of directors of our charitable foundation will be responsible for establishing its grant and donation policies, consistent with the purposes for which it was established. As directors of a nonprofit corporation, directors of our charitable foundation will at all times be bound by their fiduciary duty to advance our charitable foundation's charitable goals, to protect its assets and to act in a manner consistent with the charitable purposes for which our charitable foundation is established. The directors of our charitable foundation also will be responsible for directing the activities of our charitable foundation, including the management and voting of the shares of our common stock held by our charitable foundation. However, as required by applicable regulations, all shares of our common stock held by our charitable foundation must be voted in the same ratio as all other shares of our common stock on all proposals considered by our shareholders.
Our charitable foundation's initial place of business will be located at our corporate headquarters. The board of directors of our charitable foundation will appoint such officers and employees as may be necessary to manage its operations. To the extent applicable, we will comply with the affiliate restrictions set forth in Sections 23A and 23B of
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the Federal Reserve Act and the regulations of the Federal Reserve governing transactions between HarborOne Bank and our charitable foundation.
Our charitable foundation will receive working capital from the initial cash contribution and from:
As a private foundation under Section 501(c)(3) of the Code, our charitable foundation will be required to distribute annually in grants or donations a minimum of 5.0% of the average fair market value of its net investment assets.
Tax Considerations
We believe that an organization created for the above purposes should qualify as a Section 501(c)(3) exempt organization under the Code and should be classified as a private foundation. Our charitable foundation will submit a timely request to the Internal Revenue Service to be recognized as an exempt organization. As long as our charitable foundation files its application for tax-exempt status within 27 months of the last day of the month in which it was organized, and provided the Internal Revenue Service approves the application, its effective date as a Section 501(c)(3) organization will be the date of its organization.
HarborOne Bancorp and HarborOne Bank are authorized by federal law to make charitable contributions. We believe that the offering presents a unique opportunity to establish and fund a charitable foundation given the substantial amount of additional capital being raised. In making such a determination, we considered the dilutive impact to our shareholders of the contribution of shares of common stock to our charitable foundation.
We believe that our contribution of shares of our common stock to our charitable foundation should not constitute an act of self-dealing and that we should be entitled to a federal tax deduction in the amount of the fair market value of the stock at the time of the contribution. We are permitted to deduct for charitable purposes only an amount equal to 10.0% of our annual taxable income in any one year. We are permitted under the Code to carry the excess contribution over the five-year period following the contribution to our charitable foundation. We estimate that at all levels of the offering range, the contribution should be deductible for federal tax purposes over the six-year period (i.e., the year in which the contribution is made and the succeeding five-year period). However, we do not have any assurance that the Internal Revenue Service will grant tax-exempt status to our charitable foundation. In such event, our contribution to our charitable foundation would be expensed without a tax benefit, resulting in a reduction in earnings in the year in which the Internal Revenue Service makes such a determination. Furthermore, even if the contribution is deductible, we may not have sufficient earnings to be able to use the deduction in full. Any such decision to continue to make additional contributions to our charitable foundation in the future would be based on an assessment of, among other factors, our financial condition at that time, the interests of our shareholders and depositors, and the financial condition and operations of the foundation.
As a private foundation, earnings and gains, if any, from the sale of common stock or other assets are exempt from federal and state income taxation. However, investment income, such as interest, dividends and capital gains, is generally taxed at a rate of 2.0%. Our charitable foundation will be required to file an annual return with the Internal Revenue Service within four and one-half months after the close of its fiscal year. Our charitable foundation will be required to make its annual return available for public inspection. The annual return for a private foundation includes, among other things, an itemized list of all grants made or approved, showing the amount of each grant, the recipient, any relationship between a grant recipient and the foundation's managers and a concise statement of the purpose of each grant.
Regulatory Requirements Imposed on our Charitable Foundation
Applicable regulations impose the following requirements on the establishment of our charitable foundation:
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Within six months of completing the offering, our charitable foundation must submit to the Federal Reserve a three-year operating plan, conflicts of interest policy, gift instrument, bylaws and certificate of organization.
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RESTRICTIONS ON ACQUISITION OF HARBORONE BANCORP, INC.
The following discussion is a general summary of the material provisions of Massachusetts law, HarborOne Bancorp's articles of organization and bylaws and certain other regulatory provisions that may be deemed to have an "anti-takeover" effect. The following description is necessarily general and is not intended to be a complete description of the document or regulatory provision in question. HarborOne Bancorp's articles of organization and bylaws are included as part of HarborOne Bancorp's application to conduct a stock offering filed with the Federal Reserve and HarborOne Bancorp's registration statement filed with the Securities and Exchange Commission. See "Where You Can Find Additional Information."
Mutual Holding Company Structure
HarborOne Mutual Bancshares will own a majority of the outstanding common stock of HarborOne Bancorp after the offering and, through its board of trustees, will be able to exercise voting control over virtually all matters put to a vote of shareholders. For example, HarborOne Mutual Bancshares may exercise its voting control to prevent a sale or merger transaction or to defeat a shareholder nominee for election to the board of directors of HarborOne Bancorp. It will not be possible for another entity to acquire HarborOne Bancorp without the consent of HarborOne Mutual Bancshares. HarborOne Mutual Bancshares, as long as it remains in the mutual form of organization, will control a majority of the voting stock of HarborOne Bancorp.
Articles of Organization and Bylaws of HarborOne Bancorp
HarborOne Bancorp's articles of organization and bylaws contain a number of provisions, relating to corporate governance and rights of shareholders that might discourage future takeover attempts. As a result, shareholders who might desire to participate in such transactions may not have an opportunity to do so. In addition, these provisions will also render the removal of the board of directors or management of HarborOne Bancorp more difficult. The following description is a summary of the provisions of the articles of organization and bylaws. See the section of this prospectus entitled " Where You Can Find Additional Information" as to how to review a copy of these documents.
Classified Board. HarborOne Bancorp's articles of organization provide that the board of directors will be divided into three classes, with directors in each class elected for three-year staggered terms. Thus, it would take two annual elections to replace a majority of HarborOne Bancorp's board. HarborOne Bancorp's articles of organization provide that the size of the board of directors may be increased or decreased only by a majority vote of the board.
Vacancies; Removal. The articles of organization provide that any vacancy occurring in the board of directors, including a vacancy created by an increase in the number of directors, shall be filled for the remainder of the unexpired term by a majority vote of the directors then in office. The articles of organization also provide that a director may only be removed for cause by the affirmative vote of either a majority of the authorized board of directors of HarborOne Bancorp or a majority of the shares eligible to vote. In the absence of these provisions, the vote of the holders of a majority of the shares of HarborOne Bancorp could remove the entire board, with or without cause, and replace it with persons of such holders' choice.
Elimination of Cumulative Voting. The articles of organization prohibit cumulative voting for the election of directors. No cumulative voting means that the directors, officers and employees of HarborOne Bank and the trustees, officers and employees of HarborOne Mutual Bancshares may have the power to elect all directors of HarborOne Bancorp to be elected at that meeting. This could prevent public shareholder representation on HarborOne Bancorp's board.
Restrictions on Call of Special Meetings. The articles of organization provide that a special meeting of shareholders may be called by the board of directors of HarborOne Bancorp, the chairman of the board of directors, the president, or by the secretary or any other officer upon written application, by shareholders holding at least two-thirds of the capital stock entitled to vote at the meeting.
Advance Notice. The articles of organization and bylaws impose notice and information requirements in connection with the nomination by shareholders of candidates for election to the board of directors or the proposal by shareholders of business to be acted upon at an annual meeting of shareholders.
Authorization of Preferred Stock. The articles of organization authorize 1,000,000 shares of serial preferred stock, no par value per share. HarborOne Bancorp is authorized to issue preferred stock from time to time in one or more series subject to applicable provisions of law, and the board of directors is authorized to fix the designations, and relative preferences, limitations, voting rights, if any, including without limitation, offering rights of such shares (which could be multiple or as a separate class). In the event of a proposed merger, tender offer or other attempt to gain
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control of HarborOne Bancorp that the board of directors does not approve, it might be possible for the board of directors to authorize the issuance of a series of preferred stock with rights and preferences that would impede the completion of that transaction. An effect of the possible issuance of preferred stock, therefore, may be to deter a future attempt to gain control of HarborOne Bancorp. The board of directors has no present plan or understanding to issue any preferred stock.
Restrictions on Voting of Shares. Any person who beneficially owns more than 10.0% of the then-outstanding shares of HarborOne Bancorp's common stock will not be entitled or permitted to vote any shares of common stock held in excess of the 10.0% limit during the three-year period following the reorganization and offering. Thereafter, shares of common stock in excess of the 10.0% limit will be entitled to cast 1/100 th of a vote per share.
Amendment to Articles of Organization and Bylaws. The articles of organization may be amended by the affirmative vote of two-thirds of the total votes eligible to be cast by shareholders, voting together as a single class; provided, however, that if at least two-thirds of the directors recommend approval of the amendment, then such amendment shall require the affirmative vote of a majority of the total votes eligible to be cast by shareholders, voting together as a single class.
The bylaws may be amended by the affirmative vote of two-thirds of the total votes eligible to be cast by shareholders at a duly constituted meeting; provided, however, that if at least two-thirds of the directors recommend approval of the amendment, then such amendment shall require the affirmative vote of a majority of the total votes eligible to be cast by shareholders at a duly constituted meeting. These provisions could have the effect of discouraging a tender offer or other takeover attempt where the ability to make fundamental changes through bylaw amendments is an important element of the takeover strategy of the acquirer.
Anti-Takeover Effects of HarborOne Bancorp's Articles of Organization, Bylaws and Benefit Plans Adopted in the Reorganization
The provisions described above are intended to reduce HarborOne Bancorp's vulnerability to takeover attempts and other transactions which have not been negotiated with and approved by members of its board of directors. The provisions of the employment and change in control agreements, severance pay plan, supplemental executive retirement plan, benefit restoration plan, directors' deferred compensation plan and the equity incentive plan to be established may also discourage takeover attempts by increasing the costs to be incurred by HarborOne Bank and HarborOne Bancorp in the event of a takeover. See the section of this prospectus entitled "Executive and Director CompensationEmployment and Change in Control Agreements and Severance Arrangements" and "Nonqualified Retirement Benefits."
HarborOne Bancorp's board of directors believes that the provisions of the articles of organization, bylaws and benefit plans to be established are in the best interests of HarborOne Bancorp and its shareholders. An unsolicited non-negotiated proposal can seriously disrupt the business and management of a corporation and cause it great expense. Accordingly, the board of directors believes it is in the best interests of HarborOne Bancorp and its shareholders to encourage potential acquirers to negotiate directly with management and that these provisions will encourage such negotiations and discourage non-negotiated takeover attempts. It is also the board of directors' view that these provisions should not discourage persons from proposing a merger or other transaction at a price that reflects the true value of HarborOne Bancorp and that otherwise is in the best interests of all shareholders.
Regulatory Restrictions
For additional information, see the section of this prospectus entitled "Supervision and RegulationHolding Company RegulationAcquisition of Control" and "Massachusetts Holding Company Regulation."
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General
HarborOne Bancorp is authorized to issue 90,000,000 shares of common stock, $0.01 par value per share, and 1,000,000 shares of preferred stock, no par value per share. HarborOne Bancorp currently expects to issue in the offering up to 11,783,475 shares of common stock, including shares issued to our charitable foundation. HarborOne Bancorp will not issue shares of preferred stock in the reorganization. Each share of HarborOne Bancorp common stock will have the same relative rights as, and will be identical in all respects to, each other share of common stock.
The shares of common stock of HarborOne Bancorp will represent non-withdrawable capital, will not be an account of an insurable type, and will not be insured by the FDIC or any other government agency.
Common Stock
Dividends. HarborOne Bancorp can pay dividends on its common stock if, after giving effect to the distribution, it would be able to pay its indebtedness as the indebtedness comes due in the usual course of business and its total assets exceed the sum of its liabilities and the amount needed, if HarborOne Bancorp were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of any holders of capital stock who have a preference in the event of dissolution. The holders of common stock of HarborOne Bancorp will be entitled to receive and share equally in dividends as may be declared by our board of directors out of funds legally available therefor. If HarborOne Bancorp issues shares of preferred stock, the holders thereof may have a priority over the holders of the common stock with respect to dividends.
Voting Rights. Upon consummation of the reorganization, the holders of common stock of HarborOne Bancorp will have exclusive voting rights in HarborOne Bancorp. They will elect HarborOne Bancorp's board of directors and act on other matters as are required to be presented to them under Massachusetts law or as are otherwise presented to them by the board of directors. Generally, each holder of common stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors. Any person who beneficially owns more than 10.0% of the then-outstanding shares of HarborOne Bancorp's common stock, however, will not be entitled or permitted to vote any shares of common stock held in excess of the 10.0% limit during the three-year period following the reorganization and offering; thereafter, shares of common stock in excess of the 10.0% limit will be entitled to cast 1/100 th of a vote per share. If HarborOne Bancorp issues shares of preferred stock, holders of the preferred stock may also possess voting rights. Amendments to the articles of organization require a two-thirds shareholder vote in certain circumstances, and certain matters require an 80.0% shareholder vote.
As a stock co-operative bank, corporate powers and control of HarborOne Bank are vested in its board of directors, who elect the officers of HarborOne Bank and who fill any vacancies on the board of directors. Voting rights of HarborOne Bank are vested exclusively in the owners of the shares of capital stock of HarborOne Bank, which will be HarborOne Bancorp. Shares of HarborOne Bank's stock will be voted at the direction of HarborOne Bancorp's board of directors. Consequently, the holders of the common stock of HarborOne Bancorp will not have direct control of HarborOne Bank.
Liquidation. In the event of any liquidation, dissolution or winding up of HarborOne Bank, HarborOne Bancorp, as the holder of 100.0% of HarborOne Bank's capital stock, would be entitled to receive all assets of HarborOne Bank available for distribution, after payment or provision for payment of all debts and liabilities of HarborOne Bank, including all deposit accounts and accrued interest thereon, and after distribution of the balance in the liquidation account to eligible account holders. In the event of liquidation, dissolution or winding up of HarborOne Bancorp, the holders of its common stock would be entitled to receive, after payment or provision for payment of all its debts and liabilities, all of the assets of HarborOne Bancorp available for distribution, and eligible account holders will be treated as surrendering their rights to the HarborOne Bancorp liquidation account and receiving an equivalent interest in the HarborOne Bank liquidation account. If preferred stock is issued, the holders thereof may have a priority over the holders of the common stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of the common stock of HarborOne Bancorp will not be entitled to preemptive rights with respect to any shares that may be issued. The common stock cannot be redeemed.
Fully Paid and Nonassessable. Upon payment of the subscription price for the common stock, in accordance with the plan of reorganization, all of the shares of common stock will be fully paid and non-assessable.
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Preferred Stock
None of the shares of HarborOne Bancorp's authorized preferred stock will be issued as part of the offering or the reorganization. Preferred stock may be issued with preferences and designations as our board of directors may from time to time determine. Our board of directors may, without shareholder approval, issue shares of preferred stock with voting, dividend, liquidation and conversion rights that could dilute the voting strength of the holders of the common stock and that could assist management in impeding an unfriendly takeover or attempted change in control.
Transfer Agent
The transfer agent and registrar for HarborOne Bancorp's common stock is [ ].
Nasdaq Global Market
We intend to apply to have our common stock approved for listing on the Nasdaq Global Market under the trading symbol "HONE."
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The validity of the shares of our common stock to be issued in this offering and the federal income tax consequences of the reorganization will be passed upon for us by our counsel, Goodwin Procter LLP, Boston, Massachusetts. Certain legal matters relating to this offering will be passed upon for Sandler O'Neill & Partners, L.P. by Luse Gorman, PC, Washington, DC.
The consolidated financial statements of HarborOne Bank and subsidiaries as of December 31, 2015 and 2014 and for the years then ended, have been included in this prospectus and in the registration statement in reliance upon the report of Wolf & Company, P.C., independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
RP Financial has consented to the publication herein of the summary of its report to HarborOne Bancorp setting forth its opinion as to the estimated pro forma market value of the shares of common stock upon completion of the reorganization and offering and its letter with respect to subscription rights.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC, a registration statement on Form S-1 under the Securities Act of 1933, as amended, with respect to the shares of our common stock offered by this prospectus. This prospectus, which constitutes part of that registration statement, does not contain all of the information set forth in the registration statement or the accompanying exhibits and schedules. Some items included in the registration statement are omitted from this prospectus in accordance with the rules and regulations of the SEC. For further information with respect to us and the common stock offered in this prospectus, we refer you to the registration statement and the accompanying exhibits and schedules. Statements contained in this prospectus regarding the contents of any contract, agreement or any other document are summaries of the material terms of these contracts, agreements or other documents. With respect to each of these contracts, agreements or other documents filed as an exhibit to the registration statement, reference is made to such exhibit for a more complete description of the matter involved.
A copy of the registration statement and the accompanying exhibits and schedules and any other document we file may be inspected without charge and copied at the SEC's public reference room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the SEC's website is www.sec.gov.
An application for approval of the reorganization has been filed with the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve. This prospectus omits certain information contained in the application. The application for reorganization filed with the Massachusetts Commissioner of Banks may be inspected, without charge, at the offices of the Massachusetts Division of Banks, 1000 Washington Street, 10th Floor, Boston, Massachusetts. To obtain a copy of the application filed with the Federal Reserve, you may contact the Vice President and Community Affairs Officer of the Federal Reserve Bank of Boston, at 617-973-3059.
Our plan of reorganization is available, upon request, at each of our branch offices.
Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Exchange Act, and we will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above. We maintain a website at www.harborone.com. You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, proxy statements and other information filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of this prospectus.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF HARBORONE BANK AND SUBSIDIARIES
F-1
Report of Independent Registered Public Accounting Firm
To the Audit Committee of HarborOne Bank and subsidiaries:
We have audited the accompanying consolidated balance sheets of HarborOne Bank and subsidiaries (the "Company") as of December 31, 2015 and 2014, and the related consolidated statements of net income, comprehensive income, changes in retained earnings and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HarborOne Bank and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Boston, Massachusetts
February 29, 2016
F-2
HarborOne Bank and Subsidiaries
Consolidated Balance Sheets
December 31, 2015 and 2014
(In thousands)
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
Assets |
|||||||
Cash and due from banks |
$ |
18,153 |
$ |
13,001 |
|||
Short-term investments |
22,499 | 39,982 | |||||
| | | | | | | |
Total cash and cash equivalents |
40,652 | 52,983 | |||||
Securities available for sale, at fair value |
128,541 | 148,015 | |||||
Securities held to maturity, at amortized cost |
63,579 | 58,384 | |||||
Federal Home Loan Bank stock, at cost |
18,735 | 18,631 | |||||
Mortgage loans held for sale, at fair value in 2015 and at cost in 2014 |
63,797 | 3,525 | |||||
Loans, net of allowance for loan losses of $13,700 in 2015 and $13,934 in 2014 |
1,729,388 | 1,651,894 | |||||
Accrued interest receivable |
4,920 | 4,494 | |||||
Other real estate owned and repossessed assets |
2,347 | 2,926 | |||||
Mortgage servicing rights, at fair value in 2015 and amortized cost in 2014 |
12,958 | 2,168 | |||||
Property and equipment, net |
24,606 | 25,230 | |||||
Retirement plan annuities |
11,608 | 24,101 | |||||
Bank-owned life insurance |
38,333 | 35,378 | |||||
Deferred income taxes |
| 3,721 | |||||
Goodwill and other intangible assets |
13,674 | 3,324 | |||||
Other assets |
10,004 | 7,105 | |||||
| | | | | | | |
Total assets |
$ | 2,163,142 | $ | 2,041,879 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Liabilities and Retained Earnings |
|||||||
Deposits |
|
|
|||||
Noninterest-bearing deposits |
$ | 201,174 | $ | 147,388 | |||
Interest-bearing deposits |
1,490,038 | 1,352,727 | |||||
| | | | | | | |
Total deposits |
1,691,212 | 1,500,115 | |||||
Short-term borrowed funds |
| 70,000 | |||||
Long-term borrowed funds |
249,598 | 259,602 | |||||
Mortgagors' escrow accounts |
4,486 | 3,510 | |||||
Accrued interest payable |
546 | 576 | |||||
Deferred income taxes |
989 | | |||||
Other liabilities and accrued expenses |
25,623 | 24,618 | |||||
| | | | | | | |
Total liabilities |
1,972,454 | 1,858,421 | |||||
| | | | | | | |
Commitments and contingencies (Notes 9, 14 and 15) |
|||||||
Retained earnings |
191,280 |
183,875 |
|||||
Accumulated other comprehensive loss |
(592 | ) | (417 | ) | |||
| | | | | | | |
Total retained earnings |
190,688 | 183,458 | |||||
| | | | | | | |
Total liabilities and retained earnings |
$ | 2,163,142 | $ | 2,041,879 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
HarborOne Bank and Subsidiaries
Consolidated Statements of Net Income
Years Ended December 31, 2015 and 2014
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||
Interest and dividend income: |
|||||||
Interest and fees on loans |
$ | 59,988 | $ | 56,232 | |||
Interest on loans held for sale |
1,425 | 147 | |||||
Interest on taxable securities |
3,906 | 3,336 | |||||
Interest on non-taxable securities |
896 | 907 | |||||
Other interest and dividend income |
585 | 457 | |||||
| | | | | | | |
Total interest and dividend income |
66,800 | 61,079 | |||||
| | | | | | | |
Interest expense: |
|||||||
Deposits |
8,700 | 9,033 | |||||
Borrowed funds |
5,875 | 6,845 | |||||
| | | | | | | |
Total interest expense |
14,575 | 15,878 | |||||
| | | | | | | |
Net interest income |
52,225 | 45,201 | |||||
Provision for loan losses |
1,257 | 2,589 | |||||
| | | | | | | |
Net interest income, after provision for loan losses |
50,968 | 42,612 | |||||
| | | | | | | |
Noninterest income: |
|||||||
Mortgage banking income, net |
20,092 | 1,429 | |||||
Deposit account fees |
11,194 | 11,075 | |||||
Income on retirement plan annuities |
595 | 848 | |||||
Gain on sale of consumer loans |
136 | 483 | |||||
Gain on sale and call of securities, net |
295 | 483 | |||||
Bank-owned life insurance income |
1,156 | 378 | |||||
Other income |
1,905 | 914 | |||||
| | | | | | | |
Total noninterest income |
35,373 | 15,610 | |||||
| | | | | | | |
Noninterest expenses: |
|||||||
Compensation and benefits |
45,746 | 28,719 | |||||
Occupancy and equipment |
9,246 | 7,580 | |||||
Data processing expenses |
5,392 | 5,101 | |||||
Loan expenses |
3,906 | 946 | |||||
Marketing |
1,924 | 1,589 | |||||
Deposit expenses |
1,367 | 1,313 | |||||
Postage and printing |
1,205 | 1,102 | |||||
Professional fees |
2,181 | 1,848 | |||||
Prepayment penalties on Federal Home Loan Bank advances |
980 | 665 | |||||
Foreclosed and repossessed assets |
224 | 525 | |||||
Deposit insurance |
1,716 | 1,602 | |||||
Other expenses |
4,127 | 3,312 | |||||
| | | | | | | |
Total noninterest expenses |
78,014 | 54,302 | |||||
| | | | | | | |
Income before income taxes |
8,327 | 3,920 | |||||
Income tax provision |
2,559 | 1,350 | |||||
| | | | | | | |
Net income |
$ | 5,768 | $ | 2,570 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
HarborOne Bank and Subsidiaries
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2015 and 2014
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||
Net income |
$ | 5,768 | $ | 2,570 | |||
| | | | | | | |
Other comprehensive income (loss): |
|||||||
Supplemental director retirement plan: |
|||||||
Prior service cost arising during the year |
(114 | ) | (1,347 | ) | |||
Reclassification adjustment for amortization of prior service cost |
231 | 36 | |||||
Losses arising during the year |
(21 | ) | | ||||
| | | | | | | |
Net unrealized gains (losses) |
96 | (1,311 | ) | ||||
Related tax effect |
(39 | ) | 523 | ||||
| | | | | | | |
Net-of-tax amount |
57 | (788 | ) | ||||
| | | | | | | |
Securities available for sale: |
|||||||
Unrealized holding gains (losses) |
(62 | ) | 1,888 | ||||
Reclassification adjustment for net realized gains |
(295 | ) | (483 | ) | |||
| | | | | | | |
Net unrealized gains (losses) |
(357 | ) | 1,405 | ||||
Related tax effect |
125 | (532 | ) | ||||
| | | | | | | |
Net-of-tax amount |
(232 | ) | 873 | ||||
| | | | | | | |
Total other comprehensive income (loss) |
(175 | ) | 85 | ||||
| | | | | | | |
Comprehensive income |
$ | 5,593 | $ | 2,655 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Amortization of prior service cost is included in compensation and benefits in the Consolidated Statements of Net Income. The related income tax benefit for the years ended December 31, 2015 and 2014 was $(92,000) and $(14,000), respectively. Realized gains on securities available for sale are included in gain on sale and call of securities, net, in the Consolidated Statements of Net Income. The related income tax expense for the years ended December 31, 2015 and 2014 was $118,000 and $183,000, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
F-5
HarborOne Bank and Subsidiaries
Consolidated Statements of Changes in Retained Earnings
Years Ended December 31, 2015 and 2014
|
Retained
Earnings |
Accumulated
Other Comprehensive Loss |
Total
Retained Earnings |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||
Balance at December 31, 2013 |
$ | 181,305 | $ | (502 | ) | $ | 180,803 | |||
Comprehensive income |
2,570 | 85 | 2,655 | |||||||
| | | | | | | | | | |
Balance at December 31, 2014 |
183,875 | (417 | ) | 183,458 | ||||||
Change in accounting principle, net of tax (Note 1) |
1,637 | | 1,637 | |||||||
Comprehensive income (loss) |
5,768 | (175 | ) | 5,593 | ||||||
| | | | | | | | | | |
Balance at December 31, 2015 |
$ | 191,280 | $ | (592 | ) | $ | 190,688 | |||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
HarborOne Bank and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2015 and 2014
The accompanying notes are an integral part of these consolidated financial statements.
F-7
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and consolidation
The Consolidated Financial Statements include the accounts of HarborOne Bank and its wholly-owned subsidiaries (the "Company"). HarborOne Bank's subsidiaries consist of a mortgage company and two security corporations. Merrimack Mortgage Company ("MMC") was acquired and became a wholly-owned subsidiary on July 1, 2015 (see Note 20). The security corporations were established for the purpose of buying, holding and selling securities on their own behalf. All significant intercompany balances and transactions have been eliminated in consolidation.
Nature of Operations
The Company, originally established in 1917 as a state-chartered credit union, converted to a state-chartered co-operative bank on July 1, 2013. The Company provides a variety of financial services to individuals and businesses through its fourteen full-service and two limited-service bank offices in eastern Massachusetts and surrounding communities and lending offices in eastern New England. MMC maintains 34 offices in Massachusetts, New Hampshire, Connecticut and Maine, and is also licensed to lend in five additional states.
The Company's primary deposit products are checking, money market, savings and term certificate of deposit accounts while its primary lending products are commercial real estate, commercial, residential mortgages and consumer loans, including indirect automobile lending. The Company also originates, sells and services residential mortgage loans primarily through MMC.
Use of Estimates
In preparing Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of mortgage servicing rights, derivatives, goodwill and the valuation of deferred tax assets.
Changes in Accounting Principle
As of January 1, 2015 the Company elected to account for its mortgage servicing assets at fair value. All of the Company's mortgage servicing assets are classified in a single class of servicing assets. In conjunction with its planned acquisition of MMC, the Company evaluated its accounting policies in the mortgage banking business and decided to elect the fair value option for mortgage servicing assets to be consistent across the combined Company. A cumulative-effect adjustment of $1,637,000, net of tax, was made to retained earnings as of January 1, 2015. Changes in fair value are reported in mortgage banking income.
Prior to January 1, 2015, mortgage servicing assets were amortized to income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial asset and were assessed for impairment based on the fair value of the rights compared to the amortized cost. For mortgage servicing assets that were amortized, impairment was recognized through a valuation allowance for individual stratum, to the extent that fair value was less than capitalized amount for the stratum. Changes in the valuation allowance were reported in mortgage banking income. Permanent write-downs were recorded when a decline in fair value of mortgage servicing rights was not expected to be recovered.
Significant Group Concentration of Credit Risk
The Company has cash and federal fund balances on deposit at correspondent banks that exceed insurable limits. The Company has not experienced any losses on such amounts. At December 31, 2015, the Company had a concentration of cash on deposit at the Federal Reserve Bank amounting to $23,023,000. Most of the Company's lending activities are with borrowers located within eastern Massachusetts. The ability and willingness of residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the borrowers'geographic area and real estate values. Note 6 provides the detail of the
F-8
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Company's loan portfolio and Note 4 provides the detail of the Company's investment portfolio. The Company does not have any significant concentrations to any one industry or customer.
Reclassifications
Certain reclassifications to the 2014 Consolidated Financial Statements have been made to conform to the 2015 presentation.
Cash and Cash Equivalents
Cash equivalents include amounts due from banks and short-term investments with original maturities of less than 90 days at time of purchase. Short-term investments mature daily or on demand and are stated at cost, which approximates fair value.
Securities
Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and are carried at amortized cost, adjusted for the amortization of premiums or the accretion of discounts. Securities not classified as held to maturity are classified as available for sale and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive (loss) income.
Gains or losses on disposition of securities are recorded on the trade date and are determined using the specific identification method. Premiums and discounts are recognized in interest income using the effective interest method over the terms of the securities.
Each reporting period, the Company evaluates all securities with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to be other-than-temporary ("OTTI").
OTTI is required to be recognized if (1) the Company intends to sell the security; (2) it is "more likely than not" that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. For all impaired debt securities that the Company intends to sell, or more likely than not will be required to sell, the full amount of the depreciation is recognized as OTTI through earnings. Credit-related OTTI for all other impaired debt securities is recognized through earnings. Non-credit related OTTI for such debt securities is recognized in other comprehensive (loss) income, net of applicable taxes.
Federal Home Loan Bank Stock
The Company, as a member of the Federal Home Loan Bank ("FHLB") system, is required to maintain an investment in capital stock of the FHLB of Boston. Based on redemption provisions of the FHLB, the stock has no quoted market value and is carried at cost. At its discretion, the FHLB may declare dividends on the stock. The Company reviews FHLB stock for impairment based on the ultimate recoverability of the cost basis. As of December 31, 2015, no impairment has been recognized.
Mortgage Loans Held for Sale
Residential mortgage loans originated for sale are classified as held-for-sale. Loans originated for sale after July 1, 2015 are specifically identified and accounted for at fair value. At the time of the acquisition of MMC, the Company evaluated its accounting policies for loans held for sale, and elected to use the fair value option. The fair value option better aligns the accounting method with management's strategies for managing the risks of mortgage loans held for sale. Loan origination costs for loans held for sale that the Company accounts for under the fair value option are recognized in noninterest expense when incurred. Changes in fair value are recognized in mortgage banking income.
Prior to July 1, residential mortgages originated for sale were specifically identified and carried at the lower of aggregate cost, net of unamortized deferred loan origination fees and costs, or fair value. Net unrealized losses on loans carried at lower of cost or fair value, if any, are recognized through a valuation allowance by charges to income.
F-9
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Gains or losses on sale of mortgage loans accounted for at the lower of cost or fair value are recognized at the time of sale.
Interest income on mortgage loans held for sale is recorded in interest income.
Loans
Loans held for investment are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any unamortized deferred origination fees and costs.
Loan origination fees are offset with related direct incremental loan origination costs and the resulting net amount is deferred and amortized to interest income using the level-yield method over the remaining life of the loan.
Accrual of interest on loans is discontinued when collectibility of principal or interest is uncertain or when payments of principal or interest have become contractually past due 90 days or more. Past due status is based on contractual terms of the loan. However, a loan may remain on accrual status if both the value of any collateral securing the loan is sufficient to cover principal and accrued interest thereon, and the loan is in the process of collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
Interest received on nonaccrual loans is either applied against principal or reported as income according to management's judgment as to the collectibility of principal. Interest accruals are resumed on such loans only when they are brought current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.
The Company's loan portfolio includes residential real estate, commercial real estate, construction, commercial and consumer segments. Residential real estate loans include classes for 1-4 family and second mortgages and equity lines of credit. Consumer loans include classes for auto and personal loans.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed and generally do not exceed the time frame provided in The Uniform Retail Credit Classification and Account Management Policy. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of general, allocated and unallocated components, as further described below.
General component
The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the Company's loan segments. Management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. Adjustments to this historical loss factor is considered for the following qualitative factors: levels/trends in delinquencies; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff; and national and local economic trends and conditions. There were no changes in the Company's policies or methodology pertaining to the general component of the allowance for loan losses during 2015. The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:
Residential real estateThe Company generally does not originate portfolio loans with a loan-to-value ratio greater than 80 percent without obtaining private mortgage insurance and does not generally grant loans that would be classified as subprime upon origination. The Company generally has first or second liens on property
F-10
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
securing equity lines of credit. Loans in this segment are generally collateralized by residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, can have an effect on the credit quality in this segment.
Commercial real estateLoans in this segment are primarily secured by income-producing properties in southeastern New England. The underlying cash flows generated by the properties can be adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, could have an effect on the credit quality in this segment. Management obtains rent rolls annually and continually monitors the cash flows of these loans.
ConstructionLoans in this segment include both residential and commercial construction loans. Residential construction loans include loans to build 1-4 family owner-occupied properties, which are subject to the same credit quality factors as residential real estate loans. Commercial construction loans may include speculative real estate development loans for which payment is derived from sale of the property. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.
CommercialLoans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, could have an effect on the credit quality in this segment.
ConsumerLoans in this segment are generally secured by automobiles or unsecured and repayment is dependent on the credit quality of the individual borrower.
Allocated component
The allocated component relates to loans that are classified as impaired. Residential real estate, commercial, commercial real estate and construction loans are evaluated for impairment on a loan-by-loan basis. Impairment is determined by nonaccrual status, whether a loan is subject to a troubled debt restructuring agreement or in the case of certain loans, based on the internal credit rating. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, except for troubled debt restructuring ("TDR"), the Company does not separately identify individual consumer loans for impairment evaluation.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
The Company periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a TDR. All TDRs are initially classified as impaired. Impairment is measured by either the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance is established when the discounted cash flows or collateral value of the impaired loan is lower than the carrying value of that loan.
Unallocated component
An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.
F-11
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Land is carried at cost. Buildings, leasehold improvements, and furniture and equipment are carried at cost, less accumulated depreciation and amortization, computed on the straight-line method over the estimated useful lives of the assets or the terms of the leases, if shorter. Expected terms include lease option periods to the extent that the exercise of such options is reasonably assured. Maintenance and repairs are charged to expense as incurred and improvements are capitalized.
Retirement Plan Annuities
Retirement plan annuities are reflected on the balance sheets at the face amount of the policies. Changes in recorded value are reflected in income on retirement plan annuities on the Consolidated Statements of Net Income.
Bank-owned life insurance
Bank-owned life insurance policies are reflected on the Consolidated Balance Sheets at net cash surrender value. Changes in the net cash surrender value of the policies, as well as insurance proceeds received, are reflected in bank-owned life insurance income on the Consolidated Statements of Net Income and are not subject to income taxes. The Company is the beneficiary on these life insurance policies which are purchased for select employees of the Company.
Mortgage Servicing Rights
The Company services mortgage loans for others. Mortgage servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets. As stated above in Change in Accounting Principle , the Company decided to elect the fair value option for mortgage servicing assets.
For all mortgage servicing assets, fair value is estimated using market prices when available or, alternatively, using a third party valuation model that calculates the present value of estimated future cash flows based on current prepayment assumptions. The risk characteristics of the underlying loans used to stratify for measurement of fair value of mortgage loan servicing rights in 2014 include the loan type, interest rates and term to maturity.
Derivative Financial Instruments
The Company is party to a variety of derivative transactions, including derivative loan commitments, forward loan sale commitments and interest rate swap contracts. The Company enters into derivative contracts in order to meet the financing needs of its customers. The Company also enters into derivative contracts as a means of reducing its interest rate risk and market risk.
Derivative Loan Commitments
Mortgage loan commitments qualify as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. Loan commitments that are derivatives are recognized at fair value on the Consolidated Balance Sheets in other assets and other liabilities with changes in their fair values recorded in mortgage banking income.
Forward Loan Sale Commitments
To protect against the price risk inherent in derivative loan commitments, the Company utilizes both "mandatory delivery" and "best efforts" forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. Mandatory delivery contracts are accounted for as derivative instruments. Generally, the Company's best efforts contracts meet the definition of derivative instruments when the loans to the underlying borrowers close, and are accounted for as derivative instruments at that time. Accordingly, forward loan sale commitments are recognized at fair value on the Consolidated Balance Sheets in other assets and other liabilities with changes in their fair values recorded in mortgage banking income.
F-12
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interest Rate Swaps
The Company's interest rate swap contracts are transacted to meet the financing needs of the Company's commercial customers. Offsetting swap agreements are simultaneously transacted to effectively eliminate the Company's market and interest rate risk associated with the swaps. Interest rate swaps are recognized on the Consolidated Balance Sheets in other assets and other liabilities with changes in their fair values recorded in other income.
Transfers of Financial Assets
Transfers of an entire financial asset, a group of entire financial assets, or a participating interest in an entire financial asset are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets.
During the normal course of business, the Company may transfer a portion of a financial asset, for example, a participation loan or the government guaranteed portion of a loan. In order to be eligible for sale treatment, the transfer of the portion of the loan must meet the criteria of a participating interest. If it does not meet the criteria of a participating interest, the transfer must be accounted for as a secured borrowing. In order to meet the criteria for a participating interest, all cash flows from the loan must be divided proportionately, the rights of each loan holder must have the same priority, the loan holders must have no recourse to the transferor other than standard representations and warranties and no loan holder has the right to pledge or exchange the entire loan.
Other Real Estate Owned and Repossessed Assets
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less estimated costs to sell when legal title is obtained, establishing a new cost basis. Subsequently, valuations are periodically updated by management and the assets are carried at the lower of carrying amount or fair value less estimated costs to sell. The excess (deficiency) of any consideration received as compared to the carrying value of other real estate owned is recorded as a gain (loss) on sale of other real estate owned. Revenues and expenses from operations and changes in the valuation allowance and any direct write-downs are included in foreclosed and repossessed assets expense. Repossessed assets includes automobiles to be sold which are recorded at estimated fair value, less costs to sell, with the initial charge to the allowance for loan losses and the subsequent gain or loss on sale recorded to foreclosed and repossessed assets expense.
Goodwill and Identifiable Intangible Assets
The assets (including identifiable intangible assets) and liabilities acquired in a business combination are recorded at fair value at the date of acquisition. Goodwill is recognized for the excess of the acquisition cost over the fair values of the net assets acquired and is not subsequently amortized. Identifiable intangible assets include core deposit premium and non-compete contracts and are being amortized on a straight-line basis over their estimated lives. Management assesses the recoverability of goodwill at least on an annual basis and all intangible assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The impairment test uses a combined qualitative and quantitative approach. The initial qualitative approach assesses whether the existence of events or circumstances led to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after this assessment, the Company determines that it is more likely than not that the fair value is less than the carrying value, the two step quantitative impairment test is performed. Step one of the quantitative impairment test compares book value to the fair value of the reporting unit. If test one is failed, a more detailed analysis is performed, which involves measuring the excess of the fair value of the reporting unit, as determined in step one, over the aggregate fair value of the individual assets, liabilities, and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the carrying amount exceeds fair value, an impairment charge is recorded through earnings. Management has identified two reporting units for purposes of testing goodwill for impairment. The Company's reporting units are the same as the segments used for segment reportingHarborOne Bank, including the two security corporations, (the "Bank") and MMC.
F-13
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
Deferred tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. A valuation allowance is established against deferred tax assets when, based upon the available evidence including historical and projected taxable income, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company does not have any uncertain tax positions at December 31, 2015 or December 31, 2014 which require accrual or disclosure. The Company records interest and penalties as part of income tax expense. No interest or penalties were recorded for the years ended December 31, 2015 or 2014.
Comprehensive Income (Loss)
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities are reported as a separate component of the retained earnings section of the balance sheet, such items, along with net income, are components of comprehensive income (loss).
The components of accumulated other comprehensive loss, included in retained earnings, are as follows:
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2015 | 2014 | |||||
|
(In thousands)
|
||||||
Securities available for sale: |
|||||||
Net unrealized gain |
$ | 212 | $ | 569 | |||
Related tax effect |
(73 | ) | (198 | ) | |||
| | | | | | | |
Net-of-tax amount |
139 | 371 | |||||
| | | | | | | |
Directors' retirement plan: |
|||||||
Prior service cost |
(1,215 | ) | (1,311 | ) | |||
Related tax effect |
484 | 523 | |||||
| | | | | | | |
Net-of-tax amount |
(731 | ) | (788 | ) | |||
| | | | | | | |
Total accumulated other comprehensive loss |
$ | (592 | ) | $ | (417 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-14
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The following is a reconciliation of beginning and ending balances of components of OCI:
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||
Balance, January 1 |
$ | (417 | ) | $ | (502 | ) | |
Other comprehensive income (loss): |
|
|
|||||
Directors' retirement plan: |
|
|
|||||
Prior service costs arising during the year |
(114 | ) | (1,347 | ) | |||
Reclassification for amortization of prior service cost |
231 | 36 | |||||
Net unrealized gains (losses) |
(21 | ) | | ||||
| | | | | | | |
|
96 | (1,311 | ) | ||||
Related tax effect |
(39 | ) | 523 | ||||
| | | | | | | |
Net-of-tax amount |
57 | (788 | ) | ||||
| | | | | | | |
Securities available for sale: |
|||||||
Unrealized holding gains (losses) |
(62 | ) | 1,888 | ||||
Reclassification adjustment for realized gains |
(295 | ) | (483 | ) | |||
| | | | | | | |
Net unrealized gains (losses) |
(357 | ) | 1,405 | ||||
Related tax effect |
125 | (532 | ) | ||||
| | | | | | | |
Net-of-tax amount |
(232 | ) | 873 | ||||
| | | | | | | |
Total other comprehensive income |
(175 | ) | 85 | ||||
| | | | | | | |
Balance, December 31 |
$ | (592 | ) | $ | (417 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Prior service costs of $233,000, included in accumulated other comprehensive loss at December 31, 2015, are expected to be recognized as a component of net periodic pension cost during the year ending December 31, 2016.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) . The amendments in this Update create Topic 606, Revenue from Contracts with Customers , and supersede the revenue recognition requirements in Topic 605, Revenue Recognition , including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve the core principle, a company should apply a five step approach to revenue recognition. For public business entities, this ASU is effective for annual reporting periods, including interim periods, beginning after December 15, 2017. Early application is permitted, but only for annual reporting periods beginning after December 15, 2016. Management is currently evaluating the impact to the consolidated financial statements of adopting this Update.
In January 2015, the FASB issued ASU 2015-01, Income StatementExtraordinary and Unusual Items (Subtopic 225-20). This Update eliminates the concept of extraordinary items from generally accepted accounting principles. However, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently is retained and is expanded to include items that are both unusual in nature and infrequently occurring. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. This Update is not expected to have a significant impact on the Company's Consolidated Financial Statements.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805). The amendments in this Update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. In addition, the amendments require that the acquirer record, in the same period's financial statements, the effect on earnings of
F-15
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update with earlier application permitted for financial statements that have not yet been made available for issuance. This update is not expected to have a significant impact on the Company's Consolidated Financial Statements.
In January 2016, the FASB issued ASU 2016-01, Financial InstrumentsOverall, (Subtopic 825-10). The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Targeted improvements to generally accepted accounting principles include the requirement for equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, the elimination of the requirement for non-public business entities to disclose the fair value of financial instruments measured at amortized cost and the elimination of the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For non-public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . This Update requires a lessee to record a right-to-use asset and a liability representing the obligation to make lease payments for long-term leases. For public business entities this Update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For non-public business entities this Update is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years beginning after December 15, 2020. Management is currently evaluating the impact to the consolidated financial statements of adopting this Update.
2. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Company is required to maintain average balances on hand or with the Federal Reserve Bank. At December 31, 2015 and 2014, reserve balances amounted to $1,720,000 and $1,980,000, respectively.
3. SHORT-TERM INVESTMENTS
Short-term investments consist of interest-bearing deposit accounts with balances of $22,499,000 and $39,982,000 as of December 31, 2015 and 2014, respectively.
F-16
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
4. SECURITIES
The amortized cost and fair value of securities with gross unrealized gains and losses is as follows:
|
Amortized
Cost |
Gross
Unrealized Gains |
Gross
Unrealized Losses |
Fair
Value |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||||||||
December 31, 2015: |
|||||||||||||
Securities available for sale |
|
|
|
|
|||||||||
U.S. government and government-sponsored enterprise obligations |
$ | 5,000 | $ | | $ | 33 | $ | 4,967 | |||||
U.S. government-sponsored residential mortgage-backed securities |
47,003 | 23 | 410 | 46,616 | |||||||||
U.S. government-sponsored collateralized mortgage obligations |
46,068 | 488 | 86 | 46,470 | |||||||||
SBA asset-backed securities |
30,258 | 233 | 3 | 30,488 | |||||||||
| | | | | | | | | | | | | |
Total securities available for sale |
$ | 128,329 | $ | 744 | $ | 532 | $ | 128,541 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Securities held to maturity |
|||||||||||||
U.S. government and government-sponsored enterprise obligations |
$ | 9,954 | $ | 34 | $ | 48 | $ | 9,940 | |||||
U.S. government-sponsored residential mortgage-backed securities |
24,330 | 99 | 280 | 24,149 | |||||||||
U.S. government-sponsored collateralized mortgage obligations |
3,264 | 150 | | 3,414 | |||||||||
Municipal bonds |
26,031 | 1,672 | | 27,703 | |||||||||
| | | | | | | | | | | | | |
Total securities held to maturity |
$ | 63,579 | $ | 1,955 | $ | 328 | $ | 65,206 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
December 31, 2014: |
|||||||||||||
Securities available for sale |
|
|
|
|
|||||||||
U.S. government and government-sponsored enterprise obligations |
$ | 4,891 | $ | 92 | $ | | $ | 4,983 | |||||
U.S. government-sponsored residential mortgage-backed securities |
60,161 | 359 | 594 | 59,926 | |||||||||
U.S. government-sponsored collateralized mortgage obligations |
66,855 | 724 | 113 | 67,466 | |||||||||
SBA asset-backed securities |
15,539 | 133 | 32 | 15,640 | |||||||||
| | | | | | | | | | | | | |
Total securities available for sale |
$ | 147,446 | $ | 1,308 | $ | 739 | $ | 148,015 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Securities held to maturity |
|||||||||||||
U.S. government-sponsored residential mortgage-backed securities |
$ | 27,905 | $ | 165 | $ | 105 | $ | 27,965 | |||||
U.S. government-sponsored collateralized mortgage obligations |
4,183 | 224 | | 4,407 | |||||||||
Municipal bonds |
26,296 | 1,637 | | 27,933 | |||||||||
| | | | | | | | | | | | | |
Total securities held to maturity |
$ | 58,384 | $ | 2,026 | $ | 105 | $ | 60,305 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
One mortgage-backed security with a fair value of $3,154,000 is pledged as collateral for interest rate swap agreements as of December 31, 2015. All of the government-sponsored enterprises, CMOs and residential mortgage-backed securities are pledged to secure advances with the FHLB of Boston as of December 31, 2015. (See Note 12).
F-17
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
4. SECURITIES (Continued)
The amortized cost and fair value of debt securities by contractual maturity at December 31, 2015 is as follows:
|
Available for Sale | Held to Maturity | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Amortized
Cost |
Fair
Value |
Amortized
Cost |
Fair
Value |
|||||||||
|
(In thousands)
|
||||||||||||
After 5 years through 10 years |
$ | 5,000 | $ | 4,967 | $ | 2,911 | $ | 3,010 | |||||
Over 10 years |
| | 33,074 | 34,633 | |||||||||
| | | | | | | | | | | | | |
|
5,000 | 4,967 | 35,985 | 37,643 | |||||||||
U.S. government-sponsored residential mortgage-backed securities |
47,003 | 46,616 | 24,330 | 24,149 | |||||||||
U.S. government-sponsored collateralized mortgage obligations |
46,068 | 46,470 | 3,264 | 3,414 | |||||||||
SBA asset-backed securities |
30,258 | 30,488 | | | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 128,329 | $ | 128,541 | $ | 63,579 | $ | 65,206 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Residential mortgage-backed securities, SBA asset-backed securities and collateralized mortgage obligations have stated maturities of seven to twenty-eight years; however, it is expected that such securities will have shorter actual lives due to prepayments.
For the years ended December 31, 2015 and 2014, proceeds from sales of securities available for sale amounted to $35,730,000 and $51,642,000, respectively, and gross realized gains amounted to $277,000 and $468,000, and gross losses of $91,000 and $72,000, respectively. For the year ended December 31, 2015, a gain of $109,000 was recognized on a security called with an amortized cost of $4,891,000. For the year ended December 31, 2014, gains of $87,000 were recognized on securities called with an amortized cost of $4,913,000.
F-18
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
4. SECURITIES (Continued)
Information pertaining to securities with gross unrealized losses at December 31, 2015 and 2014 aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:
|
Less Than Twelve
Months |
Over Twelve Months | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Gross
Unrealized Losses |
Fair
Value |
Gross
Unrealized Losses |
Fair
Value |
|||||||||
|
(In thousands)
|
||||||||||||
December 31, 2015: |
|||||||||||||
Securities available for sale |
|||||||||||||
U.S. government and government-sponsored enterprise obligations |
$ | 33 | $ | 4,967 | $ | | $ | ||||||
U.S. government-sponsored residential mortgage-backed securities |
77 | 10,780 | 333 | 19,837 | |||||||||
U.S. government-sponsored collateralized mortgage obligations |
| | 86 | 9,925 | |||||||||
SBA asset-backed securities |
3 | 7,754 | | | |||||||||
| | | | | | | | | | | | | |
|
$ | 113 | $ | 23,501 | $ | 419 | $ | 29,762 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Securities held to maturity |
|||||||||||||
U.S. government and government-sponsored enterprise obligations |
$ | 48 | $ | 4,952 | $ | | $ | | |||||
U.S. government-sponsored residential mortgage-backed securities |
| | 280 | 20,991 | |||||||||
| | | | | | | | | | | | | |
|
$ | 48 | $ | 4,952 | $ | 280 | $ | 20,991 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
December 31, 2014: |
|||||||||||||
Securities available for sale |
|||||||||||||
U.S. government-sponsored residential mortgage-backed securities |
$ | 167 | $ | 13,112 | $ | 427 | $ | 23,619 | |||||
U.S. government-sponsored collateralized mortgage obligations |
72 | 19,270 | 41 | 4,602 | |||||||||
SBA asset-backed securities |
32 | 4,515 | | | |||||||||
| | | | | | | | | | | | | |
|
$ | 271 | $ | 36,897 | $ | 468 | $ | 28,221 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Securities held to maturity |
|||||||||||||
U.S. government-sponsored residential mortgage-backed securities |
$ | | $ | | $ | 105 | $ | 24,206 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Management evaluates securities for other-than-temporary impairment at each reporting period, and more frequently when economic or market concerns warrant such evaluation.
At December 31, 2015, debt securities with an amortized cost of $80,066,000 have unrealized losses with aggregate depreciation of 1.1% from the Company's amortized cost basis.
The unrealized losses on the Company's securities were primarily caused by changes in interest rates. All of these investments are guaranteed by government-sponsored enterprises. Accordingly, it is expected that the securities would not be settled at a price less than the par value of the investment. Because the decline in market value is attributable to changes in interest rates and not to credit quality, and because the Company does not intend to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2015.
5. MORTGAGE LOANS HELD FOR SALE
The unpaid principal balance of mortgage loans held for sale as of December 31, 2015 and 2014 is $61,701,000 and $3,525,000, respectively. As discussed in Note 1, the Company has elected the fair value option for mortgage loans held for sale effective July 1, 2015. Changes in the fair value of mortgage loans held for sale are classified in mortgage banking income in the Consolidated Statements of Net Income. None of the changes in fair value for 2015 are attributable to instrument-specific credit risk. Included in mortgage banking income is $13,457,000 and $216,000 of gains on the sale of mortgage loans held for sale for the years ended December 31, 2015 and 2014, respectively.
F-19
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
6. LOANS
A summary of the balances of loans follows:
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2015 | 2014 | |||||
|
(In thousands)
|
||||||
Residential real estate: |
|||||||
1-4 family |
$ | 710,969 | $ | 768,129 | |||
Second mortgages and equity lines of credit |
99,374 | 95,465 | |||||
Commercial real estate |
265,482 | 142,452 | |||||
Construction |
35,830 | 26,125 | |||||
| | | | | | | |
Total mortgage loans on real estate |
1,111,655 | 1,032,171 | |||||
| | | | | | | |
Commercial |
70,472 | 47,453 | |||||
| | | | | | | |
Consumer loans: |
|||||||
Auto |
532,071 | 556,095 | |||||
Personal |
16,873 | 15,968 | |||||
| | | | | | | |
Total consumer loans |
548,944 | 572,063 | |||||
| | | | | | | |
Total loans |
1,731,071 | 1,651,687 | |||||
Allowance for loan losses |
(13,700 |
) |
(13,934 |
) |
|||
Net deferred loan costs |
12,017 | 14,141 | |||||
| | | | | | | |
Loans, net |
$ | 1,729,388 | $ | 1,651,894 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Company sold $31,337,000 of indirect auto loans in 2015 which were originated within the past year. The Company sold $40,697,000 of seasoned indirect auto loans in 2014. The unpaid principal balance of indirect auto loans serviced for others was $40,370,000 and $30,119,000 at December 31, 2015 and 2014, respectively. Included in gain on sale of consumer loans is $136,000 and $483,000, for these loan sales in 2015 and 2014, respectively. These gains include $98,000 and $153,000 of gains on the origination of servicing rights.
The Company sold $24,029,000 of 15-year residential loans in 2015. Included in mortgage banking income is $113,000 gain on sale and $168,000 gain on the origination of servicing rights
The Company has transferred a portion of its originated commercial real estate loans to participating lenders. The amounts transferred have been accounted for as sales and are therefore not included in the Company's accompanying Consolidated Balance Sheets. The Company and participating lenders share ratably in cash flows and any gains or losses that may result from a borrower's lack of compliance with contractual terms of the loan. The Company continues to service the loans on behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments to participating lenders and disburses required escrow funds to relevant parties. At December 31, 2015 and 2014, the Company was servicing loans for participants aggregating $11,854,000 and $5,227,000, respectively.
F-20
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
6. LOANS (Continued)
Activity in the allowance for loan losses for the years ended December 31, 2015 and 2014 and allocation of the allowance to loan segments at December 31, 2015 and 2014 follows:
|
Mortgage Loans |
|
|
|
|
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Residential |
Commercial
Real Estate |
Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||
|
(In thousands)
|
|||||||||||||||||||||
Balance at December 31, 2013 |
$ | 6,733 | $ | 1,988 | $ | 899 | $ | 1,141 | $ | 2,448 | $ | 1,320 | $ | 14,529 | ||||||||
Provision (credit) for loan losses |
3,204 |
707 |
(510 |
) |
181 |
(422 |
) |
(571 |
) |
2,589 |
||||||||||||
Charge-offs |
(2,575 | ) | (67 | ) | (67 | ) | (229 | ) | (949 | ) | | (3,887 | ) | |||||||||
Recoveries |
393 | | 130 | 2 | 178 | | 703 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2014 |
7,755 | 2,628 | 452 | 1,095 | 1,255 | 749 | 13,934 | |||||||||||||||
Provision (credit) for loan losses |
(1,276 |
) |
1,737 |
129 |
352 |
410 |
(95 |
) |
1,257 |
|||||||||||||
Charge-offs |
(1,021 | ) | | | | (1,007 | ) | | (2,028 | ) | ||||||||||||
Recoveries |
358 | | | 7 | 172 | | 537 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2015 |
$ | 5,816 | $ | 4,365 | $ | 581 | $ | 1,454 | $ | 830 | $ | 654 | $ | 13,700 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
|
At December 31, 2015 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Mortgage Loans |
|
|
|
|
|||||||||||||||||
|
Residential |
Commercial
Real Estate |
Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||
|
(In thousands)
|
|||||||||||||||||||||
Loans: |
||||||||||||||||||||||
Impaired loans |
$ | 53,452 | $ | 483 | $ | 136 | $ | 554 | $ | | $ | | $ | 54,625 | ||||||||
Non-impaired loans |
756,891 | 264,999 | 35,694 | 69,918 | 548,944 | | 1,676,446 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total loans |
$ | 810,343 | $ | 265,482 | $ | 35,830 | $ | 70,472 | $ | 548,944 | $ | | $ | 1,731,071 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses: |
||||||||||||||||||||||
Impaired loans |
$ | 1,977 | $ | 13 | $ | | $ | 204 | $ | | $ | | $ | 2,194 | ||||||||
Non-impaired loans |
3,839 | 4,352 | 581 | 1,250 | 830 | 654 | 11,506 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total allowance for loan losses |
$ | 5,816 | $ | 4,365 | $ | 581 | $ | 1,454 | $ | 830 | $ | 654 | $ | 13,700 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
|
At December 31, 2014 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Mortgage Loans |
|
|
|
|
|||||||||||||||||
|
Residential |
Commercial
Real Estate |
Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||
|
(In thousands)
|
|||||||||||||||||||||
Loans: |
||||||||||||||||||||||
Impaired loans |
$ | 57,936 | $ | 1,512 | $ | | $ | 1,406 | $ | | $ | | $ | 60,854 | ||||||||
Non-impaired loans |
805,658 | 140,940 | 26,125 | 46,047 | 572,063 | | 1,590,833 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total loans |
$ | 863,594 | $ | 142,452 | $ | 26,125 | $ | 47,453 | $ | 572,063 | $ | | $ | 1,651,687 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses: |
||||||||||||||||||||||
Impaired loans |
$ | 3,625 | $ | 38 | $ | | $ | 241 | $ | | $ | | $ | 3,904 | ||||||||
Non-impaired loans |
4,130 | 2,590 | 452 | 854 | 1,255 | 749 | 10,030 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total allowance for loan losses |
$ | 7,755 | $ | 2,628 | $ | 452 | $ | 1,095 | $ | 1,255 | $ | 749 | $ | 13,934 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
F-21
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
6. LOANS (Continued)
The following is a summary of past due and non-accrual loans at December 31, 2015 and 2014:
|
30 - 59 Days
Past Due |
60 - 89 Days
Past Due |
90 Days
or More Past Due |
Total
Past Due |
Loans on
Non-accrual |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||||||||
2015 |
||||||||||||||||
Residential real estate: |
||||||||||||||||
1-4 family |
$ | 5,779 | $ | 419 | $ | 9,978 | $ | 16,176 | $ | 25,841 | ||||||
Second mortgages and equity lines of credit |
610 | 164 | 844 | 1,618 | 2,386 | |||||||||||
Commercial real estate |
| | 173 | 173 | 173 | |||||||||||
Construction |
| | 136 | 136 | 136 | |||||||||||
Commercial |
18 | | | 18 | 558 | |||||||||||
Consumer: |
||||||||||||||||
Auto |
2,156 | 358 | 140 | 2,654 | 263 | |||||||||||
Personal |
116 | 27 | 53 | 196 | 70 | |||||||||||
| | | | | | | | | | | | | | | | |
Total |
$ | 8,679 | $ | 968 | $ | 11,324 | $ | 20,971 | $ | 29,427 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
2014 |
||||||||||||||||
Residential real estate: |
||||||||||||||||
1-4 family |
$ | 8,072 | $ | 1,455 | $ | 14,670 | $ | 24,197 | $ | 31,333 | ||||||
Second mortgages and equity lines of credit |
937 | 645 | 590 | 2,172 | 1,102 | |||||||||||
Commercial real estate |
| | 279 | 279 | 1,241 | |||||||||||
Construction |
| | | | | |||||||||||
Commercial |
2,466 | 39 | 349 | 2,854 | 1,053 | |||||||||||
Consumer: |
||||||||||||||||
Auto |
3,317 | 503 | 306 | 4,126 | 416 | |||||||||||
Personal |
112 | 29 | 22 | 163 | 139 | |||||||||||
| | | | | | | | | | | | | | | | |
Total |
$ | 14,904 | $ | 2,671 | $ | 16,216 | $ | 33,791 | $ | 35,284 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
At December 31, 2015 and 2014, there are no loans past due 90 days or more and still accruing.
F-22
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
6. LOANS (Continued)
The following information pertains to impaired loans:
|
December 31, 2015 | December 31, 2014 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Recorded
Investment |
Unpaid
Principal Balance |
Related
Allowance |
Recorded
Investment |
Unpaid
Principal Balance |
Related
Allowance |
|||||||||||||
|
(In thousands)
|
||||||||||||||||||
Impaired loans without a valuation allowance: |
|||||||||||||||||||
Residential |
$ | 23,600 | $ | 25,327 | $ | | $ | 19,623 | $ | 22,332 | $ | | |||||||
Commercial real estate |
173 | 301 | | 279 | 317 | | |||||||||||||
Construction |
136 | 136 | | | | | |||||||||||||
Commercial |
62 | 62 | | 415 | 620 | | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
$ | 23,971 | $ | 25,826 | $ | | $ | 20,317 | $ | 23,269 | $ | | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Impaired loans with a valuation allowance: |
|||||||||||||||||||
Residential |
$ | 29,852 | $ | 30,836 | $ | 1,977 | $ | 38,313 | $ | 38,723 | $ | 3,625 | |||||||
Commercial real estate |
310 | 310 | 13 | 1,233 | 1,233 | 38 | |||||||||||||
Commercial |
492 | 492 | 204 | 991 | 991 | 241 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
$ | 30,654 | $ | 31,638 | $ | 2,194 | $ | 40,537 | $ | 40,947 | $ | 3,904 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
Year Ended December 31, 2015 | Year Ended December 31, 2014 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Average
Recorded Investment |
Interest
Income Recognized |
Interest
Income Recognized on Cash Basis |
Average
Recorded Investment |
Interest
Income Recognized |
Interest
Income Recognized on Cash Basis |
|||||||||||||
|
(In thousands)
|
||||||||||||||||||
Residential |
$ | 55,694 | $ | 2,982 | $ | 2,869 | $ | 60,586 | $ | 2,582 | $ | 2,459 | |||||||
Commercial real estate |
998 | 35 | 19 | 1,457 | 78 | 78 | |||||||||||||
Construction |
68 | 10 | 10 | 241 | 8 | 8 | |||||||||||||
Commercial |
980 | 4 | 35 | 1,335 | 73 | 71 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
$ | 57,740 | $ | 3,031 | $ | 2,933 | $ | 63,619 | $ | 2,741 | $ | 2,616 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Interest income recognized and interest income recognized on a cash basis in the table above represents interest income for the year, not for the time period designated as impaired.
No additional funds are committed to be advanced in connection with impaired loans.
The following is a summary of trouble debt restructurings for the years ended December 31, 2015 and 2014:
For 2015 and 2014, residential real estate troubled debt restructurings included rate reductions ranging from less than 1% to 4.875% for periods of one to three years and interest only for periods of 6 to 12 months. There were no commercial loan troubled debt restructurings in 2015 or 2014.
The recorded investment of troubled debt restructurings was $34,599,000 and $41,885,000 at December 31, 2015 and 2014, respectively. Of these loans, $9,418,000 and $15,355,000 were nonaccruing at December 31, 2015 and 2014, respectively.
F-23
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
6. LOANS (Continued)
Although not general practice, there were modifications that included extending maturity dates. These amounts show an increase from the pre-modification balance due to capitalized delinquent interest and/or escrow. All TDR loans are considered impaired and management performs a discounted cash flow calculation to determine the amount of impairment reserve required on each loan. TDR loans which subsequently default are reviewed to determine if the loan should be deemed collateral dependent. In either case, any reserve required is recorded as part of the allowance for loan losses.
The following is a summary of troubled debt restructurings that defaulted, defined as two or more payments in arrears, in the first twelve months after restructure during the years ended December 31, 2015 and 2014:
|
Number of
Contracts |
Recorded
Investment |
|||||
---|---|---|---|---|---|---|---|
|
|
(In thousands)
|
|||||
2015 |
|||||||
Residential |
3 | $ | 580 | ||||
2014 |
|
|
|||||
Residential |
4 | $ | 905 |
Credit Quality Information
The Company utilizes a ten grade internal loan rating system for commercial real estate, commercial construction and commercial loans as follows:
Loans rated 1 - 6 are considered "pass" rated loans with low to average risk.
Loans rated 7 are considered "special mention." These loans are starting to show signs of potential weakness and are being closely monitored by management.
Loans rated 8 are considered "substandard." Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.
Loans rated 9 are considered "doubtful." Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.
Loans rated 10 are considered uncollectible ("loss") and of such little value that their continuance as loans is not warranted.
Loans not rated consist primarily of residential construction loans and certain smaller balance commercial real estate and commercial loans that are managed by exception.
On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, construction and commercial loans. Annually, the Company engages an independent third party to review a significant portion of loans within these segments. Management uses the results of these reviews as part of its annual review process.
On a monthly basis, the Company reviews the residential construction, residential real estate and consumer installment portfolios for credit quality primarily through the use of delinquency reports.
F-24
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
6. LOANS (Continued)
The following table presents the Company's loans by risk rating at December 31, 2015 and 2014:
|
2015 | 2014 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Commercial Real Estate | Commercial | Construction | Commercial Real Estate | Commercial | Construction | |||||||||||||
|
(In thousands)
|
||||||||||||||||||
Loans rated 1 - 6 |
$ | 260,983 | $ | 66,072 | 25,761 | $ | 135,952 | $ | 45,031 | $ | 10,318 | ||||||||
Loans rated 7 |
| 3,362 | | | 1,064 | | |||||||||||||
Loans rated 8 |
| 645 | | 1,233 | 807 | | |||||||||||||
Loans rated 9 |
| 393 | | | 551 | | |||||||||||||
Loans rated 10 |
| | | | | | |||||||||||||
Loans not rated |
4,499 | | 10,069 | 5,267 | | 15,807 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
$ | 265,482 | $ | 70,472 | $ | 35,830 | $ | 142,452 | $ | 47,453 | $ | 26,125 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
7. MORTGAGE LOAN SERVICING
The Company sells residential mortgages to government-sponsored entities and other parties. The Company retains no beneficial interests in these loans, but may retain the servicing rights of the loans sold. Mortgage loans serviced for others are not included in the accompanying Consolidated Balance Sheets. The risks inherent in mortgage servicing rights ("MSR") relate primarily to changes in prepayments that result from shifts in mortgage interest rates. The unpaid principal balances of mortgage loans serviced for others were $1,244,856,000 and $525,346,000 at December 31, 2015 and 2014, respectively.
As discussed in Note 1, on January 1, 2015 the Company elected to account for MSR at fair value. The Company obtains valuations from independent third parties to determine the fair market value of MSR. Key assumptions used in the estimation of fair value include prepayment speeds, discount rates, default rates, cost to service, and contractual servicing fees. At December 31, 2015 and 2014, the following assumptions were used in the calculation of fair value of MSR:
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
Prepayment speed (weighted average in 2015) |
9.90 | % | 6.30 to 33.00 | % | |||
Discount rate (weighted average in 2015) |
9.10 | 9.00 | |||||
Weighted average default rate |
1.40 | |
F-25
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
7. MORTGAGE LOAN SERVICING (Continued)
The following summarizes mortgage servicing rights capitalized and amortized, along with the aggregate activity in related valuation allowance (in thousands):
Mortgage servicing rights: |
||||
Balance at December 31, 2013 |
$ | 2,482 | ||
Additions |
374 | |||
Amortization |
(653 | ) | ||
| | | | |
Balance at December 31, 2014, at amortized cost |
2,203 | |||
| | | | |
Valuation allowances: |
||||
Balance at December 31, 2013 |
87 | |||
Provision (credit) |
(52 | ) | ||
| | | | |
Balance at December 31, 2014 |
35 | |||
| | | | |
Mortgage servicing rights, net at December 31, 2014 (fair value of $4,894) |
2,168 | |||
| | | | |
Fair value election |
2,726 | |||
Additions from acquisition of Merrimack Mortgage Company |
5,116 | |||
Additions |
3,424 | |||
Fair value adjustments |
(476 | ) | ||
| | | | |
Balance at December 31, 2015, at fair value |
$ | 12,958 | ||
| | | | |
| | | | |
| | | | |
For the years ended December 31, 2015 and 2014, contractually specified servicing fees included in mortage banking income amounted to $2,072,000 and $1,322,000, respectively.
8. OTHER REAL ESTATE OWNED AND REPOSSESSED ASSETS
Expenses applicable to foreclosed and repossessed assets include the following:
|
Year Ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2015 | 2014 | |||||
|
(In thousands)
|
||||||
Gain on sales of real estate, net |
$ | (424 | ) | $ | (265 | ) | |
Net loss on sales of repossessed assets |
24 | 26 | |||||
Write-downs of real estate |
156 | 276 | |||||
Operating expenses |
468 | 488 | |||||
| | | | | | | |
|
$ | 224 | $ | 525 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Foreclosed and repossessed assets consist of thirteen and sixteen residential real estate properties with recorded values of $2,286,000 and $2,915,000 at December 31, 2015 and 2014, respectively. Foreclosed and repossessed assets also includes four and one automobiles with recorded values of $61,000 and $11,000 at December 31, 2015 and 2014, respectively. All foreclosed and repossessed assets are held for sale. Mortgage loans in the process of foreclosure totaled $6,546,000 as of December 31, 2015, and are reported in loans.
F-26
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
9. PROPERTY AND EQUIPMENT
A summary of the cost and accumulated depreciation of property and equipment follows:
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2015 | 2014 | |||||
|
(In thousands)
|
||||||
Land |
$ | 5,331 | $ | 5,296 | |||
Buildings and leasehold improvements |
29,234 | 28,972 | |||||
Furniture, equipment and vehicles |
15,976 | 14,406 | |||||
Fixed assets in process |
263 | 156 | |||||
| | | | | | | |
|
50,804 | 48,830 | |||||
Less accumulated depreciation and amortization |
(26,198 | ) | (23,600 | ) | |||
| | | | | | | |
Property and equipment, net |
$ | 24,606 | $ | 25,230 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Depreciation and amortization expense amounted to $2,597,000 and $2,529,000 for the years ended December 31, 2015 and 2014, respectively.
At December 31, 2015 and 2014, fixed assets in process represents building improvements and equipment not placed in service.
Pursuant to the terms of noncancelable operating lease agreements in effect at December 31, 2015, pertaining to property and equipment, future minimum lease payments under various operating leases are as follows (in thousands):
The noncancelable lease agreements contain options to extend for periods from three to twenty years, the cost of which is not included above. Rent expense amounted to $1,196,000 in 2015 and $642,000 in 2014 and is included in occupancy and equipment expenses in the accompanying Consolidated Statements of Net Income.
F-27
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
10. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following:
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2015 | 2014 | |||||
|
(In thousands)
|
||||||
Goodwill |
$ | 13,365 | $ | 3,186 | |||
| | | | | | | |
Core deposit intangible asset: |
|||||||
Original balance |
1,171 | 1,171 | |||||
Accumulated amortization |
(1,171 | ) | (1,033 | ) | |||
| | | | | | | |
|
| 138 | |||||
| | | | | | | |
Non-compete intangible asset: |
|||||||
Original balance |
353 | | |||||
Accumulated amortization |
(44 | ) | | ||||
| | | | | | | |
|
309 | | |||||
| | | | | | | |
Total goodwill and other intangible assets |
$ | 13,674 | $ | 3,324 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Goodwill
On July 1, 2015 goodwill in the amount of $10,179,000 was recognized in connection with the MMC acquisition. The goodwill represents the excess of the value of MMC over the fair value of assets acquired and liabilities assumed arising from the acquisition. MMC originates residential mortgage loans for sale in the secondary market and services residential mortgage loans for secondary market investors. MMC conducts business throughout the northeastern United States. The acquisition of MMC enables the Company to expand its mortgage banking business. MMC has been identified as a reporting unit for purposes of goodwill impairment testing. Refer to Note 20, Business Combinations and Note 21, Segment Reporting for more information.
Core Deposit Intangible
In connection with the acquisition of Nations Heritage Federal Credit Union, the Company recorded core deposit intangible in the amount of $1,171,000 which is being amortized over 76 months. Amortization expense was $138,000 and $185,000 for the years ended December 31, 2015 and 2014, respectively. The core deposit intangible was fully amortized in 2015.
Non-compete Intangible
As part of the acquisition of MMC, the Company entered into a non-compete agreement with the sellers of MMC. The Company accounts for this agreement as an intangible asset and is amortizing it over the four year period of the agreement. Amortization expense of $44,000 was recorded in 2015. The Company expects to record amortization expense of $88,000 in each of 2016, 2017 and 2018, with the remaining amount of $45,000 in 2019.
F-28
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
11. DEPOSITS
A summary of deposit balances, by type, is as follows:
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2015 | 2014 | |||||
|
(In thousands)
|
||||||
NOW and demand deposit accounts |
$ | 320,717 | $ | 253,012 | |||
Regular savings and club accounts |
295,533 | 268,046 | |||||
Money market deposit accounts |
612,370 | 461,089 | |||||
| | | | | | | |
Total non-certificate accounts |
1,228,620 | 982,147 | |||||
| | | | | | | |
Term certificates accounts greater than or equal to $250,000 |
81,969 | 90,097 | |||||
Term certificate accounts less than $250,000 |
380,623 | 427,871 | |||||
| | | | | | | |
Total certificate accounts |
462,592 | 517,968 | |||||
| | | | | | | |
Total deposits |
$ | 1,691,212 | $ | 1,500,115 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
A summary of certificate accounts by maturity is as follows:
|
December 31, 2015 | December 31, 2014 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Amount |
Weighted
Average Rate |
Amount |
Weighted
Average Rate |
|||||||||
|
(Dollars in thousands)
|
||||||||||||
Within 1 year |
$ | 231,069 | 0.78 | % | $ | 271,170 | 0.92 | % | |||||
Over 1 year to 2 years |
148,279 | 1.50 | 92,520 | 1.22 | |||||||||
Over 2 years to 3 years |
43,753 | 1.41 | 119,705 | 1.66 | |||||||||
Over 3 years to 4 years |
23,527 | 1.72 | 21,023 | 1.63 | |||||||||
Over 4 years to 5 years |
15,964 | 1.70 | 13,550 | 1.72 | |||||||||
| | | | | | | | | | | | | |
|
$ | 462,592 | 1.15 | % | $ | 517,968 | 1.20 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
12. BORROWED FUNDS
Borrowed funds at December 31, 2015 and 2014 consist of FHLB advances and are summarized by maturity and call date below:
|
2015 | 2014 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Scheduled
Maturity |
Redeemable
at Call Date(1) |
Weighted
Average Rate(2) |
Scheduled
Maturity |
Redeemable
at Call Date(1) |
Weighted
Average Rate(2) |
|||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||||
Year ending December 31: |
|||||||||||||||||||
2015 |
| | | % | $ | 90,000 | 105,000 | 0.58 | % | ||||||||||
2016 |
45,000 | 60,000 | 1.51 | 75,000 | 75,000 | 2.04 | |||||||||||||
2017 |
69,500 | 54,500 | 3.13 | 74,500 | 59,500 | 3.26 | |||||||||||||
2018 |
50,000 | 50,000 | 1.65 | 50,000 | 50,000 | 1.65 | |||||||||||||
2019 |
35,000 | 35,000 | 1.68 | 35,000 | 35,000 | 1.68 | |||||||||||||
2020 and thereafter* |
50,098 | 50,098 | 1.84 | 5,102 | 5,102 | 1.69 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
$ | 249,598 | $ | 249,598 | 2.08 | % | $ | 329,602 | $ | 329,602 | 1.81 | % | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
F-29
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
12. BORROWED FUNDS (Continued)
The FHLB advances are secured by a blanket security agreement on qualified collateral defined primarily as 79% of the carrying value of first mortgage loans on owner-occupied residential property and 95% of the fair value of government-sponsored enterprises and mortgage-backed securities obligations.
The Company also has an available line of credit with the Federal Reserve Bank secured by 70% of the carrying value of indirect auto loans with an amortized balance amounting to $288,016,000 and $372,940,000, respectively, of which no amount was outstanding at December 31, 2015 and 2014.
13. INCOME TAXES
Allocation of the federal and state income taxes between current and deferred portions for the years ended December 31, 2015 and 2014 are as follows:
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||
Current tax provision (benefit): |
|||||||
Federal |
$ | 1,465 | $ | 628 | |||
State |
(45 | ) | 291 | ||||
| | | | | | | |
|
1,420 | 919 | |||||
| | | | | | | |
Deferred tax provision: |
|||||||
Federal |
796 | 351 | |||||
State |
343 | 80 | |||||
| | | | | | | |
|
1,139 | 431 | |||||
| | | | | | | |
Income tax provision |
$ | 2,559 | $ | 1,350 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The reasons for the differences between the statutory federal income tax and the actual income tax provision (benefit) for the years ended December 31, 2015 and 2014 are summarized as follows:
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||
Statutory tax provision at 34% |
$ | 2,831 | $ | 1,333 | |||
Increase (decrease) resulting from: |
|||||||
State taxes, net of federal tax benefit |
196 | 245 | |||||
Bank-owned life insurance |
(429 | ) | (27 | ) | |||
Non-deductible merger expenses |
232 | | |||||
Tax exempt income |
(308 | ) | (300 | ) | |||
Other, net |
37 | 99 | |||||
| | | | | | | |
Income tax provision |
$ | 2,559 | $ | 1,350 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-30
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
13. INCOME TAXES (Continued)
The tax effects of each item that give rise to deferred taxes at December 31, 2015 and 2014 are as follows:
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||
Deferred tax assets: |
|||||||
Allowance for loan losses |
$ | 5,472 | $ | 5,523 | |||
Defined benefit plan |
484 | 523 | |||||
Employee benefit plans |
1,862 | 4,247 | |||||
Market-to-market loans |
1,165 | 1,355 | |||||
Cash basis of accounting |
999 | 699 | |||||
NH loss carryforward |
168 | | |||||
MMC loss reserves |
386 | | |||||
Tax credits |
92 | | |||||
Depreciation and amortization |
| 29 | |||||
Other |
| 278 | |||||
| | | | | | | |
|
10,628 | 12,654 | |||||
| | | | | | | |
Deferred tax liabilities: |
|||||||
Net unrealized (gain) loss on securities available for sale |
(73 | ) | (198 | ) | |||
Deferred income annuities |
(1,402 | ) | (3,024 | ) | |||
Depreciation and amortization |
(135 | ) | | ||||
Purchase accounting adjustment |
(177 | ) | (101 | ) | |||
Deferred loan fees |
(4,789 | ) | (5,610 | ) | |||
Mortgage servicing rights |
(5,000 | ) | | ||||
Other |
(41 | ) | | ||||
| | | | | | | |
|
(11,617 | ) | (8,933 | ) | |||
| | | | | | | |
Net deferred tax asset (liability) |
$ | (989 | ) | $ | 3,721 | ||
| | | | | | | |
| | | | | | | |
| | | | | | | |
A summary of the change in the net deferred tax asset (liability) for the years ended December 31, 2015 and 2014 is as follows:
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||
Balance at beginning of year |
$ | 3,721 | $ | 4,161 | |||
Adoption of fair value option for mortgage servicing rights, effective January 1, 2015 |
(1,090 | ) | | ||||
Deferred tax liability acquired from MMC |
(2,567 | ) | | ||||
Deferred tax (provision) benefit |
(1,139 | ) | (431 | ) | |||
Change in supplemental director retirement plan |
(39 | ) | 523 | ||||
Change in securities available for sale |
125 | (532 | ) | ||||
| | | | | | | |
Balance at end of year |
$ | (989 | ) | $ | 3,721 | ||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Company's income tax returns are subject to review and examination by federal and state taxing authorities. The Company is currently open to audit under the applicable statutes of limitations by the Internal Revenue Service ("IRS") and Massachusetts Department of Revenue for the tax years 2012 through June 30, 2013 relating to Forms 990 and 990-T. In addition, Form 1120 is open to audit by the IRS and Massachusetts Department of Revenue for the six month period ended December 31, 2013 and the year ended December 31, 2014.
At December 31, 2015, the Bank has a net operating loss carryforward in the state of New Hampshire of $3,200,000 related to the acquisition of MMC. The net operating loss expires on December 31, 2024. The state of New Hampshire limits the use of acquired net operating losses that can be used by the Bank each year based on Internal Revenue Code 382. This limitation is $550,000 per year. The Bank believes it is more likely than not that it will be able to utilize the New Hampshire net operating loss carryforward prior to expiration.
F-31
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
13. INCOME TAXES (Continued)
At December 31, 2015, the Bank has $140,000 of New Hampshire business enterprise tax credit, ("BET") carryforward from Merrimack Mortgage Corporation. This credit will expire various years through December 31, 2019. This credit consists of a gross credit carryforward of $243,000 less a valuation allowance of $103,000. It is more likely than not that the net credit, after valuation allowance, is realizable within the remaining carryforward period.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods the deferred tax assets are expected to be deductible, management believes it is more likely than not that its deferred tax assets are realizable. It should be noted, however, that factors beyond management's control, such as the general economy and real estate values, can affect future levels of taxable income, and no assurance can be given that sufficient taxable income will be generated to fully absorb gross deductible temporary differences.
14. OTHER COMMITMENTS AND CONTINGENCIES
Loan Commitments
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and advance funds on various lines of credit. Those commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the accompanying Consolidated Financial Statements.
The Company's exposure to credit loss is represented by the contractual amount of these commitments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.
The following financial instruments were outstanding at December 31, 2015 and 2014. The contract amounts represent credit risk:
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2015 | 2014 | |||||
|
(In thousands)
|
||||||
Commitments to grant loans |
$ | 62,445 | $ | 28,808 | |||
Unadvanced funds on home equity lines of credit |
82,881 | 84,674 | |||||
Unadvanced funds on revolving lines of credit |
42,488 | 16,680 | |||||
Unadvanced funds on construction loans |
29,809 | 24,286 |
Commitments to extend credit and unadvanced portion of construction loans are agreements to lend to a customer, as long as there is no violation of any condition established in the contract. Commitments to grant loans generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for unadvanced funds on construction loans, home equity and revolving lines of credit may expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. Loans, construction loans and home equity lines of credit are collateralized by real estate while revolving lines of credit are unsecured.
Employment Agreements
The Company has entered into employment agreements with certain executive officers. The term of the agreements commenced on the effective date of the signed agreements and continues thereafter until terminated, as defined by the agreements. The agreements generally provide for a specified minimum annual compensation and the continuation of benefits currently received. However, such employment can be terminated for cause, as defined, without incurring any continuing obligations. In addition, some of the agreements provide for severance payments to the officers following a change in control, as defined. Some of the agreements also provide for coverage in a supplemental medical insurance plan for each executive officer and their spouses once they reach the age of sixty-five
F-32
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
14. OTHER COMMITMENTS AND CONTINGENCIES (Continued)
and are no longer covered by the Company's group medical plan, to supplement what is covered by their Medicare plans. The coverage of this supplemental insurance remains in effect during the entire term of the executive officers' and their spouses' retirement.
Reserve for Residential Mortgage Loan Repurchase Losses
The Company sells residential mortgage loans on a "whole-loan" basis to government-sponsored entities ("GSEs" or "Agencies") Fannie Mae and Freddie Mac and also to non-agency investors. These loan sales occur under industry standard contractual provisions that include various representations and warranties, which typically cover ownership of the loan, compliance with loan criteria set forth in the applicable agreement, validity of the lien securing the loan and other similar matters. The Company may be required to repurchase certain loans sold with identified defects, indemnify the investor, or reimburse the investor for any credit losses incurred. The Company establishes mortgage repurchase reserves related to various representations and warranties that reflect management's estimate for which we have a repurchase obligation. The reserves are established by a charge to loan expenses in our Consolidated Statements of Net Income. At December 31, 2015 this reserve totaled $965,000 and is included in other liabilities on our Consolidated Balance Sheets. There was no repurchase reserve at December 31, 2014.
The repurchase reserve is applicable to loans the Company originated and sold with representations and warranties, which is representative of the entire sold portfolio. The repurchase loss liability is estimated by origination year and to the extent that repurchase demands are made by investors, we may be able to successfully appeal such repurchase demands. The reserve considers anticipated future losses and the Company's lack of historical experience with the make-whole demands. The reserve for residential mortgage loan repurchase losses at December 31, 2015 represents our best estimate of the probable loss that we may incur due to the representations and warranties in our loan sales contracts with investors. Repurchase losses depend upon economic factors and other external conditions that may change over the life of the underlying loans. Additionally, lack of access to the servicing records of loans sold on a service released basis adds difficulty to the estimation process. To the extent that future investor repurchase demand and appeals success differ from past experience, the Company could have increased demands and increased loss severities on repurchases, causing future additions to the repurchase reserve.
Certain loans were sold with recourse provisions, and at both December 31, 2015 and 2014, the related maximum contingent liability related to loans sold amounted to $3,137,000. Based on discounted cash flow of projected losses on sold loans in this portfolio at December 31, 2015 and 2014, the Company's recourse liability was $151,000 and $341,000, respectively. These amounts are included in other liabilities and accrued expenses.
Contingent Consideration
As discussed in Note 20, Business Combinations, a portion of the purchase price of MMC is contingent on future results of MMC. The Company has recorded a contingent liability of $3,500,000 based on estimated future pre-tax earnings for the four-year period ending June 30, 2019. Payments will be made annually based on the extent to which MMC achieves targeted pre-tax earnings, as set forth in the purchase and assumption agreement. Earnings that exceed targets over the four-year period will result in additional compensation to the sellers. Conversely, earnings below target could result in a reduced amount due to the sellers for the contingency.
Other
In the ordinary course of business, various legal claims arise from time to time and, in the opinion of management based on discussion with legal counsel, management does not believe these claims will have a material effect on the Company's financial position or results of operations.
15. DERIVATIVES
Interest Rate Risk ManagementDerivative Instruments Not Designated As Hedging Instruments
The Company is party to a variety of derivative transactions, including derivative loan commitments, forward loan sale commitments and interest rate swap contracts. The Company enters into derivative contracts in order to meet the
F-33
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
15. DERIVATIVES (Continued)
financing needs of its customers. The Company also enters into derivative contracts as a means of reducing its interest rate risk and market risk.
All derivatives are recognized in the Consolidated Balance Sheets at fair value. Changes in the fair value of derivatives are recognized in earnings. The Company does not have any fair hedges or cash flow hedges for the years ended December 31, 2015 or 2014.
Derivative Loan Commitments
Mortgage loan commitments qualify as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. The Company enters into commitments to fund residential mortgage loans at specified times in the future, with the intention that these loans will subsequently be sold in the secondary market. A mortgage loan commitment binds the Company to lend funds to a potential borrower at a specified interest rate and within a specified period of time, generally up to 60 days after inception of the rate lock.
Outstanding derivative loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might decline from inception of the rate lock to funding of the loan due to increases in mortgage interest rates. If interest rates increase, the value of these loan commitments decreases. Conversely, if interest rates decrease, the value of these loan commitments increases.
Forward Loan Sale Commitments
The Company utilizes both "mandatory delivery" and "best efforts" forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments.
With a "mandatory delivery" contract, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a "pair-off" fee, based on then-current market prices, to the investor to compensate the investor for the shortfall.
With a "best efforts" contract, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally, the price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g., on the same day the lender commits to lend funds to a potential borrower).
The Company expects that these forward loan sale commitments will experience changes in fair value opposite to the change in fair value of derivative loan commitments.
Interest Rate Swaps
The Company enters into interest rate swap agreements that are transacted to meet the financing needs of its commercial customers. Offsetting interest rate swap agreements are simultaneously transacted to effectively eliminate the Company's interest rate risk associated with the customer swaps. The primary risks associated with these transactions arise from exposure to the ability of the counterparties to meet the terms of the contract. Mortgage-backed securities with a fair value of $3,154,000 are pledged to secure the Company's liability for the offsetting interest rate swaps.
F-34
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
15. DERIVATIVES (Continued)
The following tables present the fair values of derivative instruments in the balance sheets:
|
|
Assets | Liabilities | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Notional
Amount |
Balance Sheet
Location |
Fair
Value |
Balance Sheet
Location |
Fair
Value |
|||||||||
|
(In thousands)
|
|||||||||||||
December 31, 2015: |
||||||||||||||
Derivative loan commitments |
$ | 109,610 | Other assets | $ | 1,432 | Other liabilities | $ | | ||||||
Forward loan sale commitments |
123,619 | Other assets | 229 | Other liabilities | 89 | |||||||||
Interest rate swaps |
63,789 | Other assets | 1,226 | Other liabilities | 1,226 | |||||||||
| | | | | | | | | | | | | | |
Total derivatives not designated as hedging instruments |
$ | 2,887 | $ | 1,315 | ||||||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
December 31, 2014: |
||||||||||||||
Derivative loan commitments |
$ | 4,391 | Other assets | $ | 67 | NA | $ | | ||||||
Forward loan sale commitments |
7,201 | Other assets | | Other liabilities | 44 | |||||||||
| | | | | | | | | | | | | | |
Total derivatives not designated as hedging instruments |
$ | 67 | $ | 44 | ||||||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
The following table presents information pertaining to the Company's derivative instruments on the statements of net income:
|
|
Year Ended December 31, | |||||||
---|---|---|---|---|---|---|---|---|---|
|
|
2015 | 2014 | ||||||
|
Location of Gain (Loss) | Amount of Gain (Loss) | |||||||
|
|
(In thousands)
|
|||||||
Derivative loan commitments |
Mortgage banking income | $ | (334 | ) | $ | 22 | |||
Forward loan sale commitments |
Mortgage banking income | (309 | ) | (79 | ) | ||||
| | | | | | | | | |
Total |
$ | (643 | ) | $ | (57 | ) | |||
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
16. COMPENSATION AND BENEFIT PLANS
Defined Contribution Plan
The Company provides a savings plan which qualifies under Section 401(k) of the Internal Revenue Code and provides for voluntary contributions by participating employees up to the maximum amount permitted by law. The Company may contribute 9.3% of each employee's compensation plus 5.7% of the employee's compensation in excess of the social security wage base on a discretionary basis up to regulatory maximums. Contributions expensed were $1,713,000 and $1,520,000 for the years ended December 31, 2015 and 2014, respectively.
Management Incentive Program
The Company has adopted a management incentive program whereby eligible participants receive a percentage of annual compensation if certain incentive and performance targets are achieved by the Company. The program is administered by the Compensation Committee of the Board of Directors. Compensation expense related to the management incentive program was $2,319,000 and $1,750,000 for the years ended December 31, 2015 and 2014, respectively.
Supplemental Retirement Plans
The Company provides supplemental retirement benefits for two senior executive officers of the Company under the terms of the Supplemental Executive Retirement Plan Agreements (the "Agreements"). Benefits to be paid under the Agreements are based primarily on the officer's compensation and estimated mortality. The Agreements are funded with annuities purchased by the Company. During 2015, one agreement expired and was settled in accordance with the terms of the agreement. A new supplemental retirement plan was put in place. At December 31, 2015 and 2014, included in other liabilities and accrued expenses is the Company's obligation under the plans of $2,173,000 and
F-35
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
16. COMPENSATION AND BENEFIT PLANS (Continued)
$8,467,000, respectively. The retirement benefits, as defined in the Agreements, are accrued by charges to compensation expense over the required service periods of the officers. Compensation expense related to these benefits was $1,554,000 and $1,067,000 for the years ended December 31, 2015 and 2014, respectively.
Split-Dollar Life Insurance Arrangements
The Company has collateral assignment split dollar life insurance agreements with an executive officer and a retired executive, whereby the Company will make annual premium payments for the executives' life insurance policies. The Company has the unqualified right to receive from the insurer an amount which is equal to the lesser of the cash surrender value of the policy or the aggregate un-reimbursed amount of premium payments with respect to the policy for which the Company paid. At December 31, 2015 and 2014, included in other liabilities and accrued expenses is the Company's obligation under the agreements of $135,000 and $269,000, respectively.
During 2015 the Company terminated the agreement with one of the officers and ownership of the policy was transferred to the Company to fully reimburse the Company for premiums paid on the policy of $1,207,000. An endorsement split dollar life insurance agreement was established for the officer whereby the Company will pay to the executives' estates or beneficiaries a portion of the death benefit that the Company will receive as beneficiary of such policy. Expense associated with this post retirement benefit for the year ended December 31, 2015 was $16,000. The cash surrender value of the new policy is included in bank-owned life insurance on the Consolidated Balance Sheets.
Deferred Compensation Plan
The Company is the sole owner of an annuity policy pertaining to one of the Company's executives. The Company has an agreement with this executive whereby upon retirement the Company will pay to the executive an amount equal to the cash surrender value of the annuity less premiums paid accumulated at an interest rate of 1.5% per year. At December 31, 2015 and 2014, included in other liabilities and accrued expenses is the Company's obligation under the plan of $238,000 and $212,000, respectively. For the years ended December 31, 2015 and 2014, the expense amounted to $26,000 and $20,000, respectively.
In 2014, the Company entered into agreements with two executive officers whereby the Company will pay the cost of the premium for individual supplemental medical and prescription drug coverage for their lifetime upon retirement at age 65 or later. Spousal coverage is provided each year the executive is eligible for coverage and the spouse is age 65 or over. At December 31, 2015 and 2014, included in other liabilities and accrued expenses is the Company's obligation under the plan of $183,000 and $114,000, respectively.
Long-Term Incentive Plan
During 2015, the Company entered into a long-term incentive plan with several executive officers. Benefits are earned annually based on the Company's achievement of performance goals. The plan is administered by the Company's Board of Directors. Included in other liabilities and accrued expenses at December 31, 2015 is $336,000 for this plan.
Post-Retirement Life Insurance
Employees who are covered under HarborOne's bank-owned life insurance program can elect to participate in the benefits of the program while employed by HarborOne. The Company granted post-employment coverage to certain executives. Included in other liabilities and accrued expenses at December 31, 2015 and 2014 is $79,000 and $20,000, respectively, for this post retirement benefit.
Directors' Retirement Plan
The Company has an unfunded director fee continuation plan which provides postretirement benefits to eligible directors of the Company. Participants in the plan must have at least six years of service as a director to be vested in the benefit which is determined based on number of years of service.
F-36
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
16. COMPENSATION AND BENEFIT PLANS (Continued)
Based on the actuarial analysis, the funded status of the plan and the components of net periodic cost are as follows:
|
Years Ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2015 | 2014 | |||||
|
(In thousands)
|
||||||
Change in projected benefit obligation: |
|||||||
Benefit obligation at beginning of year |
$ | 1,367 | $ | | |||
Service cost |
60 | 9 | |||||
Interest cost |
52 | 11 | |||||
(Gain) loss |
21 | | |||||
Prior service cost |
117 | 1,347 | |||||
Benefits paid |
(248 | ) | | ||||
| | | | | | | |
Benefit obligation and funded status at end of year |
$ | 1,369 | $ | 1,367 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Accumulated benefit obligation |
$ | 1,242 | $ | 1,232 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Service cost |
$ | 60 | $ | 9 | |||
Interest cost |
52 | 11 | |||||
Prior service cost recognized |
231 | 36 | |||||
| | | | | | | |
Net periodic cost |
$ | 343 | $ | 56 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The following assumptions were used to determine the benefit obligation and net periodic cost at or for the years ended December 31:
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
Discount rate |
4.00 | % | 5.00 | % | |||
Rate of compensation increase |
3.00 | % | 3.00 | % |
The following is a summary of benefit payments expected to be paid by the director's retirement plan over the next ten years (in thousands):
17. RELATED PARTY TRANSACTIONS
The Company has made loans to directors and executive officers, in the ordinary course of business at arms-length terms, amounting to $1,353,000 and $1,750,000 at December 31, 2015 and 2014, respectively. New loans granted and increases due to new hires were $438,000 and $708,000 in 2015 and 2014, respectively. Loan repayments and reductions due to officer retirements were $835,000 and $243,000 in 2015 and 2014, respectively.
On July 1, 2015 the Company purchased MMC, which was previously privately owned by three individuals. As part of the stock purchase agreement, two of the three sellers are now employees of the Company. Refer to Note 20, Business Combinations.
F-37
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
18. MINIMUM REGULATORY CAPITAL REQUIREMENTS
The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific net worth guidelines that involve quantitative measures of the Company's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require minimum ratios of Tier 1 capital to average assets (Leverage Ratio) and common equity Tier 1, Tier 1 and Total capital to risk-weighted assets. These capital guidelines assign risk weights to on- and off-balance sheet items in arriving at total risk-weighted assets. Minimum capital levels are based upon the perceived risk of various asset categories and certain off-balance sheet instruments. As a condition of the application to convert to a co-operative bank the FDIC has established a minimum Tier 1 capital to average assets requirement of 8% for the first seven years of operation. Management believes, as of December 31, 2015, that the Company meets all capital adequacy requirements to which it is subject.
In July 2013, federal banking regulators approved a rule to set minimum requirements for both the quantity and quality of capital held by community banking institutions. The rule includes a new minimum ratio of common equity Tier 1 capital to risk weighted assets of 4.5%, raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking organizations. Additionally, community banking institutions must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonus payment to executive officers. The phase-in period for the rules began for the Company on January 1, 2015, with full compliance with all of the final rule's requirements phased in over a multi-year schedule.
The Company's actual and minimum required capital amount at December 31, 2015 and 2014 are as follows:
|
Actual |
Minimum Capital
Requirement |
Minimum To Be
Well Capitalized Under Prompt Corrective Action Provisions |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||||
December 31, 2015: |
|||||||||||||||||||
Common equity Tier 1 to risk-weighted assets |
$ | 177,809 | 10.8 | % | $ | 73,809 | 4.5 | % | $ | 106,613 | 6.5 | % | |||||||
Tier 1 capital to risk-weighted assets |
177,809 | 10.8 | 98,412 | 6.0 | 131,216 | 8.0 | |||||||||||||
Total capital to risk-weighted assets |
191,509 | 11.7 | 131,216 | 8.0 | 164,020 | 10.0 | |||||||||||||
Tier 1 capital to average assets |
177,809 | 8.3 | 171,330 | 8.0 | 171,330 | 8.0 | |||||||||||||
December 31, 2014: |
|
|
|
|
|
|
|||||||||||||
Tier 1 capital to risk-weighted assets |
$ | 179,922 | 12.2 | % | $ | 59,247 | 4.0 | % | $ | 88,870 | 6.0 | % | |||||||
Total capital to risk-weighted assets |
193,856 | 13.1 | 118,494 | 8.0 | 148,117 | 10.0 | |||||||||||||
Tier 1 capital to average assets |
179,922 | 8.9 | 162,176 | 8.0 | 162,176 | 8.0 |
19. FAIR VALUE OF ASSETS AND LIABILITIES
Determination of Fair Value
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of an asset or liability is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various assets or liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability.
F-38
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
19. FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
The following methods and assumptions were used by the Company in estimating fair value disclosures:
Cash and cash equivalents The carrying amounts of cash and short-term instruments approximate fair values based on the short-term nature of the assets.
Securities All fair value measurements are obtained from a third-party pricing service and are not adjusted by management. Securities measured at fair value in Level 1 are based on quoted market prices in an active exchange market. Securities measured at fair value in Level 2 are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data.
Federal Home Loan Bank stock The fair value of Federal Home Loan Bank stock is equal to cost based on redemption provisions.
Mortgage loans held for sale Fair values are based on prevailing market prices for similar commitments.
Loans Fair values for mortgage loans and other loans are estimated using discounted cash flow analyses, using market interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for non-performing loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.
Retirement plan annuities The carrying value of the annuities are based on their contract values which approximate fair value.
Mortgage servicing rights Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.
Deposits and mortgagors' escrow accounts The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) and mortgagors' escrow accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Borrowed funds The fair values of borrowed funds are estimated using discounted cash flow analyses based on the current incremental borrowing rates in the market for similar types of borrowing arrangements.
Accrued interest The carrying amounts of accrued interest approximate fair value.
Forward loan sale commitments and derivative loan commitments Forward loan sale commitments and derivative loan commitments are based on fair values of the underlying mortgage loans and the probability of such commitments being exercised. The assumptions for pull-through rates are derived from internal data and adjusted using management judgment. Derivative loan commitments include the non-refundable costs of originating the loan based on the Company's internal cost analysis that is not observable. At December 31, 2015 and 2014, the weighted average pull-through rate for derivative loan commitments was 85% and 75%, respectively.
Off-balance sheet credit-related instruments Fair values for off-balance sheet, credit related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The fair value of off-balance sheet instruments are immaterial.
Interest rate swaps The Company's interest rate swaps are traded in over-the-counter markets where quoted market prices are not readily available. For these interest rate derivatives, fair value is determined utilizing models that use primarily market observable inputs, such as swap rates and yield curves. The pricing models used to value interest rate swaps calculate the sum of each instrument's fixed and variable cash flows, which are then
F-39
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
19. FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
discounted using an appropriate yield curve to arrive at the fair value of each swap. The pricing models do not contain a high level of subjectivity as the methodologies used do not require significant judgement.
Fair Value Hierarchy
The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1Valuation is based on quoted prices in active markets for identical assets or liabilities. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include assets and liabilities whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as assets and liabilities for which the determination of fair value requires significant management judgment or estimation.
Transfers between levels are recognized at the end of the reporting period, if applicable.
F-40
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
19. FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below:
|
Level 1 | Level 2 | Level 3 |
Total
Fair Value |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||||||||
December 31, 2015 |
|||||||||||||
Assets |
|||||||||||||
U.S. government and government-sponsored enterprise obligations |
$ |
|
$ |
4,967 |
$ |
|
$ |
4,967 |
|||||
U.S. government-sponsored residential mortgage-backed securities |
| 46,616 | | 46,616 | |||||||||
U.S. government-sponsored collateralized mortgage obligations |
| 46,470 | | 46,470 | |||||||||
SBA asset-backed securities |
| 30,488 | | 30,488 | |||||||||
Mortgage loans held for sale |
| 63,797 | | 63,797 | |||||||||
Mortgage servicing rights |
| 12,958 | | 12,958 | |||||||||
Derivative loan commitments |
| | 1,432 | 1,432 | |||||||||
Forward loan sale commitments |
| | 229 | 229 | |||||||||
Interest rate swaps |
| 1,226 | | 1,226 | |||||||||
| | | | | | | | | | | | | |
|
$ | | $ | 206,522 | $ | 1,661 | $ | 208,183 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Liabilities |
|||||||||||||
Forward loan sale commitments |
$ |
|
$ |
|
$ |
89 |
$ |
89 |
|||||
Interest rate swaps |
| 1,226 | | 1,226 | |||||||||
| | | | | | | | | | | | | |
|
$ | | $ | 1,226 | $ | 89 | $ | 1,315 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
December 31, 2014 |
|||||||||||||
Assets |
|
|
|
|
|||||||||
U.S. government and government-sponsored enterprise obligations |
$ |
|
$ |
4,983 |
$ |
|
$ |
4,983 |
|||||
U.S. government-sponsored residential mortgage-backed securities |
| 59,926 | | 59,926 | |||||||||
U.S. government-sponsored collateralized mortgage obligations |
| 67,466 | | 67,466 | |||||||||
SBA asset-backed securities |
| 15,640 | | 15,640 | |||||||||
Derivative loan commitments |
| | 67 | 67 | |||||||||
| | | | | | | | | | | | | |
|
$ | | $ | 148,015 | $ | 67 | $ | 148,082 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Liabilities |
|||||||||||||
Forward loan sale commitments |
$ |
|
$ |
|
$ |
44 |
$ |
44 |
|||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
F-41
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
19. FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
The table below presents, for the years ended December 31, 2015 and 2014, the changes in Level 3 assets and liabilities that are measured at fair value on a recurring basis.
|
Assets | Liabilities | |||||
---|---|---|---|---|---|---|---|
|
Derivative and
Forward Loan Sale Commitments, Net |
Derivative and
Forward Loan Sale Commitments, Net |
|||||
|
(In thousands)
|
||||||
Balance as of December 31, 2013 |
$ | 89 | $ | (9 | ) | ||
Total gains (loss) included in net income(1) |
(22 |
) |
(35 |
) |
|||
| | | | | | | |
Balance as of December 31, 2014 |
67 | (44 | ) | ||||
Additions from acquisition of MMC |
2,192 |
|
|||||
Total gains (loss) included in net income(1) |
(598 | ) | (45 | ) | |||
| | | | | | | |
Balance as of December 31, 2015 |
$ | 1,661 | $ | (89 | ) | ||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Change in unrealized (losses) gains relating to instruments at December 31, 2015 |
$ | 1,661 | $ | (89 | ) | ||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Change in unrealized (losses) gains relating to instruments at December 31, 2014 |
$ | 67 | $ | (44 | ) | ||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Assets Measured at Fair Value on a Non-recurring Basis
The Company may also be required, from time to time, to measure certain other financial assets on a nonrecurring basis in accordance with generally accepted accounting principles. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. There were no liabilities measured at fair value on a non-recurring basis at December 31, 2015 and 2014. The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related individual assets. The loss represents the amount of the write-down recorded in the allowance for loan losses prior to repossession during 2015 and 2014 on the assets held at December 31, 2015 and 2014, respectively.
|
Level 1 | Level 2 | Level 3 |
Total
Losses |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||||||||
December 31, 2015 |
|||||||||||||
Impaired loans |
$ |
|
$ |
|
$ |
3,988 |
$ |
67 |
|||||
Other real estate owned and repossessed assets |
| | 2,347 | 4 | |||||||||
| | | | | | | | | | | | | |
|
$ | | $ | | $ | 6,335 | $ | 71 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
December 31, 2014 |
|||||||||||||
Impaired loans |
$ |
|
$ |
|
$ |
8,860 |
$ |
1,622 |
|||||
Other real estate owned and repossessed assets |
| | 2,915 | 102 | |||||||||
| | | | | | | | | | | | | |
|
$ | | $ | | $ | 11,775 | $ | 1,724 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Losses applicable to write-downs of impaired loans and other real estate owned and repossessed assets are based on the appraised value of the underlying collateral less estimated costs to sell. Appraised values are typically based on a blend of (a) an income approach using observable cash flows to measure fair value, and (b) a market approach using observable market comparables. These appraised values may be discounted based on management's historical knowledge, expertise or changes in market conditions from time of valuation.
F-42
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
19. FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
Summary of Fair Values of Financial Instruments
The estimated fair values, and related carrying or notional amounts, of the Company's financial instruments are as follows. Certain financial instruments and all nonfinancial instruments are exempt from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.
|
December 31, | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2015 | 2014 | |||||||||||||||||||||||||||||
|
|
Fair Value |
|
Fair Value | |||||||||||||||||||||||||||
|
Carrying
Amount |
Carrying
Amount |
|||||||||||||||||||||||||||||
|
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
|
(In thousands)
|
||||||||||||||||||||||||||||||
Financial assets: |
|||||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | 40,652 | $ | 40,652 | $ | | $ | | $ | 40,652 | $ | 52,983 | $ | 52,983 | $ | | $ | | $ | 52,983 | |||||||||||
Securities available for sale |
128,541 | | 128,541 | | 128,541 | 148,015 | | 148,015 | | 148,015 | |||||||||||||||||||||
Securities held to maturity |
63,579 | | 65,206 | | 65,206 | 58,384 | | 60,305 | | 60,305 | |||||||||||||||||||||
Federal Home Loan Bank stock |
18,735 | | | 18,735 | 18,735 | 18,631 | | | 18,631 | 18,631 | |||||||||||||||||||||
Mortgage loans held for sale |
63,797 | | 63,797 | | 63,797 | 3,525 | | 3,525 | 3,525 | ||||||||||||||||||||||
Loans, net |
1,729,388 | | | 1,754,997 | 1,754,997 | 1,651,894 | | | 1,677,996 | 1,677,996 | |||||||||||||||||||||
Retirement plan annuities |
11,608 | | | 11,608 | 11,608 | 24,101 | | | 24,101 | 24,101 | |||||||||||||||||||||
Mortgage servicing rights |
12,958 | | 12,958 | | 12,958 | 2,168 | | 4,353 | 4,353 | ||||||||||||||||||||||
Accrued interest receivable |
4,920 | | 4,920 | | 4,920 | 4,494 | | 4,494 | | 4,494 | |||||||||||||||||||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Deposits |
1,691,212 | | | 1,695,731 | 1,695,731 | 1,500,115 | | | 1,504,757 | 1,504,757 | |||||||||||||||||||||
Borrowed funds |
249,598 | | 251,812 | | 251,812 | 329,602 | | 336,212 | | 336,212 | |||||||||||||||||||||
Mortgagors' escrow accounts |
4,486 | | | 4,486 | 4,486 | 3,510 | | | 3,510 | 3,510 | |||||||||||||||||||||
Accrued interest payable |
546 | | 546 | | 546 | 576 | | 576 | | 576 | |||||||||||||||||||||
Derivative loan commitments: |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Asset |
1,432 | | | 1,432 | 1,432 | 67 | | | 67 | 67 | |||||||||||||||||||||
Interest rate swap agreements: |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Asset |
1,226 | | 1,226 | | 1,226 | | | | | ||||||||||||||||||||||
Liabilities |
1,226 | | 1,226 | | 1,226 | | | | | ||||||||||||||||||||||
Forward loan sale commitments: |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Asset |
229 | | | 229 | 229 | | | | | | |||||||||||||||||||||
Liabilities |
89 | | | 89 | 89 | 44 | | | 44 | 44 |
20. BUSINESS COMBINATION
On July 1, 2015, the Company completed the acquisition of 100% of the common stock of MMC. MMC originates, sells and services residential mortgages throughout the northeastern United States. This acquisition enables the Company to expand its mortgage banking business to a larger geographical region. The Company paid $20,161,000 and recorded $10,179,000 of goodwill. Included in the purchase price is $3,500,000 of contingent consideration due to the sellers of MMC. The contingent consideration will be paid to the sellers if MMC achieves certain targeted pre-tax income amounts during the four-year period ending on June 30, 2019. The fair value of the contingent consideration was calculated based on estimated earnings of MMC over the next four years.
The Company accounted for the acquisition using the acquisition method of accounting. Accordingly, MMC's results have been consolidated in the Company's results since July 1, 2015. Acquisition costs of $548,000 and $335,000 were expensed as incurred during 2015 and 2014, respectively. The acquisition method requires the recognition of assets acquired and liabilities assumed at their fair value as of the acquisition date. The difference between the purchase price and the fair value of the net assets acquired (including intangible assets with finite lives) is recorded as goodwill.
F-43
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
20. BUSINESS COMBINATION (Continued)
The following table summarizes the estimated fair value of the acquired assets and assumed liabilities as of July 1, 2015:
|
(In thousands) | |||
---|---|---|---|---|
Assets acquired: |
||||
Cash and due from banks |
$ |
1,543 |
||
Mortgage loans held for sale |
80,684 | |||
Loans |
725 | |||
Mortgage servicing rights |
5,116 | |||
Property and equipment |
487 | |||
Goodwill |
10,179 | |||
Non-compete intangible asset |
353 | |||
Other assets |
2,914 | |||
| | | | |
Total assets acquired |
102,001 | |||
| | | | |
Liabilities assumed: |
||||
Notes payable |
73,657 |
|||
Deferred tax liability |
2,567 | |||
Reserve for repurchase liabilities |
1,006 | |||
Other liabilities |
4,610 | |||
| | | | |
Total liabilities assumed |
81,840 | |||
| | | | |
Net purchase price |
$ | 20,161 | ||
| | | | |
| | | | |
| | | | |
The notes payable were warehouse lines with other financial institutions, which Merrimack used to fund its operations. They were paid in full during 2015.
None of the goodwill is expected to be deductible for tax purposes.
21. SEGMENT REPORTING
The Company has two reportable segments: HarborOne Bank and MMC. Revenue from HarborOne Bank consists primarily of interest earned on loans and investment securities and service charges on deposit accounts. Revenue from MMC comprises interest earned on loans and fees received as a result of the residential mortgage origination, sale and servicing process.
The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Segment profit and loss is measured by net income on a legal entity basis. Intercompany transactions are eliminated in consolidation.
F-44
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
21. SEGMENT REPORTING (Continued)
Information about the reportable segments and reconciliation to the Consolidated Financial Statements for the year ended December 31, 2015 are presented in the table below. MMC was acquired during 2015. Therefore, for the year ended December 31, 2014, the Company had a single segment, HarborOne Bank.
|
HarborOne
Bank |
Merrimack
Mortgage Company |
Eliminations | Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
||||||||||||
Net interest income |
$ | 51,137 | $ | 1,088 | $ | | $ | 52,225 | |||||
Provision for loan losses |
1,257 | | | 1,257 | |||||||||
| | | | | | | | | | | | | |
Net interest income after provision for loan losses |
49,880 | 1,088 | | 50,968 | |||||||||
Noninterest income |
17,346 |
18,027 |
|
35,373 |
|||||||||
Noninterest expense |
61,249 | 16,765 | | 78,014 | |||||||||
| | | | | | | | | | | | | |
Income before provision for income taxes |
5,977 | 2,350 | | 8,327 | |||||||||
Income tax provision |
1,631 | 928 | | 2,559 | |||||||||
| | | | | | | | | | | | | |
Net income |
$ | 4,346 | $ | 1,422 | $ | | $ | 5,768 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total assets at December 31, 2015 |
$ | 2,159,635 | $ | 88,981 | $ | (85,474 | ) | $ | 2,163,142 | ||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Goodwill as of December 31, 2015 |
$ | 3,186 | $ | 10,179 | $ | | $ | 13,365 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
22. SUBSEQUENT EVENTS
Management has evaluated subsequent events through February 29, 2016 which is the date the Consolidated Financial Statements were available to be issued. There were no subsequent events that require adjustment to the Consolidated Financial Statements.
Reorganization and Offering
On January 27, 2016, the Board of Directors adopted a plan of reorganization and minority stock issuance (the "Plan") whereby the Company will reorganize from a mutual bank to a two-tier mutual holding company structure, with a mid-tier Massachusetts stock holding company (the "Holding Company") that will offer common stock on a priority basis to qualifying depositors, tax qualified employee benefit plans of the Company and employees, officers and directors of the Company or any subsidiary of the Company who are not qualifying depositors, with any remaining shares to be offered to the public in a community offering and possibly a syndicated community offering (the "Reorganization").
All existing and future depositors of the Company will have the same liquidation rights in the mutual holding company as were conferred upon depositors of the Company immediately prior to the Reorganization.
Under the Plan, depositors as of December 31, 2014 will receive an interest in the liquidation account maintained by the Holding Company equal to the Holding Company's total equity as reflected in its latest statement of financial condition contained in the prospectus for the Holding Company's stock offering. The Holding Company will hold the liquidation account for the benefit of such depositors who continue to maintain deposits in the Company after the Reorganization. The liquidation account would be distributed to such depositors only in the event of a liquidation of the Company.
If the deposit balance in any deposit account of a depositor at the close of business on any December 31 after December 31, 2014 is less than the lesser of the deposit balance in a deposit account at the close of business on any other December 31 after December 31, 2014 or the amount of the "qualifying deposit" in a deposit account on December 31, 2014, then the individual's subaccount balance in the liquidation account will be reduced. Once reduced, the subaccount balance will not be subsequently increased, notwithstanding any increase in the balance of the related deposit account. If any deposit account is closed, the related subaccount balance will be reduced to zero. Upon a complete liquidation of the Company, each eligible account holder would be entitled to receive a distribution from the
F-45
HarborOne Bank and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
22. SUBSEQUENT EVENTS (Continued)
liquidation account in the amount of the then current adjusted subaccount balance(s) for deposit account(s) held by the holder before any distribution may be made to shareholders.
Subsequent to the Reorganization, the board of directors of the Holding Company will have the authority to declare dividends on shares of common stock, subject to statutory and regulatory requirements and other considerations.
Reorganization costs are capitalized and reduce proceeds from the shares sold in the Reorganization. If the Reorganization is not completed, all costs will be expensed. As of December 31, 2015, Reorganization costs amounting to $176,000 have been incurred and are included in other assets in the accompanying consolidated balance sheets.
In connection with the Reorganization, the Holding Company intends to implement an employee stock ownership plan.
Also in connection to the Reorganization, the Holding Company intends to establish and fund a charitable foundation as part of the offering. The Holding Company intends to contribute cash equal to 0.7% of the net proceeds raised in the offering and 1.2% of the outstanding shares of common stock.
Supplemental Retirement Agreement
On March 1, 2016, in anticipation of the Reorganization, the Company amended a Supplemental Executive Retirement Plan with an executive to accelerate vesting. This amendment increased the net present value of the benefit obligation in the amount of $891,000 and this increase will be expensed in the first quarter of 2016.
F-46
No person has been authorized to give any information or to make any representation other than as contained in this prospectus and, if given or made, such other information or representation must not be relied upon as having been authorized by HarborOne Bancorp, Inc. or HarborOne Bank. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby to any person in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. Neither the delivery of this prospectus nor any sale hereunder shall under any circumstances create any implication that there has been no change in the affairs of HarborOne Bancorp, Inc. or HarborOne Bank since any of the dates as of which information is furnished herein or since the date hereof.
Up to 11,783,475 Shares
(Subject to Increase to up to 13,550,996 Shares)
HarborOne Bancorp, Inc.
(Holding Company for HarborOne Bank)
COMMON STOCK
par value $0.01 per share
PROSPECTUS
, 2016
These securities are not deposits or accounts and are not federally insured or guaranteed.
Until , all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
Part II
Information not required in prospectus
Item 13. Other expenses of issuance and distribution
The following table sets forth the estimated costs and expenses payable by the registrant in connection with the registration of securities being registered under this Registration Statement. All amounts except the SEC registration fee are estimates.
|
Amount(1) | |||
---|---|---|---|---|
* Registrant's Legal Fees and Expenses |
$ | 1,000,000 | ||
* Registrant's Accounting Fees and Expenses |
190,000 | |||
* Marketing Agent Fees(1) |
935,000 | |||
* Records Management Fees and Expenses(1) |
140,000 | |||
* Appraisal Fees and Expenses |
127,500 | |||
* Printing, Postage, Mailing and EDGAR Fees |
875,000 | |||
* Filing Fees (Nasdaq, FINRA, SEC and Commonwealth of Massachusetts) |
107,665 | |||
* Transfer Agent Fees and Expenses |
20,000 | |||
* Business Plan Fees and Expenses |
82,600 | |||
* Other |
94,000 | |||
| | | | |
* Total |
$ | 3,571,765 | ||
| | | | |
| | | | |
| | | | |
Item 14.
Indemnification of directors and officers
Sections 6.5 and 6.6 of the Articles of Organization of HarborOne Bancorp, Inc. set forth circumstances under which directors, officers, employees and agents of HarborOne Bancorp, Inc. may be insured or indemnified against liability which they incur in their capacities as such:
Section 6.5. Indemnification of Directors and Others.
(a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise (hereinafter a "Proceeding"), by reason of the fact that he or she is or was (a) a Director of the Corporation, or (b) serving, at the request of the Corporation as evidenced by a resolution of the Board of Directors prior to the occurrence of the event to which the indemnification relates, as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (such persons described in (a) and (b) are sometimes hereinafter referred to as an "Indemnitee"), whether the basis of such Proceeding is alleged action in an official capacity as such a Director or officer of the Corporation or as such other director, officer, employee or agent or in any other capacity while serving as such a Director or officer of the Corporation or as such other director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Massachusetts Business Corporation Act (the "MBCA"), as the same exists or may hereafter be amended (but in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including, but not limited to, attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such Indemnitee in connection therewith and such indemnification shall continue as to an Indemnitee who has ceased to be such a director, officer, employee or agent and shall inure to the benefit of the Indemnitee's heirs, executors and administrators; provided, however, that, except as provided in Section 6.5(c) with respect to Proceedings to enforce rights to indemnification, the Corporation shall indemnify any such Indemnitee in connection with a Proceeding (or part thereof) initiated by such Indemnitee only if such Proceeding (or part thereof) was authorized or ratified by the Board of Directors of the Corporation. The right to indemnification conferred in this Section 6.5 shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any Proceeding in advance of its final disposition (hereinafter an "Advancement of Expenses"); provided, however, that, if the MBCA so requires, an Advancement of Expenses incurred by an Indemnitee shall be made only upon delivery to the
II-1
Corporation of an undertaking made in accordance with the MBCA (hereinafter an "Undertaking"), by or on behalf of such Indemnitee, which shall include, without limitation, an undertaking to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "Final Adjudication") that such Indemnitee is not entitled to be indemnified for such expenses under this Section 6.5 or otherwise.
(b) Indemnification of Employees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and to an Advancement of Expenses, to any officer, employee or agent of the Corporation to the fullest extent of the provisions of this Section 6.5.
(c) Right of Indemnitee to Bring Suit. If a claim under this Section 6.5 is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, except in the case of a claim for an Advancement of Expenses, in which case the applicable period shall be 20 days, the Indemnitee may at any time hereafter bring suit against the Corporation to recover the unpaid amount of the claim. If the Indemnitee is successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the Indemnitee shall also be entitled to be paid the expense of prosecuting or defending such suit. In any suit brought by the Indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right to an Advancement of Expenses) it shall be a defense that the Indemnitee has not met the applicable standard of conduct set forth in the MBCA. In addition, in any suit by the Corporation to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the Corporation shall be entitled to recover such expenses upon a Final Adjudication that the Indemnitee has not met the applicable standard of conduct set forth in the MBCA. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or Shareholders) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in the MBCA, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or Shareholders) that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to enforce a right to indemnification or to an Advancement of Expenses hereunder, or by the Corporation to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such Advancement of Expenses, under this Section 6.5 or otherwise shall be on the Corporation.
(d) Non-Exclusivity of Rights. The rights to indemnification and to Advancement of Expenses conferred in this Section 6.5 shall not be exclusive of any other right which any person may have or hereafter acquire under these By-laws, the Articles of Organization or any statute, agreement, vote of Shareholders or of disinterested Directors or otherwise.
(e) Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any Director, officer, employee or agent of the Corporation or any director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the MBCA. The Corporation's obligation to provide indemnification under this Section 6.5 shall be offset to the extent of any other source of indemnification or any otherwise applicable insurance coverage under a policy maintained by the Corporation or any other person.
(f) Amendments. Without the consent of a person entitled to the indemnification and other rights provided in this Section 6.5 (unless otherwise required by the MBCA), no amendment modifying or terminating such rights shall adversely affect such person's rights under this Section 6.5 with respect to the period prior to such amendment.
(g) Savings Clause. If this Section 6.5 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any liabilities and expenses with respect to any proceeding to the fullest extent permitted by any applicable portion of this Section 6.5 that shall not have been invalidated and to the fullest extent permitted by applicable law.
Section 6.6. Limitation of Liability of Directors.
(a) Limitation of Liability. No Director of the Corporation shall be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a Director notwithstanding any provision of law imposing such liability; provided, however, that this Section 6.6 shall not eliminate or limit any liability of a Director (a) for any breach of the Director's duty of loyalty to the Corporation or its shareholders, (b) for acts or omissions not
II-2
in good faith or which involve intentional misconduct or a knowing violation of law, (c) for improper distributions under Section 6.40 of Chapter 156D of the Massachusetts General Laws or (d) with respect to any transaction from which the Director derived an improper personal benefit.
(b) Amendment. No amendment or repeal of this Section 6.6 shall adversely affect the rights and protection afforded to a Director of this Corporation under this Section 6.6 for acts or omissions occurring prior to such amendment or repeal. If the Massachusetts General Laws is hereafter amended to further eliminate or limit the personal liability of Directors or to authorize corporate action to further eliminate or limit such liability, then the liability of the Directors of this Corporation shall be eliminated or limited to the fullest extent permitted by the Massachusetts General Laws as so amended.
Item 15.
Recent sales of unregistered securities
Not applicable.
Item 16.
Exhibits and financial statement schedules
(a) Exhibits. The exhibits and financial statement schedules filed as part of this registration statement are as follows:
II-3
23.3 | Consent of Wolf & Company, P.C. | ||
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24.1 |
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Power of Attorney (set forth on signature page) |
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99.1 |
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Appraisal Agreement between HarborOne Bank and RP Financial, LC. |
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99.2 |
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Letter of RP Financial, LC. with respect to Subscription Rights |
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99.3 |
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Appraisal Report of RP Financial, LC. |
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99.4 |
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Marketing Materials |
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99.5 |
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Stock Order and Certification Form |
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99.6 |
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Letter of RP Financial, LC. with respect to Liquidation Account |
(b) Financial Statement Schedule. No financial statement schedules are filed because the required information is not applicable or is included in the consolidated financial statements or related notes.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
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(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(5) That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(6) That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(7) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
(8) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Brockton, Commonwealth of Massachusetts, on this 4 th day of March, 2016.
HarborOne Bancorp, Inc. | ||||
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By: |
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/s/ JAMES W. BLAKE James W. Blake President and Chief Executive Officer |
We, the undersigned directors and officers of HarborOne Bancorp, Inc. hereby severally constitute and appoint James W. Blake and Joseph F. Casey, and each of them, as our true and lawful attorney and agent, to do any and all things in our names in the capacities indicated below which said James W. Blake and Joseph F. Casey, and each of them, may deem necessary or advisable to enable the Company to comply with the Securities Act of 1933, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form S-1 relating to the offering of the Company's common stock, including specifically, but not limited to, power and authority to sign for us in our names in the capacities indicated below the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby approve, ratify and confirm all that said James W. Blake and Joseph F. Casey, and each of them, shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Form S-1 has been signed by the following persons in the capacities and on the dates indicated.
Signature
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Title
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Date
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/s/ JAMES W. BLAKE
James W. Blake |
President, Chief Executive Officer, Clerk and Director | March 4, 2016 | ||
/s/ JOSEPH F. CASEY Joseph F. Casey |
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Executive Vice President, Chief Operating Officer and Chief Financial Officer |
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March 4, 2016 |
/s/ TIMOTHY R. LYNCH Timothy R. Lynch |
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Chairman of the Board |
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March 4, 2016 |
/s/ JOSEPH F. BARRY Joseph F. Barry |
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Director |
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March 4, 2016 |
/s/ DAVID P. FRENETTE, ESQ. David P. Frenette, Esq. |
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Director |
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March 4, 2016 |
/s/ GORDON JEZARD Gordon Jezard |
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Director |
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March 4, 2016 |
/s/ EDWARD F. KENT Edward F. Kent |
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Director |
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March 4, 2016 |
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Signature
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Title
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Date
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/s/ BARRY R. KORETZ
Barry R. Koretz |
Director | March 4, 2016 | ||
/s/ WALLACE H. PECKHAM, III Wallace H. Peckham, III |
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Director |
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March 4, 2016 |
/s/ MICHAEL SULLIVAN Michael Sullivan |
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Director |
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March 4, 2016 |
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Exhibit
number |
Description of exhibit | ||
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1.1 | Engagement Letters, dated as of June 30, 2015, between HarborOne Bank and Sandler, O'Neill & Partners, L.P. | ||
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1.2 |
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Form of Agency Agreement between HarborOne Bank and Sandler, O'Neill & Partners, L.P.* |
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2.1 |
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Plan of Reorganization and Minority Stock Issuance |
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2.2 |
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Stock Purchase Agreement, dated as of April 24, 2015, by and among HarborOne Bank, Kraig Burnham, Daniel McKenney and Timothy Boyle |
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3.1 |
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Articles of Organization of HarborOne Bancorp, Inc. |
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3.2 |
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By-Laws of HarborOne Bancorp, Inc. |
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4.1 |
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Form of Common Stock Certificate of HarborOne Bancorp, Inc. |
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5.1 |
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Opinion of Goodwin Procter LLP regarding legality of securities being registered |
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8.1 |
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Federal and State Tax Opinion of Goodwin Procter LLP |
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10.1 |
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HarborOne Bank Employee Stock Ownership Plan |
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10.2 |
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HarborOne Bank ESOP Restoration Plan |
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10.3 |
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HarborOne Bank Senior Management Long Term Incentive Plan |
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10.4 |
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Amended and Restated Employment Agreement, dated as of March 1, 2016, by and among HarborOne Bancorp, Inc., HarborOne Bank and James W. Blake |
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10.5 |
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2016 Supplemental Executive Retirement Plan, dated as of January 21, 2016, by and between HarborOne Bank and James W. Blake |
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10.6 |
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Endorsement Split Dollar Life Insurance Agreement, dated as of November 13, 2015, by and between HarborOne Bank and James Blake |
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10.7 |
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Amended and Restated Employment Agreement, dated as of March 1, 2016, by and among HarborOne Bancorp, Inc., HarborOne Bank and Joseph Casey |
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10.8 |
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Amended and Restated Supplemental Executive Retirement Plan Agreement, dated as of March 1, 2016, by and between HarborOne Bank and Joseph F. Casey |
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10.9 |
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Form of Change in Control Agreement |
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10.10 |
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HarborOne Bank Director Retirement Plan |
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21.1 |
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Subsidiaries of the Registrant |
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23.1 |
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Consent of Goodwin Procter LLP (contained in Opinions included as Exhibits 5.1 and 8.1) |
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23.2 |
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Consent of RP Financial, LC. |
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23.3 |
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Consent of Wolf & Company, P.C. |
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24.1 |
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Power of Attorney (set forth on signature page) |
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99.1 |
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Appraisal Agreement between HarborOne Bank and RP Financial, LC. |
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99.2 |
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Letter of RP Financial, LC. with respect to Subscription Rights |
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99.3 |
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Appraisal Report of RP Financial, LC. |
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99.4 |
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Marketing Materials |
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99.5 |
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Stock Order and Certification Form |
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99.6 |
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Letter of RP Financial, LC. with respect to Liquidation Account |
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Exhibit 1.1 |
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INVESTMENT BANKING GROUP |
June 30, 2015
Board of Directors
HarborOne Bank
770 Oak Street
Brockton, Massachusetts 02301
Attention:
Mr. James W. Blake
President and Chief Executive Officer
Gentlemen:
We understand that the Board of Directors of HarborOne Bank (the Bank) is considering the adoption of a Plan of Reorganization and Stock Issuance (the Plan) pursuant to which the Bank will be reorganized into mutual holding company form (the Reorganization) and certain shares of the common stock (the Shares) of a newly organized mid-tier stock holding company (the Holding Company) will be offered and sold in a public offering. The Holding Company and the Bank are sometimes collectively referred to herein as the Company. Sandler ONeill & Partners, L.P. (Sandler ONeill) is pleased to assist the Company with the Offering and this letter is to confirm the terms and conditions of our engagement.
Under the terms of the Plan and applicable regulations, the Shares will be offered first to eligible depositors of the Bank, the Companys tax-qualified employee stock benefit plans and the Companys directors, officers and employees in a subscription offering. Subject to the prior rights of subscribers in the subscription offering, the Shares may be offered in a community offering, with a preference given in the community offering to residents of the Banks community (the subscription offering and the community offering being collectively referred to herein as the Subscription Offering). Shares not subscribed for in the Subscription Offering may be offered to the general public by Sandler ONeill on a best efforts basis (Syndicated Offering) and/or in a firm commitment public offering (Firm Commitment Offering, and together with the Subscription Offering and Syndicated Offering, the Offering). Sandler ONeill may, in consultation with the Company, form a syndicate of registered dealers to assist in any Syndicated Offering or Firm Commitment Offering.
Services
Sandler ONeill will work with the Company and its management, counsel, accountants and other advisors in preparing for and completing the Offering and anticipate that our services will include the following:
1. Consulting as to the marketing implications of any aspect of the Plan, including the percentage of the Holding Companys common stock to be offered in the Offering;
SANDLER ONEILL + PARTNERS, L.P.
1251 Avenue of the Americas, 6
th
Floor, New York, NY 10020
T: (212) 466-7700 / (800) 635-6855
ww.sandleroneill.com
2. Reviewing with the Board the financial impact of the Offering on the Company, based upon the independent appraisers appraisal of the Holding Companys common stock;
3. Reviewing all offering documents, including the Prospectus, stock order forms and related offering materials {it being understood that preparation and filing of such documents will be the responsibility of the Company and its counsel);
4. Assisting in the design and implementation of a marketing strategy for the Offering;
5. Assisting Company management in scheduling and preparing for meetings with potential investors and/or other broker-dealers in connection with the Offering; and
6. Providing such other general advice and assistance as may be reasonably necessary to promote the successful completion of the Offering.
Sandler ONeill will act as exclusive marketing agent for the Company in the Subscription Offering and will serve as sole book-running manager of the Syndicated Offering and/or Firm Commitment Offering. It is understood that neither Sandler ONeill nor any other broker/dealer shall be obligated to take or purchase any Shares in the Offering other than as may be expressly agreed to by such firms and the Company in an underwriting agreement for a Firm Commitment Offering.
Fees
If the Offering is consummated, the Company agrees to pay Sandler ONeill for its marketing agent services a fee of 85 basis points (0.85%) of the aggregate Actual Purchase Price of all Shares sold in the Subscription Offering, excluding Shares purchased by or on behalf of (i) any employee benefit plan or trust of the Company established for the benefit of its directors, officers and employees, (ii) any director, officer or employee of the Company or members of their immediate families (whether directly or through a personal trust), as to which no fee shall be payable, and (iii) shares issued to the Companys charitable foundation established in connection with the Reorganization.
With respect to any Shares sold in the Syndicated Offering and/or Firm Commitment Offering, the Company agrees to pay Sandler ONeill and any other participating broker/dealers an aggregate fee of 5.0% of the aggregate Actual Purchase Price of all Shares sold in the Syndicated Offering and/or Firm Commitment Offering.
For purposes of this letter, the term Actual Purchase Price shall mean the price at which the Shares are sold in the Offering. All fees payable hereunder shall be payable in immediately available funds by wire transfer at the time of the closing of the Offering. If (a) Sandler
ONeills engagement hereunder is terminated for any of the reasons provided for under the second paragraph of the section of this letter captioned Definitive Agreement, or (b) the Offering is terminated by the Company, no fees shall be payable by the Company to Sandler ONeill hereunder.
Expenses
In addition to any fees that may be payable to Sandler ONeill hereunder and the expenses to be borne by the Company pursuant to the following paragraph, the Company agrees to reimburse Sandler ONeill, upon request made from time to time, for its reasonable legal fees and expenses incurred in connection with its engagement hereunder, regardless of whether the Offering is consummated up to a maximum of $110,000; provided, however , that Sandler ONeill shall document such expenses to the reasonable satisfaction of the Company. The provisions of this paragraph are not intended to apply to or in any way impair the indemnification provisions of this letter.
As is customary, the Company will bear all other expenses incurred in connection with the Offering, including, without limitation, (i) the cost of obtaining all securities and bank regulatory approvals, including any required FINRA filing fees; (ii) the cost of printing and distributing the offering materials; (iii) the costs of blue sky qualification (including fees and expenses of blue sky counsel) of the Shares in the various states; (iv) listing fees; (v) all fees and disbursements of the Companys counsel, accountants, transfer agent and other advisors; and (vi) the establishment and operational expenses for the Stock Information Center (e.g., postage, telephones, supplies, temporary employees, etc.). In the event Sandler ONeill incurs any such fees and expenses on behalf of the Company, the Company will reimburse Sandler ONeill for such fees and expenses whether or not the Offering is consummated.
Due Diligence Review
Sandler ONeills obligation to perform the services contemplated by this letter shall be subject to the satisfactory completion of such investigation and inquiries relating to the Company and its directors, officers, agents and employees as Sandler ONeill and its counsel in their sole discretion may deem appropriate under the circumstances. In this regard, the Company agrees that, at its expense, it will make available to Sandler ONeill all information that Sandler ONeill reasonably requests, and will allow Sandler ONeill the opportunity to discuss with the management of the Company the financial condition, business and operations of the Company. The Company acknowledges that Sandler ONeill will rely upon the accuracy and completeness of all information received from the Company and its directors, officers, employees, agents, independent accountants and counsel.
Blue Sky Mailers
Sandler ONeill and the Company agree that the Companys counsel shall serve as counsel with respect to blue sky matters in connection with the Offering. The Company will
cause such counsel to prepare a Blue Sky Memorandum related to the Subscription Offering and, if applicable, the Firm Commitment Offering, including Sandler ONeills participation therein, and shall furnish Sandler ONeill a copy thereof addressed to Sandler ONeill or upon which such counsel shall state Sandler ONeill may rely.
Confidentiality
Except as contemplated in connection with the performance of its services under this agreement, as authorized by the Company or as required by law, regulation or legal process, Sandler ONeill agrees that it will treat as confidential all material, non-public information relating to the Company obtained in connection with its engagement hereunder (the Confidential Information) in accordance with the terms of the Confidentiality Agreement entered into by the Bank and Sandler ONeill dated May 28, 2015 (the Confidentiality Agreement); provided, however , that Sandler ONeill may disclose such information to its agents and advisors who are assisting or advising Sandler ONeill in performing its services hereunder and who have agreed to comply with the terms and conditions of this paragraph. As used in this paragraph, the term Confidential Information shall not include information which (a) is or becomes generally available to the public other than as a result of a disclosure by Sandler ONeill in breach of the confidentiality obligations contained herein, (b) was available to Sandler ONeill on a non-confidential basis prior to its disclosure to Sandler ONeill by the Company, (c) becomes available to Sandler ONeill on a non-confidential basis from a person other than the Company who is not otherwise known to Sandler ONeill to be bound not to disclose such information pursuant to a contractual, legal or fiduciary obligation, or (d) is independently developed by Sandler ONeill without use of or reference to the Confidential Information disclosed hereunder.
The Company hereby acknowledges and agrees that the financial models and presentations used by Sandler ONeill in performing its services hereunder have been developed by and are proprietary to Sandler ONeill and are protected under applicable copyright laws. The Company agrees that it will not reproduce or distribute all or any portion of such models or presentations without the prior written consent of Sandler ONeill.
Indemnification
Since Sandler ONeill will be acting on behalf of the Company in connection with the Offering, each of the Bank and the Holding Company agrees to indemnify and hold Sandler ONeill and its affiliates and their respective partners, directors, officers, employees, agents and controlling persons within the meaning of Section 15 of the Securities Act of 1933 or Section 20 of the Securities Exchange Act of 1934 (Sandler ONeill and each such person being an Indemnified Party) harmless from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under applicable federal or state law, or otherwise, related to or arising out of the Offering or the engagement of Sandler ONeill pursuant to, or the performance by Sandler ONeill of the services contemplated by, this letter, and will reimburse any Indemnified Party for all expenses
(including reasonable legal fees and expenses) as they are incurred, including expenses incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party; provided, however , that the Company will not be liable in any such case to the extent that any such loss, claim, damage, liability or expense (i) arises out of or is based upon any untrue statement of a material fact or the omission of a material fact required to be stated therein or necessary to make not misleading any statements contained in any final prospectus, or any amendment or supplement thereto, made in reliance on and in conformity with written information furnished to the Company by Sandler ONeill expressly for use therein, or (ii) is primarily attributable to the gross negligence, willful misconduct or bad faith of Sandler ONeill. If the foregoing indemnification is unavailable for any reason, the Company agrees to contribute to such losses, claims, damages, liabilities and expenses in the proportion that its financial interest in the Offering bears to that of Sandler ONeill. The Company agrees to notify Sandler ONeill promptly of the assertion against it or any other person of any claim or the commencement of any action or proceeding relating to any transaction contemplated by this agreement.
Definitive Agreement
Sandler ONeill and the Company agree that (a) except as set forth in clause (b) below, the foregoing represents the general intention of the Company and Sandler ONeill with respect to the services to be provided by Sandler ONeill in connection with the Offering, which will serve as a basis for Sandler ONeill commencing activities, and (b) the only legal and binding obligations of the Company and Sandler ONeill with respect to the Offering shall be (1) the Companys obligation to reimburse costs and expenses pursuant to the section captioned Costs and Expenses, (2) those set forth under the captions Confidentiality and Indemnification, and (3) as set forth in a duly negotiated and executed definitive Agency Agreement to be entered into prior to the commencement of the Subscription Offering, and a duly negotiated and executed Underwriting Agreement to be entered into prior to the commencement of any Firm Commitment Offering. Such Agency Agreement and Underwriting Agreement shall be in form and content satisfactory to Sandler ONeill and the Company and their respective counsel and shall contain standard indemnification and contribution provisions consistent herewith.
Sandler ONeills execution of such Agency Agreement and Underwriting Agreement shall also be subject to (i) Sandler ONeills satisfaction with its investigation of the Companys business, financial condition and results of operations, (ii) preparation of offering materials that are satisfactory to Sandler ONeill and its counsel, (iii) compliance with all relevant legal and regulatory requirements to the reasonable satisfaction of Sandler ONeill and its counsel, (iv) agreement that the price established by the independent appraiser is reasonable, and (v) market conditions at the time of the proposed offering. Sandler ONeill may terminate this agreement if such Agency Agreement is not entered into prior December 31, 2016.
This Agreement and the Confidentiality Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and can be altered only by written
consent signed by the parties. This Agreement shall be construed and enforced in accordance with the laws of the State of New York, without regard to the conflicts of laws principles thereof.
Please confirm that the foregoing correctly sets forth our agreement by signing and returning to Sandler ONeill the duplicate copy of this letter enclosed herewith.
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Very truly yours, |
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SANDLER ONEILL & PARTNERS, L.P. |
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By: |
Sandler ONeill & Partners Corp., |
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the sole general partner |
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By: |
/s/ Catherine A. Lawton |
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Catherine A. Lawton |
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An Officer of the Corporation |
Accepted and agreed to as of
the date first above written:
HarborOne Bank |
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By: |
/s/ James W. Blake |
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James W. Blake |
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President and Chief Executive Officer |
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INVESTMENT BANKING GROUP |
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June 30, 2015
Mr. James W Blake
President and Chief Executive Officer
HarborOne Bank
770 Oak Street
Brockton, Massachusetts 02301
Dear Mr. Blake:
We understand that HarborOne Bank (the Bank) has determined to adopt a Plan of Reorganization and Stock Issuance (the Plan) pursuant to which the Bank will be reorganized into mutual holding company form (the Reorganization) and certain shares of the common stock (the Common Stock) of a newly organized mid-tier stock holding company (the Holding Company) will be offered and sold to the Banks eligible account holders and certain others in a subscription offering and, to the extent shares remain available, to members of the Banks community in a community offering and, under certain circumstances, to the general public in a syndicated community offering (collectively, the Offering). The Holding Company and the Bank are sometimes collectively referred to herein as the Company. Sandler ONeill & Partners, L.P. (Sandler ONeill) is pleased to act as records management agent for the Bank in connection with the vote of the Banks depositors on the Plan and the offer and sale of shares of the common stock in the Offering. This letter is to confirm the terms and conditions of our engagement.
SERVICES AND FEES
In our role as Records Management Agent, we anticipate that our services will include the services outlined below, each as may be necessary and as the Company may reasonably request:
I. |
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Consolidation of Deposit Accounts for Voting and Offering |
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II. |
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Coordinate Vote Solicitation and Special Meeting Services |
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III. |
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Design and Preparation of Stock Order Forms for the Offering |
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IV. |
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Organization and Supervision of the Stock Information Center |
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V. |
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Subscription Services |
Each of these services is further described in Appendix A to this agreement.
For its services hereunder, the Company agrees to pay Sandler ONeill a fee of $90,000. This fee is based upon the requirements of current regulations and the Plan as currently
SANDLER ONEILL + PARTNERS, L.P.
1251 Avenue of the Americas, 6
th
Floor, New York, NY 10020
T: (212) 466-7700 / (800) 635-6855
ww.sandleroneill.com
contemplated. The Company will inform Sandler ONeill within a reasonable period of time of any changes in the Plan or regulations that require changes in Sandler ONeills services.
All fees under this agreement shall be payable in cash, as follows: (a) $10,000 payable upon execution of this agreement; (b) $40,000 payable upon the mailing of voting materials to depositors, and (c) the balance upon the mailing of offering materials to depositors.
COSTS AND EXPENSES
It is understood that all expenses associated with the operation of the Stock Information Center will be borne by the Company. The Company also agrees to reimburse Sandler ONeill, upon request made from time to time, for its reasonable out-of-pocket expenses incurred in connection with its engagement hereunder, regardless of whether the Offering is consummated, including, without limitation, travel, lodging, food, telephone, postage, communications and other similar expenses, up to a maximum of $50,000; provided, however , that Sandler ONeill shall document such expenses to the reasonable satisfaction of the Company. The provisions of this paragraph are not intended to apply to or in any way impair the indemnification provisions of this agreement.
RELIANCE ON INFORMATION PROVIDED; CONFIDENTIALITY
The Company will furnish Sandler ONeill with such information as Sandler ONeill reasonably believes appropriate to its assignment (all such information so furnished being the Records). The Company recognizes and confirms that Sandler ONeill (a) will use and rely primarily on the Records without having independently verified the same, and (b) does not assume responsibility or the accuracy or completeness of the Records.
Except as contemplated in connection with the performance of its services under this agreement, as authorized by the Company or as required by law, regulation or legal process, Sandler ONeill agrees that it will treat the Records as confidential in accordance with the terms of the Confidentiality Agreement entered into by the Bank and Sandler ONeill dated May 28, 2015 (the Confidentiality Agreement); provided, however , that Sandler ONeill may disclose such information to its agents and advisors who are assisting or advising Sandler ONeill in performing its services hereunder and who have agreed to comply with the terms and conditions of this paragraph.
LIMITATIONS
Sandler ONeill, as Records Management Agent hereunder, (a) shall have no duties or obligations other than those specifically set forth herein; (b) will be regarded as making no representations and having no responsibilities as to the validity, sufficiency, value or genuineness of any order form, and will not be required to and will make no representations as to the validity, value or genuineness of the offer; (c) shall not be liable to any person, firm or corporation
including the Company by reason of any error of judgment or for any act done by it in good faith, or for any mistake of law or fact in connection with this agreement and the performance hereof unless caused by or arising out of its own willful misconduct, bad faith or gross negligence; (d) will not be obliged to take any legal action hereunder which might in its reasonable judgment involve any expense or liability, unless it shall have been furnished with reasonable indemnity satisfactory to it; and (e) may rely on and shall be protected in acting in reliance upon any certificate, instrument, opinion, notice, letter, telex, telegram, or other document or security delivered to it and in good faith believed by it to be genuine and to have been signed by the proper party or parties. Anything in this agreement to the contrary notwithstanding, in no event shall Sandler ONeill be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if Sandler ONeill has been advised of the likelihood of such loss or damage and regardless of the form of action.
INDEMNIFICATION
The Company agrees to indemnify and hold Sandler ONeill and its affiliates and their respective partners, directors, officers, employees, agents and controlling persons (Sandler ONeill and each such person being an Indemnified Party) harmless from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under applicable federal or state law, or otherwise, related to or arising out of the engagement of Sandler ONeill pursuant to, and the performance by Sandler ONeill of the services contemplated by, this letter, and will reimburse any Indemnified Party for all expenses (including reasonable counsel fees and expenses) as they are incurred, including expenses incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party. The Company will not be liable under the foregoing indemnification provision to the extent that any loss, claim, damage, liability or expense is found in a final judgment by a court of competent jurisdiction to have resulted primarily from Sandler ONeills willful misconduct, bad faith or gross negligence.
MISCELLANEOUS
The following addresses shall be sufficient for written notices to each other:
If to you: HarborOne Bank
770 Oak Street
Brockton, Massachusetts 02301
Attention: Mr. James W. Blake
If to us: Sandler ONeill & Partners, L.P.
1251 Avenue of the Americas
New York, New York 10020
Attention: General Counsel
The Agreement, the appendix hereto and the Confidentiality Agreement constitute the entire Agreement between the parties with respect to the subject matter hereof and can be altered only by written consent signed by the parties. This Agreement is governed by the laws of the State of New York.
Please confirm that the foregoing correctly sets forth our agreement by signing and returning to Sandler ONeill the duplicate copy of this letter enclosed herewith.
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Very truly yours, |
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SANDLER ONEILL & PARTNERS, L.P. |
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By: |
Sandler ONeill & Partners Corp., |
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the sole general partner |
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By: |
/s/ Catherine A. Lawton |
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Catherine A. Lawton |
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An Officer of the Corporation |
Accepted and agreed to as of
the date first above written:
HarborOne Bank |
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By: |
/s/ James W. Blake |
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James W. Blake |
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President and Chief Executive Officer |
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APPENDIX A
OUTLINE OF RECORDS MANAGEMENT AGENT SERVICES
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I. |
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Consolidation of Deposit Accounts for Voting and Offering |
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Consolidate files in accordance with regulatory guidelines and create central file. |
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Our EDP format will be provided to your IT representatives. |
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II. |
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Coordinate Vote Solicitation and Special Meeting Services |
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Vote Calculation. |
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Prepare deposit account holder data for Information Statement mailing |
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Coordinate with Bank and other advisors in designing and executing vote campaign. |
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If required, delete voting record date accounts closed prior to special meeting. |
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Act as or support inspector of election, it being understood that Sandler ONeill will not act as inspector of election in the case of a contested election. |
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III. |
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Design and Preparation of Stock Order Forms for the Offering |
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Assist in designing stock order forms for ordering stock. |
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Prepare deposit account holder data for stock order forms. |
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Organization and Supervision of Stock Information Center |
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Advising on the physical organization of the Stock Information Center, including materials requirements. |
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Assist in the training of all Bank personnel and temporary employees who will be staffing the Stock Information Center. |
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Establish reporting procedures. |
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On-site supervision of the Stock Information Center during the offering period. |
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Subscription Services |
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Produce list of depositors by state (Blue Sky report). |
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Production of subscription rights and research books. |
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Stock order form processing. |
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Acknowledgment letter to confirm receipt of stock order. |
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Daily reports and analysis. |
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Proration calculation and share allocation in the event of an oversubscription. |
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Produce charter shareholder list. |
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Interface with Transfer Agent for DRS Statement issuance to shareholders. |
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Refund and interest calculations. |
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Confirmation letter to confirm purchase of stock. |
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Notification of full/partial rejection of orders. |
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Product on of 1099/Debit tape. |
Use these links to rapidly review the document
TABLE OF CONTENTS
Exhibit APlan of Minority Stock Issuance
PLAN OF REORGANIZATION
AND
MINORITY STOCK ISSUANCE
Adopted by the Board of Directors on January 27, 2016
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ARTICLE 1.
IntroductionBusiness Purpose
This Plan of Reorganization and Minority Stock Issuance provides for the reorganization of HarborOne Bank, a Massachusetts cooperative bank in mutual form, into a mutual holding company form of organization with a mid-tier holding company and the offer for sale of up to 49.9% of the common stock by the Mid-Tier Holding Company pursuant to the Stock Issuance Plan attached hereto as Exhibit A and incorporated herein. Capitalized terms used in this Plan shall have the meaning ascribed to them in Article II of this Plan.
The Board of Directors and management believe that it is desirable to operate in a more flexible form (i.e., the mutual holding company form of organization) that enables the Bank to continue as a successful, independent, community-focused institution, while increasing its economic potential and ability to grow so that it can best meet the needs of its customers and communities. Specifically, the holding company structure will create various business opportunities for Bank that are not currently available to it as a mutual co-operative bank. Effectuating the Reorganization and Offering will enable the Bank to (1) support future growth and profitability through, among other things, increased lending; (2) compete more effectively in the financial services marketplace by diversifying the products and services offered to customers; (3) make necessary capital investments in facilities and technology; (4) increase philanthropic endeavors to the communities served by the Bank through the formation and funding of a charitable foundation dedicated to charitable purposes within these communities; (5) offer depositors, employees, management and directors an equity ownership interest in the stock holding company; and (6) attract and retain qualified directors, management and employees through stock-based compensation plans.
The holding company structure will also permit the institution to:
This Plan is subject to approval by a majority of the Members present and voting at a special meeting called for such purpose. In addition, the transactions contemplated in this Plan are subject to the prior written approval of various regulatory agencies.
As used in this Plan, the terms set forth below have the following meanings:
2.1 Acting in Concert . The term "Acting in Concert" means Persons seeking to combine or pool their voting or other interests (such as subscription rights) in the securities of an issuer for a common purpose, pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. When Persons act together for such purpose, their group is deemed to have acquired their stock. The determination of whether a group is Acting in Concert shall be made solely by the board of trustees or directors of the MHC, the Mid-Tier Holding Company or the Bank, as applicable, or Officers delegated by such board and may be based on any evidence upon which the board or such delegatee chooses to rely, including, without limitation, joint account relationships or the fact that such Persons have filed joint Schedules 13D with the SEC with respect to other companies; provided; however, that the determination of whether a group is Acting in Concert remains subject to review by the Division. Persons living at the same address, whether or not related, will be deemed to be Acting in Concert unless otherwise determined by the board or such delegatee. Directors of the Bank and the Mid-Tier Holding Company or trustees of the MHC shall not be deemed to be Acting in Concert solely as a result of their membership on any such board or boards, including the board of corporators.
2.2 Affiliate . An "Affiliate" of, or a Person "Affiliated" with, a specified Person, is a Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the Person specified.
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2.3 Application . The application, including a copy of this Plan, submitted by the Bank to the Commissioner for approval of the Reorganization and the Offering, including the formation of New Mutual and Subsidiary Bank and the merger of the Bank with and into Subsidiary Bank.
2.4 Associate . The term "Associate," when used to indicate a relationship with any Person, means: (a) any corporation or organization (other than the Bank, the Mid-Tier Holding Company, the MHC or a majority-owned subsidiary of any thereof) of which such Person is an Officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities; (b) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity; and (c) any relative or spouse of such Person or any relative of such spouse, who has the same home as such Person or who is a director, trustee or Officer of the MHC, the Mid-Tier Holding Company or the Bank; provided , however , that any Tax-Qualified or Non-Tax-Qualified Employee Plan shall not be deemed to be an Associate of any director, trustee or Officer of the MHC, the Mid-Tier Holding Company or the Bank. When used to refer to a Person other than an Officer, director or trustee of the Bank, the MHC or the Mid-Tier Holding Company, the Mid-Tier Holding Company or the Bank, as applicable, in its sole discretion may determine the Persons that are Associates of other Persons. Trustees of the MHC and directors of the Mid-Tier Holding Company and the Bank shall not be deemed to be Associates solely as a result of their membership on such board.
2.5 Bank . HarborOne Bank, a Massachusetts-chartered mutual co-operative bank with its main office in Brockton, Massachusetts, as such bank exists prior to the Merger, together with its subsidiaries.
2.6 Bank Common Stock . The common stock, par value $1.00 per share, of Resulting Bank.
2.7 BHC Act . The Bank Holding Company Act of 1956, as amended.
2.8 Commissioner. The Commissioner of Banks of the Commonwealth of Massachusetts.
2.9 Community Offering . A Direct Community Offering and/or a Syndicated Community Offering.
2.10 Control . The term "Control" (including the terms "controlling," "controlled by," and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.
2.11 Corporator . A member of the Board of Corporators of the MHC.
2.12 Deposit Account . Any withdrawable deposit account offered by the Bank, including, without limitation, savings accounts, NOW account deposits, certificates of deposit, demand deposits, Keogh Plans, SEPs and Individual Retirement Accounts for which the Bank acts as custodian or trustee, and such other types of deposit accounts as may then have been authorized by Massachusetts or federal law and regulations, but not including repurchase agreements, savings bank life insurance policies, certain escrow accounts, or trust department accounts held separately from deposit accounts in accordance with Section 4 of Chapter 167G of the MGL.
2.13 Direct Community Offering . The offering for sale directly by the Mid-Tier Holding Company of Mid-Tier Conversion Stock (a) to the Local Community, as provided in Section 5.6 of the Stock Issuance Plan, with preference given to natural persons residing in the Local Community, and then (b) to the public at large. The Direct Community Offering may be conducted simultaneously with the Subscription Offering.
2.14 Division . The Division of Banks of the Commonwealth of Massachusetts.
2.15 Effective Time . The effective time of the Reorganization.
2.16 Eligible Account Holder . Any Person holding a Qualifying Deposit on the Eligibility Record Date.
2.17 Eligibility Record Date . December 31, 2014, the date for determining who qualifies as an Eligible Account Holder.
2.18 Employee . All persons who are employed by the Bank, the Mid-Tier Holding Company or the MHC or any subsidiary of the Bank, the Mid-Tier Holding Company or the MHC. The term "Employee" does not include a trustee, director or Officer.
2.19 Employee Plan . Any Tax-Qualified Employee Plan or Non-Tax-Qualified Employee Benefit Plan of the MHC, the Mid-Tier Holding Company or the Bank.
2.20 ESOP . The employee stock ownership plan to be established by the Bank.
2.21 Estimated Valuation Range . The dollar range of the proposed Offering, as determined by the Independent Appraiser before the Offering and as it may be amended from time to time thereafter. The Estimated Valuation
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Range may vary within 15% above or 15% below the midpoint of such range, with a possible adjustment by up to 15% above the Range Maximum, as described more fully in Section 3.2 of the Stock Issuance Plan.
2.22 Exchange Act . The Securities Exchange Act of 1934, as amended.
2.23 FDIC . The Federal Deposit Insurance Corporation.
2.24 FDIC Applications . The notice of intent to convert to stock form submitted to the FDIC by the Bank seeking the FDIC's non-objection to the Reorganization, the application for deposit insurance submitted to the FDIC by the Subsidiary Bank and, if required, New Mutual, and the application submitted to the FDIC by the Bank seeking the FDIC's approval of the Bank's merger with and into Subsidiary Bank.
2.25 Firm Commitment Underwritten Offering. The offering, at the sole discretion of the Mid-Tier Holding Company, of Mid-Tier Conversion Stock not subscribed for in the Subscription Offering and any Direct Community Offering, to members of the general public through one or more underwriters. A Firm Commitment Underwritten Offering may occur following the Subscription Offering and the Direct Community Offering, if any.
2.26 Foundation. A charitable foundation established and funded by the Mid-Tier Holding Company immediately following the Reorganization as contemplated by Article II of the Stock Issuance Plan. The Foundation will qualify as an exempt organization under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended.
2.27 FRB . The Board of Governors of the Federal Reserve System.
2.28 FRB Application . The application to be submitted by the MHC and the Mid-Tier Holding Company to the FRB seeking the FRB's approval to become a bank holding company.
2.29 Group Maximum Purchase Limit . The limitation on the purchase of shares of Mid-Tier Conversion Stock established by Section 6.3 of the Stock Issuance Plan, as such limit may be increased pursuant to said Section 6.3.
2.30 Independent Appraiser. The appraiser retained by the Bank to prepare an appraisal of the pro forma market value of the Mid-Tier Conversion Stock.
2.31 Independent Valuation . The estimated pro forma market value of the Mid-Tier Conversion Stock as determined by the Independent Appraiser.
2.32 Individual Maximum Purchase Limit . The limitation on the purchase of shares of Mid-Tier Conversion Stock established by Section 6.2 of the Stock Issuance Plan, as such limit may be increased pursuant to said Section 6.2.
2.33 Information Statement . The information statement required to be sent to the Members in connection with the Special Meeting.
2.34 IRS . The United States Internal Revenue Service.
2.35 Liquidation Account . The liquidation account established pursuant to Section 7.7 of the Stock Issuance Plan.
2.36 Local Community . The Massachusetts cities and towns of Abington, Attleboro, Avon, Berkley, Braintree, Bridgewater, Brockton, Canton, Carver, Cohasset, Dighton, Duxbury, East Bridgewater, Easton, Foxboro, Halifax, Hanover, Hanson, Hingham, Holbrook, Hull, Kingston, Lakeville, Mansfield, Marshfield, Middleborough, Milton, North Attleboro, Norton, Norwell, Plainville, Pembroke, Plymouth, Plympton, Quincy, Randolph, Raynham, Rehoboth, Rochester, Rockland, Seekonk, Scituate, Sharon, Stoughton, Taunton, Wareham, West Bridgewater, Weymouth and Whitman.
2.37 Marketing Agent . The broker-dealer responsible for managing the Offering and sale of Mid-Tier Conversion Stock.
2.38 Market Maker . A broker-dealer ( i.e ., any Person who engages directly or indirectly as agent, broker, or principal in the business of offering, buying, selling or otherwise dealing or trading in securities issued by another Person) who, with respect to a particular security, (i) regularly publishes a bona fide, competitive bid and offers quotations in a recognized inter-dealer quotation system, (ii) furnishes bona fide competitive bid and offer quotations on request, and (iii) is ready, willing and able to effect transactions in reasonable quantities at the dealer's quoted prices with other brokers or dealers.
2.39 Member . A Person who is recorded on the books of the Bank as the holder of one or more shares or accounts of the Bank.
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2.40 Merger . The merger of Bank and Subsidiary Bank.
2.41 MGL . The General Laws of the Commonwealth of Massachusetts.
2.42 MHC . HarborOne Mutual Bancshares, the mutual holding company established by the amendment and restatement of New Mutual's charter.
2.43 Mid-Tier Common Stock . The common stock authorized to be issued from time to time by the Mid-Tier Holding Company.
2.44 Mid-Tier Conversion Stock . The Mid-Tier Common Stock to be issued by the Mid-Tier Holding Company in the Reorganization and Offering.
2.45 Mid-Tier Holding Company . HarborOne Bancorp, Inc., a Massachusetts corporation.
2.46 Minority Stock Issuance . The shares of Mid-Tier Conversion Stock sold in the Offering and contributed to the Foundation.
2.47 New Mutual . HarborOne Interim Mutual Co-operative Bank, the Massachusetts-chartered mutual co-operative bank to be established to facilitate the formation of MHC.
2.48 Non-Tax-Qualified Employee Benefit Plan . Any defined benefit plan or defined contribution plan which is not qualified under Section 401 of the Internal Revenue Code of 1986, as amended.
2.49 Offering . The Subscription Offering, the Direct Community Offering, the Syndicated Community Offering and the Firm Commitment Underwritten Offering.
2.50 Officer . The Chairman of the board of directors, the President, any officer of the level of vice president or above, the Clerk, the Secretary, and the Treasurer of the Bank, the MHC or the Mid-Tier Holding Company, as the case may be.
2.51 Person . An individual, corporation, partnership, association, joint-stock company, trust (including Keogh Plans, SEPs and Individual Retirement Accounts), unincorporated organization, government entity or political subdivision thereof or any other entity.
2.52 Plan . This Plan of Reorganization and Minority Stock Issuance, including any amendments hereto.
2.53 Qualifying Deposit . The aggregate balances of all Deposit Accounts of an Eligible Account Holder as of the close of business on the Eligibility Record Date or of a Supplemental Eligible Account Holder as of the close of business on the Supplemental Eligibility Record Date, as the case may be, provided that such aggregate balance is not less than $50. In determining the aggregate balance, any Deposit Account having a negative balance on the Eligibility Record Date or Supplemental Eligibility Record Date shall be disregarded.
2.54 Range Maximum . The valuation which is 15% above the midpoint of the Estimated Valuation Range.
2.55 Range Minimum . The valuation which is 15% below the midpoint of the Estimated Valuation Range.
2.56 Regulations . The regulations of the Division regarding mutual holding company reorganizations and minority offerings of Massachusetts cooperative banks in mutual form, the regulations of the FDIC regarding mutual holding company reorganizations and minority offerings, and the regulations of the FRB regarding the formation of bank holding companies and issuance of stock by subsidiaries of mutual holding companies.
2.57 Reorganization . Collectively, the formation of New Mutual and establishment of MHC, the formation of the Mid-Tier Holding Company and MHC's acquisition of the Mid-Tier Holding Company, the formation of Subsidiary Bank, and the Merger.
2.58 Resulting Bank . The bank surviving the Merger of Bank and Subsidiary Bank, the name of which will be HarborOne Bank.
2.59 SEC . The Securities and Exchange Commission.
2.60 Secretary . The Secretary of the Commonwealth of the Commonwealth of Massachusetts.
2.61 Share Insurance Fund . The Share Insurance Fund, a private fund owned by member co-operative banks, which insures all deposits at co-operative banks in Massachusetts above FDIC limits.
2.62 Special Meeting . The special meeting of Members of the Bank called for the purpose of voting on the Plan.
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2.63 Stock Issuance Plan . The Plan of Minority Stock Issuance attached hereto as Exhibit A .
2.64 Subscription Offering . The offering of Mid-Tier Conversion Stock for subscription by Persons holding subscription rights pursuant to the Plan.
2.65 Subscription Price . The price per share, determined as provided in Section 3.3 of the Stock Issuance Plan, at which the Mid-Tier Conversion Stock will be sold in the Offering.
2.66 Subsidiary . A company that is controlled by another company, either directly or indirectly through one or more subsidiaries.
2.67 Subsidiary Bank . HarborOne Interim Stock Co-operative Bank, a Massachusetts-chartered stock co-operative bank to be established by the MHC.
2.68 Supplemental Eligible Account Holder . Any Person (other than Officers, directors, trustees, or corporators of the MHC, the Mid-Tier Holding Company or the Bank and their Associates) holding a Qualifying Deposit on the Supplemental Eligibility Record Date (if established).
2.69 Supplemental Eligibility Record Date . If the Eligibility Record Date is more than 15 months prior to the date of the latest amendment to the Application filed prior to approval of the Application by the Commissioner, a supplemental record date shall be established for determining who qualifies as a Supplemental Eligible Account Holder. If required, the Supplemental Eligibility Record Date is June 30, 2015.
2.70 Syndicated Community Offering . At the sole discretion of the Mid-Tier Holding Company, the offering of Mid-Tier Conversion Stock not subscribed for in the Subscription Offering or the Direct Community Offering to members of the general public following or contemporaneously with the Direct Community Offering through a syndicate of broker-dealers.
2.71 Tax-Qualified Employee Plan . Any defined benefit plan or defined contribution plan (including the ESOP, any stock bonus plan, profit-sharing plan, 401(k) plan or other plan) of the Bank, the Mid-Tier Holding Company, the MHC, which, with its related trusts, meets the requirements to be qualified under Section 401 of the Internal Revenue Code of 1986, as amended.
ARTICLE 3.
General Procedure for Reorganization and Offering
3.1 The Reorganization and Offering is expressly conditioned upon prior occurrence of the following:
(a) Approval of the Plan by the affirmative vote of a majority of the Members present and voting at a special meeting called for such purpose.
(b) Approval by the Commissioner of the Application, including the Plan and all exhibits hereto.
(c) Approval by or non-objection of the FDIC of the FDIC Applications.
(d) Approval by the FRB of the FRB Application.
(e) Confirmation that deposit accounts in Resulting Bank will continue to be insured by the Share Insurance Fund in excess of FDIC coverage limits.
3.2 Upon approval by at least two-thirds of all directors of the Bank, the Plan will be submitted to the Commissioner as part of the Application, to the FDIC as part of the FDIC Applications, and to the FRB as part of the FRB Application, together with a copy of the proposed Information Statement and all other material required by the Regulations, for approval by the Commissioner and approval or non-objection, as applicable, by the FDIC and the FRB. The Bank must also receive an opinion of its counsel as to the federal and Massachusetts income tax consequences of the Reorganization substantially to the effect that the Reorganization will not result in a taxable transaction to the MHC, the Bank, the Mid-Tier Holding Company, or (provided the subscription rights have no value) the Bank's depositors under the Internal Revenue Code of 1986, as amended, or Massachusetts law. Upon a determination by the Commissioner that the Application is complete, the Bank will publish and post public announcements and notices of the Application as required by the Commissioner and the Regulations. The MHC and the Mid-Tier Holding Company will also publish any notice required in connection with the FRB Application.
3.3 Following approval of the Plan and the proposed Information Statement by the Commissioner, the Special Meeting shall be scheduled in accordance with the Bank's Bylaws. The Plan (as may be revised in response to comments received from the Commissioner, the FDIC and the FRB), any proposed revisions and amendments to the charters and bylaws of the Bank, the proposed charters of the MHC and the Mid-Tier Holding Company, and any
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information required pursuant to the Regulations, will be submitted to the Members for their consideration and approval at the Special Meeting. The Bank will mail to the Members a copy of the Information Statement not less than seven (7) days before the Special Meeting. Following approval of the Plan by the Members, the Bank intends to take such steps as may be appropriate pursuant to applicable laws and regulations to effect the Reorganization.
3.4 Following the Reorganization, all persons who prior thereto held depository rights with respect to, or other rights as creditors of, Bank shall have such rights solely with respect to Resulting Bank, and the corresponding liability or obligation of Bank to such persons shall be assumed by Resulting Bank.
3.5 All persons who had liquidation rights pursuant to Chapter 167I, Section 15 of the MGL with respect to Bank prior to the Reorganization shall continue to have such rights solely with respect to MHC for as long as such depositor remains a depositor of Resulting Bank. All existing and future depositors of Resulting Bank shall have the same liquidation rights in MHC pursuant to Chapter 167H, Section 2 of the MGL as were conferred upon depositors of Bank as in effect immediately prior to the Reorganization. All existing and future depositors of any subsidiary banking institution or bank that is acquired by MHC in the future and is in the mutual form of organization when so acquired shall have the same liquidation rights in MHC pursuant to Chapter 167H, Section 2 of the MGL as were conferred upon depositors of such acquired bank immediately prior to such acquisition; provided that if such acquired bank is merged into another subsidiary bank from which MHC draws members, the depositors of such acquired bank shall receive the same liquidation rights as the depositors of the subsidiary bank into which such acquired bank is merged.
3.6 The Articles of Organization and Bylaws of New Mutual shall be in substantially the forms set forth in Exhibits B and C , respectively, to this Plan, and are made a part of this Plan. By their approval of the Plan, the Members shall have approved and adopted the Charter and Bylaws of New Mutual.
3.7 The Articles of Organization and Bylaws of New Mutual shall be amended and restated, in substantially the forms set forth in Exhibits D and E , respectively, to this Plan, to become the Charter and Bylaws of MHC. By their approval of the Plan, the Members shall have approved and adopted the Charter and Bylaws of MHC.
3.8 The board of directors of the Bank will take all necessary steps to form the Mid-Tier Holding Company and to complete the Offering, including the timely filing of all necessary applications to appropriate regulatory authorities, and the filing of a registration statement to register the sale of Mid-Tier Conversion Stock with the SEC. Copies of the proposed Articles of Organization and Bylaws of the Mid-Tier Holding Company are attached hereto as Exhibits F and G , respectively, of this Plan and are made a part of the Plan. By their approval of the Plan, the Members shall have approved and adopted the Charter and Bylaws of the Mid-Tier Holding Company.
3.9 The Articles of Organization and Bylaws of Subsidiary Bank shall be in substantially the forms set forth in Exhibits H and I , respectively, to this Plan. By their approval of the Plan, the Members shall have approved and adopted the Charter and Bylaws of Subsidiary Bank.
4.1 The Bank will effectuate the Reorganization in the following steps:
4.1.1 The Bank will cause the formation of the Mid-Tier Holding Company.
4.1.2 The Bank will cause the formation of New Mutual.
4.1.3 New Mutual will amend and restate its charter to convert into the MHC. It is anticipated that MHC will be capitalized by the Offering and at such times and in such amounts and by such methods as may be deemed advisable and necessary following the Reorganization.
4.1.4 The MHC will acquire the outstanding capital stock of the Mid-Tier Holding Company.
4.1.5 The MHC will form the Subsidiary Bank as a wholly-owned subsidiary of the MHC.
4.1.6 The Bank and Subsidiary Bank shall merge, with Subsidiary Bank surviving the Merger as Resulting Bank. The terms of the Merger shall be set forth in an Agreement and Plan of Merger by and between Bank and Subsidiary Bank, in substantially the form set forth in Exhibit J to this Plan, and the Merger shall be effectuated by the filing of Articles of Merger with the Secretary. At the Effective Time, each issued and outstanding share of common stock of Subsidiary Bank shall automatically and without any action on the part of the holder thereof be converted into one (1) share of the common stock of Resulting Bank, in the aggregate representing one hundred percent (100%) of the issued and outstanding common stock of Resulting Bank.
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4.1.7 Each issued and outstanding share of common stock of Resulting Bank will be transferred to the Mid-Tier Holding Company.
4.2 The Charter and Bylaws of Resulting Bank shall be in substantially the forms set forth in Exhibits K and L , respectively, to this Plan. The Charter and Bylaws of Resulting Bank shall be the Charter and Bylaws of Subsidiary Bank, except that Resulting Bank's Charter shall have different prefatory language on page one. Such Charter and Bylaws of Resulting Bank shall remain in such form until further altered, amended or repealed in accordance with their terms and applicable law.
4.3 Resulting Bank's initial Directors shall be those persons serving as the Directors of Subsidiary Bank immediately preceding the Effective Time. The initial Officers of Resulting Bank shall be those persons serving as Officers of Subsidiary Bank immediately preceding the Effective Time.
4.4 From and after the Effective Time, the Merger shall have the effects set forth in Chapter 167H and Chapter 167I of the MGL.
5.1 With the prior approval of the Commissioner, and subject to such conditions, restrictions and regulations prescribed by the Commissioner and other applicable law, the Mid-Tier Holding Company may issue shares of common stock (or other securities, as defined in Chapter 167H of the MGL) to persons or entities other than MHC, including the general public, following the consummation of the Reorganization; provided , however , that in no event shall MHC hold less than a majority of the combined voting power of all classes of securities of the Mid-Tier Holding Company that have voting power in the election of the Directors of the Mid-Tier Holding Company. The Stock Issuance Plan is attached hereto as Exhibit A .
6.1 Each depositor of Bank immediately prior to the Reorganization shall, upon consummation of the Reorganization, continue to hold, without payment, an account in Resulting Bank equal in dollar amount, interest rate, maturity and other terms and conditions to such deposit account immediately prior to the Reorganization and evidenced by the same account agreement, signature card, ATM card, passbook, checkbook or other documentation that evidenced such deposit account prior to the Reorganization. Deposit accounts in Resulting Bank shall continue to be insured by the FDIC up to applicable limits and by the Share Insurance Fund for amounts in excess of such limits.
ARTICLE 7.
Loans And Other Assets Of Bank
7.1 All loans and other assets of Bank shall retain the same status after the Reorganization as such loans and other assets had immediately prior to the Reorganization, except that all such loans and other assets will, upon consummation of the Merger at the Effective Time, be deemed irrevocably transferred to Resulting Bank by operation of this Plan and applicable law.
ARTICLE 8.
Applications and Approvals
8.1 Consummation of the Reorganization is subject to the approval, determination or ruling of certain regulatory and governmental agencies, including, without limitation, the following:
8.1.1 An application to establish a mutual holding company and complete a minority stock issuance, including the formation of New Mutual and Subsidiary Bank, all pursuant to MGL Chapter 167H, Sections 2, 3, filed by Bank with the Commissioner. Unless the Commissioner approves the Reorganization and Offering within sixty (60) days or extends for another thirty (30) days the time in which such approval may be issued, Bank may not proceed with the Reorganization and Offering. The Commissioner's approval of the Reorganization and Offering shall constitute approval of the Plan and the Exhibits hereto.
8.1.2 An application for Bank to merge with and into Subsidiary Bank, pursuant to MGL Chapter 167H, Section 7 and Chapter 167I, Section 4, filed by Bank with the Commissioner.
8.1.3 A notice of intent to convert to stock form filed by the Bank with the FDIC.
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8.1.4 An application for deposit insurance for Subsidiary Bank and, if required, New Mutual, filed by Bank with the FDIC.
8.1.5 An Interagency Bank Merger Act Application seeking approval of the merger of Bank with and into Subsidiary Bank, filed by Bank with the FDIC.
8.1.6 An application for permission to become a bank holding company, pursuant to Section 3(a)(1) of the Bank Holding Company Act of 1956, as amended, filed by MHC and the Mid-Tier Holding Company with the Board of Governors of the Federal Reserve System.
8.1.7 A registration statement on Form S-1 filed by the Mid-Tier Holding Company with the SEC.
8.1.8 A confirmation from the Share Insurance that deposit accounts in Resulting Bank will continue to be insured by the Share Insurance in excess of FDIC coverage limits.
8.2 Bank will, to the extent required by law, cause such other applications, notices or documents required to consummate the Reorganization and Offering to be prepared and filed with applicable state or federal governmental or regulatory agencies.
8.3 Bank shall obtain an opinion of tax counsel as to the tax consequences of the Reorganization to the parties thereto and to Bank's depositors. It is intended that the Reorganization will qualify as a tax-free reorganization and will not result in any gain or loss for federal or state income tax purposes to MHC, the Mid-Tier Holding Company, Subsidiary Bank, Bank, or Bank's depositors.
9.1 All interpretations of the Plan and application of its provisions to particular circumstances by the Bank, the Mid-Tier Holding Company and the MHC shall be final, subject to the authority of the Commissioner. When a reference is made in the Plan to Sections or Exhibits, such reference shall be to a Section of or Exhibit to the Plan unless otherwise indicated. References to Sections include subsections, which are part of the related Section ( e.g. , a section numbered "Section 5.5.1" would be part of "Section 5.5" and references to "Section 5.5" would also refer to material contained in the subsection described as "Section 5.5.1"). The table of contents and headings contained in the Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Whenever the words "include", "includes" or "including" are used in the Plan, they shall be deemed to be followed by the words "without limitation".
9.2 If deemed necessary or desirable, the terms of the Plan may be substantively amended by a majority vote of the members of the board of directors of the Bank as a result of comments from regulatory authorities at any time prior to approval of the Plan by the Commissioner and at any time thereafter with the concurrence of the Commissioner. If amendments to the Plan are made after the Special Meeting, no further approval of the Members will be necessary unless otherwise required by the Commissioner. The Plan may be terminated by the board of directors of the Bank in its sole discretion, at any time prior to the Special Meeting and at any time thereafter with the concurrence of the Commissioner. The Plan will terminate if the Reorganization is not completed within twenty-four months from the date of approval of the Plan by the Members of the Bank.
ARTICLE 10.
Liquidation of Mutual Holding Company
10.1 MHC shall liquidate pursuant to Chapter 167I, Section 15 of MGL upon the sale or acquisition of its sole subsidiary banking institution to a bank holding company that is not a mutual holding company or to a banking institution that is not a subsidiary banking institution of a mutual holding company.
11.1 The expenses incurred in connection with the Reorganization, to be initially borne by Bank, shall be paid or reimbursed by MHC promptly after consummation of the Reorganization, and shall be reasonable.
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12.1 This Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts.
ARTICLE 13.
Mid-Tier, New Mutual, and Resulting Bank to Join as Additional Parties
13.1 Upon their respective formations, the Mid-Tier Holding Company, New Mutual (as the predecessor in interest of MHC), and Subsidiary Bank, shall each join as a party to this Plan by signing a counterpart signature page hereof to signify their respective concurrence with the terms of this Plan, including, without limitation, New Mutual's obligation to honor the liquidation rights of depositors, as provided in Section 3 of this Plan, and Subsidiary Bank's obligation to merge with Bank pursuant to Section 4 of this Plan.
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Exhibit APlan of Minority Stock Issuance
HARBORONE BANK
PLAN OF MINORITY STOCK ISSUANCE
TABLE OF CONTENTS
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This Plan of Minority Stock Issuance (the "Stock Issuance Plan") is a part of HarborOne Bank's Plan of Reorganization and Minority Stock Issuance (the "Plan") and should be read in connection therewith. Capitalized terms used in this Stock Issuance Plan and not defined herein shall have the meaning ascribed to them in Article 2 of the Plan.
ARTICLE I
Offer and Sale of Mid-Tier Conversion Stock
1.1 If the Members approve the Plan, and upon receipt of all required regulatory approvals, the Mid-Tier Conversion Stock will be offered for sale in a Subscription Offering simultaneously to Eligible Account Holders, Supplemental Eligible Account Holders (if any), any Tax-Qualified Employee Benefit Plans, and Employees, Officers and directors in the manner set forth in Article V hereof. The Subscription Offering period will run for no less than 20 but no more than 45 days from the date of distribution of the Subscription Offering materials, unless extended by the Mid-Tier Holding Company with the approval of the Commissioner, the FDIC and the FRB, if required. If feasible, any Mid-Tier Conversion Stock remaining may then be sold to the general public through a Direct Community Offering as provided in Article V hereof, which may be held either subsequent to or concurrently with the Subscription Offering.
1.2 If feasible, any shares of Mid-Tier Conversion Stock remaining unsold after completion of the Subscription Offering and a Direct Community Offering may, in the sole discretion of the Mid-Tier Holding Company, be sold in a Syndicated Community Offering or a Firm Commitment Underwritten Offering (which may commence following or contemporaneously with the Direct Community Offering) or in any manner receiving the required approval of any regulatory agencies. If for any reason a Syndicated Community Offering or a Firm Commitment Underwritten Offering cannot be effected, the Mid-Tier Holding Company will use its best efforts to obtain other purchasers in order to meet the Range Minimum, subject to the approval of the Commissioner, the FDIC and the FRB, if required. The sale of shares of Mid-Tier Conversion Stock to be sold pursuant to this Stock Issuance Plan must be completed within 45 days after expiration of the Subscription Offering; subject to the extension of such 45 day period by the Mid-Tier Holding Company with the approval of the Commissioner, the FDIC and the FRB, if required. The Mid-Tier Holding Company may seek one or more extensions of such 45 day period if necessary to complete the sale of shares of Mid-Tier Conversion Stock. If all available shares of Mid-Tier Conversion Stock are sold in the Subscription Offering and any Direct Community Offering, there will be no Syndicated Community Offering or Firm Commitment Underwritten Offering and the Reorganization will be consummated upon completion of the Subscription Offering or the Direct Community Offering, as the case may be.
ARTICLE II
Establishment and Funding of Charitable Foundation.
2.1 Establishment of the Foundation . As part of the Reorganization, the Mid-Tier Holding Company intends to establish the Foundation which will qualify as an exempt organization under Section 50l(c)(3) of the Internal Revenue Code and to contribute to the Foundation cash in the amount of 0.667% of the gross proceeds raised in the Offering and a number of shares of Mid-Tier Common Stock equal to 1.2% of the Mid-Tier Conversion Stock.
2.2 Purposes of the Foundation; Charitable Contributions . The Foundation is being formed in connection with the Reorganization in order to support the Bank's charitable activities within the communities served by the Bank, and to complement the Bank's community reinvestment activities in a manner that will allow the Bank's local communities (now and in the future) to share in the Bank's financial success as a locally headquartered, community-minded, financial services institution. The funding of the Foundation with Mid-Tier Common Stock accomplishes this goal as it enables the community to share in the growth and profitability of the Mid-Tier Holding Company and the Bank over the long term. The Foundation will be dedicated to the promotion of charitable purposes including, without limitation, community development, grants or donations to support housing assistance, not-for-profit community groups and other types of organizations or civic minded projects. The Foundation will annually distribute total grants to assist charitable organizations or to fund projects within the Mid-Tier Holding Company's and the Bank's community of not less than 5.0% of the average fair value of Foundation assets each year, less certain expenses. In order to serve the purposes for which it was formed and maintain its Section 501(c)(3) qualification, the Foundation may sell a portion of the Mid-Tier Common Stock contributed to it by the Mid-Tier Holding Company. The Foundation will operate in accordance with the following conditions:
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2.3 Board of Directors of the Foundation . The board of directors of the Foundation initially will consist of a majority of individuals who are directors and officers of the Mid-Tier Holding Company or the Bank. The board of directors of the Foundation will be responsible for establishing the policies of the Foundation with respect to grants or donations, consistent with the stated purposes of the Foundation. For a period of five years following the Reorganization, at least one director on the board of directors of the Foundation will be an independent director who is not an Employee, Officer, director, trustee or corporator of the MHC, the Mid-Tier Holding Company or the Bank nor a significant borrower of the Bank.
ARTICLE III
Shares to be Offered
3.1 Mid-Tier Common Stock . The Mid-Tier Conversion Stock, when issued in accordance with this Stock Issuance Plan, shall be fully paid and nonassessable. The total number of shares of Mid-Tier Common Stock authorized under the Mid-Tier Holding Company's Articles of Organization will exceed the number of shares of Mid-Tier Conversion Stock to be issued to the Mid-Tier Holding Company stockholders in the Reorganization and the Offering. MID-TIER COMMON STOCK WILL NOT BE COVERED BY DEPOSIT INSURANCE.
3.2 Independent Valuation . An Independent Appraiser shall be employed by the Bank to provide it with an Independent Valuation as required by the Regulations, which value shall be included in the prospectus (as described in Section 4.1 of this Stock Issuance Plan) filed with the Commissioner, the FDIC, the FRB and the SEC. The directors of the Bank shall thoroughly review and analyze the methodology and reasonableness of the Independent Valuation. The Independent Valuation will be made by a written report to the Bank, contain the factors upon which the Independent Valuation was made and conform to procedures adopted by the Commissioner, the FDIC and the FRB. Based on the Independent Valuation provided by the Independent Appraiser to the Bank before the commencement of the Subscription Offering, the Board of Directors shall determine the percentage of shares to be sold in the Offering, which shall form the midpoint of the Estimated Valuation Range. Such Estimated Valuation Range will vary within 15% above (the "Range Maximum") to 15% below (the "Range Minimum") such midpoint. The Independent Appraiser shall also present to the Bank at the close of the Subscription Offering a valuation of the pro forma market value of the Mid-Tier Conversion Stock.
3.3 Subscription Price . All shares sold in the Offering will be sold at a uniform price per share (the "Subscription Price"), preliminarily set at $10.00 per share, which price will be definitively determined before the commencement of the Offering. If there is a Syndicated Community Offering or Firm Commitment Underwritten Offering, the price per share at which the Mid-Tier Conversion Stock is sold in such Syndicated Community Offering or Firm Commitment Underwritten Offering shall be equal to the per share purchase price of the shares sold in the Subscription Offering and the Direct Community Offering. The aggregate purchase price for all shares of Mid-Tier Conversion Stock will be equal to the estimated consolidated pro forma market value of the Mid-Tier Conversion Stock, as determined for such purpose by the Independent Appraiser.
3.4 Number of Shares . The total number of shares (and a range thereof) of Mid-Tier Conversion Stock to be issued and offered for sale will be determined by the board of directors of the Mid-Tier Holding Company and the Bank immediately before the commencement of the Subscription Offering based on the Independent Valuation, the Estimated Valuation Range and the Subscription Price. The Independent Valuation, and such number of shares, shall be subject to adjustment thereafter if necessitated by market or financial conditions, with the approval of the Commissioner, the FDIC and the FRB, if necessary. In particular, the total number of shares may be increased by up to 15% above the Range Maximum if the Independent Valuation is increased subsequent to the commencement of the
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Subscription Offering to reflect changes in market and financial conditions or demand for the Mid-Tier Conversion Stock and the resulting aggregate purchase price is not more than 15% above the Range Maximum.
3.5 Increase or Decrease in Number of Shares . The number of shares of Mid-Tier Conversion Stock to be sold in the Offering may be increased or decreased by the Mid-Tier Holding Company, subject to the following provisions. In the event that the aggregate purchase price of the number of shares of Mid-Tier Conversion Stock ordered is below the minimum of the Estimated Valuation Range, or materially above the Range Maximum, resolicitation of purchasers may be required, provided, however , that a resolicitation will not be required if the number of shares increases by up to 15% above the Range Maximum. Any such resolicitation shall be effected in such manner and within such time as the Mid-Tier Holding Company shall establish, with the approval of the Commissioner, the FDIC and the FRB, if required.
3.6 Confirmation of Valuation . Notwithstanding the foregoing, no sale of Mid-Tier Conversion Stock may be consummated unless, before such consummation, the Independent Appraiser confirms to the Bank, the Mid-Tier Holding Company and to the Commissioner, the FDIC and the FRB that, to the best knowledge of the Independent Appraiser, nothing of a material nature has occurred which, taking into account all relevant factors, would cause the Independent Appraiser to conclude that the aggregate value of all shares of Mid-Tier Conversion Stock to be sold, at the Subscription Price, is incompatible with its estimate of the aggregate consolidated pro forma market value of the Mid-Tier Conversion Stock. An increase in the aggregate value of the Mid-Tier Conversion Stock by up to 15% above the Range Maximum would not be deemed to be material. If such confirmation is not received, the Mid-Tier Holding Company may cancel the Offering, resolicit and extend the Offering and establish a new Subscription Price and/or Estimated Valuation Range, or hold a new Offering or take such other action as the Commissioner, the FDIC and the FRB may permit.
ARTICLE IV
Subscription Rights and Orders for Common Stock
4.1 Distribution of Prospectus . The Offering shall be conducted in compliance with the Regulations and applicable SEC regulations. As soon as practicable after the prospectus prepared by the Mid-Tier Holding Company has been declared effective and/or approved for use by the Commissioner, the FDIC and the FRB, if required, and the SEC, copies of the prospectus and order forms will be distributed to all Eligible Account Holders, Supplemental Eligible Account Holders (if any), any Tax-Qualified Employee Plan and Employees, Officers and directors at their last known addresses appearing on the records of the Bank for the purpose of subscribing for shares of Mid-Tier Conversion Stock in the Subscription Offering and will be made available (if and when a Community Offering is held) for use by those Persons eligible to purchase in the Community Offering.
4.2 Order Forms . Each order form will be preceded or accompanied by the prospectus describing the Mid-Tier Holding Company, the Bank, the Mid-Tier Common Stock and the Subscription and Community Offerings. Each order form will contain, among other things, the following:
4.2.1 A specified date by which all order forms must be received by the Mid-Tier Holding Company, which date shall be not less than 20 nor more than 45 days following the date on which the order forms are first mailed by the Mid-Tier Holding Company, and which date will constitute the expiration of the Subscription Offering, unless extended;
4.2.2 The Subscription Price per share for shares of Mid-Tier Conversion Stock to be sold in the Offering;
4.2.3 A description of the minimum and maximum number of shares of Mid-Tier Conversion Stock that may be subscribed for pursuant to the exercise of subscription rights or otherwise purchased in the Offering;
4.2.4 Instructions as to how the recipient of the order form is to indicate thereon the number of shares of Mid-Tier Conversion Stock for which such Person elects to subscribe and the available alternative methods of payment therefor;
4.2.5 An acknowledgment that the recipient of the order form has received a copy of the prospectus before execution of the order form;
4.2.6 A statement indicating the consequences of failing to properly complete and return the order form, including a statement to the effect that all subscription rights are nontransferable, will be void at the end of the Subscription Offering, and can only be exercised by delivering to the Mid-Tier Holding Company within the Subscription Offering period such properly completed and executed order form, together with payment in the full amount of the purchase price as specified in the order form for the shares of Mid-Tier Conversion Stock for which the recipient elects to subscribe in the Subscription Offering; and
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4.2.7 A statement to the effect that the executed order form, once received by the Mid-Tier Holding Company, may not be modified or amended by the subscriber without the consent of the Mid-Tier Holding Company.
4.3 Undelivered, Defective or Late Order Form; Insufficient Payment . In the event order forms (a) are not delivered for any reason or are returned undelivered to the Mid-Tier Holding Company by the United States Postal Service, (b) are not received back by the Mid-Tier Holding Company or are received by the Mid-Tier Holding Company after the expiration date specified thereon, (c) are defectively filled out or executed, (d) are not accompanied by the full required payment for the shares of Mid-Tier Conversion Stock subscribed for (including cases in which Deposit Accounts from which withdrawals are authorized are insufficient to cover the amount of the required payment), or (e) are not mailed pursuant to a "no mail" order placed in effect by the account holder, the subscription rights of the Person to whom such rights have been granted will lapse as though such Person failed to return the completed order form within the time period specified thereon; provided, however , that the Mid-Tier Holding Company may, but will not be required to, waive any immaterial irregularity on any order form or require the submission of corrected order forms or the remittance of full payment for subscribed shares by such date as the Mid-Tier Holding Company may specify, and all interpretations by the Bank and the Mid-Tier Holding Company, as applicable, of terms and conditions of this Stock Issuance Plan and of the order forms will be final, subject to the review and approval of the Commissioner. The Mid-Tier Holding Company reserves the right in its sole discretion to accept or reject orders received on photocopied or faxed order forms.
4.4.1 All payments for Mid-Tier Conversion Stock subscribed for or ordered in the Offering must be delivered in full to the Mid-Tier Holding Company, together with a properly completed and executed order form, except in the case of the Syndicated Community Offering or the Firm Commitment Underwritten Offering, on or before the expiration date specified on the order form, unless such date is extended by the Bank and the Mid-Tier Holding Company; provided, however , that if any Employee Plan subscribes for shares during the Subscription Offering, such plans will not be required to pay for the shares at the time they subscribe but rather may pay for such shares of Mid-Tier Conversion Stock subscribed for by such plans at the Subscription Price immediately prior to consummation of the Offering, provided, further , that, in the case of the ESOP, there is in force from the time of its subscription until the consummation of the Offering a loan commitment to lend to the ESOP, at such time, the aggregated Subscription Price of the shares for which it subscribed. Payment for Mid-Tier Conversion Stock may also be made by a participant in an Employee Plan (including the Bank's 401(k) plan) causing funds held for such participant's benefit by an Employee Plan to be paid over for such purchase to the extent that such plan allows participants or any related trust established for the benefit of such participants to direct that some or all of their individual accounts or sub-accounts be invested in Mid-Tier Conversion Stock.
4.4.2 Payment for Mid-Tier Conversion Stock shall be made either by personal check, bank draft or money order, or if a purchaser has a Deposit Account in the Bank (and if the Bank has elected to permit such withdrawals from the type of Deposit Account maintained by such Person), such purchaser may pay for the shares subscribed for by authorizing the Bank to make a withdrawal from the purchaser's Deposit Account at the Bank in an amount equal to the aggregate purchase price of such shares. Wire transfers may be accepted at the sole discretion of the Mid-Tier Holding Company. Any authorized withdrawal, whether from a savings, passbook or certificate account, shall be without penalty as to premature withdrawal. If the authorized withdrawal is from a certificate account, and the remaining balance does not meet the applicable minimum balance requirements, the certificate shall be canceled at the time of withdrawal, without penalty, and the remaining balance will earn interest at the statement savings rate. Funds for which a withdrawal is authorized will remain in the purchaser's Deposit Account but may not be used by the purchaser pending consummation of the Offering or expiration of the 45-day period (or such longer period as may be approved by the Commissioner) following termination of the Subscription Offering, whichever occurs first. Upon consummation of the Offering, the withdrawal will be given effect only to the extent necessary to satisfy the subscription (to the extent it can be filled) at the Subscription Price. Interest will continue to be earned on any amounts authorized for withdrawal until such withdrawal is given effect. Interest on checks, money orders and bank drafts will be paid by the Bank at the Bank's statement rate. Such interest will be paid from the date payment is received by the Bank until consummation or termination of the Offering. If for any reason the Offering is not consummated, all payments made by subscribers in the Offering will be refunded to them with interest. In case of amounts authorized for withdrawal from Deposit Accounts, refunds will be made by canceling the authorization for withdrawal.
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ARTICLE V
Stock Purchase Priorities
5.1 Priorities for Offering . All purchase priorities established by this Article V shall be subject to the purchase limitations set forth in, and shall be subject to adjustment as provided in, Article VI of this Stock Issuance Plan. In addition to the priorities set forth in this Article V, the Bank may establish other priorities for the purchase of Mid-Tier Conversion Stock, subject to the approval of the Commissioner, the FDIC and the FRB, if required.
5.2 Certain Determinations . All interpretations or determinations of whether prospective purchasers are "residents," "Associates," or "Acting in Concert," or whether a purchase conflicts with the purchase limitations in this Stock Issuance Plan and any other interpretations of any and all other provisions of this Stock Issuance Plan shall be made by and at the sole discretion of the Mid-Tier Holding Company, and may be based on whatever evidence the Mid-Tier Holding Company may choose to use in making any such determination; provided, however, that the determination of whether a group is Acting in Concert remains subject to review by the Division. Such determination shall be conclusive, final and binding on all Persons and the Mid-Tier Holding Company may take any remedial action, including, without limitation, rejecting the purchase or referring the matters to the Commissioner for action, as in its sole discretion the Mid-Tier Holding Company may deem appropriate.
5.3 Minimum Purchase; No Fractional Shares . The minimum purchase by any Person shall be 25 shares (to the extent that shares of Mid-Tier Conversion Stock are available for purchase); provided, however , that the aggregate purchase price for any minimum share purchase shall not exceed $500. No fractional shares will be allocated or issued.
5.4 Overview of Priorities . In descending order of priority, the opportunity to purchase Mid-Tier Conversion Stock shall be given in the Subscription Offering to: (a) Eligible Account Holders; (b) Supplemental Eligible Account Holders (if any); (c) Tax-Qualified Employee Plans; and (d) Employees, Officers and directors of the Bank or any subsidiary of the Bank.
5.5 Priorities For Subscription Offering .
5.5.1 First Priority: Eligible Account Holders . Upon approval of the Plan by the Members and the receipt of permission from the Commissioner, the FDIC and the FRB, if required, and the SEC to offer the Mid-Tier Conversion Stock for sale, each Eligible Account Holder shall receive, without payment therefor, nontransferable subscription rights on a first priority basis to subscribe for a number of shares of Mid-Tier Conversion Stock equal to the greatest of (a) a number determined by dividing the Individual Maximum Purchase Limit (as such term is defined in Section 6.2) by the per share Subscription Price, (b) one-tenth of one percent (.10%) of the shares offered in the Offering, or (c) 15 times the product (rounded down to the nearest whole number) obtained by multiplying (1) the total number of shares of Mid-Tier Conversion Stock to be offered in the Offering by (2) a fraction, of which the numerator is the Qualifying Deposit of the Eligible Account Holder and the denominator is the total amount of Qualifying Deposits of all Eligible Account Holders. If there are insufficient shares available to satisfy all subscriptions of Eligible Account Holders, shares will be allocated to Eligible Account Holders so as to permit each such subscribing Eligible Account Holder to purchase a number of shares of Mid-Tier Conversion Stock sufficient to make his or her total allocation equal to the lesser of 100 shares or the number of shares subscribed for. Thereafter, unallocated shares of Mid-Tier Conversion Stock will be allocated pro rata to remaining subscribing Eligible Account Holders whose subscriptions remain unfilled in the same proportion that each such subscriber's Qualifying Deposit bears to the total amount of Qualifying Deposits of all subscribing Eligible Account Holders whose subscriptions remain unfilled. Subscription rights to purchase Mid-Tier Conversion Stock received by Officers and directors of the Bank (and their Associates) based on their increased deposits in the Bank in the one year preceding the Eligibility Record Date shall be subordinated to the subscription rights of other Eligible Account Holders. To ensure proper allocation of stock, each Eligible Account Holder must list on his or her subscription order form all Deposit Accounts in which he had an ownership interest as of the Eligibility Record Date.
5.5.2 Second Priority: Supplemental Eligible Account Holders . To the extent there are shares remaining after satisfaction of subscriptions by Eligible Account Holders, each Supplemental Eligible Account Holder (if any) shall receive non-transferable subscription rights to subscribe for a number of shares of Mid-Tier Conversion Stock equal to the greatest of (a) a number determined by dividing the Individual Maximum Purchase Limit by the per share Subscription Price, (b) one-tenth of one percent (.10%) of the shares offered in the Offering, or (c) 15 times the product (rounded down to the nearest whole number) obtained by multiplying (1) the total number of shares of Mid-Tier Conversion Stock to be offered in the Offering by (2) a fraction, of which the numerator is the Qualifying Deposit of the Supplemental Eligible Account Holder and the denominator is the total amount of Qualifying Deposits of all Supplemental Eligible Account Holders. In the event Supplemental
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Eligible Account Holders (if any) subscribe for a number of shares of Mid-Tier Conversion Stock which, when added to the shares subscribed for by Eligible Account Holders, exceed available shares, the available shares of Mid-Tier Conversion Stock will be allocated among subscribing Supplemental Eligible Account Holders so as to permit each subscribing Supplemental Eligible Account Holder to purchase a number of shares of Mid-Tier Conversion Stock sufficient to make his or her total allocation equal to the lesser of 100 shares or the number of shares subscribed for. Thereafter, unallocated shares will be allocated to each subscribing Supplemental Eligible Account Holder whose subscription remains unfilled in the same proportion that such subscriber's Qualifying Deposit on the Supplemental Eligibility Record Date bears to the total amount of Qualifying Deposits of all subscribing Supplemental Eligible Account Holders whose subscriptions remain unfilled.
5.5.3 Third Priority: Tax-Qualified Employee Plans. To the extent there are shares remaining after satisfaction of subscriptions by Eligible Account Holders and Supplemental Eligible Account Holders (if any), the Tax-Qualified Employee Plans shall be given the opportunity to purchase in the aggregate up to 10% of the Mid-Tier Conversion Stock issued in the Minority Stock Issuance. In the event that the total number of shares of Mid-Tier Conversion Stock offered in the Offering is increased to an amount greater than the Range Maximum, the Tax-Qualified Employee Plans shall have a priority right to purchase any such additional shares offered (up to an aggregate of 10% of Mid-Tier Conversion Stock issued in the Minority Stock Issuance). If the Tax-Qualified Employee Plans are not able to fill their orders in full in the Offering, then the Tax-Qualified Employee Plans may purchase shares in the open market following consummation of the Offering or utilize authorized but unissued shares of Mid-Tier Common Stock only with prior Commissioner approval.
5.5.4 Fourth Priority: Employees, Officers and Directors. To the extent there are shares remaining after satisfaction of subscriptions by Eligible Account Holders, Supplemental Eligible Account Holders (if any), and any Tax-Qualified Employee Plans, each Employee, Officer and director of the Bank who is not an Eligible Account Holder or a Supplemental Eligible Account Holder shall receive non-transferable subscription rights to subscribe for shares of Mid-Tier Conversion Stock offered in the Offering in an amount equal to the Individual Maximum Purchase Limit; provided, however , that the aggregate number of shares of Mid-Tier Conversion Stock that may be purchased by Officers and directors in the Offering shall be limited to 25% of the total number of shares of Mid-Tier Conversion Stock issued in the Minority Stock Issuance (including shares purchased by Officers and directors under this Section 5.5.4 and under the preceding priority categories, but not including shares purchased by the ESOP). In the event that Officers and directors subscribe under this Section 5.5.4 for more shares of Mid-Tier Conversion Stock than are available for purchase by them, the shares of Mid-Tier Conversion Stock available for purchase will be allocated by the Mid-Tier Holding Company among such subscribing Persons on an equitable basis, such as by giving weight to the period of service, compensation and position of the individual subscriber.
5.6 Priorities for Direct Community Offering .
5.6.1 Any shares of Mid-Tier Conversion Stock not subscribed for in the Subscription Offering may be offered for sale in a Direct Community Offering. This will involve an offering of all unsubscribed shares of Mid-Tier Conversion Stock directly to the general public. The Direct Community Offering, if any, shall be for a period of not more than 45 days unless extended by the Mid-Tier Holding Company, and shall commence concurrently with, during or promptly after the Subscription Offering. The Mid-Tier Holding Company may use broker-dealers or investment banking firms on a best efforts basis to assist in selling the unsubscribed shares in the Subscription and Direct Community Offering. The Mid-Tier Holding Company may pay a commission or other fee to such broker-dealers or investment banking firms as to the shares sold the Subscription and Direct Community Offering and may also reimburse such firm or firms for reasonable expenses incurred in connection with the sale. The Mid-Tier Conversion Stock will be offered and sold in the Direct Community Offering, in accordance with the Regulations, so as to achieve the widest distribution of the Mid-Tier Conversion Stock. In making the Direct Community Offering, the Mid-Tier Holding Company will give preference to natural persons (including trusts of natural persons) residing in the Local Community. No Person may subscribe for or purchase more than the Individual Maximum Purchase Limit of Mid-Tier Conversion Stock in the Direct Community Offering. The Mid-Tier Holding Company, in its sole discretion, may reject subscriptions, in whole or in part, received from any Person under this Section 5.6.
5.6.2 In the event of an oversubscription for shares in the Direct Community Offering, available shares will be allocated (to the extent shares remain available) first to cover orders of natural Persons residing in the Local Community, so that each such Person may receive 100 shares, and thereafter, on an equal number of shares per order basis or on such other reasonable basis as may be determined by the Mid-Tier Holding Company. If oversubscription does not occur among natural Persons residing in the Local Community, orders accepted in the
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Direct Community Offering shall be filled up to a maximum not to exceed 2% of the Mid-Tier Conversion Stock, and thereafter remaining shares shall be allocated on an equal number of shares per order basis until all orders have been filled or all shares are allocated.
5.6.3 The terms "residence, "reside," or "residing" as used herein with respect to any Person shall mean any Person who occupies a dwelling within the Local Community, has a present intent to remain in the Local Community for a period of time, and manifests the genuineness of that intent by establishing an ongoing physical presence within the Local Community together with an indication that such presence within the Local Community is not merely transitory in nature. To the extent the Person is a corporation or other business entity, the principal place of business or headquarters must be in the Local Community. To the extent a Person is a personal benefit plan, the circumstances of the beneficiary shall apply with respect to this definition. In the case of all other benefit plans or trusts, circumstances of the trustee shall be examined for purposes of this definition. The Bank may use deposit or loan records or such other evidence provided to it to determine whether a Person is a resident. In all cases, however, such a determination shall be in the sole discretion of the Mid-Tier Holding Company.
5.7 Priorities for Syndicated Community Offering .
5.7.1 Any shares of Mid-Tier Conversion Stock not sold in the Subscription Offering or in the Direct Community Offering, if any, may be offered for sale to the general public by a selling group of broker-dealers in a Syndicated Community Offering, subject to terms, conditions and procedures as may be determined by the Mid-Tier Holding Company in a manner that is intended to achieve the widest distribution of the Mid-Tier Conversion Stock subject to the rights of the Mid-Tier Holding Company to accept or reject in whole or in part all orders in the Syndicated Community Offering. No Person may purchase in the Syndicated Community Offering more than the Individual Maximum Purchase Limit of Mid-Tier Conversion Stock. It is expected that any Syndicated Community Offering will commence as soon as practicable after termination of the Direct Community Offering, if any. The Syndicated Community Offering shall be completed within 45 days after the expiration of the Subscription Offering, unless such period is extended as provided herein. The commission in the Syndicated Community Offering shall be determined by a marketing agreement between the Mid-Tier Holding Company and the Marketing Agent. Such agreement shall be filed with the Division, the FDIC and the FRB, if required, and the SEC.
5.7.2 Alternatively, if feasible, any shares of Mid-Tier Conversion Stock not sold in the Subscription Offering or in the Direct Community Offering, if any, may be offered for sale in a Firm Commitment Underwritten Offering subject to such terms, conditions and procedures as may be determined by the Mid-Tier Holding Company, subject to the right of the Mid-Tier Holding Company to accept or reject in whole or in part any orders in the Firm Commitment Underwritten Offering.
5.7.3 If for any reason a Syndicated Community Offering or Firm Commitment Underwritten Offering of unsubscribed shares of Mid-Tier Conversion Stock cannot be effected or is not deemed to be advisable, and any shares remain unsold after the Subscription Offering and the Direct Community Offering, if any, the Mid-Tier Holding Company may seek to make other arrangements for the sale of the remaining shares in order to meet the Range Minimum. Such other arrangements will be subject to the approval of the Commissioner, the FDIC and the FRB, if required, and to compliance with applicable state and federal securities laws.
ARTICLE VI
Additional Limitations on Purchases
6.1 General . Purchases of Mid-Tier Conversion Stock in the Offering will be subject to the purchase limitations set forth in this Article VI.
6.2 Individual Maximum Purchase Limit . This Section 6.2 sets forth the "Individual Maximum Purchase Limit." No Person, through one or more qualifying deposit accounts, or Persons exercising subscription rights through a single qualifying deposit account held jointly, may purchase in the Offering (including the Subscription Offering, the Direct Community Offering and the Syndicated Community Offering or Firm Commitment Underwritten Offering) more than $600,000 of Mid-Tier Conversion Stock, except that: (a) the Mid-Tier Holding Company may, in its sole discretion and without further notice to or solicitation of subscribers or other prospective purchasers, (i) increase such Individual Maximum Purchase Limit to up to 5% of the number of shares of Mid-Tier Conversion Stock offered in the Offering or (ii) decrease such Individual Maximum Purchase Limit to no less than one-tenth of one percent (.10%) of the number of shares of Mid-Tier Conversion Stock offered in the Offering; and (b) Tax-Qualified Employee Plans may purchase up to 10% of the shares sold in the Offering. If the Mid-Tier Holding Company increases the Individual
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Maximum Purchase Limit (as permitted by this Section 6.2), subscribers in the Subscription Offering who ordered the previously-effective maximum amount will be given the opportunity to increase their subscriptions up to the then applicable limit. Requests to purchase additional shares of Mid-Tier Conversion Stock under this provision will be determined by the Mid-Tier Holding Company, in its sole discretion. In the event that the Individual Maximum Purchase Limit is increased to 5% of the number of shares of Mid-Tier Conversion Stock sold in the Offering, such limitation may be further increased to 9.99% of the number of shares of Mid-Tier Conversion Stock sold in the Offering; provided that orders for Mid-Tier Conversion Stock exceeding 5% of the Offering shall not exceed in the aggregate 10% of the Mid-Tier Conversion Stock sold in the Offering. Requests to purchase additional shares of the Mid-Tier Conversion Stock in the event that the purchase limitation is so increased will be determined by the board of directors of the Mid-Tier Holding Company in its sole discretion.
6.3 Group Maximum Purchase Limit . This Section 6.3 sets forth the "Group Maximum Purchase Limit." No Person and his or her Associates or group of Persons Acting in Concert, may purchase in the Offering (including the Subscription Offering, the Direct Community Offering and the Syndicated Community Offering or Firm Commitment Underwritten Offering) more than $800,000 of Mid-Tier Conversion Stock, except that: (a) the Mid-Tier Holding Company may, in its sole discretion and without further notice to or solicitation of subscribers or other prospective purchasers, (i) increase such Group Maximum Purchase Limit to up to 5% of the number of shares of Mid-Tier Conversion Stock offered in the Offering or (ii) decrease such Group Maximum Purchase Limit to no less than one-tenth of one percent (.10%) of the number of shares of Mid-Tier Conversion Stock offered in the Offering; and (b) Tax-Qualified Employee Plans may purchase up to 10% of the shares sold in the Offering. Notwithstanding the foregoing, in the event that the Mid-Tier Holding Company increases the Individual Maximum Purchase Limit (as permitted by Section 6.2) to a number that is in excess of the Group Maximum Purchase Limit established by this Section 6.3, the Group Maximum Purchase Limit shall automatically be increased so as to be equal to the Individual Maximum Purchase Limit, as adjusted.
6.4 Purchases by Officers and Directors . The aggregate number of shares of Mid-Tier Conversion Stock to be purchased in the Offering by Officers and directors of the Bank (and their Associates) shall not exceed 25% of the total number of shares of Mid-Tier Conversion Stock issued in the Minority Stock Issuance (excluding shares held by any Non-Tax-Qualified Employee Benefit Plan or Tax-Qualified Employee Plan attributable to such person).
6.5 Special Rule for Tax-Qualified Employee Plans . Shares of Mid-Tier Conversion Stock purchased by any individual participant ("Plan Participant") in a Tax-Qualified Employee Plan using funds therein pursuant to the exercise of subscription rights granted to such Participant in his individual capacity as an Eligible Account Holder or Supplemental Eligible Account Holder shall not be deemed to be purchases by a Tax-Qualified Employee Plan for purposes of calculating the maximum amount of Mid-Tier Conversion Stock that Tax-Qualified Employee Plans may purchase pursuant to this Stock Issuance Plan, if the individual Plan Participant controls or directs the investment authority with respect to such account or subaccount.
6.6 Increase in the Total Number of Shares Offered . In the event that (a) the total number of shares of Mid-Tier Conversion Stock offered in the Offering is increased to an amount greater than the Range Maximum, and (b) there shall be additional shares of Mid-Tier Conversion Stock available after the Tax-Qualified Employee Plans shall have exercised their priority right (established pursuant to Section 5.5.3) to purchase shares exceeding the Range Maximum, any additional shares not purchased by the Tax-Qualified Employee Plans will be issued to fill unfulfilled subscriptions of other subscribers according to their respective priorities set forth in this Stock Issuance Plan.
6.7 Illegal Purchases . Notwithstanding any other provision of this Stock Issuance Plan, no Person shall be entitled to purchase any Mid-Tier Conversion Stock to the extent such purchase would be illegal under any federal law or state law or regulation or would violate regulations or policies of the Financial Industry Regulatory Authority. The Mid-Tier Holding Company and/or its agents may ask for an acceptable legal opinion from any purchaser as to the legality of such purchase and may refuse to honor any purchase order if such opinion is not timely furnished.
6.8 Rejection of Orders . The Mid-Tier Holding Company has the right in its sole discretion to reject any order submitted by a Person whose representations the Mid-Tier Holding Company believes to be false or who it otherwise believes, either alone or Acting in Concert with others, is violating, circumventing, or intends to violate, evade or circumvent the terms and conditions of this Stock Issuance Plan.
6.9 Subscribers in Non-Qualified States or in Foreign Countries . The Mid-Tier Holding Company will make reasonable efforts to comply with the securities laws of any state in the United States in which its depositors reside, and will only offer and sell the Mid-Tier Conversion Stock in states in which the offers and sales comply with such states' securities laws. However, no Person will be offered or allowed to purchase any Mid-Tier Conversion Stock under this Stock Issuance Plan if he or she resides (a) in a foreign country or (b) in a state of the United States with
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respect to which any of the following apply: (i) a small number of Persons otherwise eligible to purchase shares under this Stock Issuance Plan reside in such state; (ii) the offer or sale of shares of Mid-Tier Conversion Stock to such Persons would require the Mid-Tier Holding Company or its Employees to register, under the securities laws of such state, as a broker or dealer or to register or otherwise qualify its securities for sale in such state; or (iii) such registration or qualification would be impracticable for reasons of cost or otherwise.
6.10 No Offer to Transfer Shares . Before the consummation of the Offering, no Person shall offer to transfer, or enter into any agreement or understanding to transfer the legal or beneficial ownership of any subscription rights or shares of Mid-Tier Conversion Stock, except pursuant to this Stock Issuance Plan. The following shall not constitute impermissible transfers under this Stock Issuance Plan. Any Person having subscription rights in his individual capacity as an Eligible Account Holder or Supplemental Eligible Account Holder may exercise such subscription rights by causing a tax-qualified plan to make such purchase using funds allocated to such Person in such tax-qualified plan if such individual plan participant controls or directs the investment authority with respect to such account or subaccount. A tax-qualified plan that maintains an Eligible Deposit Account in the Bank as trustee for or for the benefit of a Person who controls or directs the investment authority with respect to such account or subaccount ("Beneficiary") may, in exercising its subscription rights, direct that the Mid-Tier Conversion Stock be issued in the name of such individual Beneficiary in his individual capacity.
6.11 Confirmation by Purchasers . Each Person ordering Mid-Tier Conversion Stock in the Offering will be deemed to confirm that such purchase does not conflict with the purchase limitations in this Stock Issuance Plan.
6.12 Minority Stock Issuance Limitations.
6.12.1 The aggregate amount of outstanding Mid-Tier Common Stock owned or controlled by persons other than the MHC at the close of the Offering shall be less than 50% of the total outstanding Mid-Tier Common Stock.
6.12.2 The aggregate amount of Mid-Tier Common Stock acquired in the Offering by any Non-Tax-Qualified Employee Plan or any Officer, director, trustee or corporator of the MHC, the Mid-Tier Holding Company or the Bank and his or her Associates, exclusive of any stock acquired by such Person in the secondary market, shall not exceed 10% of the shares issued in the Minority Stock Issuance. In calculating the number of shares held by any such Officer, director, trustee, corporator or Associate under this provision, shares held by any Tax-Qualified Employee Plan or Non-Tax-Qualified Employee Plan that are attributable to such Person shall not be counted.
6.12.3 The aggregate amount of stock of the Mid-Tier Holding Company, whether common or preferred, acquired in the Offering by any Non-Tax-Qualified Employee Plan or any Officer, director, trustee or corporator of the MHC, the Mid-Tier Holding Company and the Bank and his or her Associates, exclusive of any stock acquired by such Persons in the secondary market, shall not exceed 10% of the stockholders' equity of the Mid-Tier Holding Company held by Persons other than the MHC at the close of the Offering.
6.12.4 The aggregate amount of Mid-Tier Common Stock acquired in the Offering by any one or more Tax-Qualified Employee Plans, exclusive of any stock acquired by such plans in the secondary market, shall not exceed 10% of the shares issued in the Minority Stock Issuance, and shall not exceed 4.9% of the outstanding shares of Mid-Tier Common Stock at the conclusion of the Offering.
6.12.5 The aggregate amount of stock, whether common or preferred, acquired in the Offering by any one or more Tax-Qualified Employee Plans, exclusive of any stock acquired by such plans in the secondary market, shall not exceed 10% of the stockholders' equity of the Mid-Tier Holding Company held by Persons other than the MHC at the close of the Offering, and shall not exceed 4.9% of the stockholders' equity of the Mid-Tier Holding Company at the conclusion of the Offering.
6.12.6 The aggregate amount of Mid-Tier Common Stock acquired in the Offering by all Non-Tax-Qualified Employee Plans, Officers, directors, trustees and corporators of the MHC, the Mid-Tier Holding Company and the Bank and their Associates, exclusive of any stock acquired by such Persons in the secondary market, shall not exceed 25% of the outstanding shares of Mid-Tier Common Stock shares issued in the Minority Stock Issuance. In calculating the number of shares held by such Officers, directors, trustees, corporators and Associates under this provision, shares held by any Tax-Qualified Employee Plan or Non-Tax-Qualified Employee Plan that are attributable to such Persons shall not be counted.
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6.12.7 The aggregate amount of stock, whether common or preferred, acquired in the Offering by all Non-Tax-Qualified Employee Plans, Officers, directors, trustees and corporators of the MHC, the Mid-Tier Holding Company and the Bank and their Associates, exclusive of any stock acquired by such Persons in the secondary market, shall not exceed 25% of the stockholders' equity of the Mid-Tier Holding Company held by Persons other than the MHC at the close of the Offering. In calculating the number of shares held by such Officers, directors, trustees, corporators and Associates under this provision, shares held by any Tax-Qualified Employee Plan or Non-Tax-Qualified Employee Plan that are attributable to such Persons shalt not be counted.
6.12.8 The aggregate amount of Mid-Tier Common Stock acquired by all stock benefit plans of the Mid-Tier Holding Company or the Bank, other than employee stock ownership plans, shall not exceed 25% of the shares of Mid-Tier Common Stock issued in the Minority Stock Issuance.
ARTICLE VII
Post Offering Matters
7.1 Stock Purchases After the Minority Stock Issuance . For a period of three years after the Offering, no Officer, director, trustee or corporator of the MHC, the Mid-Tier Holding Company or the Bank, or their Associates, may purchase, without the prior written approval of the Commissioner, the FDIC and the FRB, if required, any Mid-Tier Common Stock, except from a broker-dealer registered with the SEC, provided that the foregoing shall not apply to (a) negotiated transactions involving more than 1% of the outstanding Mid-Tier Common Stock or (b) purchases of stock made by and held by or otherwise made pursuant to any Tax-Qualified or Non-Tax-Qualified Employee Plan even if such stock is attributable to Officers, directors, trustees or corporators of the Bank, the Mid-Tier Holding Company or the MHC or their Associates.
7.2 Resales of Stock by Management Persons . Mid-Tier Conversion Stock purchased in the Offering by Officers, directors, and trustees of the Bank, the Mid-Tier Holding Company and the MHC or their Associates may not be resold for a period of at least one year following the date of purchase, except in the case of death or substantial disability, as determined by the Commissioner, of such Person, or upon the written approval of the Commissioner.
7.3 Stock Certificates . Shares of Mid-Tier Common Stock will be issued in book entry form. Stock certificates will not be issued. Appropriate instructions shall be issued to the Mid-Tier Holding Company's transfer agent with respect to applicable restrictions on transfers of stock set forth in Section 7.2. Any shares of stock issued as a stock dividend, stock split or otherwise with respect to such restricted stock shall be subject to the same restrictions as apply to the restricted stock.
7.4 Restriction on Financing Stock Purchases . The Mid-Tier Holding Company will not offer or sell any of the Mid-Tier Common Stock proposed to be issued to any Person whose purchase would be financed by funds loaned, directly or indirectly, to the Person by the Mid-Tier Holding Company, the Bank or any of their Affiliates; provided, however, that the Mid-Tier Holding Company, or a subsidiary thereof, may loan funds to the ESOP for the purchase of Mid-Tier Conversion Stock.
7.5 Stock Benefit Plans . The board of directors of the Bank and/or the Mid-Tier Holding Company are permitted under the Regulations, and may decide, to adopt one or more stock benefit plans for the benefit of the Employees, Officers, directors and trustees of the Bank, the Mid-Tier Holding Company and the MHC, including an ESOP, an employer stock fund option in the 401(k) plan, stock award plans and stock option plans, which will be authorized to purchase Mid-Tier Common Stock and grant options for Mid-Tier Common Stock. However, only the Tax-Qualified Employee Plans will be permitted to purchase Mid-Tier Conversion Stock in the Offering subject to the purchase priorities set forth in this Stock Issuance Plan. Pursuant to the Regulations, the Mid-Tier Holding Company may authorize the ESOP to purchase up to 8% of the Mid-Tier Conversion Stock to be issued in the Minority Stock Issuance and any other Tax-Qualified Employee Plans to purchase in the aggregate up to 2% of the Mid-Tier Conversion Stock to be issued in the Minority Stock Issuance. The Bank or the Mid-Tier Holding Company may make scheduled discretionary contributions to one or more Tax-Qualified Employee Plans to purchase Mid-Tier Common Stock or to purchase issued and outstanding shares of Mid-Tier Common Stock or authorized but unissued shares of Mid-Tier Common Stock subsequent to the completion of the Offering; provided, however , that such contributions do not cause the Bank to fail to meet any of its regulatory capital requirements. This Stock Issuance Plan specifically authorizes the grant and issuance by the Mid-Tier Holding Company of (i) awards of Mid-Tier Common Stock after the Offering pursuant to one or more stock recognition and award plans (the "Recognition Plans") in an amount equal to up to 4% of the number of shares of Mid-Tier Conversion Stock issued in the Minority Stock Issuance, (ii) options to purchase a number of shares of Mid-Tier Common Stock in an amount equal to up to 10% of the number of shares of Mid-Tier Conversion Stock issued in the Minority Stock Issuance, and shares of Mid-Tier
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Common Stock issuable upon exercise of such options, and (iii) at the closing of the Offering or at any time thereafter, Mid-Tier Common Stock in an amount up to 8% of the number of shares of Mid-Tier Conversion Stock issued in the Minority Stock Issuance to the ESOP and an amount equal to up to 2% of the number of shares of Mid-Tier Conversion Stock issued in the Minority Stock Issuance to the Bank's 401(k) plan. Shares awarded pursuant to the Recognition Plans, and shares issued upon exercise of options may be authorized but unissued shares of the Mid-Tier Holding Company's Mid-Tier Common Stock, or shares of Mid-Tier Common Stock purchased by the Mid-Tier Holding Company or such plans in the open market. Such limitations shall not apply if (a) the Recognition Plans or stock option plans are adopted no earlier than one year following the completion of the Offering, (b) all Common Stock awarded in excess of such limitations must be acquired in the secondary market and (c) such secondary market acquisitions must be no earlier than when such limitations can be exceeded.
7.6 Market for Mid-Tier Common Stock . If at the close of the Offering the Mid-Tier Holding Company has more than 300 shareholders of any class of stock, the Mid-Tier Holding Company shall use its best efforts to:
7.6.1 Encourage and assist a Market Maker to establish and maintain a market for that class of stock;
7.6.2 List that class of stock on a national or regional securities exchange, or on the NASDAQ system; and
7.6.3 Promptly register the Mid-Tier Common Stock with the SEC pursuant to the Exchange Act, and undertake not to deregister such Mid-Tier Common Stock for a period of three years thereafter.
7.7.1 For purposes of granting a priority claim to the assets of the Bank in the event of a complete liquidation thereof to Eligible Account Holders and Supplemental Eligible Account Holders (if any) who continue to maintain Deposit Accounts at the Bank, the Mid-Tier Holding Company will, at the time of Reorganization, establish a Liquidation Account in an amount equal to the product of (a) the percentage of outstanding Mid-Tier Common Stock issued in the Minority Stock Issuance and (b) the net worth of the Mid-Tier Holding Company set forth in its latest statement of financial condition contained in the final Prospectus distributed in connection with the Offering. The function of the Liquidation Account is to establish a priority on liquidation and, except as provided for in this Section 7.7.1, the Liquidation Account shall not operate to restrict the use or application of any of the net worth accounts of the Mid-Tier Holding Company.
7.7.2 Each Eligible Account Holder and Supplemental Eligible Account Holder (if any) shall, with respect to each Deposit Account, hold a related inchoate interest in a portion of the Liquidation Account balance, in relation to each Deposit Account balance at the Eligibility Record Date or Supplemental Eligibility Record Date (if established), as the case may be, or to such balance as it may be subsequently reduced, as hereinafter provided. The initial Liquidation Account balance shall not be increased, and shall be subject to downward adjustment to the extent of any downward adjustment of any subaccount balance of any Eligible Account Holder or Supplemental Eligible Account Holder in accordance with 209 CMR 33.05(12).
7.7.3 In no event will any Eligible Account Holder or Supplemental Eligible Account Holder (if any) be entitled to a distribution exceeding such holder's subaccount balance in the Liquidation Account.
7.7.4 In the unlikely event of a complete liquidation of (a) the Bank or (b) the Bank and the Mid-Tier Holding Company (and only in such event), following all liquidation payments to creditors (including those to account holders to the extent of their Deposit Accounts), each Eligible Account Holder and Supplemental Eligible Account Holder (if any) shall be entitled to receive a liquidating distribution from the Liquidation Account, in the amount of the then-adjusted subaccount balances for his or her deposit accounts then held, before any liquidating distribution may be made to any holders of the Mid-Tier Holding Company's capital stock. No merger, consolidation, reorganization, or purchase of bulk assets with assumption of deposit accounts and other liabilities, or similar transactions, in which the Mid-Tier Holding Company is not the surviving institution, shall be deemed to be a complete liquidation for this purpose. In such transactions, the Liquidation Account shall be assumed by the surviving institution.
7.7.5 The initial subaccount balance for a Deposit Account held by an Eligible Account Holder and/or Supplemental Eligible Account Holder (if any) shall be determined by multiplying the opening balance in the Liquidation Account by a fraction, the numerator of which is the amount of such Eligible Account Holder's or Supplemental Eligible Account Holder's Qualifying Deposit and the denominator of which is the total amount of all Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible Account Holders in the Bank. For Deposit Accounts in existence on both dates, separate subaccounts shall be determined on the basis of the Qualifying Deposits in such Deposit Accounts on such record dates. Such initial subaccount balance shall not be increased by additional Deposits, but shall be subject to downward adjustment as described below.
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7.7.6 If, at the close of business on the last day of any period for which the Mid-Tier Holding Company has prepared audited financial statements subsequent to the effective date of the Offering, the deposit balance in the Deposit Account of an Eligible Account Holder or Supplemental Eligible Account Holder (if any) is less than the lesser of: (a) the balance in the Deposit Account at the close of business on the last day of any period for which the Mid-Tier Holding Company has prepared audited financial statements subsequent to the Eligibility Record Date or Supplemental Eligibility Record Date (if established), or (b) the amount in such Deposit Account as of the Eligibility Record Date or Supplemental Eligibility Record Date (if established), then the subaccount balance for such Deposit Account shall be adjusted by reducing such subaccount balance in an amount proportionate to the reduction in the balance of such Deposit Account. In the event of such downward adjustment, the subaccount balance shall not be subsequently increased, notwithstanding any subsequent increase in the deposit balance of the related Deposit Account. If any such Deposit Account is closed, the related subaccount shall be reduced to zero. For purposes of this Section 7.7.6, a time account shall be deemed to be closed upon its maturity date regardless of any renewal thereof. A distribution of each subaccount balance may be made only in the event of a complete liquidation of the Mid-Tier Holding Company subsequent to the Reorganization and only out of funds available for such purpose after payment of all creditors.
7.7.7 The creation and maintenance of the Liquidation Account shall not operate to restrict the use or application of any of the equity accounts of the Mid-Tier Holding Company or the Bank, except that the Mid-Tier Holding Company shall not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause its net worth to be reduced below (i) the amount required for the Liquidation Account or (ii) the regulatory capital requirements of the Mid-Tier Holding Company (to the extent applicable). Neither the Mid-Tier Holding Company nor the Bank shall be required to set aside funds in connection with its obligations hereunder relating to the Liquidation Account. Eligible Account Holders and Supplemental Eligible Account Holders (if any) do not retain any voting rights in either the Mid-Tier Holding Company or the Bank based on their liquidation subaccounts.
7.7.8 For the three-year period following the completion of the Offering, the Mid-Tier Holding Company will not without prior approval of the Commissioner and the FRB: (i) sell or liquidate the Mid-Tier Holding Company or (ii) cause the Bank to be sold or liquidated. Upon the written request of the FRB and, if necessary, the Commissioner, the Mid-Tier Holding Company shall, or upon the prior written approval of the FRB and, if necessary, the Commissioner, the Mid-Tier Holding Company may, at any time after two years from the completion of the Offering, transfer the Liquidation Account to the Bank, at which time the Liquidation Account shall be assumed by the Bank and the interests of Eligible Account Holders and Supplemental Eligible Account Holders (if any) will be solely and exclusively established in a liquidation account established by the Bank. In the event such transfer occurs, the Mid-Tier Holding Company shall be deemed to have transferred the Liquidation Account to the Bank and such Liquidation Account shall be subsumed into the liquidation account established by the Bank and shall not be subject in any manner or amount to the claims of the Mid-Tier Holding Company's creditors. Approval of the Plan by the Members shall constitute approval of the transactions described herein.
7.8.1 Based upon facts and circumstances following the Reorganization and subject to applicable regulatory and accounting requirements, the board of directors of the Mid-Tier Holding Company may determine to repurchase stock in the future. Such facts and circumstances may include but not be limited to: (a) market and economic factors, such as the price at which the Mid-Tier Common Stock is trading in the market, the volume of trading, the attractiveness of other investment alternatives in terms of the rate of return and risk involved in the investment, the ability to increase the book value and/or earnings per share of the remaining outstanding shares, and the opportunity to improve the Mid-Tier Holding Company's return on equity; (b) the avoidance of dilution to stockholders by not having to issue additional shares to cover the exercise of stock options or the purchase of shares by the ESOP in the event the ESOP is unable to acquire shares in the Subscription Offering, or to fund any stock plans adopted after the consummation of the Reorganization; and (c) any other circumstances in which repurchases would be in the best interests of the Mid-Tier Holding Company and its shareholders.
7.8.2 The Mid-Tier Stock Holding Company may not repurchase any shares of Mid-Tier Conversion Stock within three years of its date of issuance, unless the repurchase:
(a) is part of a general repurchase made on a pro rata basis pursuant to an offer approved by the Commissioner and made to all shareholders of the Mid-Tier Holding Company (except that the MHC may be excluded from the repurchase with the Commissioner's approval);
(b) is limited to the repurchase of qualifying shares of a director;
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(c) is purchased in the open market by an Employee Plan in an amount reasonable and appropriate to fund such plan; or
(d) is limited to stock repurchases of no greater than 5% of the outstanding capital stock of the Mid-Tier Holding Company where compelling and valid business reasons are established to the satisfaction of the Commissioner.
7.9 Offering Expenses . The Regulations require that the expenses of the Offering must be reasonable. The Bank will use its best efforts to assure that the expenses incurred by the Bank, the Mid-Tier Holding Company and the MHC in effecting the Offering will be reasonable.
7.10 Public Inspection of Applications . The Bank, the Mid-Tier Holding Company and the MHC will maintain a copy of the Application in the main banking office of the Bank and such copy will be available for public inspection.
7.11 Enforcement of Terms and Conditions . Each of the Bank and the Mid-Tier Holding Company shall have the right to take all such action as they, in their sole discretion, may deem necessary, appropriate or advisable in order to monitor and enforce the terms, conditions, limitations and restrictions contained in this Stock Issuance Plan and the terms, conditions and representations contained in the order forms, including, but not limited to, the right to require any subscriber or purchaser to provide evidence, in a form satisfactory to the Bank and the Mid-Tier Holding Company, of such Person's eligibility to subscribe for or purchase shares of the Mid-Tier Conversion Stock under the terms of this Stock Issuance Plan and the absolute right (subject only to any necessary regulatory approvals or concurrence) to reject, limit or revoke acceptance of any subscription or order and to delay, terminate or refuse to consummate any sale of Mid-Tier Conversion Stock that it believes might violate, or is designed to, or is any part of a plan to, evade or circumvent such terms, conditions, limitations, restrictions and representations. Any such action shall be final, conclusive and binding on all Persons, and the MHC, the Mid-Tier Holding Company, the Bank and their trustees, directors, Officers, Employees, corporators and agents shall be free from any liability to any Person on account of any such action.
7.12 Voting Rights Following the Offering . Following the Offering, the holders of the capital stock of the Mid-Tier Holding Company shall have exclusive voting rights in the Mid-Tier Holding Company.
7.13 Waiver of Dividends . Any waiver by MHC of a dividend payment by the Mid-Tier Holding Company shall require the prior approval of the Commissioner and the FRB.
7.14 Proceeds of Future Stock Issuances . The proceeds of any Mid-Tier Holding Company stock issuance plan which entails an offer to the general public shall be payable in cash to the Mid-Tier Holding Company.
8.1 Interpretation of Plan . All interpretations of this Stock Issuance Plan and application of its provisions to particular circumstances by the Bank, the Mid-Tier Holding Company and the MHC shall be final, subject to the authority of the Commissioner. When a reference is made in this Stock Issuance Plan to Sections or Exhibits, such reference shall be to a Section of or Exhibit to this Stock Issuance Plan unless otherwise indicated. References to Sections include subsections, which are part of the related Section ( e.g. , a section numbered "Section 5.5.1" would be part of "Section 5.5" and references to "Section 5.5" would also refer to material contained in the subsection described as "Section 5.5.1"). The table of contents and headings contained in this Stock Issuance Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of this Stock Issuance Plan. Whenever the words "include", "includes" or "including" are used in this Stock Issuance Plan, they shall be deemed to be followed by the words "without limitation."
8.2 Amendment or Termination of the Plan . If deemed necessary or desirable, the terms of this Stock Issuance Plan may be substantively amended by a majority vote of the members of the board of directors of the Bank as a result of comments from regulatory authorities at any time prior to approval of this Stock Issuance Plan by the Commissioner and at any time thereafter with the concurrence of the Commissioner. If amendments to this Stock Issuance Plan are made after the Special Meeting, no further approval of the Members will be necessary unless otherwise required by the Commissioner. This Stock Issuance Plan may be terminated by the board of directors of the Bank in its sole discretion, at any time prior to the Special Meeting and at any time thereafter with the concurrence of the Commissioner. This Stock Issuance Plan will terminate if the sale of all shares of Mid-Tier Conversion Stock is not completed within twenty-four months from the date of approval of this Stock Issuance Plan by the Members of the Bank.
A-A-13
Exhibit 2.2
STOCK PURCHASE AGREEMENT
among
HARBORONE BANK
as Buyer,
Kraig Burnham
as Seller,
Daniel McKenney
as Seller,
and
Timothy Boyle
as Seller,
for the purchase and sale of
100% of the capital stock of
MERRIMACK MORTGAGE COMPANY, INC.
Dated as of April 24, 2015
CONTENTS
ARTICLE I DEFINITIONS; INTERPRETATION |
1 |
|
1.1 |
Definitions |
1 |
1.2 |
Additional Defined Terms |
7 |
1.3 |
Interpretation |
9 |
ARTICLE II THE PURCHASE AND SALE |
9 |
|
2.1 |
Purchase and Sale of the Shares |
9 |
2.2 |
Purchase Price |
10 |
2.3 |
Premium Earn-Out Payments |
10 |
2.4 |
Payment Procedures; Disputes |
12 |
2.5 |
Setoff |
13 |
ARTICLE III CLOSING |
14 |
|
3.1 |
Closing |
14 |
3.2 |
Closing Deliveries |
14 |
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS |
15 |
|
4.1 |
Organization |
15 |
4.2 |
Authorization |
16 |
4.3 |
Non-Contravention |
16 |
4.4 |
No Approvals |
17 |
4.5 |
Capitalization |
17 |
4.6 |
Financial Matters |
17 |
4.7 |
Absence of Changes |
18 |
4.8 |
Related Party Transactions |
20 |
4.9 |
Tax Matters |
20 |
4.10 |
Legal Proceedings |
21 |
4.11 |
Compliance With Laws; Permits |
21 |
4.12 |
Regulatory Action |
22 |
4.13 |
Insurance |
22 |
4.14 |
Title to Assets |
23 |
4.15 |
Anti-Money Laundering |
23 |
4.16 |
Customer Information Security |
23 |
4.17 |
Material Contracts |
24 |
4.18 |
Loans; Nonperforming and Classified Assets |
26 |
4.19 |
Approved Seller/Servicer |
27 |
4.20 |
Real Property |
28 |
4.21 |
Environmental Matters |
28 |
4.22 |
Intellectual Property |
28 |
4.23 |
Labor Matters |
29 |
4.24 |
Plans |
29 |
4.25 |
Investment Securities |
31 |
4.26 |
Derivative Transactions |
31 |
4.27 |
Transactions with Affiliates |
31 |
4.28 |
No Brokers |
32 |
4.29 |
Recent Acquisitions |
32 |
4.30 |
Disclosure |
32 |
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER |
32 |
|
5.1 |
Organization |
32 |
5.2 |
Authorization |
33 |
5.3 |
Non-Contravention |
33 |
5.4 |
No Approvals |
33 |
5.5 |
No Brokers |
33 |
5.6 |
Investment Intent; Status as Accredited Investor |
33 |
5.7 |
Litigation |
34 |
5.8 |
Sufficient Funds |
34 |
ARTICLE VI ADDITIONAL AGREEMENTS |
34 |
|
6.1 |
Conduct of Business |
34 |
6.2 |
Seller Forbearances |
34 |
6.3 |
Efforts With Respect to Approvals, Etc. |
37 |
6.4 |
Tax Matters |
38 |
6.5 |
Repayment of Debt |
38 |
6.6 |
No Solicitation, Discussions or Negotiations With Third Parties |
38 |
6.7 |
Publicity |
39 |
6.8 |
Confidentiality |
39 |
6.9 |
Expenses |
39 |
6.10 |
Transfer Taxes |
39 |
6.11 |
Further Assurances |
39 |
6.12 |
Access to Information |
39 |
6.13 |
Additional Agreements |
40 |
6.14 |
Notice of Developments |
40 |
6.15 |
Update of Seller Disclosure Schedules |
40 |
6.16 |
Current Information |
40 |
6.17 |
Additional Compliance Covenants |
41 |
6.18 |
Employees and Benefit Plans |
41 |
6.19 |
Loan Pricing |
42 |
ARTICLE VII CONDITIONS TO CLOSING |
42 |
|
7.1 |
Conditions to the Obligations of All Parties |
42 |
7.2 |
Conditions to the Obligations of Buyer |
42 |
7.3 |
Conditions to the Obligations of Sellers |
43 |
ARTICLE VIII INDEMNIFICATION |
43 |
|
8.1 |
Indemnification by Sellers |
43 |
8.2 |
Indemnification by Buyer |
44 |
8.3 |
Notice of Claims |
44 |
8.4 |
Third Party Actions |
45 |
8.5 |
Survival; Limitations |
47 |
ARTICLE IX TERMINATION |
48 |
|
9.1 |
Termination |
48 |
9.2 |
Effect of Termination |
49 |
ARTICLE X MISCELLANEOUS |
49 |
|
10.1 |
Entire Agreement |
49 |
10.2 |
Construction; Headings |
50 |
10.3 |
Severability |
50 |
10.4 |
Waiver and Amendment |
50 |
10.5 |
Governing Law |
50 |
10.6 |
Dispute Resolution; Jury Trial Waiver |
50 |
10.7 |
Notices |
50 |
10.8 |
Assignment |
51 |
10.9 |
No Third Party Beneficiaries |
51 |
10.10 |
Counterparts |
52 |
10.11 |
Specific Performance |
52 |
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this Agreement ), effective as of April 24, 2015 (the Execution Date ), is by and among HarborOne Bank, a Massachusetts chartered co-operative bank ( Buyer ), Kraig Burnham ( Burnham ), Dan McKenney ( McKenney ), and Tim Boyle ( Boyle ), together with Burnham and McKenney, the Sellers and each a Seller ). Buyer and Sellers are sometimes referred to collectively, as the context requires, as the Parties and each a Party .
WHEREAS , Sellers collectively own one hundred percent (100%) of the issued and outstanding capital stock (the Shares ) of Merrimack Mortgage Company, Inc., a Massachusetts corporation (the Company ); and
WHEREAS , Sellers desire to sell to Buyer, and Buyer desires to purchase from Sellers, the Shares on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, the Parties agree as follows:
ARTICLE I
DEFINITIONS; INTERPRETATION
1.1 Definitions . These terms shall, for all purposes of this Agreement, have the following meanings:
(a) Accounting Rules means GAAP consistently applied with the accounting principles used in the preparation of the Balance Sheet.
(b) Acquisition Proposal means any proposal, indication of interest or offer for (i) a merger, tender offer, recapitalization, reorganization, liquidation, dissolution, business combination or consolidation, or any similar transaction, involving Sellers or the Company, (ii) a sale, lease exchange, mortgage, pledge, transfer or other acquisition of fifteen percent (15%) or more of the assets of the Company or any of its Subsidiaries, taken as a whole, in one or a series of related transactions, or (iii) a purchase, tender offer or other acquisition (including by way of merger, consolidation, share exchange or otherwise) of beneficial ownership (the term beneficial ownership for purposes of this Agreement having the meaning assigned thereto in Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder) of securities representing fifteen percent (15%) or more of the voting power of the Company; provided, however, that the term Acquisition Proposal shall not include the transactions contemplated by this Agreement.
(c) Action means any action, claim, demand, assertion, proceeding, arbitration, suit or any appeal therefrom.
(d) Adjusted Closing Balance Sheet means the Closing Balance Sheet as adjusted to reflect the fair market value of certain assets and liabilities set forth in Schedule 2.2 .
(e) Adjusted Shareholders Equity means the Companys shareholders equity set forth on the Adjusted Closing Balance Sheet, calculated in accordance with GAAP applied consistently with current practice of the Company.
(f) Affiliate means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person, where control means the power to direct the management and policies of a Person, directly or indirectly, whether through the ownership of voting securities, by Contract or otherwise.
(g) Approval means any approval, authorization, consent, license, franchise, order, non-objection, or registration issued or granted by, filing with, or notice to, any Person.
(h) Business Day means a day other than a Saturday, Sunday or any legal holiday on a day on which banks are closed in Boston, Massachusetts or Manchester, New Hampshire.
(i) Buyer Agreement means each agreement to which Buyer is a party, other than this Agreement, entered into in connection with this Agreement, including each Non-Competition, Non-Solicitation and Confidentiality Agreements and Employment Agreement to be entered into by the Buyer (collectively, the Buyer Agreements ).
(j) Change of Control means any (i) a merger, tender offer, recapitalization, reorganization, liquidation, dissolution, business combination or consolidation, or any similar transaction, involving Buyer or the Company, (ii) a sale, lease exchange, mortgage, pledge, transfer or other acquisition of fifty percent (50%) or more of the assets of Buyer or the Company, and any of their Subsidiaries, taken as a whole, in one or a series of related transactions, or (iii) a purchase, tender offer or other acquisition (including by way of merger, consolidation, share exchange or otherwise) of beneficial ownership (the term beneficial ownership for purposes of this Agreement having the meaning assigned thereto in Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder) of securities representing fifty percent (50%) or more of the voting power of Buyer or the Company. Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred as a result of any internal transaction solely among a Party and/or one or more of its Affiliates, whether through a merger, reorganization, asset transfer or otherwise, or as a result of any public offering of the securities of Buyer or a holding company of Buyer.
(k) Closing Balance Sheet means the consolidated balance sheet of the Company as of the close of business on the day prior to the Closing Date, prepared in accordance with GAAP applied consistently with the current practice of the Company.
(l) Code means the Internal Revenue Code of 1986, as amended.
(m) Contract means any legally enforceable agreement, arrangement, lease, mortgage, contract, note, power of attorney, insurance policy, covenant, understanding, commitment or instrument.
(n) Damages means any loss, Liability, fine, penalty, damages, judgment, award or reasonable cost or expense.
(o) Employees means individuals currently employed by the Company.
(p) Environmental Claims means all accusations, allegations, investigations, warnings, notice letters, liens, orders, claims, demands, suits or administrative or judicial actions for any injunctive relief, fines, penalties or any damage, including personal injury, property damage, lost use of property, natural resource Damages or environmental response or remediation or removal costs arising out of Environmental Conditions on any real property owned or leased by the Company or any Loan Property.
(q) Environmental Condition means the state of the environment, including natural resources, soil, air, surface water, subsurface ground water or any present or potential drinking water supply, relating to or arising out of the use, handling, storage, treatment, recycling, generation, transportation, spilling, leaking, pumping, pouring, injecting, emptying, discharging, emitting, escaping, leaching, dumping, disposal or release of any Hazardous Material, whether or not yet discovered, which does or is reasonably likely to result in any Environmental Claim.
(r) Environmental Laws means all applicable federal, state and local laws (including common law), regulations or legal requirements relating to pollution or protection of the Environment, natural resources or health and safety, including without limitation, laws relating to Release of Hazardous Materials or relating to the manufacture, processing, distribution, use, treatment, storage, transport, disposal or handling of Hazardous Materials. Environmental Laws shall include, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. §§ 9601 et seq .), the Hazardous Materials Transportation Act (49 U.S.C. §§ 180 et seq .), the Resource Conservation and Recovery Act (42 U.S.C. §§ 6901 et seq .), the Federal Water Pollution Control Act (33 U.S.C. §§ 1251 et seq .), the Clean Air Act (42 U.S.C. §§ 7401 et seq .), the Toxic Substances Control Act (15 U.S.C. §§ 2601 et seq .), the Oil Pollution Act (33 U.S.C. §§ 2701 et seq .), the Emergency Planning and Community Right to Know Act (42 U.S.C. §§ 11001 et seq .), the Occupational Safety and Health Act (29 U.S.C. §§ 651 et seq .), and all state and local laws analogous to any of the above.
(s) Environmental Permit means any federal, state or local permit, license, approval, consent or authorization required by any Government Entity under or in connection with any Environmental Law, and includes without limitation any and all orders, consent orders or binding agreements issued or entered into by a Government Entity under any applicable Environmental Law.
(t) Environmental Report means any environmental audit, environmental risk assessment, environmental site assessment or other investigation, whether prepared by or on behalf of the Company, or in any of their possession, custody or control.
(u) Environmental Requirement means all present Laws and Permits relating in any way to Environmental Conditions.
(v) ERISA means the Employee Retirement Income Security Act of 1974, as amended.
(w) ERISA Affiliate means any entity, trade or business that is a member of a group described in Section 414(b) or (c) of the Code or Section 400l(b)(l) of ERISA that includes the Company, or that is a member of the same controlled group as the Company pursuant to Section 4001(a)(14) of ERISA.
(x) Final Closing Payment Amount means an amount equal to the Adjusted Stockholders Equity of the Company as set forth on the Adjusted Closing Balance Sheet, plus $4.5 million.
(y) GAAP means United States generally accepted accounting principles as in effect as of the Closing Date applied consistently with prior periods.
(z) Government Entity means any federal, state, or local government, court, agency, commission, department or other authority or instrumentality having jurisdiction over the Company.
(aa) Hazardous Materials means any substance which is or becomes defined as a hazardous substance, hazardous waste, hazardous material, pollutant, contaminant or similar material, including (without limitation) petroleum and petroleum-based products, asbestos or any other wastes, substances, products, pollutants or other materials that are regulated pursuant to any Environmental Requirement.
(bb) Indebtedness means (i) any indebtedness for borrowed money or issued in substitution for or exchange of indebtedness for borrowed money, (ii) any indebtedness evidenced by any note, bond, debenture or other debt security, (iii) any indebtedness for the deferred purchase price of property or services with respect to which a Person is liable, contingently or otherwise, as obligor or otherwise, (iv) any obligation for the reimbursement of any obligor on any letter of credit, (v) any Liability under leases recorded for accounting purposes by the applicable Person as capitalized leases with respect to which a Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, (vi) any indebtedness secured by a Lien on a Persons assets, (vii) any off-balance sheet financing of a Person (but excluding all leases recorded for accounting purposes by the applicable Person as operating leases), (viii) any accrued and unpaid interest on, and any prepayment premiums, penalties or similar contractual charges in respect of, any of the foregoing obligations, (ix) any obligations of a type referred to in clauses (i) through (viii) above that are guaranteed in any manner by a Person (including, without limitation, guarantees in the form of an agreement to repurchase or reimburse), and (x) all obligations of the type referred to in clauses (i) through (ix) above of other Persons secured by any Lien on any property or asset of such Person.
(cc) IP means, interchangeably and collectively as context requires, the following: (i) patents, including continuations, divisionals, continuations-in-part, renewals and reissues; (ii) trademarks, service marks, trade names, trade dress, domain names and all goodwill symbolized by the foregoing; (iii) copyrights; (iv) trade secrets and know-how; (v) registrations and applications for any of the foregoing and (vi) the right to sue for past infringement of any of the foregoing.
(dd) Knowledge means, with respect to any fact, circumstance, event or occurrence, the actual knowledge of one or more of the Sellers or any Key Officer of the Company whose name is set forth on Schedule 1.1(dd) and such knowledge that would be imputed to such persons after reasonable inquiry or due investigation.
(ee) Laws means all (i) federal, state, and local constitutions, laws, codes, statutes, rules, regulations, ordinances, legal interpretations, policies, guidelines and similar requirements; and (ii) orders, judgments, verdicts, rulings, stipulations, awards (including, without limitation, arbitration awards) directives, decrees, stipulations, and administrative, governmental or judicial promulgations, injunctions, writs, policies, guidelines, verdicts and determinations of any Government Entity.
(ff) Liability means any debt, liability, commitment or obligation of any kind, character or nature whatsoever, secured or unsecured, accrued, fixed, absolute, contingent or otherwise, and whether due or to become due.
(gg) Licensed IP means IP that is used by the Company pursuant to a license agreement.
(hh) Liens means all mortgages, liens, pledges, security interests, charges, claims, restrictions, leases, possessory rights, options, rights of first refusal and easements.
(ii) Loans means all of the written or oral loan agreements, notes or borrowing arrangements (including, without limitation, loans, lines of credit, leases, credit enhancements, commitments, guarantees and interest-bearing assets) originated, funded, made or acquired by the Company.
(jj) Loan Property shall mean any property in which the Company holds a security interest, securing a Loan or other extension of credit.
(kk) Material Adverse Effect means, with respect to any Person, any change, effect, circumstance or event that individually or in the aggregate (i) is materially adverse to the business, prospects, results of operations, assets (including investment securities), Liabilities or condition (financial or otherwise) of such Person and its Subsidiaries taken as a whole, or (ii) will materially adversely affect the ability of such Person to perform its obligations under this Agreement or timely consummate the transactions contemplated by this Agreement; provided, however , that for purposes of Article VII hereof, a Material Adverse Effect shall not include any change, effect, circumstance or event occurring after the date hereof and arising out of or attributable to (A) changes in GAAP that generally affect industries in which such Person and its Subsidiaries conduct business or (B) the announcement of the execution of this Agreement or the consummation of the transactions contemplated hereby.
(ll) Ordinary Course means, with respect to any Person, the ordinary course of such Persons business, consistent with past practice; provided, however , that Ordinary Course excludes past practices of such Person that have been identified by such Person or by any Government Entity as not in compliance with applicable Laws or regulatory requirements.
(mm) Organizational Documents means, with respect to any Person, all documents (i) pursuant to which the legal existence of the Person is established (including, by way of example, the articles of organization of a limited liability company), (ii) that were adopted or approved by the owners, board of directors or similar management authority of the Person and set forth provisions for the regulation and management of the Persons internal affairs (including, by way of example, the by-laws of a corporation), (iii) that are binding upon any owners of the Person and establish the governance, economic and/or other rights of such owners in their capacity as such (including, by way of example, the operating agreement of a limited liability company) and (iv) in the case of any trust, the declaration of trust, trust agreement and all similar governing documents of such trust.
(nn) Owned IP means IP that is owned by the Company.
(oo) Permits means all permits, certificates, licenses, registrations, exemptions, classifications, approvals and other similar documents, rights and authorizations issued by any Government Entity.
(pp) Permitted Liens means (i) liens imposed by Law for Taxes, assessments or charges or claims by Government Entities that are not yet due or are being properly contested; (ii) carriers, warehousemens, mechanics, materialmens, repairmens, landlords and other like liens imposed by Law or Contract, arising in the Ordinary Course and securing obligations that are not overdue; (iii) pledges and deposits made in the Ordinary Course in compliance with workers compensation, unemployment insurance and other social security Laws; (iv) deposits to secure the performance of bids, trade Contracts, leases, statutory obligations, surety, indemnity and appeal bonds, performance and return-of-money and fiduciary bonds and other obligations of a like nature, in each case in the Ordinary Course; and (v) those Liens set forth on Schedule 1.1(pp) of the Seller Disclosure Schedules which in the aggregate are not material to the Company.
(qq) Person means an individual, a sole proprietorship, a partnership, a corporation, an association, an institution, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization, or a Government Entity or any other legal entity.
(rr) Plans means (i) all deferred compensation and incentive compensation, stock purchase, stock option and other equity compensation plans, programs, Contracts or arrangements; (ii) all severance or termination pay, medical, surgical, hospitalization, life insurance and other welfare plans, funds or programs (within the meaning of Section 3(1) of ERISA); (iii) all profit-sharing, stock bonus or other pension plans, funds or programs (within the meaning of Section 3(2) of ERISA); (iv) all employment, termination or severance Contracts; and (v) all other employee benefit plans, funds, programs or Contracts, in each case that is sponsored, maintained, managed or contributed to, or required to be contributed to, by the Company for the benefit of any current or former Employees.
(ss) Preliminary Balance Sheet means the consolidated balance sheet of the Company as of December 31, 2014 adjusted to reflect the fair market value of certain assets and liabilities set forth in Schedule 2.2 , a copy of which is attached as Exhibit A .
(tt) Preliminary Closing Payment Amount means an amount equal to the shareholders equity of the Company as of December 31, 2014 as set forth on the Preliminary Balance Sheet, plus $3,500,000 .
(uu) Proportionate Share means, for each Seller, the quotient of (i) the number of Shares owned by such Seller at Closing and (ii) the total number of Shares outstanding at Closing.
(vv) Purchase Price means the sum of the Final Closing Payment Amount and the Premium Earn-Out Payments, plus or minus the True-Up Payment as calculated pursuant to Article II .
(ww) Release shall have the meaning set forth in Environmental Laws, and shall include without limitation, any threatened Release. The term Released shall have a corresponding meaning.
(xx) Seller Agreement means each agreement to which a Seller is a party, other than this Agreement, entered into in connection with the Agreement including each Non-Competition, Non-Solicitation and Confidentiality Agreement and Employment Agreement to be entered into by any Seller.
(yy) Straddle Period means any Tax year or taxable period beginning before the Closing Date and ending after the Closing Date.
(zz) Subsidiary means, with respect to any Person, an entity beneficially owned, directly or indirectly through one or more other Persons, by such Person.
(aaa) Taxes means all taxes, assessments, charges, duties, fees, levies or other governmental charges (including interest, penalties or additions associated therewith), including income, franchise, capital stock, real property, personal property, tangible, withholding, employment, payroll, social security, unemployment compensation, disability, transfer, sales, use, excise, gross receipts, value-added and all other taxes of any kind imposed by any Government Entity, whether disputed or not, and any charges, interest or penalties imposed or that may be imposed thereon by any Government Entity.
(bbb) Tax Return means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
1.2 Additional Defined Terms . In addition to the terms defined in Section 1.1, each of the following terms is defined in the Section set forth opposite such term:
Term |
|
|
Section |
|
|
||
Actual Earnings |
2.3(c)(i) |
||
Agreement |
Preamble |
||
Annual Financials |
4.6(a) |
||
Annual Period |
2.3(c)(ii) |
Audits |
4.9(e) |
Boyle |
Preamble |
Burdensome Condition |
6.3 |
Burnham |
Preamble |
Buyer |
Preamble |
Buyer Agreements |
5.2 |
Buyer Disclosure Schedules |
Preamble to Article V |
Buyer Indemnitees |
8.1 |
Buyer Losses |
8.1 |
Cap Amount |
8.5(c)(iii) |
Claim Notice |
8.3 |
Claims Period |
8.5(a) |
Closing |
3.1 |
Closing Date |
3.1 |
Closing Payment |
2.2 |
Company |
Recitals |
Confidentiality |
6.8 |
Cumulative Actual Earnings |
2.3(c)(iii) |
Cumulative Targeted Earnings |
2.3(c)(iv) |
Earn-out Period |
2.3(c)(v) |
Execution Date |
Preamble |
Final Loss |
8.4(e) |
Financial Statements |
4.6(a) |
First Annual Period |
2.3(c)(ii) |
First Preliminary Statement |
2.4(a) |
Fourth Annual Period |
2.3(c)(ii) |
HUD |
4.19 |
Indemnified Party |
8.3 |
Indemnifying Party |
8.3 |
Leased Real Property |
4.17(a)(i) |
Losses |
8.5(d) |
Material Contracts |
4.17(a) |
Measurement Date |
2.3(c)(vi) |
McKenney |
Preamble |
Non-Competition, Non-Solicitation and |
|
Confidentiality Agreements |
3.2(a)(i)(G) |
Outside Closing Date |
9.1(b)(iii) |
Parties |
Preamble |
Personal Data |
4.16(b) |
Pre-Closing Tax Period |
8.1(c) |
Preliminary Statement |
2.4(c) |
Premium Earn-Out Payment |
2.3(c)(vii) |
Premium Earn-Out Payment Date |
2.3(c)(viii) |
Real Property Leases |
4.17(a)(i) |
Related Person |
4.8 |
Representatives |
6.6(a) |
Response Period |
8.4(a) |
Second Annual Period |
2.3(c)(ii) |
Securities Act |
5.6 |
Seller Agreements |
4.2 |
Seller Disclosure Schedules |
Preamble to Article IV |
Seller Indemnitees |
8.2 |
Seller Losses |
8.2 |
Sellers |
Preamble |
Shares |
Recitals |
Split-Dollar Arrangements |
4.24(a) |
Targeted Earnings |
2.3(c)(ix) |
Third Annual Period |
2.3(c)(ii) |
Third Party Action |
8.4(a) |
Third Party Action Notice |
8.4(a) |
Total Premium Earned |
2.3(c)(x) |
Treasury Regulations |
4.9(g) |
True-Up Payment |
2.3(c)(xi) |
Upfront Premium |
2.3(c)(xii) |
Upfront Premium Allocation |
2.3(c)(xiii) |
USA PATRIOT Act |
4.15 |
1.3 Interpretation . Unless the context of this Agreement otherwise clearly requires, (a) references to the plural include the singular, and references to the singular include the plural, (b) references to any gender include the other genders, (c) the words include, includes and including do not limit the preceding terms or words and shall be deemed to be followed by the words without limitation, (d) the terms hereof, herein, hereunder, hereto and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement, (e) the terms day and days, if not capitalized, mean and refer to calendar day(s), and (f) the terms year and years mean and refer to calendar year(s). Unless otherwise set forth herein, references in this Agreement to any document, instrument or agreement (including this Agreement) (i) includes and incorporates all schedules and other attachments thereto, (ii) includes all documents, instruments or agreements issued or executed in replacement thereof and (iii) means such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified or supplemented from time to time in accordance with its terms and in effect at any given time. Unless otherwise specified, (A) all Articles, Sections, Schedules and Exhibits referenced herein are Articles, Sections, Schedules and Exhibits of this Agreement and (B) all accounting terms not defined in this Agreement shall be construed in accordance with GAAP.
ARTICLE II
THE PURCHASE AND SALE
2.1 Purchase and Sale of the Shares . Subject to the terms and conditions set forth in this Agreement, at the Closing, Sellers will sell and transfer the Shares to Buyer, and Buyer will purchase the Shares from Sellers, free and clear of all Liens.
2.2 Purchase Price . In full consideration of the Buyers purchase of the Shares, the Buyer shall pay to Sellers the Purchase Price allocated as follows:
(a) At Closing, each Seller shall receive, in immediately available funds by wire transfer to an account designated by such Seller in writing to Buyer prior to Closing, an amount in cash equal to his Proportionate Share of the Preliminary Closing Payment Amount.
(b) No later than five (5) business days after Adjusted Shareholders Equity becomes final in accordance with the procedures set forth in Section 2.4(a), each Seller shall receive, in immediately available funds by wire transfer to an account designated by such Seller in writing to Buyer prior to Closing, an amount in cash equal to his Proportionate Share of the difference between the Final Closing Payment Amount and the Preliminary Closing Payment Amount. If such difference is negative, Buyer shall not be obligated to make any payment to any Seller in accordance with this Section 2.2(b) and each Seller shall pay to Buyer, in immediately available funds by wire transfer to an account designated by Buyer, his Proportionate Share of the amount equal to such difference.
(c) In accordance with the timing set forth in Section 2.3, each Seller shall receive, in immediately available funds by wire transfer to an account designated by such Seller in writing to Buyer, an amount in cash equal to his Proportionate Share of the Premium Earn-Out Payments plus or minus the True-Up Payment, if any.
2.3 Premium Earn-Out Payments
(a) On each Premium Earn-Out Payment Date, Buyer shall pay to each Seller his Proportionate Share of the Premium Earn-Out Payment, if any, due to Sellers for the applicable Annual Period.
(b) On the Premium Earn-Out Payment Date following the Fourth Annual Period, to the extent required by clause (i) or (ii) below, the applicable Parties shall make the following payments:
(i) If the True-Up Payment is positive, Buyer shall pay to each Seller his Proportionate Share of the True-Up Payment;
(ii) If the True-Up Payment is negative, Sellers shall pay to Buyer the True-Up Payment (Sellers being jointly and severally liable to Buyer for the payment of the True-Up Payment to Buyer).
The Buyer may set off any True-Up Payment due to Buyer pursuant to Section 2.3(b)(ii) above against the Premium Earn-Out Payment, if any, payable to Sellers by Buyer for the Fourth Annual Period.
(c) For the purpose of determining the Premium Earn-Out Payment for any Annual Period, the following terms shall have the meanings assigned to them in this Section 2.3, provided that the Buyer and Sellers may mutually agree to vary the definitions of such terms if deemed necessary or appropriate to address new developments such as new products or services or for any other purposes:
(i) Actual Earnings means, with respect to each Annual Period, the Companys pre-tax profit or loss calculated as of the end of such Annual Period in accordance with GAAP consistently applied as though the Company was operated on a stand-alone basis with the income and expense allocation adjustments as set forth on Schedule 2.3(c) .
(ii) Annual Period means each of (1) the 12-month period commencing on the Measurement Date (the First Annual Period), (2) the 12-month period commencing on the first anniversary of the Measurement Date (the Second Annual Period), (3) the 12-month period commencing on second anniversary of the Measurement Date (the Third Annual Period), and (4) the 12-month period commencing on the third anniversary of the Measurement Date (the Fourth Annual Period).
(iii) Cumulative Actual Earnings means the sum of the Actual Earnings for each Annual Period during the Earn-Out Period.
(iv) Cumulative Targeted Earnings means $22,950,000.
(v) Earn-out Period means the period commencing on the Measurement Date and ending on the last day of the Fourth Annual Period.
(vi) Measurement Date means either (a) the first day of the calendar month following the Closing Date or (b) the first day of the calendar month preceding the Closing Date, whichever is closer in time to the Closing Date.
(vii) Premium Earn-Out Payment means:
(A) if the Targeted Earnings for the applicable Annual Period have been achieved, an amount of cash equal to 35% of the Actual Earnings for such Annual Period, less the Upfront Premium Allocation for such Annual Period; or
(B) if the Targeted Earnings for the applicable Annual Period have not been achieved, an amount of cash equal to the product of (1) 35% of the Actual Earnings for such Annual Period divided by the Targeted Earnings for such Annual Period and (2) the Actual Earnings for such Period, less the Upfront Premium Allocation for such Annual Period; provided that no Premium Earn-Out Payment shall be payable by or to Buyer if the result of such calculation is less than or equal to zero.
(viii) Premium Earn-Out Payment Date means for each Annual Period, the sixtieth (60 th ) day after the end of such Annual Period or, if such day is not a Business Day, the next succeeding Business Day.
(ix) Targeted Earnings means the Companys targeted pre-tax profit for each Annual Period as set forth on Schedule 2.3(a) calculated in accordance with
GAAP consistently applied as though the Company was operated on a stand-alone basis with the income and expense allocation and adjustments as set forth on Schedule 2.3(c) .
(x) Total Premium Earned means:
(A) If Cumulative Actual Earnings equals or exceeds Cumulative Targeted Earnings, 35% of Cumulative Actual Earnings, less the Upfront Premium; or
(B) If Cumulative Targeted Earnings exceeds Cumulative Actual Earnings, the product of (1) 35% of Cumulative Actual Earnings divided by Cumulative Targeted Earnings and (2) Cumulative Actual Earnings, less the Upfront Premium.
(xi) True-Up Payment means difference between the Total Premium Earned and the sum of each Premium Earn-Out Payment for each Annual Period during the Earn-Out Period made or owed to Sellers; provided that no True-Up Payment shall be payable if the Total Premium Earned is less than or equal to zero.
(xii) Upfront Premium means the $4,500,000.
(xiii) Upfront Premium Allocation means the allocation of the Upfront Premium to each Annual Period as set forth on Schedule 2.3(a) .
(d) If there is a Change of Control of Buyer or the Company before the end of the Earn-out Period, it shall be a condition to such Change of Control that the transferee expressly assume Buyers obligations under this Agreement and each Buyer Agreement in a form reasonably acceptable to Sellers.
(e) Buyer shall provide each Seller with management prepared profit and loss statements of the Company for each calendar quarter occurring during each Annual Period.
2.4 Payment Procedures; Disputes .
(a) On or before the thirtieth (30 th ) day after the Closing Date, Sellers shall deliver to Buyer the Closing Balance Sheet. On or before the sixtieth (60 th ) day after the Closing Date, Buyer shall deliver to Sellers the Adjusted Closing Balance Sheet (which shall be based on the Closing Balance Sheet) setting forth the Adjusted Shareholders Equity as of the Closing Date and a detailed accounting for the calculation thereof. If Sellers disagree with the Adjusted Shareholders Equity contained in the Adjusted Closing Balance Sheet, Sellers may, within thirty (30) days after delivery of such Adjusted Closing Balance Sheet, deliver a notice to Buyer disagreeing with such calculation and setting forth Sellers calculation of such Adjusted Shareholders Equity. Any notice of disagreement shall specify those items or amounts as to which Sellers disagree, and Sellers will be deemed to have agreed with all other items and amounts. If Buyer and Sellers are not able to resolve such dispute within thirty (30) days after the delivery of such notice, they shall promptly thereafter engage a mutually agreed upon independent certified public accountant to review this Agreement and the disputed items or amounts for the purpose of calculating such Adjusted Shareholders Equity. The independent
certified public accountant shall deliver to Buyer and Sellers, within thirty (30) days, a report setting forth the calculation of the Adjusted Shareholders Equity, which amount shall not be less than Buyers calculation of the Adjusted Shareholders Equity as set forth in the Adjusted Closing Balance Sheet or more than Sellers calculation of the Adjusted Shareholders Equity delivered pursuant to this Section 2.4(a). That report shall be final and binding upon Buyer and Sellers. The cost of such review and report shall be paid equally by the Buyer and Sellers.
(b) On or before the thirtieth (30 th ) day after each Annual Period, Buyer shall deliver to Sellers a statement (the Preliminary Statement ) setting forth Buyers calculation of the Actual Earnings with a detailed accounting for the calculation thereof and the Premium Earn-Out Payment payable to Sellers for such Annual Period. If Sellers disagree with any item or amount contained in the Preliminary Statement, Sellers may, within thirty (30) days after delivery of such Preliminary Statement, deliver a notice to Buyer disagreeing with such calculation and setting forth Sellers calculation of such Premium Earn-Out Payment. Any notice of disagreement shall specify those items or amounts as to which Sellers disagree, and Sellers will be deemed to have agreed with all other items and amounts. If Buyer and Sellers are not able to resolve such dispute within thirty (30) days after the delivery of such notice, they shall promptly thereafter engage a mutually agreed upon independent certified public accountant to review this Agreement and the disputed items or amounts for the purpose of calculating such Premium Earn-Out Payment. The independent certified public accountant shall deliver to Buyer and Sellers, within thirty (30) days, a report setting forth the calculation of the Premium Earn-Out Payment (the Final Premium Earn-Out Payment ), which amount shall not be less than Buyers calculation of the Premium Earn-Out Payment as set forth in the Preliminary Statement or more than Sellers calculation of the Premium Earn-Out Payment delivered pursuant to this Section 2.4(b). That report shall be final and binding upon Buyer and Sellers. The cost of such review and report shall be paid (i) by the Buyer if the difference between the Final Premium Earn-Out Payment and Buyers calculation of the Premium Earn-Out Payment as set forth in the Preliminary Statement is greater than the difference between Final Premium Earn-Out Payment and Sellers calculation of the Premium Earn-Out Payment delivered pursuant to this Section 2.4(b), (ii) by Sellers, if the first such difference is less than the second such difference and (iii) otherwise equally by the Buyer and Sellers.
(c) On or before the thirtieth (30 th ) day after the fourth Annual Period, Buyer shall deliver to Sellers a statement (the Final Preliminary Statement ) setting forth Buyers calculation of any True-Up Payment. If Sellers disagree with any item or amount contained in the Final Preliminary Statement then Sellers may, within thirty (30) days after delivery of the Final Preliminary Statement deliver a notice to Buyer disagreeing with Buyers calculation of such True-Up Payment and setting forth Sellers calculation of such True-Up Payment. Upon delivery of such a notice, all matters in dispute shall be resolved in a manner consistent with the process described in Section 2.4(b) with respect to each annual Preliminary Statement.
2.5 Setoff . The Buyer may set off (a) the amount of any Buyer Losses for which it or any other Buyer Indemnitees is entitled to indemnification under Article VIII and (b) any other amounts to which it may be entitled under this Agreement, against any amounts otherwise owed by Buyer to Sellers with respect to Premium Earn-Out Payments under Section 2.3.
ARTICLE III
CLOSING
3.1 Closing . The closing of the transactions contemplated by this Agreement (the Closing ) shall take place at the offices of Goodwin Procter LLP in Boston, Massachusetts on the first day of the month following the day upon which all of the conditions to Closing in Article VII have been satisfied or waived (other than those conditions which by their terms cannot be satisfied until the Closing) or at such other time and place as the Parties shall mutually agree in writing; provided that if this Section 3.1 dictates that the Closing take place on the first day of the third month of any calendar quarter, the Closing shall be delayed until the first day of the next calendar quarter. The date on which the Closing occurs is called the Closing Date . On or prior to the Closing Date, the Parties shall deliver all instruments and documents required to be delivered by them, respectively, pursuant to this Agreement at or prior to Closing, to be held in escrow until the Closing. At the Closing, the transactions contemplated by this Agreement shall be deemed consummated. If the Closing does not occur and this Agreement is terminated in accordance with the provisions hereof, each Party shall promptly thereafter return all instruments and documents delivered to it pursuant to this Section and the transactions contemplated by this Agreement shall not be deemed consummated, without waiving any rights or remedies of the Parties hereunder.
3.2 Closing Deliveries .
(a) At the Closing:
(i) Sellers shall execute and deliver to Buyer:
(A) one or more certificates in valid form representing the Shares (the Certificates ), duly endorsed in blank or accompanied by duly executed stock powers;
(B) a copy of the Articles of Organization or similar Organizational Document of the Company, as amended to date, together with the certification of the Secretary of the Commonwealth of Massachusetts that such copy is true and complete;
(C) a copy of the By-Laws or other similar document of the Company, as amended to date, together with the certification of the Secretary of the Company that such copy is true, complete and in full force and effect;
(D) a certificate of good standing with respect to the Company issued by the Secretary of the Commonwealth of Massachusetts no more than five (5) days prior to the Closing Date;
(E) a certificate executed by Sellers as to the satisfaction of the conditions set forth in Sections 7.1 and 7.2;
(F) the letter of resignation from Burnham as a director and officer of the Company;
(G) Non-Competition, Non-Solicitation and Confidentiality Agreements by and among the Company and each of Burnham, McKenney and Boyle executed by each of Burnham, McKenney and Boyle in substantially the form attached hereto as Exhibit B (the Non-Competition, Non-Solicitation and Confidentiality Agreements ); and
(H) Employment Agreements by and among the Company and each of McKenney and Boyle executed by each of McKenney and Boyle in substantially the form attached as Exhibit C .
(ii) Buyer shall execute (as applicable) and deliver to Sellers:
(A) the Preliminary Closing Payment;
(B) a copy of the resolutions of the Board of Directors of Buyer approving this Agreement and the consummation of the transactions contemplated hereby, together with the certification of the Secretary of Buyer that (x) such copy is true and complete, (y) such resolutions are in full force and effect and (z) such resolutions have not been amended, modified or rescinded;
(C) a certificate executed by a duly authorized officer of Buyer as to the satisfaction of the conditions set forth in Sections 7.1 and 7.3; and
(D) the duly executed Non-Competition, Non-Solicitation and Confidentiality Agreements and the Employment Agreements.
(b) At the Closing, each Party shall execute and deliver such other instruments of transfer and/or assignment, certificates, deeds, bills of sale, evidence of filing and/or recording, and other documents as are reasonably necessary to effectuate the transactions contemplated by this Agreement to be consummated at the Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as expressly set forth in the correspondingly numbered part of the disclosure schedules delivered by Sellers (the Seller Disclosure Schedules ), Sellers represent and warrant to Buyer as follows:
4.1 Organization .
(a) The Company is a corporation duly incorporated, validly existing and in good standing under the Laws of the Commonwealth of Massachusetts. The Company is duly qualified to do business in each jurisdiction where its ownership or leasing of property or the conduct of its business requires it to be so qualified.
(b) Schedule 4.1(b) of the Seller Disclosure Schedules sets forth a true and complete list of the Subsidiaries of the Company, identifying in each case all Persons having any ownership interest in such Subsidiary. Except for such Subsidiaries and as set forth in Schedule
4.1(b) of the Seller Disclosure Schedules, the Company does not possess, directly or indirectly, any material equity interest in any corporate entity. Each of the Companys Subsidiaries has been duly organized, is validly existing and in good standing under the laws of the jurisdiction of its organization and is duly qualified to do business in each jurisdiction where its ownership or leasing of property or the conduct of its business requires such Subsidiary to be so qualified.
(c) The Company and each of its Subsidiaries has all requisite corporate power and authority to own, lease or operate all of its properties and assets and to carry on its business as it is now being conducted. Schedule 4.1(c) of the Seller Disclosure Schedules sets forth a true and complete list of each jurisdiction in which the Company or any of its Subsidiaries is required to be qualified, licensed or registered to do business, identifying the qualification, license or registration type and number. Neither the Company nor any of its Subsidiaries is required to be qualified, licensed or registered by any jurisdiction other than such jurisdictions set forth on Schedule 4.1(c) .
(d) Sellers have made available to Buyer true and complete copies of the Organizational Documents of the Company and each of its Subsidiaries, in each case as amended to date, which Organizational Documents are in full force and effect. Neither the Company nor any of its Subsidiaries is in violation of any provision of its Organizational Documents. The minute books of the Company and each of its Subsidiaries contain complete and accurate records of all meetings held and corporate actions taken by their respective stockholders, Board of Directors, or other similar governing bodies (including committees thereof).
4.2 Authorization . Each Seller has the right, power and capacity to execute and deliver this Agreement and each Seller Agreement to which he is a party, and to perform his obligations under this Agreement and each such Seller Agreement, and to consummate the transactions contemplated by this Agreement and each such Seller Agreement. This Agreement and each Seller Agreement (a) has been duly executed and delivered by each Seller and (b) constitutes a valid and binding agreement of each Seller, enforceable against each Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other similar Laws affecting the enforceability of creditors rights generally, general equitable principles and the discretion of courts in granting equitable remedies.
4.3 Non-Contravention . Except as set forth on Schedule 4.3 , no third party Approval is required in connection with the execution, delivery and performance of, or the consummation of the transactions contemplated by, this Agreement or any Seller Agreement by any Seller. Subject to receipt of the Approvals described on Schedule 4.3 of the Seller Disclosure Schedules, the execution, delivery and performance of this Agreement and any Seller Agreement by any Seller, and the consummation of the transactions contemplated by this Agreement and any Seller Agreement, does not and will not, after the giving of notice or the lapse of time or both: (a) conflict with, result in a breach of, constitute a default under, or violate the Organizational Documents of the Company or any Law applicable to any Seller or the Company; (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of any material rights or obligations under, create in any Person the right to accelerate any material rights or obligations under or materially amend, modify, cancel or refuse to perform under, or require any notice under any Material Contract to which any Seller or the Company is a party, or by which any of their respective assets or properties are bound; or (c)
result in the creation of, or give any Person the right to create, any Lien upon any right, property or asset of any Seller or the Company, other than a Permitted Lien.
4.4 No Approvals . Except as set forth on Schedule 4.4 of the Seller Disclosure Schedules, no Approval of any Government Entity is required in connection with the execution, delivery and performance of, or the consummation of the transactions contemplated by, this Agreement or any Seller Agreement by any Seller.
4.5 Capitalization .
(a) The authorized capital stock of the Company consists solely of 800,000 shares of common stock, no par value per share, of which 211,959.72 shares are issued and outstanding and 346,837 shares of preferred stock, par value $0.01 per share, of which no shares are issued and outstanding. No Person other than Sellers holds any shares of capital stock of the Company. Except as set forth on Schedule 4.5(a) , there are no options, warrants, subscriptions, phantom equity, calls, rights, convertible securities, restricted stock agreements or other agreements or commitments obligating the Company to issue, transfer, sell, redeem, repurchase or otherwise acquire any shares of its capital stock or securities. All of the issued and outstanding capital stock of the Company is validly issued, fully paid and nonassessable and free of preemptive rights and were issued in compliance with all applicable Laws concerning the issuance of securities.
(b) There are no (i) outstanding obligations of the Company to repurchase, redeem or otherwise acquire any equity securities of the Company and the Company has not redeemed any of its capital stock in the past three (3) years, or (ii) voting trusts, proxies or other agreements among the equity holders of the Company with respect to the voting or transfer of its equity securities. There are (i) no outstanding agreements, rights, subscriptions, options, warrants, conversion rights, anti-dilution rights, commitments, preemptive rights or rights of first refusal or offer, Contracts, arrangements or commitments of any kind for or relating to the issuance, sale, redemption, registration or voting of, or outstanding securities convertible into or exchangeable for, any shares of capital stock of any class or other equity interests of the Company and (ii) no rights to have the Companys capital stock registered for sale to the public in connection with the Laws of any jurisdiction. The Company does not have outstanding any bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of the Company on any matter.
4.6 Financial Matters .
(a) Schedule 4.6(a) of the Seller Disclosure Schedules contains a true and complete copy of the audited consolidated balance sheets, statements of income, statements of cash flows and statements of changes in stockholders equity of the Company as of and for the years ended December 31, 2014, 2013 and 2012, together with the report thereon of Bigelow & Company, PLLC, independent public accountants (the Financial Statements ); and
(b) The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis with the past practices of the Company. Each of the balance sheets
included in the Financial Statements fairly presents in all material respects the financial position of the Company on a consolidated basis as of the date of such balance sheet in accordance with GAAP. Each of the statements of income and statements of cash flows included in the Financial Statements fairly presents in all material respects the results of operations and cash flows of the Company as of the date of such statement in accordance with GAAP. Except as set forth in Schedule 4.6(b) of the Seller Disclosure Schedules, n either Sellers nor the Company (including its personnel who have a role in the preparation of financial statements or the internal accounting controls utilized by the Company) nor any independent accountant of the Company has identified or been made aware of any significant deficiency or material weakness in the system of internal accounting controls utilized by the Company. The Company does not have any Liability, except for (i) Liabilities set forth on the Financial Statements (including any notes thereto) or (ii) Liabilities arising in the Ordinary Course under agreements, Contracts, leases and licenses disclosed in Schedule 4.17(a) of the Seller Disclosure Schedules or from accounts payable incurred in the Ordinary Course.
4.7 Absence of Changes . Except as set forth in Schedule 4.7 of the Seller Disclosure Schedules, since December 31, 2014, the Company and each of its Subsidiaries has conducted its business in the Ordinary Course, and has not:
(a) suffered any change, event or effect in the business, assets, financial condition or results of operations which has had, or is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect;
(b) entered into any material acquisition or disposition of any assets or properties, or any Contract for any such acquisition or disposition other than the acquisition or sale of Loans and Loan commitments made in the Ordinary Course;
(c) entered into any material lease of real or personal property entered into, other than in connection with foreclosed property;
(d) subjected to a Lien any portion of its assets;
(e) sold, assigned or transferred any IP;
(f) entered into any Contract or commitment of more than $50,000 or with a term of more than one (1) year, other than Loans and Loan commitments;
(g) suffered any theft, damage, destruction or casualty loss to property in excess of $50,000 not covered by insurance;
(h) instituted any increase in or establishment of any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option (including, without limitation, the granting of stock options, stock appreciation rights, performance awards, or restricted stock awards), stock purchase or other employee benefit plan, or any other increase in the compensation payable or to become payable to any directors, officers or Employees of the Company, or any grant of severance or termination pay, or any Contract or arrangement entered into to make or grant any severance or termination pay, any payment of any bonus, or the taking
of any action not in the ordinary course of business with respect to the compensation or employment of directors, officers, Employees or shareholders of the Company;
(i) issued, sold or transferred any of its equity securities, securities convertible into their equity securities or warrants, options or other rights to acquire its equity securities, or any notes, bonds or debt securities;
(j) declared or paid any dividend or made any distribution on its equity interests or redeemed or purchased any of its equity interests;
(k) reclassified, combined, split, subdivided or redeemed or otherwise repurchased any securities, or created, authorized, issued, sold, delivered, pledged or encumbered any additional equity interests (whether authorized but unissued or held in treasury) or other securities convertible into or exchangeable for equity interests, or granted or otherwise issued any options, warrants or other rights with respect thereto;
(l) acquired or agreed to acquire by merging or consolidating with, or by purchasing any portion of the capital stock, equity interests or assets of, or by any other manner, any business or any corporation, partnership, limited liability company, association or other business organization or division thereof;
(m) made any material election for federal or state income tax purposes;
(n) suffered any labor trouble or claim of unfair labor practices;
(o) suffered any resignation, termination or removal of any officer or director or material loss of personnel, or agreed to any material change in the terms and conditions of the employment of any officers or key personnel;
(p) made any change in accounting methods, principles or practices, other than changes required by applicable Law or GAAP or regulatory accounting as concurred in by Sellers independent accountants;
(q) suffered any loss, or know of any development that is reasonably likely to result in a loss, of any significant supplier, customer, distributor or account of the Company;
(r) amended or terminated any Material Contract or agreement to which it is a party or by which it is bound;
(s) entered into any transaction or agreement involving fixed price terms, fixed volume arrangements or most favored nation arrangements;
(t) amended any policies and procedures, other than those changes required or requested by a Government Entity;
(u) entered or exited any line of business in relation to the business currently conducted by the Company; or
(v) agreed to enter into any agreement or understanding whether in writing or otherwise, to take any of the actions specified in paragraphs (a) through (t) above.
4.8 Related Party Transactions . Except as set forth in Schedule 4.8 of the Seller Disclosure Schedules, there are no Contracts in force or business arrangements or relationships between (i) the Company and (ii) any Seller or any officer, director, Employee or owner of the Company or any of their immediate family members or Affiliates (each, a Related Person ).
4.9 Tax Matters . Except as set forth in Schedule 4.9 of the Seller Disclosure Schedules:
(a) The Company has (i) duly and timely filed (or there has been filed on its behalf) all Tax Returns required to be filed by the Company prior to the date hereof, and all such Tax Returns are accurate and complete in all material respects; and (ii) timely paid (or provided adequate reserves, in accordance with GAAP, on the Companys most recent books), or there has been paid on its behalf, all Taxes due from the Company as of the date hereof.
(b) The Company has complied in all material respects with all applicable Tax Laws relating to the payment and withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of the Code and employment withholding Taxes) and has, within the time and in the manner prescribed by Law, both registered for the purpose of that Tax in the relevant territory (if such registration is required) and withheld and paid over to the proper Government Entity all amounts required to be withheld and paid over under all applicable Tax Laws.
(c) There are no Liens for Taxes upon the assets or properties of the Company except for statutory Liens for current Taxes not yet due.
(d) The Company has requested any extension of time within which to file any Tax Return in respect of any taxable year which has not since been filed, and no outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Tax Returns has been given by or on behalf of the Company.
(e) No federal, state, local or foreign audits, review, or other Actions ( Audits ) exist or, to the Knowledge of Sellers, have been threatened with regard to any Taxes or Tax Returns of the Company, and the Company has not received any notice of such an Audit.
(f) All Tax deficiencies which have been claimed, proposed or asserted against the Company by any Government Entity have been fully paid, nor has the Company received any notice from any Government Entity that it intends to conduct such an audit or investigation with respect to any of the Companys Tax Returns or Taxes.
(g) The Company is not required to include in income any adjustment pursuant to (i) Section 481(a) of the Code (or any corresponding or similar provision of state, local or foreign income Tax Law), by reason of any voluntary or involuntary change in accounting method (nor has any Government Entity proposed any such adjustment or change of accounting method), (ii) any closing agreement as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax Law), (iii) any
deferred intercompany gain or any excess loss account described in the treasury regulations promulgated under Section 1502 of the Code (the Treasury Regulations ) (or any corresponding or similar provision of state, local or foreign income Tax Law), (iv) any installment sale or open transaction disposition made on or prior to the Closing Date, (v) any prepaid amount received on or prior to the Closing Date or (vi) the application of Section 263A of the Code (or any corresponding or similar provision of state, local or foreign income Tax Law) with respect to a Tax period ending on or prior to the Closing Date.
(h) No power of attorney has been granted by or with respect to the Company for any matter relating to Taxes.
(i) The Company has not requested or received a ruling or determination from any Government Entity or signed a closing or other agreement with any Government Entity with respect to Taxes.
(j) The Company is not a party to, bound by, and does not have any obligations under, any Tax sharing agreement, Tax indemnification agreement or similar Contract or arrangement and, the Company has any potential Liability to any Person as a result of, or pursuant to, any such Contract or agreement.
(k) Sellers have previously delivered or made available to Buyer complete and accurate copies of (i) all audit reports, letter rulings, technical advice memoranda and similar documents issued by a Government Entity within the last six (6) years relating to any Taxes due from or with respect to the Company, (ii) all Tax Returns filed by or on behalf of the Company in the last three (3) years and (iii) any closing agreements entered into by the Company with any Government Entity within the last six (6) years with respect to Taxes.
(l) Sellers (i) certify on behalf of the Company, pursuant to Treasury Regulations Sections 1.1445-2(c)(3) and 1.897-2(h), that the Company is not, and within the five-year period ending on the Closing Date was not, a U.S. real property holding corporation, as defined in Section 897 of the Code, and that no equity security of the Company, option, right or warrant to acquire any equity security of the Company, or security or instrument convertible into or exchangeable for any equity security of the Company is a U.S. real property interest within the meaning of Section 897(c)(1) of the Code; (ii) declare, under penalties of perjury, that each of them has examined the certification in Section 4.9(l)(i) and declare that such certification is true, correct and complete to the best of their Knowledge and belief; (iii) declare that each of them has authority to make such certification on behalf of the Company; and (iv) confirm that the United States tax identification number of the Company is 04-2802284.
4.10 Legal Proceedings . There are no Actions, orders, awards, decrees or judgments, pending against, binding upon or, to the Knowledge of Sellers, threatened against the Company or any of its Subsidiaries, except for the matters disclosed on Schedule 4.10 of the Seller Disclosure Schedules.
4.11 Compliance With Laws; Permits . Except as set forth in Schedule 4.11 of the Seller Disclosure Schedules, each of the Company and its Subsidiaries:
(a) is, and has been, in compliance in all material respects with all applicable Laws, including, without limitation, the Truth in Lending Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act and all other applicable fair lending Laws and other Laws relating to mortgage lending, servicing or business;
(b) has obtained and maintained, and is in compliance with, all Permits necessary for its existence and the conduct of its business as currently conducted, including, but not limited to, any license necessary to conduct a mortgage banking and origination business, all of which are all in full force and effect; has made all filings, applications and registrations with, all Government Entities necessary for the conduct of such business, and has paid any fees and assessments due and payable in connection with Permits or such business; and
(c) has not received any notification or other written communication from any Government Entity asserting a violation or possible violation of any Law or threatening to revoke any Permit, and to the Knowledge of Sellers no Government Entity has threatened to assert that the Company or any of its Subsidiaries has violated or possibly violated any Law or to revoke any Permit.
4.12 Regulatory Action . Except as set forth on Schedule 4.12 of the Seller Disclosure Schedules, neither the Company, any of its Subsidiaries, nor any Seller is a party to or is subject to any assistance agreement, board resolution, order, decree, supervisory agreement, memorandum of understanding, condition or similar arrangement with, or a commitment letter or similar submission to, any Government Entity. Neither the Company, any of its Subsidiaries, nor any Seller has been subject to any order or directive by, or been ordered to pay any civil money penalty by, or has been a recipient of any supervisory letter from, or has adopted any policies, procedures or board resolutions at the request or suggestion of, any Governmental Authority. The Company has not been advised by a Government Entity that it will issue, or has Knowledge of any facts which would reasonably be expected to give rise to the issuance by any Government Entity or has Knowledge that a Government Entity is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting), any order, decree, agreement, board resolution, memorandum of understanding, supervisory letter, commitment letter, condition or similar submission. To Sellers Knowledge, there are no investigations relating to any material regulatory matters pending before any Government Entity with respect to the Company or any of its Subsidiaries.
4.13 Insurance . The Company and each of its Subsidiaries is insured, and during each of the past three calendar years has been insured, for reasonable amounts with financially sound and reputable insurance companies against such risks as companies engaged in a similar business would, in accordance with good business practice customarily be insured, and has maintained all insurance required by applicable laws and regulations. Schedule 4.13 of the Seller Disclosure Schedules lists all insurance policies maintained by the Company and each of its Subsidiaries as of the date hereof. All of the policies and bonds maintained by the Company or any of its Subsidiaries are in full force and effect and no premiums due and payable thereon are delinquent and no notice of cancellation or termination have been received by the Company or Sellers with respect to any such policy, and all claims thereunder have been filed in a due and timely manner and, to the Knowledge of the Company, no such claim has been denied. Neither the Company
nor any of its Subsidiaries is in breach of or default under any insurance policy, and there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a breach or default.
4.14 Title to Assets . Except as set forth in Schedule 4.14 of the Seller Disclosure Schedules, the Company and each of its Subsidiaries holds good title to all of its assets (except for assets used under licenses and leases in which case the Company or a Subsidiary of the Company has a valid license to or leasehold interest in such assets), free and clear of all Liens other than Permitted Liens. Except for interest and rights in property pursuant to any lease, license or other agreement described in Schedule 4.14 of the Seller Disclosure Schedules, there is no material tangible personal property owned by any third party, which is used by the Company or any of its Subsidiaries in the operation of their respective businesses.
4.15 Anti-Money Laundering . Except as set forth in Schedule 4.15 of the Seller Disclosure Schedules, neither Sellers nor the Company are aware of, have been advised of, or have reason to believe that any facts or circumstances exist that would cause the Company or any of its Subsidiaries to be deemed not to be in satisfactory compliance with the federal Bank Secrecy Act, as amended, and its implementing regulations (31 C.F.R. Part 103), the USA PATRIOT Act of 2001, Public Law 107-56, and the regulations promulgated thereunder (the USA PATRIOT Act ), any order issued with respect to anti-money laundering by the U.S. Department of the Treasurys Office of Foreign Assets Control, or any other applicable anti-money laundering statute, rule or regulation. Furthermore, except as set forth in Schedule 4.15 of the Seller Disclosure Schedules, the Company has adopted and the Company has implemented an anti-money laundering program that contains adequate and appropriate customer identification verification procedures that comply with Section 326 of the USA PATRIOT Act and such anti-money laundering program meets the requirements of Section 352 of the USA PATRIOT Act and the regulations thereunder.
4.16 Customer Information Security .
(a) Except as set forth in Schedule 4.16 of the Seller Disclosure Schedules, neither Sellers nor the Company are aware of, have been advised of, or have reason to believe that any facts or circumstances exist that would cause the Company or any of its Subsidiaries to be not in compliance with the applicable privacy of customer information requirements contained in any federal and state privacy Laws and regulations, including without limitation, in Title V of the Gramm-Leach-Bliley Act of 1999 and regulations promulgated thereunder, as well as the provisions of the information security program adopted by the Company or any of its Subsidiaries pursuant to applicable Law.
(b) The Company and each of its Subsidiaries has complied in all material respects and does presently comply in all material respects, with all Laws, regulations and contractual obligations applicable to its collection, use and transfer of any and all data that concerns an identified and/or identifiable person and includes, but shall not be limited to, an individuals name, address, credit card information, email address, social security number and account information ( Personal Data ). Neither the Company nor any of its Subsidiaries collects, uses discloses or otherwise processes and has not collected, used, disclosed or otherwise processed, any Personal Data that it has received or currently receives in connection with the
operation of its business in any manner that (i) violates applicable Law, (ii) violates any privacy policies of the Company or any of its Subsidiaries, (iii) violates any contractual obligations applicable to the Company or any of its Subsidiaries or (iv) violates or infringes any individuals privacy rights. The Company and each of its Subsidiaries (A) is not subject to any contractual requirements, privacy policies or other legal obligations that, following Closing, would prohibit Buyer from receiving and using any of the Personal Data and (B) has security measures in place to protect all Personal Data under its control or in its possession designed to protect such Personal Data from unauthorized access by any persons. Neither the Company nor any of its Subsidiaries has suffered any breach in security that has permitted any unauthorized access to the Personal Data under the Companys control or possession.
(c) The Company and each of its Subsidiaries has required, in accordance with applicable Law or contractual obligations, and does presently require, all third parties to which it provides Personal Data or permits access to Personal Data to maintain the privacy and security of such Personal Data, including by contractually obliging such third parties to protect such Personal Data from unauthorized access by or disclosure to any unauthorized third parties.
4.17 Material Contracts .
(a) Schedule 4.17(a) of the Seller Disclosure Schedules sets forth a complete and accurate list of all Contracts of the following types to which the Company or any of its Subsidiaries is a party, or by which any properties or assets of the Company or any of its Subsidiaries are bound (the Material Contracts ) provided, however, the term Material Contract shall not include Contracts or agreements for the purchase or sale of Loans or servicing rights, such as Loan Purchase and Sale Agreements and Loan Commitment Agreements, made in the Ordinary Course.
(i) Contracts under which any real property is leased, subleased or licensed (the Real Property Leases ), providing in each case the street address or other reasonable description of the land, buildings and/or other improvements covered thereby (the Leased Real Property );
(ii) Contracts under which any indebtedness, in each case in excess of $25,000, has been incurred, assumed or guaranteed by the Company or any of its Subsidiaries or under which it has imposed a Lien on any material assets of the Company or any of its Subsidiaries;
(iii) Contracts imposing non-competition or similar restrictions on the Company or any of its Subsidiaries with respect to geographical area, scope or type of business activities;
(iv) employment Contracts and Contracts with respect to the payment of any bonuses to directors or officers of the Company or any of its Subsidiaries;
(v) any agreement for the lease of personal property to or from any Person providing for lease payments in excess of $25,000 per annum;
(vi) any agreement with any third-party payor;
(vii) all agreements (or group of related agreements with respect to a single transaction or series of related transactions) that cannot be terminated on less than ninety (90) days notice, without a monetary penalty;
(viii) any stock or unit redemption or purchase agreements or other agreements affecting or relating to the capital stock or equity interests of the Company or any of its Subsidiaries, or any agreement with any Seller which includes anti-dilution rights, registration rights, voting arrangements, operating covenants or similar provisions;
(ix) any pension, profit sharing, retirement or stock option plans;
(x) any royalty, dividend or similar arrangement based on the revenues or profits of the Company or any of its Subsidiaries or any Contract or agreement involving fixed price or fixed volume arrangements;
(xi) any joint venture, partnership, marketing, broker, correspondent, origination, loan purchase, loan sale, loan participation, servicing, subservicing, collection, development or services agreement, any other agreement which involves a sharing of revenues, profits, losses, costs or liabilities by the Company or any of its Subsidiaries with any other Person, and any agreements related to any such agreements;
(xii) any acquisition, merger or similar agreement;
(xiii) any collective bargaining agreement or other agreement with any labor union or other Employee representative of a group of Employees;
(xiv) any Contract with any Government Entity;
(xv) any other agreement that involves the payment of consideration in excess of $25,000;
(xvi) any Contract by and among the Company or any of its Subsidiaries and any Affiliate thereof;
(xvii) any Contract which, upon the consummation of the transactions contemplated by this Agreement, will result in any payment or benefit (whether of severance pay or otherwise including the vesting of benefits that would be accelerated) becoming due from the Company or any of its Subsidiaries to any officer, Employee or shareholder thereof;
(xviii) any Contract providing for the indemnification by the Company or any of its Subsidiaries of any Person;
(xix) any Contract providing for repurchase, make-whole or any other remedy relating to any Loan; and
(xx) any Contract that grants any right of first refusal or right of first offer or similar right or that limits (or purports to limit) the ability of the Company or any
of its Subsidiaries to own, operate, sell, transfer, pledge or otherwise dispose of any material amount of assets or business.
(b) Sellers have previously made available to Buyer a true and complete copy of each Material Contract.
(c) Each Material Contract is in full force and effect and is legal, valid, binding and enforceable against the Company or Subsidiary of the Company and, to the Knowledge of Sellers, all other parties thereto in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other similar Laws affecting the enforceability of creditors rights generally, general equitable principles and the discretion of courts in granting equitable remedies. There does not exist under any Material Contract any default or condition or event that, after notice or lapse of time or both, would constitute a material default on the part of the Company or Subsidiary of the Company or, to the Knowledge of Sellers, any other party thereto.
4.18 Loans; Nonperforming and Classified Assets .
(a) Each Loan (i) was made and has been serviced in accordance with the Companys lending standards and prudent practice; (ii) is evidenced by appropriate and sufficient documentation; (iii) has been secured by valid Liens and security interests which have been perfected; and (iv) constitutes the legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and other Laws of general applicability relating to or affecting creditors rights and to general equity principles. The Company has previously made available to Buyer complete and correct copies of its lending, credit and underwriting policies. The Loan agreements of the Company comply with all applicable Law. The allowance for Loan losses reflected in Financial Statements, as of their respective dates, is adequate under GAAP and all regulatory requirements applicable to the Company. Notwithstanding any provision of this Agreement, the Sellers shall have no Liability for any breach of representations and warranties in this Section 4.18(a) (except for any breach of which the Company or any Seller had, or should have had, Knowledge and which was not disclosed to Buyer (all items set forth on Schedule 4.18(a) conclusively being deemed to have been disclosed to Buyer for the purposes of such standard)) and the Buyer agrees to look solely to the loan loss reserve shown on the Closing Balance Sheet for Buyer Losses incurred as a result of any such breach.
(b) Schedule 4.18(b) of the Seller Disclosure Schedules discloses as of March 31, 2015: (i) any Loan owned by the Company under the terms of which the obligor is sixty (60) or more days delinquent in payment of principal or interest, or, to the Knowledge of the Company, in default of any other provision thereof; (ii) each Loan which has been classified as other loans specially maintained, classified, criticized, substandard, doubtful, credit risk assets, watch list assets, loss or special mention (or words of similar import) by the Company or a Government Entity; (iii) each Loan repurchased or proposed to be repurchased by the Company; (iv) each Loan subject to any claim, suit, proceeding or litigation; (v) a listing of the real estate owned, acquired by foreclosure or by deed-in-lieu thereof, including the book value thereof; (vi) each Loan with any director or executive officer of the Company or a Seller, or to the Knowledge of the Company, any Person controlling, controlled by or under common
control with any of the foregoing; and (vii) Loans held for sale. All Loans which would be classified as insider transactions by Regulation O of the Federal Reserve Board have been made by the Company in an arms-length manner made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other Persons and do not involve more than normal risk of collectability or present other unfavorable features. All such Loans are and were originated in compliance in all material respects with all applicable Laws.
(c) The marketing, soliciting, brokering, originating, making, servicing, collecting, and all other activities performed in connection with each Loan have been conducted in accordance with applicable Law.
(d) No misrepresentation, gross negligence, fraud or similar occurrence with respect to any Loan has taken place on the part of the Company or, to the Knowledge of Sellers, any other Person, including, without limitation, any borrower, any broker, any correspondent, any appraiser, any settlement service provider, or any builder or developer.
(e) To the Knowledge of Sellers, the Company is not in breach, and has not breached, any provision contained in any agreement pursuant to which the Company has brokered, originated, made, sold, participated or performed any activity in connection with any Loan. To the Knowledge of Sellers, no facts or circumstances exist relating to any agreement pursuant to which the Company has brokered, originated, made, sold, participated or purchased any Loan or performed any activity in connection with any Loan which could give rise to any obligation to repurchase any Loan or indemnify or make whole any Person in connection with any Loan.
(f) None of the agreements pursuant to which the Company has sold Loans or pools of Loans or participations in Loans or pools of Loans contains any obligation to repurchase such Loans or interests therein solely on account of a payment default by the obligor on any such Loan, other than a payment default occurring within ninety (90) days of the sale of the Loan.
(g) There is no litigation, proceeding, governmental investigation or class action lawsuit existing or pending or, to the Knowledge of Sellers or the Company threatened, or any order, injunction, decree or settlement agreement outstanding, relating to or arising out of any Loan, nor do Sellers or the Company have any Knowledge of any basis for any such litigation, proceeding, governmental investigation or class action lawsuit.
(h) The Company does not hold or own any Loan, except as set forth in Schedule 4.18(h) of the Seller Disclosure Schedule.
4.19 Approved Seller/Servicer . The Company is a U.S. Department of Housing and Urban Development ( HUD )-approved mortgagee pursuant to Section 203 of the National Housing Act. No event has occurred, including, but not limited to, a change in insurance coverage, which would make the Company unable to comply with HUD eligibility requirements or, other than the transactions contemplated by this Agreement, which would require notification to HUD.
4.20 Real Property . With respect to each Real Property Lease: (a) neither the Company nor any Subsidiary of the Company has subleased or licensed any of the Leased Real Property or given any third Person any license or other right to occupy any portion of the Leased Real Property; (b) neither the Company, any Subsidiary of the Company nor other party to the Real Property Lease has waived any material term or condition thereof; (c) neither the Company nor any Subsidiary of the Company has collaterally assigned or granted any security interest in the Real Property Lease or any interest therein; and (d) neither the Company nor any Subsidiary of the Company is obligated under or a party to, any option, right of first refusal or other contractual right to purchase any Leased Real Property or any portion thereof or interest therein. Neither the Company nor any Subsidiary of the Company owns any real property.
4.21 Environmental Matters . Except as set forth in Schedule 4.21 of the Seller Disclosure Schedules: (a) there are no pending or, to the Knowledge of Sellers, threatened Environmental Claims relating to any Leased Real Property or Loan Property; (b) the Company has not received any notification and has no Knowledge of any alleged, actual or potential Environmental Claims for any disposal, release or threatened release at any location of any Hazardous Materials generated at, or transported from, any Leased Real Property or Loan Property which could result in or give rise to any Environmental Claims against the Company; and (c) to the Knowledge of Sellers there are no Environmental Conditions currently existing at or on any Leased Real Property which could result in or give rise to any Environmental Claims against the Company. To the Knowledge of Seller, each Loan Property is, and has been, in material compliance with all applicable Environmental Laws, including without limitation, with any Environmental Permits necessary for the current and anticipated future use of the Loan Property, each of which Environmental Permits is in full force and effect. To the Knowledge of Seller, during the period of the Companys holding of a security interest in a Loan Property, there is and has been no presence or Release of Hazardous Materials in, on, under or affecting any such properties, except where such presence or Release of Hazardous Materials is not or would not, either individually or in the aggregate, be material. Except as set forth in Schedule 4.21 , the Company is not an owner or operator of any Loan Property and the Company does not participate or has not participated in the management or operational affairs of such property in any manner that would make them ineligible for any of the settled exceptions, safe havens or other available protections for lenders under Environmental Laws. Except as set forth on Schedule 4.21 , to the Knowledge of Sellers, neither the Loan Property, nor any structures located thereon, contains any underground or aboveground storage tanks, asbestos or asbestos-containing material, harmful mold or fungi, polychlorinated biphenyls or equipment containing the foregoing, lead or lead-based paint, or urea formaldehyde foam insulation. Seller has provided to Buyer all Environmental Reports in its possession concerning any Loan Property and any real property currently leased or operated by the Company.
4.22 Intellectual Property . Schedule 4.22 of the Seller Disclosure Schedules contains a complete and accurate list of all (i) Owned IP that is registered, or the subject of a pending application for registration, with the U.S. Patent and Trademark Office, the U.S. Copyright Office or any similar office or agency anywhere in the world, (ii) all Licensed IP, other than commercial off the shelf software which is made available to the general public, and (iii) licenses or other agreements under which Sellers or the Company has granted rights to others in IP. All Owned IP and, to the Knowledge of Sellers, all Licensed IP, has been duly maintained, is valid and subsisting, is in full force and effect and has not been cancelled, expired or abandoned.
None of the Owned IP, and, to the Knowledge of Sellers, none of the Licensed IP, infringes, violates, dilutes, misappropriates or interferes with, any IP rights of any Person. The Company has not brought or threatened a claim against any Person alleging infringement, violation, dilution or misappropriation of, or interference with, any Owned IP. No Person has brought or threatened a claim against the Company alleging infringement, violation, dilution or misappropriation of, or interference with, any IP. All Employees and consultants who contributed to the development of any of the Owned IP or the subject matter thereof did so either (i) within the scope of his or her employment such that, subject to and in accordance with applicable Law, all IP arising therefrom became the exclusive property of the Company or (ii) pursuant to written agreements assigning all right, title and interest therein to the Company. The Company has taken reasonable security measures to protect the confidentiality of all Owned IP.
4.23 Labor Matters . As of each of the Execution Date and the Closing Date, there is no (a) collective bargaining agreement to which the Company is a party or otherwise bound, (b) labor union representing any Employees, (c) to the Knowledge of Sellers, (i) overt organizational effort with respect to the formation of a collective bargaining unit presently being made or threatened by any Employees, or (ii) any active current efforts by any Person encouraging or soliciting any Employees to engage or participate in any such organizational effort, or (d) pending or, to the Knowledge of Sellers, threatened strike, slowdown, work stoppage, lockout or other collective labor action or dispute by or with respect to any Employees.
4.24 Plans .
(a) Schedule 4.24(a)-1 of the Seller Disclosure Schedules contains a true and complete list of all Plans other than the Split-Dollar Policies. Schedule 4.24(a)-2 of the Seller Disclosure Schedules contains a true and complete list of all split-dollar life insurance policies and arrangements under which (i) any director or officer of the Company is insured and (ii) the Company has paid premiums ( Split-Dollar Arrangements ). The Company does not have any commitment or formal plan, whether legally binding or not, to create any additional Plan or modify or change any existing Plan that would affect any current or former Employees. Sellers have previously made available to Buyer a true and complete copy of all Plan documents. Each Plan has been operated and administered in all material respects in accordance with its terms and applicable Laws, including ERISA and the Code.
(b) No Plan is or was a multiemployer pension plan (as defined in Section 3(37) or 4001(a)(3) of ERISA) or a multiple employer plan described in Section 413(c) of the Code, and neither the Company nor any ERISA Affiliate has contributed to, been required to contribute to, or otherwise had any obligation or Liability in connection with any such multiemployer plan or multiple employer plan. No Plan is an employee pension benefit plan within the meaning of Section 3(2) of ERISA that is or was subject to Title IV of ERISA or Section 412 of the Code. No Plan is a multiple employer welfare arrangement (within the meaning of Section 3(40) of ERISA, determined without regard to whether such plan is subject to ERISA. To the Knowledge of Sellers, there are no facts or circumstances that may give rise to any Liability of the Company or any Seller to the Pension Benefit Guaranty Corporation or to any multiemployer plan under Title IV of ERISA.
(c) Each Plan has been established and administered in all material respects in accordance with its terms and in compliance with applicable Laws, including ERISA and the Code. To the Knowledge of Sellers, neither the Company nor any ERISA Affiliate has incurred any Liability with respect to any Plan, including any Liability, Tax, penalty or fee under ERISA or the Code (other than to pay premiums, contributions or benefits in the Ordinary Course). Neither the Company nor, to the Knowledge of Sellers, any fiduciary of any Plan has engaged in any transaction in violation of Section 404 or 406 of ERISA or any prohibited transaction, as defined in Section 4975(c)(1) of the Code, for which no exemption exists under Section 408 of ERISA or Section 4975(c)(2) or (d) of the Code. The Company has not knowingly participated in a violation of Part 4 of Title I, Subtitle B of ERISA by any plan fiduciary of any Plan, and does not have any unpaid civil penalty under Section 502(l) of ERISA.
(d) Each Plan intended to be qualified within the meaning of Section 401(a) of the Code has received a favorable determination letter from the U.S. Internal Revenue Service indicating that it is so qualified. To the Knowledge of Sellers, nothing has occurred prior to or since the issuance of such determination letters for any Plan to cause the loss of qualification under the Code of any such Plan.
(e) All filings required by ERISA and the Code as to each Plan have been timely filed, and all notices and disclosures to participants and beneficiaries as required by either ERISA or the Code have been timely provided.
(f) The execution, delivery and performance of, and consummation of the transactions contemplated by, this Agreement will not (i) entitle any Person to any additional benefits, including severance pay, unemployment compensation or any other payment, (ii) accelerate the time of payment or vesting of any benefits under any Plan or employment agreement, or increase the amount of compensation due any such individual, (iii) result in any parachute payment as defined in Section 280(b)(2) of the Code; or (iv) result in a requirement to pay any tax gross-up or similar make whole payments to any Employee.
(g) There is no pending or, to the Knowledge of Sellers, threatened claim (other than a routine claim for benefits), litigation, proceeding, examination, audit, investigation or other proceeding with respect to any Plan.
(h) No Plan provides, or has provided, nonqualified deferred compensation to any service provider (within the meaning of Section 409A of the Code) which could subject such service provider to income inclusion or tax pursuant to Section 409A(a)(1) of the Code. Any Plan subject to Section 409A of the Code has been operated in compliance with Section 409A of the Code and/or in reasonable good faith compliance with any applicable regulations or other guidance promulgated thereunder.
(i) Except to the extent required under Sections 601 et seq. of ERISA and Section 4980B of the Code, the Company does not provide, and has no obligation to provide nor Liability with respect to, health or welfare benefits for any retired or former Employee of the Company, nor is the Company obligated to provide health or welfare benefits to any Employee following such Employees retirement or other termination of service.
4.25 Investment Securities . Each of the Company and its Subsidiaries has good title to all securities owned by it (except those sold under repurchase agreements or held in any fiduciary or agency capacity), free and clear of any Liens, except to the extent such securities are pledged in the ordinary course of business to secure obligations of the Company or its Subsidiaries. Such securities are valued on the books of the Company in accordance with GAAP. The Company and its Subsidiaries and their respective businesses employ investment, securities, risk management and other policies, practices and procedures which the Company believes are prudent and reasonable in the context of such businesses. None of the investments reflected in the most recent balance sheet included in each of the Annual Statements and Interim Statements, and none of the material investments made by the Company since December 31, 2013 is subject to any restriction (contractual, statutory or otherwise) that would materially impair the ability of the entity holding such investment freely to dispose of such investment at any time.
4.26 Derivative Transactions . All Derivative Transactions (as defined below) entered into by the Company or any of its Subsidiaries were entered into in accordance with applicable rules, regulations and policies of any Governmental Entity, and in accordance with the investment, securities, commodities, risk management and other policies, practices and procedures employed by the Company and its Subsidiaries, and were entered into with counterparties believed at the time to be financially responsible and able to understand (either alone or in consultation with their advisers) and to bear the risks of such Derivative Transactions. The Company and its Subsidiaries have duly performed all of their obligations under the Derivative Transactions to the extent that such obligations to perform have accrued, and, to the Knowledge of the Company, there are no breaches, violations or defaults or allegations or assertions of such by any party thereunder. The Company and its Subsidiaries have adopted policies and procedures consistent with the publications of Government Entities which are applicable to the Company or companies engaged in mortgage lending with respect to their derivatives program. For purposes of this Section 4.26, Derivative Transactions shall mean any swap transaction, option, warrant, forward purchase or forward sale transaction, futures transaction, cap transaction, floor transaction or collar transaction relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates, credit-related events or conditions or any indexes, or any other similar transaction or combination of any of these transactions, including collateralized mortgage obligations or other similar instruments or any debt or equity instruments evidencing or embedding any such types of transactions, and any related credit support, collateral or other similar arrangements related to such transactions.
4.27 Transactions with Affiliates . Except as set forth in Schedule 4.27 of the Seller Disclosure Schedules, there are no outstanding amounts payable to or receivable from, or advances by the Company to, and the Company is not otherwise a creditor or debtor to, any Affiliate of the Company, or any shareholder owning five percent (5%) or more of the outstanding capital stock of the Company, other than as part of the normal and customary terms of such persons employment or service as a director with the Company. Except as set forth in Schedule 4.27 of the Seller Disclosure Schedules, the Company is not a party to (a) any transaction or written or oral agreement with any of its Affiliates, shareholders owning five percent (5%) or more of the outstanding capital stock of the Company, directors or executive officers or (b) any material transaction or agreement with any Employee who is not an executive officer.
4.28 No Brokers . There is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of the Company or any Seller, or any of their Affiliates, who is or might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement.
4.29 Recent Acquisitions . Except as set forth in Schedule 4.29 of the Seller Disclosure Schedules, neither Sellers nor the Company has any Liability arising out of or relating to any acquisition which has not been adequately provided for, reflected or disclosed in the Interim Financials.
4.30 Disclosure . This Agreement (including the schedules and exhibits hereto) and the certificates and statements furnished pursuant to this Agreement by or on behalf of Sellers and the Company together with all other information provided by Sellers and the Company to the Buyer in connection with the transactions contemplated hereby (as of the date such information was prepared), do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading in the light of the circumstances under which they were made. None of the officers, managers or directors of the Company during the previous five (5) years has been (a) subject to voluntary or involuntary petition under the federal bankruptcy Laws or any state insolvency Law or comparable applicable Laws or the appointment of a receiver, fiscal agent or similar officer by a court for his business or property, (b) convicted in a criminal proceeding or named as a subject of a pending criminal proceeding (excluding traffic violations and other minor offenses), (c) subject to any order, judgment, or decree (not subsequently reversed, suspended or vacated) of any court of competent jurisdiction or any Government Entity permanently or temporarily enjoining him from engaging, or otherwise imposing limits, conditions or penalties, fines or assessments relating to his engagement in any mortgage lending, securities, investment advisory, banking, insurance or other type of business or acting as an officer or director of a public company or (d) found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission or any Government Entity under applicable Law to have violated any federal or state securities commodities, unfair trade practices or mortgage lending-related Law, which such judgment or finding has not been subsequently reversed, suspended, or vacated.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Except as expressly set forth in the correspondingly numbered part of the disclosure schedules delivered by Buyer (the Buyer Disclosure Schedules ), Buyer represents and warrants to Sellers as follows:
5.1 Organization . Buyer is a co-operative bank duly organized, validly existing and in good standing under the Laws of the Commonwealth of Massachusetts. The Organizational Documents of Buyer are in full force and effect, and Buyer is not in violation of any provision of its Organizational Documents. Each of Buyers Subsidiaries has been duly organized and qualified under the laws of the jurisdiction of its organization and is duly qualified to do business and in good standing in the jurisdiction where its ownership or leasing of property or the conduct of its business requires such Subsidiary to be so qualified.
5.2 Authorization . Buyer has the right, power and capacity to execute and deliver this Agreement and each Buyer Agreement, and to perform its obligations under this Agreement and each Buyer Agreement, and to consummate the transactions contemplated by this Agreement and each Buyer Agreement. The execution and delivery of this Agreement and each Buyer Agreement by Buyer, and the performance by Buyer of its obligations under this Agreement and each Buyer Agreement, and the consummation of the transactions provided for in this Agreement and each Buyer Agreement have been duly and validly authorized and approved by all necessary corporate action on the part of Buyer. This Agreement and each Buyer Agreement (a) has been duly executed and delivered by Buyer and (b) constitutes a valid and binding agreement of Buyer, enforceable against Buyer in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other similar Laws affecting the enforceability of creditors rights generally, general equitable principles and the discretion of courts in granting equitable remedies.
5.3 Non-Contravention . The execution, delivery and performance of this Agreement and each Buyer Agreement by Buyer, and the consummation of the transactions contemplated by this Agreement and each Buyer Agreement, does not and will not, after the giving of notice or the lapse of time or both (a) conflict with, result in a breach of, constitute a default under, or violate the Organizational Documents of Buyer, or any Law applicable to Buyer, (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of any rights or obligations under, create in any Person the right to accelerate any rights or obligations under or amend, modify, cancel or refuse to perform under, or require any notice under any Contract or other arrangement, to which Buyer is a party, or by which any of Buyers assets or properties are bound or (c) result in the creation of, or give any Person the right to create, any Lien upon any right, property or asset of Buyer, other than a Permitted Lien.
5.4 No Approvals . Except for consents, waivers or approvals of, or filings or registrations with, or notifications to, the Federal Deposit Insurance Corporation, the Massachusetts Division of Banks and any applicable federal or state agencies regulating mortgage companies with respect to changes in control and related matters, no Approval of any Government Entity or other Person is required in connection with the execution, delivery and performance of, or the consummation of the transactions contemplated by this Agreement or any Buyer Agreement by Buyer.
5.5 No Brokers . Except as set forth on Schedule 5.5 of the Buyer Disclosure Schedules, there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of Buyer, or any of its Affiliates, who is or might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement.
5.6 Investment Intent; Status as Accredited Investor . Buyer (a) is acquiring the Shares for its own account, for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the Securities Act ), and the rules and regulations promulgated thereunder; (b) understands that the Shares have not been registered under the Securities Act and must be held by Buyer indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from registration; and (c) is an accredited investor as defined in Rule 501(a) under the Securities Act, and by reason of its
business and financial experience, and the business and financial experience of those persons retained by it to advise it with respect to its purchase of the Shares, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment, is able to bear the economic risk of such investment and, at the present time, is able to afford a complete loss of such investment.
5.7 Litigation . No litigation, claim, suit, investigation or other proceeding before any court, governmental agency or arbitrator is pending, or to the knowledge of Buyer, threatened against Buyer or any of its Subsidiaries that would reasonably be expected to have a Material Adverse Effect.
5.8 Sufficient Funds . Buyer has, and will have at the Closing, sufficient funds to consummate the transactions contemplated by this Agreement, including the payment of the Closing Payment, subject to the terms and conditions of this Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Conduct of Business . From the Execution Date until the Closing, except as expressly contemplated or permitted by this Agreement or to the extent Buyer shall otherwise consent in writing, Sellers shall cause the Company and each of its Subsidiaries to (a) conduct its business in the Ordinary Course, (b) use reasonable best efforts to maintain and preserve intact its business organization, employees and advantageous business relationships and retain the services of its officers and key employees, and (c) take no action which would materially adversely affect or materially delay the ability of Sellers to obtain any approvals of any Government Entity required to consummate the transactions contemplated by this Agreement or to perform its covenants and obligations under this Agreement.
6.2 Seller Forbearances . From the Execution Date until the Closing, except as expressly contemplated or permitted by this Agreement or as expressly required by applicable Law (and Buyer acknowledges that any action taken by the Company prior to the Closing Date which is expressly permitted or required by this Agreement or as expressly required by applicable Law or regulation shall not be deemed a breach of any representation, warranty, agreement or covenant herein), the Company and the Sellers shall not, without the prior written consent of Buyer:
(a) other than in the Ordinary Course, issue any debt securities or otherwise incur any Indebtedness;
(b) adjust, split, combine or reclassify any shares of its capital stock or issue any other securities in respect of, in lieu of, or in substitution for shares of its capital stock, make, declare or pay any dividend or make any other distribution on, whether payable in cash, stock, property or otherwise, or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock, or grant any stock appreciation rights, restricted stock, bonus stock or grant any individual, corporation or other entity any right to acquire any shares of its capital stock; or issue, sell pledge or encumber any additional shares of capital stock or any options,
warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest;
(c) other than in Ordinary Course sell, transfer, mortgage, encumber or otherwise dispose of any of its properties or assets to any Person other than a direct or indirect wholly-owned Subsidiary, or cancel, release or assign any Indebtedness to any such Person or any claims held by any such Person;
(d) make any material investment either by purchase of stock or securities, contributions to capital, property transfers, or purchase of any property or assets of any other Person other than a wholly-owned Subsidiary thereof, or make any commitment to make such an investment, and, in any event regardless of whether consistent with past practice, make any such investment or commitment to make such an investment which is in excess of $50,000; provided, however, that the terms of this Section 6.2(d) shall not apply to Sellers investment securities portfolio or gap position, each of which is expressly covered by Section 6.2(j);
(e) increase or decrease its equity ownership position in any Person or, in the case of any Seller, transfer any Shares owned by him;
(f) enter into, terminate, renew, or make any change to any Material Contract;
(g) (i) adopt, amend, renew or terminate any plan or any agreement, arrangement or plan between the Company and one or more of its current or former directors, officers or Employees other than repayment of subordinated debt as set forth on Schedule 6.5 owed to Sellers and termination of the Sellers restricted stock agreements; (ii) enter into, modify or renew any employment, severance or other agreement with any director, officer or Employee of the Company; (iii) establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund policy or arrangement providing for any benefit to any director, officer or Employee; (iv) pay any bonus to any of its officers or Employees other than in the Ordinary Course; (v) increase in any manner the compensation or fringe benefits of any of its Employees other than in the Ordinary Course; (vi) pay any pension or retirement allowance not required by any existing plan or agreement to any such Employees or become a party to, amend or commit itself to any pension, retirement, profit sharing or welfare benefit plan or agreement or employment agreement with or for the benefit of any Employee; or (vii) hire or terminate the employment of any officer, member of senior management or other key employee, elect to any office any person who is not a member of the Companys officer team as of the Execution Date or elect to the Companys Board of Directors any person who is not a member of the Companys Board of Directors as of the Execution Date;
(h) settle, agree to settle or compromise any litigation, suit, action, material claim, proceeding or investigation (whether or not commenced prior to the Execution Date and including any suit, action, claim, proceeding or investigation relating to this Agreement or the transactions contemplated hereby), or consent to the same;
(i) amend its Organizational Documents;
(j) restructure or change its investment securities portfolio or its gap position, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported;
(k) enter into any new line of business or file any application to relocate or terminate the operations of any office of the Company or, other than after prior consultation with Buyer, materially expand the business currently conducted by the Company;
(l) acquire or agree to acquire, by merging or consolidating with, or by purchasing an equity interest in or a portion of the assets of, or by any other manner, any business or any corporation, partnership, other business organization or any division thereof or any material amount of assets;
(m) incur or commit to any capital expenditures in excess of $50,000 individually or in the aggregate or any obligations or liabilities in connection therewith;
(n) other than those required by the IRS tangible property regulations, make or change any Tax election, file any amended Tax Return, enter into any closing agreement, settle or compromise any Liability with respect to Taxes, agree to any adjustment of any Tax attribute, change (or make a request to any taxing authority to change) any of its methods of reporting income or deductions for federal income Tax purposes from those employed in the preparation of its federal income Tax Return for the taxable year ended December 31, 2014, file any claim for a refund of Taxes, or consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment;
(o) take any action with respect to changing its accounting methods, principles or practices, other than changes required by applicable Law or GAAP or regulatory accounting as concurred in by the Companys independent accountants;
(p) make any new or additional equity investment in real estate or commitment to make any such an investment or in any real estate development project, other than (i) in connection with foreclosures, settlements in lieu of foreclosure or troubled Loan or debt restructurings in the Ordinary Course or (ii) as required by agreements or instruments in effect as of the date hereof;
(q) change in any material respect its Loan or investment policies and procedures, except as required by Government Entities;
(r) other than in the Ordinary Course, enter into or renew, amend or terminate, or give notice of a proposed renewal, amendment or termination of or make any commitment with respect to (i) any lease, Contract, agreement or commitment for office space, operations space or branch space, regardless of where located or to be located, to which the Company is, or may be, a party or by which the Company or its properties is bound, or (ii) any lease, Contract, agreement or commitment by or to the Company;
(s) commit any act or omission which constitutes a material breach or default by Sellers or the Company under any agreement with any Government Entity or under any
Material Contract or license to which any of them is a party or by which any of them or their respective properties is bound;
(t) take any action that is intended or may reasonably be expected to (i) violate any applicable Law, rule or regulation or (ii) result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time prior to the Closing Date, or in any of the conditions set forth in Article VII not being satisfied or in a violation of any provision of this Agreement, except as may be required by applicable Law;
(u) foreclose on or take a deed or title to any commercial real estate without first conducting a Phase I environmental assessment of the property or foreclose on any commercial real estate if such environmental assessment identifies the presence of Hazardous Materials in amounts which, if such foreclosure were to occur, would be material;
(v) renew, amend or permit to expire, lapse or terminate or knowingly take any action reasonably likely to result in the creation, renewal, amendment, expiration, lapse or termination of any insurance policies referred to in Section 4.13; or
(w) authorize or agree to, or make any commitment to, take any of the actions prohibited by this Section 6.2;
provided, however , that any consent required by this Section 6.2 shall be deemed given if not denied by Buyer within five (5) Business Days after receipt of the written request of the Company for such consent.
6.3 Efforts With Respect to Approvals, Etc. Subject to the terms and conditions of this Agreement, the Parties shall use their respective reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable Law to consummate the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, the Parties shall cooperate with each other and use their respective reasonable best efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, to obtain as promptly as practicable all Permits, consents, Approvals and authorizations of all third parties and Government Entities that are necessary or advisable to consummate the transactions contemplated by this Agreement, and to comply with the terms and conditions of all such Permits, consents, Approvals and authorizations of all such third parties or Government Entities; provided, however , that such an Approval may not impose any term, condition or restriction upon Buyer or the Company that Buyer reasonably determines would materially adversely affect the current or future economic or business benefits to Buyer of the transactions contemplated by this Agreement so as to render inadvisable the consummation of the transactions (a Burdensome Condition ). The Parties shall consult with each other with respect to the obtaining of all Permits, consents, Approvals and authorizations of all third parties and Government Entities necessary or advisable to consummate the transactions contemplated by this Agreement, and each Party will keep the other apprised of the status of matters relating to completion of the transactions contemplated by this Agreement. Without limiting the generality of the preceding sentence, each Party shall have the right to review in advance, and each will consult the other on, all the information relating to the other
Party, and any of their respective Subsidiaries, which appear in any filing made with, or written materials submitted to, any third party or any Government Entity in connection with the transactions contemplated by this Agreement. Each Party shall promptly advise the other upon receiving any material communication from any Government Entity relating to any application, notice, petition or filing made in connection with the transactions contemplated by this Agreement.
6.4 Tax Matters .
(a) All taxes for the part year ending on the day before the Closing Date shall be accrued for on the Closing Balance Sheet.
(b) Buyer and Sellers shall cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax Returns relating to the operations of the Company prior to the Closing and any Audit, litigation or other proceeding with respect to Taxes relating to any period (or portion of a period) ending at or before the Closing. Such cooperation shall include (i) the retention and (upon the other Partys request) the provision of records and information which are reasonably relevant to the filing of any Tax Returns and any Audit, litigation or other proceeding and (ii) making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.
6.5 Repayment of Debt . On or before the Closing Date, the Company shall repay to each Seller the subordinated indebtedness owed by the Company to each Seller as set forth on Schedule 6.5 and Seller shall release the Company from all obligations and liabilities in connection with such indebtedness
6.6 No Solicitation, Discussions or Negotiations With Third Parties .
(a) Upon execution of this Agreement, Sellers shall and shall cause the Company and its officers, employees, counsel, accountants, advisors and other authorized representatives (collectively, Representatives ) to cease immediately and cause to be terminated any and all existing activities, discussions or negotiations with any Person conducted heretofore with respect to, or that may reasonably be expected to lead to, an Acquisition Proposal. Sellers agree that it shall (i) take the necessary steps to promptly inform its Representatives involved in the transactions contemplated by this Agreement of the obligations undertaken in this Section 6.6(a) and (ii) request each Person who has heretofore executed a confidentiality agreement in connection with such Persons consideration of acquiring the Shares or any equity interest in or assets of the Company, or any portion thereof to return or destroy (which destruction shall be certified in writing by an executive officer of such Person) all confidential information heretofore furnished to such Person by or on its behalf.
(b) Sellers shall not, and shall cause the Company and its Representatives not to, directly or indirectly, (i) initiate, solicit, or knowingly encourage the submission of any inquiries, proposals or offers that constitute or may reasonably be expected to lead to, any Acquisition Proposal, (ii) engage or participate in or knowingly facilitate any discussions or negotiations regarding, or furnish any non-public information to any Person (other than Buyer or
Buyers Representatives) in connection with any inquiries, proposals or offers that constitute or may reasonably be expected to lead to, any Acquisition Proposal, (iii) approve or recommend any Acquisition Proposal, or (iv) enter into any letter of intent, agreement in principle or other similar type of agreement relating to an Acquisition Proposal, or enter into any agreement or agreement in principle requiring Sellers to abandon, terminate or fail to consummate the transactions contemplated hereby or resolve, propose or agree to do any of the foregoing.
6.7 Publicity . A Party may only issue a press release or make a public statement concerning this Agreement and the transactions contemplated hereby if such press release or public statement is made in form and substance, and at a time, to which all other Parties have consented after good faith consultation. Otherwise, no Party shall make any public disclosure concerning this Agreement, the transactions contemplated hereby, or the existence of and/or particulars of any negotiations related hereto, including the terms, conditions, consideration to be paid or other facts related to this Agreement, except to the extent that public disclosure is required by applicable Law, in which case, to the extent practicable, the Parties will use their reasonable best efforts to reach mutual agreement on disclosure language prior to making such disclosure.
6.8 Confidentiality . Each Party (i) acknowledges and agrees that the confidentiality provision included in the letter of intent dated October 22, 2014 between Buyer, the Company and Sellers remains in full force and effect; and (ii) agrees to cause its Affiliates to comply with all terms and conditions of such confidentiality provision.
6.9 Expenses . Except as otherwise set forth in this Agreement or as accrued for on the Closing Balance Sheet or paid prior to the Closing Date and reflected on the Closing Balance Sheet, (a) Sellers shall pay all expenses of the Company and Sellers relating to the transactions contemplated by this Agreement, and (b) Buyer shall pay all expenses of the Buyer relating to the transactions contemplated by this Agreement, including in each case, the fees and expenses of their respective Representatives.
6.10 Transfer Taxes . All national, federal, state, provincial or local transfer Taxes in any country, including excise, sales, use, value added, real property transfer, stamp, documentary, filing, recordation, notarial and other similar Taxes and fees that may be imposed or assessed as a result of the transactions contemplated by this Agreement (if any), together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties shall be paid by Sellers.
6.11 Further Assurances . Subject to the terms and conditions of this Agreement, at any time or from time to time after the Closing, at any Partys request and without further consideration, the other Party shall execute and deliver to such Party such other instruments of sale, transfer, conveyance, assignment and confirmation, provide such materials and information and take such other actions as such Party may reasonably require in order to consummate the transactions contemplated by this Agreement.
6.12 Access to Information . Upon reasonable prior notice to the executive officer or other Person designated by Sellers and subject to applicable Laws relating to the exchange of information, Sellers, shall, and shall cause the Company to, afford to the officers, employees,
accountants, counsel and other Representatives of Buyer, reasonable access, during normal business hours during the period from the Execution Date until Closing or the date, if any, on which this Agreement is terminated pursuant to Section 9.1, to all of its properties, books, Contracts, commitments, documents relating to compliance programs (including policies, controls, records and investigations or assessments of compliance matters), records and all other information relating to the Companys business (other than confidential information contained in personnel files to the extent the disclosure of such information is prohibited by privacy Laws) and Sellers shall, and shall cause the Company to make available to Buyer a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of federal securities Laws or with any Government Entity (other than reports or documents which Sellers are not permitted to disclose under applicable Law). Sellers also shall provide Buyer with reasonable access to the Companys officers, Employees and agents. The Company shall not be required to provide access to or to disclose information where such access or disclosure would materially interfere with the conduct of its business, contravene any Law or binding agreement entered into prior to the Execution Date, or would reasonably be expected to violate or result in a loss or impairment of any attorney-client or work product privilege. If any access or disclosure of information is not provided by Sellers pursuant to the preceding sentence, then Sellers shall inform Buyer that access and disclosure is not being so provided, and Sellers and the Company will use commercially reasonable efforts to make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply.
6.13 Additional Agreements . In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each Party and any of their respective Subsidiaries shall take all such necessary action as may be reasonably requested by, and at the sole expense of, Buyer.
6.14 Notice of Developments . Sellers shall give prompt written notice to Buyer of any material adverse development causing a breach of any of Sellers representations and warranties in Article IV (as modified by the Seller Disclosure Schedules). Buyer shall give prompt written notice to Sellers of any material adverse development causing a breach of any of its representations and warranties in Article V. No disclosure by any Party pursuant to this Section 6.14, however, shall be deemed to amend or supplement the Seller Disclosure Schedules or to prevent or cure any inaccuracy in or breach of any representation or warranty made by any Party on the date hereof.
6.15 Update of Seller Disclosure Schedules . At Closing, Sellers shall supplement or amend the Seller Disclosure Schedules to reflect any matter necessary to correct any information in the Seller Disclosure Schedules which has been rendered inaccurate thereby as of the Closing Date. No supplement or amendment to the Seller Disclosure Schedules shall have any effect for the purpose of determining satisfaction of the conditions set forth in Section 7.2 or compliance by Sellers of the covenants set forth in this Article VI.
6.16 Current Information .
(a) As soon as practicable, Sellers will furnish to Buyer copies of all such Financial Statements and reports as the Company shall send to its stockholders or any other
Government Entity and copies of all notices and documents received from any Government Entity, to the extent any such reports furnished to any such Government Entity are not confidential and except as legally prohibited thereby, and will furnish to Buyer such additional financial data as Buyer may reasonably request.
(b) Promptly upon receipt thereof, Sellers will furnish to Buyer copies of all internal control reports submitted to the Company by its independent auditors in connection with each annual, interim or special audit of the books of the Company made by such auditors.
(c) Sellers will promptly notify Buyer of any material change in the Ordinary Course of business or in the operation of the properties of the Company and of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the institution or the threat of material litigation involving the Company, and will keep Buyer reasonably informed of such events.
6.17 Additional Compliance Covenants . Prior to the Closing, the Company, at its sole expense, shall (a) engage an executive search firm responsible for identifying a senior compliance officer, mutually agreed upon by Buyer and Sellers, and hire such a senior compliance officer as soon as is practical; and (b) engage a consulting firm, mutually agreed upon by Buyer and Sellers, which consultant shall perform a diagnostic review of the Companys compliance management system. This review should result in written recommendations for improvements to such compliance management systems and a written implementation plan for such recommendations. The consulting firm will also serve as the project manager overseeing the implementation of such recommendations. If the consulting firm cannot serve as a project management resource the Company will ensure professional project management resources are engaged, mutually agreed upon by Buyer and Sellers, for such purpose. It is anticipated that the diagnostic review will include a comprehensive analysis of the Companys business processes, supporting technologies including the Companys loan origination system (Open/Close), and the quality control and compliance framework from initial contact with a prospective customer through to the ultimate completion of a closed loan including the sale of such loan in the secondary markets.
6.18 Employees and Benefit Plans . At such time that any Employee becomes eligible to participate in any employee benefit plan of Buyer (the Buyer Employee Programs):
(a) Buyer will treat, and cause its applicable Buyer Employee Programs to treat, the service of the Employees with Seller prior to the Closing as service rendered to Buyer or any of its Subsidiaries for purposes of eligibility to participate, vesting and for level of benefits (but not for benefit accrual under any defined benefit plan , for purposes of severance benefits, for any purposes of any post-termination/retiree welfare benefit plan or for purposes of any equity based compensation or benefits).
(b) Without limiting the foregoing, but subject to the terms and conditions of Buyers applicable Buyer Employee Programs, Buyer shall take commercially reasonable efforts to cause the Employees to receive credit for their prior service for eligibility and vesting purposes in Buyers 401(k) plan.
(c) Notwithstanding the foregoing provisions of this Section 6.18, service and other amounts shall not be credited to Employees (or their eligible dependents) to the extent the crediting of such service or other amounts would result in the duplication of benefits.
6.19 Loan Pricing . During the first year after the Closing Date, Buyer agrees to consult with the Company regarding any changes to the Companys loan pricing margins and no such changes shall be made without the mutual agreement of Buyer and the Company.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions to the Obligations of All Parties . The obligations of each of Buyer and Sellers to effect the transactions contemplated hereby are subject to the satisfaction at or prior to the Closing of the following conditions, unless waived in writing by each of Buyer and Sellers:
(a) All Approvals of Government Entities, necessary for the consummation of the transactions contemplated hereby shall have been obtained and be in full force and effect, and no Approval shall have a Burdensome Condition.
(b) (i) No order, injunction or decree issued by any court or other Government Entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated by this Agreement shall be in effect; (ii) no proceeding initiated by any Government Entity seeking an injunction of the transactions contemplated by this Agreement shall be pending; and (iii) no statute, rule, regulation, order, injunction or decree shall have been proposed, enacted, entered, promulgated or enforced by any Government Entity that prohibits, restricts or makes illegal consummation of the transactions contemplated by this Agreement.
7.2 Conditions to the Obligations of Buyer . The obligations of Buyer to effect the transactions contemplated hereby are subject to the satisfaction at or prior to the Closing of the following conditions, unless waived in writing by Buyer:
(a) The representations and warranties of Sellers set forth in this Agreement shall be true and correct in all material respects (except that those representations and warranties that are limited by materiality shall be true and correct in all respects) as of the Execution Date and as of the Closing Date as if made at and as of the Closing Date (except where such representations or warranties are made expressly as of a specific date (which specific date may be set forth on a Disclosure Schedule), and then as of such date).
(b) Sellers shall have performed in all material respects all covenants and obligations required to be performed by each of them under this Agreement at or prior to the Closing.
(c) The third party Approvals identified on Schedule 4.3 shall have been obtained and be in full force and effect, and no such Approval shall be subject to a Burdensome Condition.
(d) Since the Execution Date, there shall not have been change, effect, circumstance or event having a Material Adverse Effect on the Company.
(e) Sellers shall have executed, as applicable, and delivered to Buyer all of the documents required to be delivered by each of them at the Closing pursuant to Section 3.2(a)(i).
7.3 Conditions to the Obligations of Sellers . The obligations of Sellers to effect the transactions contemplated hereby are subject to the satisfaction at or prior to the Closing of the following conditions, unless waived in writing by Sellers:
(a) The representations and warranties of Buyer set forth in this Agreement shall be true and correct in all material respects (except that those representations and warranties that are limited by materiality shall be true and correct in all respects) as of the Execution Date and as of the Closing Date as if made at and as of the Closing Date (except where such representations or warranties are made expressly as of a specific date, and then as of such date.
(b) Buyer shall have performed in all material respects all covenants and obligations required to be performed by Buyer under this Agreement at or prior to the Closing.
(c) Buyer shall have executed, as applicable, and delivered to Sellers all of the documents required to be delivered by Buyer at the Closing pursuant to Section 3.2(a)(ii).
(d) Each Seller shall have been released from the guarantees of Company Liabilities set forth on Schedule 7.3(d) (or indemnified against the same by the Buyer).
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by Sellers . Sellers shall, in accordance with and subject to the limitations in this Article VIII, jointly and severally, indemnify, defend, protect and hold harmless Buyer and its assigns, successors and Affiliates and the directors, officers and employees of each of Buyer and its assigns, successors and Affiliates (collectively, the Buyer Indemnitees ) from, against and in respect of all Actions asserted against, and all Damages asserted against or suffered, sustained, incurred or paid, directly or indirectly, by any Buyer Indemnitee (collectively, Buyer Losses ) in connection with or arising out of:
(a) the breach or inaccuracy of any representation or warranty of any Seller set forth in this Agreement or any Seller Agreement;
(b) the breach or nonfulfillment of any covenant or agreement in this Agreement or any Seller Agreement, or in any certificate delivered by Sellers hereunder, on the part of any Seller;
(c) any Liability of Sellers and the Company for unpaid Taxes with respect to any taxable periods ending on or before the Closing Date and the portion through the end of the Closing Date for any taxable period that includes (but does not end on) the Closing Date ( Pre-Closing Tax Period ), any Liability of the Company for Taxes of any member of an affiliated, consolidated, combined or unitary group of which the Company (or any predecessor of the
Company) is or was a member on or prior to the Closing Date, any Liabilities of the Company for Taxes of any Person imposed on the Company as a transferee or successor, by Contract or pursuant to any Law which Taxes relate to an event or transaction occurring before the Closing Date, and any breach of the representations in Section 4.9 hereof; or
(d) the enforcement of the indemnification provided for in this Agreement;
provided, however , that with respect to subsections (a) and (b) above, if the Buyer Losses are the result of the acts or omissions of, or the breach of any representation, warranty or covenant by, one or more but not all of the Sellers, then the indemnification obligations for such act, omission or breach shall be borne only by the responsible Seller(s).
8.2 Indemnification by Buyer . Buyer shall, in accordance with this Article VIII, indemnify, defend, protect and hold harmless Sellers and their respective assigns, successors and Affiliates and the directors, officers and Employees of Sellers and their respective assigns, successors and Affiliates (collectively, the Seller Indemnitees ) from, against and in respect of all Actions asserted against, and all Damages asserted against or suffered, sustained, incurred or paid by, any Seller Indemnitee (collectively, Seller Losses ) in connection with or arising out of
(a) the breach or inaccuracy of any representation or warranty of Buyer set forth in this Agreement or any Buyer Agreement;
(b) the breach or nonfulfillment of any covenant or agreement in this Agreement or any Buyer Agreement, or in any certificate delivered by Buyer hereunder, on the part of Buyer; or
(c) the enforcement of the indemnification provided for in this Agreement.
8.3 Notice of Claims . A Person entitled to indemnification under this Article VIII (an Indemnified Party ) shall notify the Persons obligated to provide such indemnification under this Article VIII (the Indemnifying Party ) in writing promptly after becoming aware of any Damages which an Indemnified Party shall have determined has given rise to a claim for indemnification under Article VIII; provided, however , that the failure to give such notice shall not relieve an Indemnifying Party of its obligation to indemnify the Indemnified Party hereunder except to the extent the Indemnifying Party is materially prejudiced by such failure. Such written notice (a Claim Notice ) shall include an estimate of the Damages, if known, the method of computation thereof and a reference to the specific provisions of this Agreement in respect of which it seeks indemnification. If the Indemnifying Party notifies the Indemnified Party that it does not dispute the claim or the estimated amount of Damages described in such Claim Notice, or fails to notify the Indemnified Party within thirty (30) days after receipt of such Claim Notice whether the Indemnifying Party disputes the claim or the estimated amount of Damages described in such Claim Notice, the estimated Damages in the amount specified in the Indemnified Partys Claim Notice will be conclusively deemed a Liability of the Indemnifying Party and the Indemnifying Party shall pay the amount of such Damages to the Indemnified Party. If the Indemnifying Party has timely disputed its Liability with respect to such claim or the estimated amount of Damages, the dispute shall be resolved, and the amount, if any, of Damages payable by the Indemnifying Party to the Indemnified Party shall be determined, in
accordance with Section 10.6. The provisions of this Section 8.3 do not apply to Third Party Actions.
8.4 Third Party Actions .
(a) If any third Person shall commence an Action against any Indemnified Party (a Third Party Action ) with respect to any matter which may give rise to a claim for indemnification under this Article VIII, then the Indemnified Party shall notify the Indemnifying Party as the case may be, in writing promptly after becoming aware of such Third Party Action describing in reasonable detail the Third Party Action (such notice being hereinafter called a Third Party Action Notice ), which notice shall include a reference to the specific provisions of this Agreement in respect of which it seeks indemnification. It is agreed that no delay on the part of any Indemnified Party in notifying the Indemnifying Party shall relieve the Indemnifying Party from its obligations hereunder, except to the extent said Indemnifying Party is prejudiced by such failure to give notice. The Indemnifying Party will have thirty (30) days from the receipt of such Third Party Action Notice (the Response Period ) to determine whether or not (i) the Indemnifying Party will, at its sole cost and expense, defend against such Third Party Action and/or (ii) the Indemnifying Party is disputing the claim for indemnity hereunder.
(b) If the Indemnifying Party (i) does not respond to the Third Party Action Notice by 5:00 p.m. Eastern time on the last day of the Response Period, (ii) responds to the Third Party Action Notice but disputes the claim for indemnity hereunder and elects not to assume the defense, or (iii) responds to the Third Party Action Notice and does not dispute the claim for indemnity but elects not to assume the defense, in each case within the period allowed after delivery of the Third Party Action Notice, the Indemnified Party shall have the right to defend against any such Third Party Action by appropriate proceedings or to settle or pay any such Third Party Action for such an amount as the Indemnified Party shall in good faith deem reasonably appropriate and the Indemnifying Party shall promptly pay all Damages resulting from such Third Party Action in accordance with subparagraph (e) below; provided that in the case of clause (ii), any right of the Indemnified Party to recover from the Indemnifying Party shall depend on the resolution of the dispute as to the right of indemnity in accordance with Section 10.6.
(c) If the Indemnifying Party affirmatively disputes its obligation to indemnify the Indemnified Party, but nevertheless elects to defend against any such Third Party Action or settle or pay any such Third Party Action, any right of the Indemnified Party to recover from the Indemnifying Party shall depend on the resolution of the dispute as to the right of indemnity in accordance with Section 10.6.
(d) Notwithstanding anything herein to the contrary, if the Indemnifying Party notifies the Indemnified Party that it will defend against or settle any Third Party Action:
(i) such defense or settlement shall be at the sole cost and expense of the Indemnifying Party, except for costs and expenses of the Indemnified Partys counsel, if any, pursuant to Section 8.4(d)(vi);
(ii) the Indemnifying Party and its counsel shall conduct such defense or settlement at all times in good faith;
(iii) the Indemnifying Party shall provide written notice to the Indemnified Party stating that the Indemnifying Party would be liable under the provisions of this Article VIII in the amount of the Damages in any Third Party Action if such Third Party Action were valid and the Indemnifying Party and its counsel shall, at the reasonable request of the Indemnified Party, provide periodic updates to the Indemnified Party in order to keep the Indemnified Party reasonably informed as to its conduct of such defense or settlement, and shall not compromise or settle such Third Party Action without the prior written consent of the Indemnified Party (not to be unreasonably withheld or delayed) unless such settlement or compromise does not subject the Indemnified Party to any monetary Liability, and includes a complete, unconditional release of the Indemnified Party from all Liability with respect to such Third Party Action;
(iv) the Indemnified Party shall cooperate with the Indemnifying Party, including making available to the Indemnifying Party, all relevant witnesses and pertinent documents and information and appropriate personnel;
(v) the Indemnified Party may employ its own counsel and participate in such defense or settlement at the Indemnified Partys sole cost and expense, but the control of such defense and the settlement shall rest with the Indemnifying Party;
(vi) notwithstanding the Indemnifying Partys election to defend against or settle the Third Party Action, the Indemnified Party may, upon written notice to the Indemnifying Party, elect to employ its own counsel (who shall be reasonably acceptable to the Indemnifying Party) at the Indemnifying Partys expense (except that the Indemnifying Party shall not be obligated to pay the fees of more than one separate counsel for all Indemnified Parties, taken together) if (A) the Indemnifying Party is also a Person against whom the Third Party Action is made and the Indemnified Party has been advised in writing by counsel that (x) representation of both parties by the same counsel would be inappropriate under applicable standards of professional conduct or (y) the Indemnified Party has available to it one or more defenses or counterclaims that are inconsistent with one or more of those that may be available to the Indemnifying Party with respect to such Third Party Action; or (B) the Indemnifying Party shall not in fact have employed counsel reasonably satisfactory to the Indemnified Party for the defense or settlement of such Third Party Action; provided, however , that the assumption of control of the defense or settlement of a Third Party Action by the Indemnified Party pursuant to this Section 8.4(d)(vi) shall not relieve the Indemnifying Party of its obligation to indemnify and hold the Indemnified Party harmless; and
(vii) in no event shall the Indemnified Party consent to the entry of any judgment or enter into any settlement with respect to such Third Party Action without the prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed).
(e) The Damages resulting from the settlement or the adjudication of such Third Party Action, or that portion thereof as to which the defense is unsuccessful (each, a Final Loss ), shall be conclusively deemed a Liability of the Indemnifying Party to the Indemnified Party if the Indemnifying Party (i) does not respond to a Third Party Action Notice by 5:00 p.m. Eastern time on the last day of the Response Period; (ii) does not elect to defend against any Third Party Action for which it does not dispute the Indemnified Partys right to indemnity; (iii) does not elect to defend against any Third Party Action for which it disputes the Indemnified Partys right to indemnity, and such dispute is resolved, in accordance with Section 10.6, in a manner affirming the Indemnified Partys right to indemnity; (iv) elects to defend against any Third Party Action for which it does not dispute the Indemnified Partys right to indemnity hereunder; or (v) elects to defend against any Third Party Action for which it does dispute the right to indemnity, to the extent the dispute is resolved in a manner affirming the Indemnified Partys right to indemnity.
8.5 Survival; Limitations .
(a) The period during which a claim for indemnification under Sections 8.1(a) or 8.2(a) in respect of representations and warranties which survive for the Claims Period under Section 8.5(b) may be asserted hereunder (the Claims Period ) shall begin on the Closing Date and shall terminate forty-eight (48) months following the Closing Date.
(b) Notwithstanding Section 8.5(a), if, prior to the close of business on the last day of the Claims Period, an Indemnifying Party shall have been properly notified of a good faith claim for indemnity under Section 8.5(a) and such claim shall not have been Finally Resolved at such date, such claim shall continue to survive and shall remain a basis for indemnity hereunder until such claim is Finally Resolved in accordance herewith. All representations and warranties herein (other than those contained in Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.8, 4.9, 4.11, 4.12, 4.14, 4.15, 4.18, 4.21, 4.22, 4.25, 4.26, 4.28 and 4.29, in addition to any claims based on fraud, intentional misrepresentation, or intentional misconduct which shall survive for the applicable statute of limitations period) shall survive the Closing until the last day of the Claims Period applicable thereto and, with respect to claims that remain unresolved as of the last day of the Claims Period, until such unresolved claims have been Finally Resolved.
(c) Notwithstanding anything herein to the contrary:
(i) Sellers shall not have any indemnification obligation under Section 8.1(a) unless and until the aggregate amount of Buyer Losses exceeds $250,000, whereupon Sellers shall indemnify the Buyer Indemnitees for the entire amount of such Buyer Losses, subject to Section 8.5(c)(iii);
(ii) Buyer shall not have any indemnification obligation under Section 8.2(a) unless and until the aggregate amount of Seller Losses exceeds $250,000, whereupon Buyer shall indemnify the Seller Indemnitees for the entire amount of such Seller Losses, subject to Section 8.5(c)(iv) (it being acknowledged and agreed that in no event shall the $250,000 threshold be applicable to Buyers failure to pay any portion of the Purchase Price);
(iii) subject to Section 8.5(c)(v), the maximum amount of Buyer Losses for which Sellers shall be obligated to indemnify Buyer Indemnitees pursuant to Section 8.1(a) is the amount equal to the Purchase Price (the Cap Amount );
(iv) subject to Section 8.5(c)(v), the maximum amount of Seller Losses for which Buyer shall be obligated to indemnify Seller Indemnitees pursuant to Section 8.2(a) is the Cap Amount; and
(v) the Cap Amount shall not apply to any claims based on a finding of fraud, intentional misrepresentation or intentional misconduct of any Party.
(d) The Seller Losses or Buyer Losses, as the case may be ( Losses ), suffered by any Indemnified Party shall be calculated after giving effect to any amounts recoverable under insurance policies (it being understood and agreed that the Indemnified Parties shall use their commercially reasonable efforts to seek insurance recoveries in respect of Losses to be indemnified hereunder). If any insurance proceeds from third parties are actually realized by an Indemnified Party subsequent to the receipt by such Indemnified Party of an indemnification payment hereunder in respect of the claims to which such insurance proceedings relate, appropriate refunds shall be made promptly to the Indemnifying Party regarding the amount of such indemnification payment.
(e) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, NO PARTY SHALL BE LIABLE FOR SPECIAL, PUNITIVE, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY OR INDIRECT DAMAGES (INCLUDING LOST PROFITS) RELATING TO ANY BREACH OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT THE FOREGOING SHALL NOT RELIEVE AN INDEMNIFYING PARTY OF ITS OBLIGATION TO INDEMNIFY ANY INDEMNIFIED PARTY TO THE EXTENT ANY SUCH DAMAGES ARE INCLUDED IN A FINAL LOSS FOR WHICH THE INDEMNIFIED PARTY IS ENTITLED TO INDEMNIFICATION HEREUNDER.
ARTICLE IX
TERMINATION
9.1 Termination . This Agreement may be terminated prior to the Closing:
(a) by mutual written consent of the Parties;
(b) by Buyer:
(i) if there has been a material breach by Sellers of any representation or warranty contained herein or in the due and timely performance of any covenant or agreement contained herein, and Buyer has notified Sellers of such breach in writing and the breach has not been cured within thirty (30) Business Days after delivery of the notice of the breach unless the failure of the Closing to occur shall be due to the failure of the Party seeking to terminate this Agreement to perform or observe the covenants and agreements of such Party set forth herein;
(ii) if the Approval of any Government Entity required for consummation of the transactions contemplated in this Agreement shall have been denied by final, nonappealable action by such Government Entity or an application therefore shall have been permanently withdrawn at the request of the Government Entity, or such Approval contains a Burdensome Condition;
(iii) if the Closing shall not have occurred on or before October 1, 2015 (the Outside Closing Date ) ( provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein);
(c) by Sellers:
(i) if there has been a material breach by Buyer of any representation or warranty contained herein or in the due and timely performance of any covenant or agreement contained herein, and Sellers have notified Buyer of such breach in writing and the breach has not been cured within thirty (30) Business Days after delivery of the notice of the breach unless the failure of the Closing to occur shall be due to the failure of the Party seeking to terminate this Agreement to perform or observe the covenants and agreements of such Party set forth herein; and
(ii) if the Closing shall not have occurred on or before the Outside Closing Date ( provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein).
9.2 Effect of Termination .
(a) If this Agreement is terminated as permitted by Section 9.1, the termination will be without Liability of any Party (or any stockholder, director, officer, employee, agent, consultant or representative of any Party).
(b) Except as set forth in Section 9.2(a), if this Agreement is terminated as permitted by Section 9.1 and such termination results from the (i) willful failure of a Party to fulfill a condition to the performance of the obligations of another Party, (ii) failure to perform a covenant of this Agreement or (iii) breach by any Party to this Agreement of any representation or warranty or agreement contained herein, the failing or breaching Party will be fully liable for any and all Damages incurred or suffered by any other party as a result of such failure or breach. The provisions of Articles VIII and X will survive any termination of this Agreement pursuant to Section 9.1.
ARTICLE X
MISCELLANEOUS
10.1 Entire Agreement . This Agreement embodies the entire agreement and understanding of the Parties with respect to the transactions contemplated hereby, and supersedes all other prior commitments, arrangements or understandings, both oral and written, among the Parties with respect to the subject matter hereof.
10.2 Construction; Headings . The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. The headings herein are for convenience only, do not constitute a part of this Agreement, and shall not be deemed to limit or affect any of the provisions hereof.
10.3 Severability . The provisions of this Agreement are intended to be interpreted and construed in a manner so as to make such provisions valid, binding and enforceable. In the event that any provision of this Agreement is determined to be partially or wholly invalid, illegal or unenforceable, then such provision shall be deemed to be modified or restricted to the extent necessary to make such provision valid, binding and enforceable, or, if such provision cannot be modified or restricted in a manner so as to make such provision valid, binding and enforceable, then such provision shall be deemed to be excised from this Agreement and the validity, binding effect and enforceability of the remaining provisions of this Agreement shall not be affected or impaired in any manner.
10.4 Waiver and Amendment . Subject to compliance with applicable Law, prior to the Closing, any provision of this Agreement may be (a) waived by the Party intended to benefit by the provision, or (b) amended or modified at any time, by an agreement in writing between the Parties hereto and executed in the same manner as this Agreement. No waiver, forbearance or failure by any Party of its rights to enforce any provision of this Agreement shall constitute a waiver or estoppel of such Partys right to enforce any other provision of this Agreement or a continuing waiver by such Party of compliance with any provision of this Agreement.
10.5 Governing Law . This Agreement shall be governed by and construed and enforced in accordance with the Laws of the Commonwealth of Massachusetts without regard to principles of conflicts of Laws.
10.6 Dispute Resolution; Jury Trial Waiver . Subject to the following sentence, the state or federal courts located within the City of Boston, Massachusetts shall have exclusive jurisdiction over any and all disputes between any Parties, whether in Law or equity, arising out of or relating to this Agreement and the agreements, instruments and documents contemplated by this Agreement and the Parties consent to and agree to submit to the jurisdiction of such courts. The Parties hereby agree that mailing of process or other papers in connection with any such Action or proceeding in the manner provided in Section 10.7 or in such other manner as may be permitted by Law, shall be valid and sufficient service thereof and hereby waive any objections to service accomplished in the manner herein provided. EACH OF THE PARTIES IRREVOCABLY WAIVES, AND AGREES TO CAUSE ITS AFFILIATES TO WAIVE, ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
10.7 Notices . Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed given or made when delivered in person or by other means of written communication to the appropriate addresses designated below (or to such other
address or addresses as may hereafter be furnished by one Party to the other Parties in compliance with the terms hereof):
If to Sellers: |
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with a copy (which shall not constitute notice) to: |
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Kraig Burnham
Merrimack, NH 03054
P.O. Box 115
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Wadleigh, Starr & Peters, PLLC
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Daniel McKenney
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Wadleigh, Starr & Peters, PLLC
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Timothy Boyle
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Wadleigh, Starr & Peters, PLLC
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If to Buyer: |
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with a copy (which shall not constitute notice) to: |
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HarborOne Bank
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Goodwin Procter LLP
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10.8 Assignment . This Agreement may not be assigned by (a) any Seller without the prior written consent of Buyer; and (b) Buyer without the prior written consent of each of the Sellers; provided, however , that Buyer may assign this Agreement to a wholly-owned Subsidiary of Buyer (in which case Buyer will remain liable for all of its obligations under this Agreement). This Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties respective successors and permitted assigns.
10.9 No Third Party Beneficiaries . Unless otherwise expressly stated herein, this Agreement shall not benefit or create any right of action in or on behalf of any Person other than the Parties.
10.10 Counterparts . This Agreement may be executed in any number of counterparts (including electronically or by facsimile), each of which shall be deemed to be original, but all of which together shall constitute one and the same instrument.
10.11 Specific Performance . The Parties agree that the remedies at Law of any Party for any actual or threatened breach of this Agreement would be inadequate and that the Parties shall be entitled to specific performance of this Agreement, including entry of an ex parte , temporary restraining order in state or federal court, preliminary and permanent injunctive relief against activities in violation of any of the covenants in this Agreement, or both, in addition to any Damages and legal expenses which a Party may be legally entitled to recover.
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[ The remainder of this page is left blank intentionally. Signature page follows. ]
IN WITNESS WHEREOF , the Parties have each executed and delivered this Agreement as of the Execution Date.
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Buyer: |
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HARBORONE BANK |
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By: |
/s/ James W. Blake |
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Name: |
James W. Blake |
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Title: |
President and Chief Executive Officer |
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Sellers: |
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/s/ Kraig Burnham |
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Name: |
Kraig Burnham |
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/s/ Daniel McKenney |
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Name: |
Daniel McKenney |
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/s/ Timothy Boyle |
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Name: |
Timothy Boyle |
Signature Page to Stock Purchase Agreement
Exhibit 3.1
D
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
Articles of Organization
(General Laws Chapter 156D, Section 2.02; 950 CMR 113.16)
ARTICLE I
The exact name of the corporation is:
HarborOne Bancorp, Inc.
ARTICLE II
Unless the articles of organization otherwise provide, all corporations formed pursuant to G.L. Chapter 156D have the purpose of engaging in any lawful business. Please specify if you want a more limited purpose:
The purpose of the Corporation is to engage in the following business activities: to buy, sell, deal in, or hold securities of every kind and description; to operate as a holding company and to carry on any business permitted to holding companies under applicable laws and regulations; and in general to carry on any business permitted to corporations organized under Chapter 156D of the Massachusetts General Laws as now in force or hereafter amended.
ARTICLE III
State the total number of shares and par value, if any, of each class of stock that the corporation is authorized to issue. All corporations must authorize stock. If only one class or series is authorized, it is not necessary to specify any particular designation.
WITHOUT PAR VALUE |
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WITH PAR VALUE |
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TYPE |
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NUMBER OF SHARES |
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TYPE |
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NUMBER OF SHARES |
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PAR VALUE |
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Preferred |
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1,000,000 |
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Common |
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90,000,000 |
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$ |
0.01 |
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ARTICLE IV
Prior to the issuance of shares of any class or series, the articles of organization must set forth the preferences, limitations and relative rights of that class or series. The articles may also limit the type or specify the minimum amount of consideration for which shares of any class or series may be issued. Please set forth the preferences, limitations and relative rights of each class or series and, if desired, the required type and minimum amount of consideration to be received.
See Appendix A.
ARTICLE V
The restrictions, if any, imposed by the articles of organization upon the transfer of shares of any class or series of stock are:
See Appendix B.
ARTICLE VI
Other lawful provisions, and if there are no such provisions, this article may be left blank.
See Appendix C.
ARTICLE VII
The effective date of organization of the corporation is the date and time the articles were received for filing if the articles are not rejected within the time prescribed by law. If a later effective date is desired, specify such date, which may not be later than the 90th day after the articles are received for filing:
March 1, 2016
ARTICLE VIII
The information contained in this article is not a permanent part of the articles of organization.
a. The street address of the initial registered office of the corporation in the commonwealth:
155 Federal Street, Suite 700, Boston, MA 02110
b. The name of its initial registered agent at its registered office:
C T Corporation System
c. The names and street addresses of the individuals who will serve as the initial directors, president, treasurer and secretary of the corporation (an address need not be specified if the business address of the officer or director is the same as the principal office location):
President: James Blake
Treasurer: Joseph Casey
Secretary: James Blake
Director(s):
Joseph Barry
James Blake
David Frenette
Gordon Jezard
Edward Kent
Barry Koretz
Wallace Peckham, III
Michael Sullivan
d. The fiscal year end of the corporation:
December
e. A brief description of the type of business in which the corporation intends to engage:
The purpose of the Corporation is to engage in the following business activities: to buy, sell, deal in, or hold securities of every kind and description; to operate as a holding company and to carry on any business permitted to holding companies under applicable laws and regulations; and in general to carry on any business permitted to corporations organized under Chapter 156D of the Massachusetts General Laws as now in force or hereafter amended.
f. The street address of the principal office of the corporation:
770 Oak Street, Brockton, MA 02301
g. The street address where the records of the corporation required to be kept in the commonwealth are located is:
770 Oak Street, Brockton, MA 02301, which is
(number, street, city or town, state, zip code)
x its principal office;
o an office of its transfer agent;
o an office of its secretary/assistant secretary;
o its registered office.
Signed this 1st day of March, 2016 by the incorporator(s):
Signature: |
/s/ William P. Mayer |
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Name: |
William P. Mayer, Esq. |
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Address: |
53 State Street, Boston, Massachusetts 02109 |
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APPENDIX A
TO THE
ARTICLES OF ORGANIZATION OF
HARBORONE BANCORP, INC.
ARTICLE IV
CAPITAL STOCK
Section 4.1. Common Stock . Except as provided by law or in this ARTICLE IV (or in any Articles of Amendment), holders of the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote on all matters for each share held by such holder. Shareholders shall not be permitted to cumulate their votes for election of directors.
Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and of sinking fund, retirement fund or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends, but only when and as declared by the Board of Directors.
In the event of any liquidation, dissolution or winding up of the Corporation, after there shall have been paid to or set aside for the holders of any class having preferences over the common stock in the event of liquidation, dissolution or winding up of the full preferential amounts of which they are respectively entitled, the holders of the common stock, and of any class or series of stock entitled to participate therewith, in whole or in part, as to distribution of assets, shall be entitled, after payment or provision for payment of all debts and liabilities of the Corporation, to receive the remaining assets of the Corporation available for distribution, in cash or in kind, in proportion to their holdings.
Each share of common stock shall have the same relative rights as, and be identical in all respects with, all the other shares of common stock.
Section 4.2. Preferred Stock . Subject to any limitations prescribed by law, the Board of Directors of the Corporation is authorized, by vote or votes from time to time adopted, to provide for the issuance of one or more classes of preferred stock, which shall be separately identified. The Board of Directors shall have the authority to divide any authorized class of preferred stock of the Corporation into one or more series, to establish or change from time to time the number of shares to be included in each such series, and to fix and state the voting powers, designations, preferences and relative, participating, optional or other special rights of the shares of any series so established and the qualifications, limitations and restrictions thereof. Each series shall be separately designated so as to distinguish the shares thereof from the shares of all other series and classes. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of one or more of the following:
(a) the distinctive serial designation and the number of shares constituting such series;
(b) the dividend rates or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date or dates, the payment date or dates for dividends, and the participating or other special rights, if any, with respect to dividends;
(c) the voting powers, full or limited, if any, of shares of such series;
(d) whether the shares of such series shall be redeemable and, if so, the price or prices at which, and the terms and conditions on which, such shares may be redeemed;
(e) the amount or amounts payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation;
(f) whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price or prices at which such shares may be redeemed or purchased through the application of such fund;
(g) whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of the Corporation, and if so convertible or exchangeable, the conversion price or prices or the rate or rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange;
(h) the price or other consideration for which the shares of such series shall be issued;
(i) whether the shares of such series that are redeemed or converted shall have the status of authorized but unissued shares of preferred stock and whether such shares may be reissued as shares of the same or any other series of stock; and
(j) such other powers, preferences, rights, qualifications, limitations and restrictions thereof as are permitted by law and as the Board of Directors of the Corporation may deem advisable.
Each share of each series of preferred stock shall have the same relative rights as and be identical in all respects with all the other shares of the same series. Subject to the authority of the Board of Directors as set forth in subsection (i) above, any shares of preferred stock shall, upon reacquisition thereof by the Corporation, be restored to the status of authorized but unissued preferred stock under this Section 4.2.
Except as specifically provided in these Articles, the holders of preferred stock or common stock shall not be entitled to any vote and shall not have any voting rights concerning the designation or issuance of any shares of preferred stock authorized by and complying with
the conditions of these Articles, and subject to the authority of the Board of Directors or any authorized committee thereof as set forth above, the right to any such vote is expressly waived by all present and future holders of the capital stock of the Corporation.
APPENDIX B
TO THE
ARTICLES OF ORGANIZATION OF
HARBORONE BANCORP, INC.
ARTICLE V
LIMITATION ON BENEFICIAL OWNERSHIP OF STOCK
Section 5.1. Applicability of Article . The provisions of this ARTICLE V shall become effective upon (i) the consummation of the reorganization of HarborOne Bank into mutual holding company form (the Reorganization) and (ii) the related minority stock offering by the Corporation (the Effective Date). All terms used in this ARTICLE V and not otherwise defined herein shall have the meanings ascribed to such terms in Section 6.1 through Section 6.10 below.
Section 5.2. Prohibitions Relating to Beneficial Ownership of Voting Stock . No Person (as defined in Section 5.7) other than the Corporation, any Subsidiary (as defined in Section 5.7) or any pension, profit-sharing, stock bonus or other compensation plan maintained by the Corporation or any Subsidiary is a member for the benefit of the employees of the Corporation or any Subsidiary, or any trust or custodial arrangement established in connection with any such plan) shall directly or indirectly acquire or hold the beneficial ownership of more than ten percent (10%) of the issued and outstanding shares of Voting Stock (as defined in Section 5.7) of the Corporation. Any Person so prohibited who directly or indirectly acquires or holds the beneficial ownership of more than ten percent (10%) of the issued and outstanding shares of Voting Stock in violation of this Section 5.2 shall be subject to the provisions of Section 5.3 and Section 5.4. The Corporation is authorized to refuse to recognize a transfer or attempted transfer of any shares of Voting Stock to any Person who beneficially owns, or who the Corporation believes would become by virtue of such transfer the beneficial owner of, more than 10% of shares of the Voting Stock.
Section 5.3. Excess Shares . If, notwithstanding the foregoing prohibition, a Person subject to the foregoing prohibition shall voluntarily or involuntarily become or attempt to become the purported beneficial owner (the Purported Owner) of shares of Voting Stock in excess of 10% of the issued and outstanding shares of Voting Stock, (i) during the period of three years following the date of the completion of the Reorganization (the Initial Period), the number of shares in excess of ten percent (10%) shall be deemed to be Excess Shares, and shall not be counted as shares entitled to vote, shall not be voted by any person or counted as voting shares in connection with any matter submitted to the shareholders for a vote, and shall not be counted as outstanding for purposes of determining the affirmative vote necessary to approve any matter submitted to the shareholders for a vote; or (ii) following the Initial Period, the holder of any Excess Shares shall be entitled to cast only one one-hundredth (1/100) of one vote per share for each Excess Share.
The restrictions set forth in this ARTICLE V shall be noted conspicuously on all certificates evidencing ownership of shares of Voting Stock.
Section 5.4. Powers of the Board of Directors .
(a) The Board of Directors may, to the extent permitted by law, from time to time establish, modify, amend or rescind, by By-law or otherwise, regulations and procedures not inconsistent with the express provisions of this ARTICLE V for the application, administration and implementation of the provisions of this ARTICLE V.
(b) When it appears that a particular Person has become a Purported Owner of Excess Shares in violation of Section 5.2 and Section 5.3, or of the regulations or procedures of the Board of Directors with respect to this ARTICLE V, and that the provisions of this ARTICLE V require application, interpretation or construction, then a majority of the Directors of the Corporation shall have the power and duty to interpret all of the terms and provisions of this ARTICLE V and to determine on the basis of information known to them after reasonable inquiry all facts necessary to ascertain compliance with this ARTICLE V, including, without limitation, (i) the number of shares of Voting Stock beneficially owned by any Person or Purported Owner, (ii) whether a Person or Purported Owner is an Affiliate (as defined in Section 5.7) or Associate (as defined in Section 5.7) of, or is acting in concert with, any other Person or Purported Owner, (iii) whether a Person or Purported Owner has an agreement, arrangement or understanding with any other Person or Purported Owner as to the voting or disposition of any shares of the Voting Stock, (iv) the application of any other definition or operative provision of this ARTICLE V to the given facts or (v) any other matter relating to the applicability or effect of this ARTICLE V.
The Board of Directors shall have the right to demand that any Person who is reasonably believed to be a Purported Owner of Excess Shares (or who holds of record shares of Voting Stock beneficially owned by any Person reasonably believed to be a Purported Owner in excess of such limit) supply the Corporation with information as to (x) the record owner(s) of all shares of Voting Stock beneficially owned by such Person or Purported Owner and (y) any other factual matter relating to the applicability or effect of this ARTICLE V as may reasonably be requested of such Person or Purported Owner.
Any applications, interpretations, constructions or any other determinations made by the Board of Directors pursuant to this ARTICLE V, in good faith and on the basis of such information and assistance as was then reasonably available for such purpose, shall be conclusive and binding upon the Corporation and its shareholders, and no shareholder shall have the right to challenge any such application, interpretation, construction or determination.
Section 5.5. Severability . In the event any provision (or portion thereof) of this ARTICLE V shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this ARTICLE V shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of this Corporation and its shareholders that each such remaining provision (or portion thereof) of this ARTICLE V remain, to the fullest extent permitted by law, applicable and enforceable as to all shareholders, including Purported Owners, if any, notwithstanding any such finding.
Section 5.6. Exclusions . This ARTICLE V shall not apply to (a) any offer or sale with a view towards public resale made exclusively by the Corporation to any underwriter or underwriters acting on behalf of the Corporation, or to the selling group acting on such underwriters or underwriters behalf, in connection with a public offering of the Common Stock; or (b) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction or reorganization that does not have the effect, directly or indirectly, of changing the beneficial ownership interests of the Corporations shareholders, other than pursuant to the exercise of any dissenters appraisal rights, except as a result of immaterial changes due to fractional share adjustments, which changes do not exceed, in the aggregate, one percent (1%) of the issued and outstanding shares of such class of equity or convertible securities.
Section 5.7. Definitions . For the purposes of these Articles of Organization:
(a) A Person shall include an individual, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities or any other entity.
(b) Affiliate and Associate shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, as in effect on the date of filing of these Articles.
(c) Subsidiary means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation.
(d) Voting Stock means the then-outstanding shares of stock of the Corporation entitled to vote in the election of Directors (the Voting Stock).
APPENDIX C
TO THE
ARTICLES OF ORGANIZATION OF
HARBORONE BANCORP, INC.
ARTICLE VI
ADDITIONAL PROVISIONS
Section 6.1. Corporate Governance .
The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its Directors and shareholders:
(a) Board of Directors . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by these Articles or the By-laws of the Corporation, the Directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.
(b) Shareholder Meetings . Any action to be taken by the shareholders of the Corporation may be effected at a duly called annual or special meeting of shareholders of the Corporation or by the unanimous consent in writing of all shareholders entitled to vote on the action.
(c) Special Shareholder Meetings .
(i) Subject to the rights of the holders of any class or series of preferred stock of the Corporation, special meetings of the shareholders entitled to vote may be called by the Board of Directors, the Chairman of the Board or the President.
(ii) If the Corporation shall not have a class of voting stock registered under the Securities Exchange Act of 1934, as amended (the Exchange Act), special meetings of the shareholders entitled to vote shall be called by the Secretary, or in case of the death, absence, incapacity or refusal of the Secretary, by any other officer, upon written application of the holders of at least ten percent (10%) of all the votes entitled to be cast on any issue to be considered at the proposed meeting.
(iii) If the Corporation shall have a class of voting stock registered under the Exchange Act, special meetings of the shareholders entitled to vote shall be called by the Secretary, or in case of the death, absence, incapacity or refusal of the Secretary, by any other officer, upon written application of one or more shareholders who hold at least (i) sixty-six and two-thirds percent (66 2 / 3 %) in interest of the capital stock of the Corporation entitled to vote at such meeting, or (ii) such lesser percentage, if any, (but not less than forty percent (40%)) as shall be determined to be the maximum percentage which the Corporation is permitted by applicable law to establish for the call of such meeting.
(iv) Application to a court pursuant to Section 7.03 of Chapter 156D of the Massachusetts General Laws, or successor provisions, requesting the call of a special meeting of shareholders, may be ordered if (i) on application of any shareholder of the Corporation entitled to participate in an annual meeting if an annual meeting was not held within the earlier of six months after the end of the Corporations fiscal year or 15 months after its last annual meeting; or (ii) on application of a shareholder who signed a demand for a special meeting valid under Section 7.02 of Chapter 156D of the Massachusetts General Laws, if notice of the special meeting was not given within 30 days after the date the demand was delivered to the Secretary or within such further time as the court may order under the circumstances or the special meeting was not held in accordance with the notice.
(v) At a special meeting of shareholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been stated in the written notice of the special meeting, unless otherwise provided by law.
Section 6.2. Directors .
(a) Composition . The number of Directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board of Directors. The Directors shall be divided into three classes, with the term of office of the first class to expire at the first annual meeting of shareholders, the term of office of the second class to expire at the annual meeting of shareholders one year thereafter and the term of office of the third class to expire at the annual meeting of shareholders two years thereafter. At each annual meeting of shareholders following such initial classification and election, Directors elected to succeed those Directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of shareholders after their election.
(b) Vacancies and Newly Created Directorships . Subject to the rights of the holders of any series of preferred stock the outstanding and except as otherwise required by applicable law, any and all vacancies in the Board of Directors, however occurring including, without limitation, by reason of an increase in size of the Board of Directors, or the death, resignation, disqualification or removal of a Director, shall be filled solely and exclusively by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum. A vacancy that will occur at a specific later date may be filled before the vacancy occurs but the new Director may not take office until the vacancy occurs. Directors so chosen shall hold office for a term expiring at the annual meeting of shareholders at which the term of office of the class to which they have been chosen expires. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director.
(c) Shareholder Nominations . Advance notice of shareholder nominations for the election of Directors and of business to be brought by shareholders before any meeting of the shareholders of the Corporation shall be given in the manner provided in the By-laws of the Corporation.
(d) Removal . Subject to the rights of the holders of any series of Preferred Stock then outstanding, any Director may be removed from office at any time, but only for cause and only by the affirmative vote of either (i) a majority of the directors then in office or (ii) the holders of at least a majority of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of Directors, voting together as a single class.
Section 6.3. Amendment to By-Laws .
The By-laws of the Corporation may be amended or repealed in whole or in part by the affirmative vote of the holders of at least two-thirds of the outstanding shares of each class of the capital stock at the time outstanding and entitled to vote at any annual meeting of shareholders or special meeting of shareholders; provided, however, that if the Board of Directors recommends, by the affirmative vote of at least two-thirds of the Directors then in office at a duly constituted meeting of the Board of Directors, that shareholders approve such amendment at such meeting of shareholders, such amendment shall only require the affirmative vote of a majority of the outstanding shares of each class of capital stock at the time outstanding and entitled to vote at such meeting; provided, further, that notice of the substance of the proposed amendment is stated in the notice of such meeting. The Directors may make, amend or repeal the By-laws, in whole or in part, except with respect to any provision thereof which by law, these Articles of Organization or the By-laws requires action by the shareholders. Not later than the time of giving notice of the meeting of shareholders next following the making, amending or repealing by the Directors of any By-law, notice thereof stating the substance of such change shall be given to all shareholders entitled to vote on amending the By-laws. Any By-law adopted or amended by the Directors may be amended or reinstated by the shareholders entitled to vote on amending the By-laws following the procedures outlined above.
Section 6.4. Pre-Emptive Rights .
Holders of the capital stock of the Corporation shall not be entitled to preemptive rights with respect to any shares of the capital stock of the Corporation which may be issued.
Section 6.5. Indemnification of Directors and Others .
(a) Right to Indemnification . Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise (hereinafter a Proceeding), by reason of the fact that he or she is or was (a) a Director of the Corporation, or (b) serving, at the request of the Corporation as evidenced by a resolution of the Board of Directors prior to the occurrence of the event to which the indemnification relates, as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (such persons described in (a) and (b) are sometimes hereinafter referred to as an Indemnitee), whether the basis of such Proceeding is alleged action in an official capacity as such a Director or officer of the Corporation or as such other director, officer, employee or agent or in any other capacity while serving as such a Director or officer of the Corporation or as such other director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Massachusetts Business Corporation Act (the MBCA), as the same exists or may hereafter be amended (but in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including, but not limited to, attorneys fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such Indemnitee in connection therewith and such indemnification shall continue as to an Indemnitee who has ceased to be such a director, officer, employee or agent and shall inure to the benefit of the Indemnitees heirs, executors and administrators; provided, however, that, except as provided in Section 6.5(c) with respect to Proceedings to enforce rights to indemnification, the Corporation shall indemnify any such Indemnitee in connection with a Proceeding (or part thereof) initiated by such Indemnitee only if such Proceeding (or part thereof) was authorized or ratified by the Board of Directors of the Corporation. The right to indemnification conferred in this Section 6.5 shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any Proceeding in advance of its final disposition (hereinafter an Advancement of Expenses); provided, however, that, if the MBCA so requires, an Advancement of Expenses incurred by an Indemnitee shall be made only upon delivery to the Corporation of an undertaking made in accordance with the MBCA (hereinafter an Undertaking), by or on behalf of such Indemnitee, which shall include, without limitation, an undertaking to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a Final Adjudication) that such Indemnitee is not entitled to be indemnified for such expenses under this Section 6.5 or otherwise.
(b) Indemnification of Employees and Agents of the Corporation . The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and to an Advancement of Expenses, to any officer, employee or agent of the Corporation to the fullest extent of the provisions of this Section 6.5.
(c) Right of Indemnitee to Bring Suit . If a claim under this Section 6.5 is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, except in the case of a claim for an Advancement of Expenses, in which case the applicable period shall be 20 days, the Indemnitee may at any time hereafter bring suit against the Corporation to recover the unpaid amount of the claim. If the Indemnitee is successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the Indemnitee shall also be entitled to be paid the expense of prosecuting or defending such suit. In any suit brought by the Indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right to an Advancement of Expenses) it shall be a defense that the Indemnitee has not met the applicable standard of conduct set forth in the MBCA. In addition, in any suit by the Corporation to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the Corporation shall be entitled to recover such expenses upon a Final Adjudication that the Indemnitee has not met the applicable standard of conduct set forth
in the MBCA. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or Shareholders) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in the MBCA, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or Shareholders) that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to enforce a right to indemnification or to an Advancement of Expenses hereunder, or by the Corporation to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such Advancement of Expenses, under this Section 6.5 or otherwise shall be on the Corporation.
(d) Non-Exclusivity of Rights . The rights to indemnification and to Advancement of Expenses conferred in this Section 6.5 shall not be exclusive of any other right which any person may have or hereafter acquire under these By-laws, the Articles of Organization or any statute, agreement, vote of Shareholders or of disinterested Directors or otherwise.
(e) Insurance . The Corporation may maintain insurance, at its expense, to protect itself and any Director, officer, employee or agent of the Corporation or any director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the MBCA. The Corporations obligation to provide indemnification under this Section 6.5 shall be offset to the extent of any other source of indemnification or any otherwise applicable insurance coverage under a policy maintained by the Corporation or any other person.
(f) Amendments . Without the consent of a person entitled to the indemnification and other rights provided in this Section 6.5 (unless otherwise required by the MBCA), no amendment modifying or terminating such rights shall adversely affect such persons rights under this Section 6.5 with respect to the period prior to such amendment.
(g) Savings Clause . If this Section 6.5 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any liabilities and expenses with respect to any proceeding to the fullest extent permitted by any applicable portion of this Section 6.5 that shall not have been invalidated and to the fullest extent permitted by applicable law.
(h) Compliance with Law . Notwithstanding anything herein to the contrary, any indemnification hereunder shall be provided only to the extent permitted by 12 U.S.C. Section 1828(k) and the regulations issued thereunder.
Section 6.6. Limitation of Liability of Directors .
(a) Limitation of Liability . No Director of the Corporation shall be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a Director notwithstanding any provision of law imposing such liability; provided, however, that this Section 6.6 shall not eliminate or limit any liability of a Director (a) for any breach of the Directors duty of loyalty to the Corporation or its shareholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) for improper distributions under Section 6.40 of Chapter 156D of the Massachusetts General Laws or (d) with respect to any transaction from which the Director derived an improper personal benefit.
(b) Amendment . No amendment or repeal of this Section 6.6 shall adversely affect the rights and protection afforded to a Director of this Corporation under this Section 6.6 for acts or omissions occurring prior to such amendment or repeal. If the Massachusetts General Laws is hereafter amended to further eliminate or limit the personal liability of Directors or to authorize corporate action to further eliminate or limit such liability, then the liability of the Directors of this Corporation shall be eliminated or limited to the fullest extent permitted by the Massachusetts General Laws as so amended.
Section 6.7. Transactions with Interested Persons .
(a) Transactions with Interested Persons not Void or Voidable . Unless entered into in bad faith, no contract or transaction by the Corporation shall be void, voidable or in any way affected by reason of the fact that it is with an Interested Person. For the purposes of this Section 6.7, Interested Person means any person or organization in any way interested in the Corporation whether as a director, officer, shareholder, employee or otherwise, and any other entity in which any such person or organization of the Corporation is in any way interested.
(b) Interested Persons not Liable . Unless such contract or transaction was entered into in bad faith, no Interested Person, because of such interest, shall be liable to the Corporation or to any other person or organization for any loss or expense incurred by reason of such contract or transaction or shall be accountable for any gain or profit realized from such contract or transaction.
(c) Interested Person Necessary for Quorum or Vote . The provisions of this Section 6.7 shall be operative notwithstanding the fact that the presence of an Interested Person was necessary to constitute a quorum at a meeting of Directors or shareholders of the Corporation at which such contract or transaction was authorized or that the vote of an Interested Person was necessary for the authorization of such contract or transaction.
Section 6.8. Acting As a Partner.
The Corporation may be a partner in any business enterprise which it would have power to conduct by itself.
Section 6.9. Shareholders Meetings .
Meetings of shareholders may be held at such place in the Commonwealth of Massachusetts or, if permitted by applicable law, elsewhere in the United States as the Board of Directors, the Chairman of the Board or the President may determine.
Section 6.10. Amendment to Articles of Organization .
These Articles may be amended at a duly constituted meeting of shareholders called expressly for such purpose, by the affirmative vote of at least two-thirds of the total votes eligible to be cast by shareholders on such amendment, voting together as a single class; provided, however, that if the Board of Directors recommends, by the affirmative vote of at least two-thirds of the Directors then in office at a duly constituted meeting of the Board of Directors, that shareholders approve such amendment at such meeting of shareholders, such amendment shall only require the affirmative vote of a majority of the total votes eligible to be cast by shareholders on such amendment, voting together as a single class.
TABLE OF CONTENTS
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Page |
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ARTICLE I Articles of Organization |
3 |
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Section 1.01 |
Articles of Organization |
3 |
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ARTICLE II Shareholders |
3 |
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Section 2.01 |
Annual Meetings |
3 |
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Section 2.02 |
Special Meetings |
3 |
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Section 2.03 |
Place of Meetings |
4 |
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Section 2.04 |
Notice of Meetings |
4 |
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Section 2.05 |
Notice of Shareholder Business and Nominations |
5 |
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Section 2.06 |
Rescheduling of Meetings; Adjournments |
9 |
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Section 2.07 |
Quorum |
9 |
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Section 2.08 |
Voting and Proxies |
10 |
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Section 2.09 |
Action at Meeting |
11 |
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Section 2.10 |
Action without Meeting |
11 |
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Section 2.11 |
Form of Shareholder Action |
11 |
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Section 2.12 |
Shareholders List for Meeting |
12 |
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Section 2.13 |
Conduct of Business |
12 |
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Section 2.14 |
Voting Procedures and Inspectors of Elections |
12 |
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ARTICLE III Board of Directors |
13 |
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Section 3.01 |
Powers |
13 |
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Section 3.02 |
Enumeration, Election and Term of Office |
13 |
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Section 3.03 |
Vacancies |
13 |
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Section 3.04 |
Regular Meetings |
14 |
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Section 3.05 |
Special Meetings |
14 |
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Section 3.06 |
Notice |
14 |
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Section 3.07 |
Quorum, Action at a Meeting |
14 |
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Section 3.08 |
Action Without a Meeting |
15 |
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Section 3.09 |
Manner of Participation |
15 |
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Section 3.10 |
Resignations and Removals |
15 |
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Section 3.11 |
Presumption of Assent |
15 |
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Section 3.12 |
Committees |
15 |
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Section 3.13 |
Powers of Executive Committee |
16 |
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ARTICLE IV Officers |
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16 |
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Section 4.01 |
Enumeration |
16 |
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Section 4.02 |
Election |
16 |
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Section 4.03 |
Qualification |
16 |
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Section 4.04 |
Resignation and Removal |
16 |
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Section 4.05 |
Chairman of the Board |
17 |
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Section 4.06 |
Chief Executive Officer |
17 |
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Section 4.07 |
President and Vice Presidents |
17 |
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Section 4.08 |
Treasurer and Assistant Treasurers |
17 |
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Section 4.09 |
Secretary and Assistant Secretaries |
17 |
Section 4.10 |
Other Powers and Duties |
17 |
Section 4.11 |
Absence, Disability and Vacancies |
17 |
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ARTICLE V Capital Stock |
18 |
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Section 5.01 |
Authorized Capital Stock |
18 |
Section 5.02 |
Certificate of Stock |
18 |
Section 5.03 |
Transfer of Shares of Stock |
18 |
Section 5.04 |
Transfer Agents and Registrars; Further Regulations |
19 |
Section 5.05 |
Loss of Certificates |
19 |
Section 5.06 |
Record Date |
19 |
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ARTICLE VI Miscellaneous Provisions |
19 |
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Section 6.01 |
Fiscal Year |
19 |
Section 6.02 |
Seal |
20 |
Section 6.03 |
Execution of Instruments |
20 |
Section 6.04 |
Voting of Securities |
20 |
Section 6.05 |
Resident Agent |
20 |
Section 6.06 |
Corporation Records |
20 |
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ARTICLE VII Amendments |
20 |
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ARTICLE VIII Control Share Acquisition Statute |
21 |
ARTICLE I
ARTICLES OF ORGANIZATION
Section 1.01 Articles of Organization . The name and purposes of the Corporation shall be as set forth in the Articles of Organization. These By-Laws, the powers of the Corporation and of its Directors and shareholders, and all matters concerning the conduct and regulation of the business of the Corporation shall be subject to such provisions in regard thereto, if any, as are set forth in the Articles of Organization. All references in these By-Laws to the Articles of Organization shall be construed to mean the Articles of Organization of the Corporation as from time to time amended.
ARTICLE II
SHAREHOLDERS
Section 2.01 Annual Meetings . The annual meeting of shareholders shall be held each year on the date and at the time and place within the United States as shall be fixed by the Board of Directors, the Chairman of the Board or the President. The purposes for which the annual meeting is to be held, in addition to those prescribed by law, by the Articles of Organization or by these By-Laws, may be specified by the Board of Directors, the Chairman of the Board or the President and shall be specified in the notice of the meeting. In the event the time for an annual meeting is not fixed in accordance with these By-Laws to be held within 13 months after the last annual meeting was held, the Board of Directors may designate a special meeting held thereafter as a special meeting in lieu of the annual meeting, and such special meeting shall have, for purposes of these By-Laws or otherwise, all the force and effect of an annual meeting. Any and all references hereafter in these By-Laws to an annual meeting or annual meetings shall be deemed to refer also to any special meeting(s) in lieu thereof.
Section 2.02 Special Meetings .
(a) Subject to the rights of the holders of any class or series of preferred stock of the Corporation, special meetings of the shareholders entitled to vote may be called by the Board of Directors, the Chairman of the Board or the President.
(b) If the Corporation shall not have a class of voting stock registered under the Securities Exchange Act of 1934, as amended (the Exchange Act), special meetings of the shareholders entitled to vote shall be called by the Secretary, or in case of the death, absence, incapacity or refusal of the Secretary, by any other officer, upon written application of the holders of at least 10% of all the votes entitled to be cast on any issue to be considered at the proposed meeting.
(c) If the Corporation shall have a class of voting stock registered under the Exchange Act, special meetings of the shareholders entitled to vote shall be called by the Secretary, or in case of the death, absence, incapacity or refusal of the Secretary, by any other officer, upon written application of the holders of one or more shareholders who hold at least (i) 66 2 / 3 % in interest of the capital stock of the Corporation entitled to vote at
such meeting, or (ii) such lesser percentage, if any, (but not less than 40%) as shall be determined to be the maximum percentage which the Corporation is permitted by applicable law to establish for the call of such meeting.
(d) Only business within the purpose or purposes described in the meeting notice may be conducted at a special meeting, unless otherwise provided by law.
Section 2.03 Place of Meetings . All meetings of the shareholders shall be held at the principal office of the Corporation in Massachusetts, unless a different place within Massachusetts or, if permitted by the Articles of Organization, elsewhere within the United States as is designated by the President or by a majority of the Directors acting by resolution or by written instrument or instruments signed by them. Any adjourned session of any meeting of the shareholders shall be held at such place within Massachusetts or, if permitted by the Articles of Organization, elsewhere within the United States as is designated in the vote of adjournment.
Section 2.04 Notice of Meetings . A written notice of the place, date and hour of all meetings of shareholders (other than adjournments governed by Section 2.06 of this ARTICLE II) stating the purposes of the meeting shall be given at least seven days and not more than 60 days before the meeting to each shareholder entitled to vote thereat and to each shareholder who is otherwise entitled by law, the Articles of Organization or these By-Laws to such notice. Notice may be given to a shareholder by any means permitted under applicable law, including, without limitation, by leaving such notice with him or her or at his or her residence or usual place of business, or by mailing it, postage prepaid, and addressed to such shareholder at his or her address as it appears in the records of the Corporation. Such notice shall be given by the Secretary, or in case of the death, absence, incapacity, or refusal of the Secretary, by any other officer or by a person designated either by the Secretary, by the person or persons calling the meeting or by the Board of Directors. If notice is given by mail, such notice shall be deemed given when dispatched. If notice is not given by mail and is given by leaving such notice at the shareholders residence or usual place of business, it shall be deemed given when so left. Without limiting the generality of the foregoing, notice may be given to a shareholder by electronic transmission in a manner specified by the shareholder, including, without limitation, by facsimile transmission, electronic mail or posting on an electronic network. Notwithstanding the foregoing, in case of any special meeting called upon the written demands of shareholders, such meeting shall be scheduled not less than 60 nor more than 90 days after the date on which the Secretary has received sufficient demands to require that such meeting be called and written notice thereof shall be given in accordance with this Section 2.04 within 30 days of receipt of such demands.
Notice of an annual or special meeting of shareholders need not be given to a shareholder if a written waiver of notice is signed before or after such meeting by such shareholder or such shareholders authorized attorney, if communication with such shareholder is unlawful, or if such shareholder attends such meeting unless (i) the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting or (ii) the shareholder objects to the consideration of a particular matter at the meeting as not within the purpose or purposes described in the meeting notice when the matter is presented. Neither the business to be transacted at, nor the purpose of, any annual meeting or special meeting of shareholders need be specified in any written waiver of notice.
Section 2.05 Notice of Shareholder Business and Nominations .
(a) Annual Meetings of Shareholders .
(i) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of other business to be considered by the shareholders may be made at an annual meeting of shareholders (A) by or at the direction of the Board of Directors or (B) by any shareholder of the Corporation who was a shareholder of record at the time of giving of notice provided for in this By-Law, who is entitled to vote at the meeting, who is present at the meeting and who complies with the notice procedures set forth in this By-Law as to such nomination or business. For the avoidance of doubt, for a shareholder to bring nominations or business before an annual meeting of shareholders (other than matters properly brought under Rule 14a-8 (or any successor rule) under the Exchange Act), such shareholder must comply with the procedures set forth in this Section 2.05 and this shall be the exclusive means for a shareholder to bring such nominations or business properly before an annual meeting of shareholders. In addition to the other requirements set forth in this By-Law, for any proposal of business to be considered at an annual meeting, such proposal must be a proper subject for action by shareholders of the Corporation under Massachusetts law.
(ii) For nominations or other business to be properly brought before an annual meeting of shareholders by a shareholder pursuant to clause (B) of paragraph (a)(i) of this By-Law, in addition to other applicable requirements, the shareholder must (1) have given Timely Notice (as defined below) thereof in writing to the Secretary of the Corporation and (2) have provided any updates or supplements to such notice at the times and in the forms required by this By-Law. To be timely, a shareholders notice under this paragraph (a)(ii) shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 90 th day nor earlier than the close of business on the 120 th day prior to the first anniversary of the preceding years annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days before or delayed by more than 60 days after such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 120 th day prior to such annual meeting and not later than the close of business on the later of the 90 th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made (such notice within such time periods shall be referred to as Timely Notice). Such shareholders Timely Notice shall set forth:
(A) as to each person whom the shareholder proposes to nominate for election or reelection as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including
such persons written consent to being named in the proxy statement as a nominee and to serving as a Director if elected);
(B) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, any material interest in such business of such shareholder and the beneficial owner(s), if any, on whose behalf the proposal is made, and the names and addresses of other shareholders (including beneficial owners) known by the shareholder proposing such business to support such proposal, and the class and number of shares of the Corporations capital stock beneficially owned by such other shareholder(s) or other beneficial owner(s); and
(C) as to the shareholder giving the notice and the beneficial owner(s), if any, on whose behalf the nomination or proposal is made: (i) the name and address of such shareholder, as they appear on the Corporations books, and of such beneficial owner(s); (ii) (a) the class or series and number of shares of the Corporation which are, directly or indirectly, owned beneficially and of record by such shareholder and any such beneficial owner(s), (b) any derivative, swap or other transaction or series of transactions engaged in, directly or indirectly, by such shareholder and/or any such beneficial owner(s) the purpose or effect of which is to give such shareholder and/or any such beneficial owner(s) economic benefit and/or risk similar to ownership of shares of any class or series of the Corporation, in whole or in part, including due to the fact that such derivative, swap or other transaction provides, directly or indirectly, the opportunity to profit or avoid a loss from any increase or decrease in the value of shares of any class or series of the Corporation (Synthetic Equity Interests) and such disclosure shall identify the counterparty to each such Synthetic Equity Interest and shall include, for each such Synthetic Equity Interest, whether or not (x) such Synthetic Equity Interest conveys any voting rights, directly or indirectly, in such shares to such shareholder and/or any such beneficial owner(s), (y) such Synthetic Equity Interest is required to be, or is capable of being, settled through delivery of such shares and (z) such shareholder, any such beneficial owner(s) and/or, to their knowledge, the counterparty to such Synthetic Equity Interest has entered into other transactions that hedge or mitigate the economic effect of such Synthetic Equity Interest, (c) any proxy (other than a revocable proxy given in response to a public proxy solicitation made pursuant to, and in accordance with, the Exchange Act), agreement, arrangement, understanding or relationship pursuant to which such shareholder and/or any such beneficial owner(s) has or shares a right to vote any shares of any class or series of the Corporation, (d) any agreement, arrangement, understanding or relationship (which disclosure shall identify the counterparty thereto), including any hedge, repurchase or similar so-called stock borrowing agreement or arrangement, engaged in, directly or
indirectly, by such shareholder and/or any such beneficial owner(s), the purpose or effect of which is to mitigate loss to, reduce the economic risk of shares of any class or series of the Corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such shareholder and/or any such beneficial owner(s) with respect to the shares of any class or series of the Corporation, or which provides, directly or indirectly, the opportunity to profit from any decrease in the value of the shares of any class or series of the Corporation (Short Interests), (e) any rights to dividends or other distributions on the shares of any class or series of the Corporation owned beneficially by such shareholder and/or any such beneficial owner(s) that are separated or separable from the underlying shares of the Corporation, (f) any performance-related fees (other than an asset based fee) that such shareholder and/or any such beneficial owner(s) is entitled to based on any increase or decrease in the value of shares of any class or series of the Corporation, any Synthetic Equity Interests or Short Interests, if any (the disclosures to be made pursuant to the foregoing clauses (a) through (f) are referred to as Material Ownership Interests); and (iii) a description of all arrangements or understanding among such shareholder and/or any such beneficial owner(s) and each proposed nominee and any other person or persons (including their names) pursuant to which the nominations are to be made.
(iii) A shareholder providing Timely Notice of nominations or business proposed to be brought before an annual meeting of shareholders shall further update and supplement such notice, if necessary, so that the information (including, without limitation, the Material Ownership Interests information) provided or required to be provided in such notice pursuant to this By-Law shall be true and correct as of the record date for the meeting and as of the date that is ten business days prior to such annual meeting, and such update and supplement shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the fifth business day after the record date for the meeting (in the case of the update and supplement required to be made as of the record date), and not later than the close of business on the 8 th business day prior to the date for the meeting (in the case of the update and supplement required to be made as of ten business days prior to the meeting).
(iv) Notwithstanding anything in the second sentence of paragraph (a)(ii) of this By-Law to the contrary, in the event that the number of Directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for Director or specifying the size of the increased Board of Directors made by the Corporation at least 85 days prior to the first anniversary of the preceding years annual meeting, a shareholders notice required by this paragraph (a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation.
(b) General .
(i) Only such persons who are nominated in accordance with the provisions of this By-Law shall be eligible for election and to serve as Directors and only such business shall be conducted at an annual meeting of shareholders as shall have been brought before the meeting in accordance with the provisions of this By-Law. The Board of Directors or a designated committee thereof shall have the power to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the provisions of this By-Law. If neither the Board of Directors nor such designated committee makes a determination as to whether any shareholder proposal or nomination was made in accordance with the provisions of this By-Law, the presiding officer of the annual meeting shall have the power and duty to determine whether the shareholder proposal or nomination was made in accordance with the provisions of this By-Law. If the Board of Directors or a designated committee thereof or the presiding officer, as applicable, determines that any shareholder proposal or nomination was not made in accordance with the provisions of this By-Law, such proposal or nomination shall be disregarded and shall not be presented for action at the annual meeting.
(ii) Except as otherwise required by law, nothing contained in this Section 2.05 shall obligate the Corporation or the Board of Directors to include in any proxy statement or other shareholder communication distributed on behalf of the Corporation or the Board of Directors information with respect to any nominee for Director submitted by a shareholder.
(iii) Notwithstanding the foregoing provisions of this Section 2.05, if the shareholder (or a qualified representative of the shareholder) does not appear at the annual meeting to present a nomination or any business, such nomination or business shall be disregarded, notwithstanding the proxies in respect of such vote may have been received by the Corporation. For purposes of this paragraph (iii), to be considered a qualified representative of the shareholder, a person must be authorized by a written instrument executed by such shareholder or an electronic transmission delivered by such shareholder to act for such shareholder as proxy at the meeting of shareholders and such person must produce such written instrument or electronic transmission, or a reliable reproduction of the written instrument or electronic transmission, at the meeting of shareholders.
(iv) For purposes of this By-Law, public announcement shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
(v) Notwithstanding the foregoing provisions of this By-Law, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth
in this By-Law. Nothing in this By-Law shall be deemed to affect any rights of (i) shareholders to have proposals included in the Corporations proxy statement pursuant to Rule 14a-8 (or any successor rule) under the Exchange Act and, to the extent required by such rule, have such proposals considered and voted on at an annual meeting of shareholders or (ii) the holders of any series of undesignated preferred stock to elect Directors under specified circumstances.
Section 2.06 Rescheduling of Meetings; Adjournments . Notwithstanding any other provision in these By-Laws, the Board of Directors may change the date, time and location of any annual or special meeting of the shareholders (other than a special meeting called upon the written application of shareholders (a Meeting Requested by Shareholders)), and a record date with respect thereto, prior to the time for such meeting, including, without limitation, by postponing or deferring the date of any such annual or special meeting (other than a Meeting Requested by Shareholders) previously called or by canceling any special meeting previously called (other than a Meeting Requested by Shareholders). This action may be taken regardless of whether any notice or public disclosure with respect to any such meeting or record date has been sent or made pursuant to Section 2.04 of this ARTICLE II hereof or otherwise. In no event shall the public announcement of an adjournment, postponement or rescheduling of any previously scheduled annual meeting of shareholders commence a new time period for the giving of a shareholders notice under Section 2.05 of ARTICLE II of these By-Laws.
When any meeting is convened, the presiding officer may adjourn the meeting if (a) no quorum is present for the transaction of business, (b) the Board of Directors determines that adjournment is necessary or appropriate to enable the shareholders to consider fully information which the Board of Directors determines has not been made sufficiently or timely available to shareholders, or (c) the Board of Directors determines in its sole discretion that adjournment is otherwise in the best interests of the Corporation. When any annual meeting or special meeting of shareholders is adjourned to another date, time or place, notice need not be given of the adjourned meeting other than an announcement at the meeting at which the adjournment is taken of the date, time and place to which the meeting is adjourned; provided, however, that if a new record date for the adjourned meeting is fixed, notice of the adjourned meeting shall be given under this ARTICLE II to persons who are shareholders as of the new record date.
A meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present. Any business which could have been transacted at any meeting of the shareholders as originally called may be transacted at any adjournment thereof.
Section 2.07 Quorum .
(a) Unless otherwise provided by law, or in the Articles of Organization, these By-Laws or a resolution of the Directors requiring satisfaction of a greater quorum requirement for any voting group, a majority of the votes entitled to be cast on the matter by a voting group constitutes a quorum of that voting group for action on that matter. As used in these By-Laws, a voting group includes all shares of one or more classes or series that, under the Articles of Organization or the Massachusetts Business Corporation Act, as in effect from time to time (or any successor statute) (the MBCA), are entitled
to vote and to be counted together collectively on a matter at a meeting of shareholders. Shares owned by the Corporation in a fiduciary capacity shall be deemed outstanding for quorum purposes.
(b) Both abstentions and broker non-votes are to be counted as present for the purpose of determining the existence of a quorum for the transaction of business at any meeting. A share once represented for any purpose at the meeting is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless (i) the shareholder attends solely to object to lack of notice, defective notice or the conduct of the meeting on other grounds and does not vote the shares or otherwise consent that they are to be deemed present, or (ii) in the case of adjournment, a new record date is or shall be set for the adjournment meeting.
Section 2.08 Voting and Proxies . Both abstentions and broker non-votes are to be counted as present for the purpose of determining the existence of a quorum for the transaction of business at any meeting. However, for purposes of determining the number of shares voting on a particular proposal, abstentions and broker non-votes are not to be counted as votes cast or shares voting. Unless otherwise provided by law or by the Articles of Organization, each shareholder shall have, with respect to each matter voted upon at a meeting of shareholders, one vote for each share of stock entitled to vote owned by such shareholder of record according to the books of the Corporation. A shareholder may vote his or her shares either in person or may appoint a proxy to vote or otherwise act for him or her by signing an appointment form, either personally or by his or her attorney-in-fact. An appointment of a proxy is effective when received by the Secretary or other officer or agent authorized to tabulate votes. Unless otherwise provided in the appointment form, an appointment is valid for a period of 11 months from the date the shareholder signed the form or, if undated, from the date of its receipt by such officer or agent. Any shareholders proxy may be transmitted by facsimile or other electronic means in a manner complying with applicable law. Except as otherwise permitted by law or limited therein, proxies shall entitle the persons authorized thereby to vote at any adjournment of such meeting but shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by one of them if the person signing appears to be acting on behalf of all the co-owners unless at or prior to exercise of the proxy, the Corporation receives a specific written notice to the contrary from any one of them. Subject to the provisions of Section 7.24 of the MBCA (or any successor provision thereof) and to any express limitation on the proxys authority provided in the appointment form, the Corporation is entitled to accept the proxys vote or other action as that of the shareholder making the appointment. A proxy purporting to be executed by or on behalf of a shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger.
Unless otherwise provided in the Articles of Organization, if authorized by the Board of Directors, subject to such guidelines and procedures as the Board of Directors may adopt, shareholders and proxyholders not physically present at a meeting of shareholders may, by means of remote communications: (i) participate in a meeting of shareholders; and (ii) be deemed present in person and vote at a meeting of shareholders, provided that: (a) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a shareholder or
proxyholder; (b) the Corporation shall implement reasonable measures to provide such shareholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the shareholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings; and (c) if any shareholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation.
Section 2.09 Action at Meeting . If a quorum of a voting group exists, favorable action on a matter, other than election of Directors, is taken by a voting group if the votes cast within the group favoring the action exceed the votes cast opposing the action, unless a greater number of affirmative votes is required by the MBCA, the Articles of Organization, these By-Laws or a resolution of the Board of Directors requiring receipt of a greater affirmative vote of the shareholders, including one or more separate voting groups. Unless otherwise provided in the Articles of Organization or these By-Laws, Directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. No ballot shall be required for any election unless requested by a shareholder present or represented at the meeting and entitled to vote in the election. Absent special circumstances, shares of the Corporations stock are not entitled to vote if they are owned, directly or indirectly, by the Corporation or by another entity of which the Corporation owns, directly or indirectly, a majority of the voting interests. Notwithstanding the preceding sentence, however, the Corporation may vote any share of stock held by it, directly or indirectly, in a fiduciary capacity.
Section 2.10 Action without Meeting . Any action required or permitted to be taken at any annual or special meeting of Shareholders (including any actions or powers reserved to the Shareholders under these By-Laws) may be taken without a meeting provided that all Shareholders entitled to vote on the matter consent to the action in writing and the written consents describe the action taken, are signed by all such Shareholders, bear the date of the signatures of such Shareholders, and are delivered to the Corporation for inclusion with the records of the meetings of Shareholders within 60 days of the earliest dated consent required to be delivered under this Section 2.10. Such consents shall be treated for all purposes as a vote at a meeting.
Section 2.11 Form of Shareholder Action .
(a) Any vote, consent, waiver, proxy appointment or other action by a shareholder or by the proxy or other agent of any shareholder shall be considered given in writing, dated and signed, if, in lieu of any other means permitted by law, it consists of an electronic transmission that is permitted under applicable law, including, without limitation, an electronic transmission that sets forth or is delivered with information from which the Corporation can determine (i) that the electronic transmission was transmitted by the shareholder, proxy or agent or by a person authorized to act for the shareholder, proxy or agent and (ii) the date on which such shareholder, proxy, agent or authorized person transmitted the electronic transmission. The date on which the electronic transmission is transmitted shall be considered to be the date on which it was signed. The electronic transmission shall be considered received by the Corporation if it has been sent to any address specified by the Corporation for the purpose or, if no address has been specified, to the principal office of the Corporation, addressed to the Secretary or other
officer or agent having custody of the records of proceedings of shareholders, or is otherwise received by the Corporation in a manner permitted by applicable law.
(b) Any copy, facsimile or other reliable reproduction of a vote, consent, waiver, proxy appointment or other action by a shareholder or by the proxy or other agent of any shareholder may be substituted or used in lieu of the original writing for any purpose for which the original writing could be used, but the copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.
Section 2.12 Shareholders List for Meeting .
(a) After fixing a record date for a meeting of shareholders, the Corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of the meeting. The list shall be arranged by voting group, and within each voting group by class or series of shares, and shall show the address of and number of shares held by each shareholder, but need not include an electronic mail address or other electronic contact information for any shareholder.
(b) The shareholders list shall be available for inspection by any shareholder, beginning two business days after notice is given of the meeting for which the list was prepared and continuing through the meeting: (1) at the Corporations principal office or at a place identified in the meeting notice in the city where the meeting will be held; or (2) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting.
(c) The Corporation shall make the shareholders list available at the meeting, and any shareholder or his or her agent or attorney is entitled to inspect the list at any time during the meeting or any adjournment.
Section 2.13 Conduct of Business . The Chairman of the Board or his or her designee, or, if there is no Chairman of the Board or such designee, then the Chief Executive Officer or his or her designee, or, if the office of President shall be vacant, then a person appointed by a majority of the Board of Directors, shall preside at any meeting of shareholders as the chairman of the meeting. In addition to his or her powers pursuant to Section 2.05(b)(i), the person presiding at any meeting of shareholders shall determine the order of business and the procedures at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order.
Section 2.14 Voting Procedures and Inspectors of Elections . In advance of any meeting of shareholders, the Board of Directors may appoint one or more inspectors to act at an annual or special meeting of shareholders and make a written report thereon. Any inspector may, but need not, be an officer, employee or agent of the Corporation. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector(s) shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspector(s) may appoint or retain other persons or entities to assist the inspector(s) in the performance of their duties. The presiding officer may review all determinations made by the inspector(s), and in so doing the presiding officer shall be entitled to exercise his or her sole judgment and discretion and he or she shall not be bound by any determinations made by the inspector(s). All determinations by the inspector(s) and, if applicable, presiding officer, shall be subject to further review by the Board of Directors and any court of competent jurisdiction.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01 Powers . The business of the Corporation shall be managed by a Board of Directors who shall have and may exercise (or grant authority to be exercised) all the powers of the Corporation except as otherwise reserved to the shareholders by law, by the Articles of Organization or by these By-Laws. Without limiting the generality of the foregoing, the Board of Directors shall have the power, unless otherwise provided by law, to purchase and to lease, pledge, mortgage and sell all property of the Corporation (including to issue or sell the authorized but unissued stock of the Corporation and to determine, subject to applicable requirements of law, the consideration for which stock is to be issued and the manner of allocating such consideration between capital and surplus) and to make such contracts and agreements as they deem advantageous, to fix the price to be paid for or in connection with any property or rights purchased, sold, or otherwise dealt with by the Corporation, to borrow money, issue bonds, notes and other obligations of the Corporation, and to secure payment thereof by mortgage or pledge of all or any part of the property of the Corporation. The Board of Directors may determine the compensation of Directors. The Board of Directors or such officer or committee as the Board of Directors may designate, may determine the compensation and duties, in addition to those prescribed by these By-Laws, of all officers, agents and employees of the Corporation.
Section 3.02 Enumeration, Election and Term of Office . The number of Directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board of Directors. The Directors shall hold office in the manner provided in the Articles of Organization. Each Director shall have such qualifications as are required by applicable law.
Section 3.03 Vacancies . The Board of Directors may act notwithstanding a vacancy or vacancies in its membership. Subject to the rights of the holders of any series of preferred stock the outstanding and except as otherwise required by applicable law, any and all vacancies in the Board of Directors, however occurring including, without limitation, by reason of an increase in size of the Board of Directors, or the death, resignation, disqualification or removal of a Director, shall be filled solely and exclusively by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum. A vacancy that will occur at a specific later date may be filled before the vacancy occurs but the new Director may not take office until the vacancy occurs.
Section 3.04 Regular Meetings . Regular meetings of the Board of Directors may be held at such times and places within or without the Commonwealth of Massachusetts as the Board of Directors may fix from time to time and, when so fixed, no notice thereof need by given, provided that any Director who is absent when such times and places are fixed shall be given notice of the fixing of such times and places. The first meeting of the Board of Directors following the annual meeting of the shareholders may be held without notice immediately after and at the same place as the annual meeting of the shareholders or the special meeting held in lieu thereof. If in any year a meeting of the Board of Directors is not held at such time and place, any action to be taken may be taken at any later meeting of the Board of Directors with the same force and effect as if held or transacted at such meeting.
Section 3.05 Special Meetings . Special meetings of the Directors may be held at any time and at any place designated in the call of the meeting (which may be oral or in writing), when called by the President or the Treasurer or by one or more Directors, reasonable notice thereof being given to each Director by the Secretary or an Assistant Secretary, or by the officer or one of the Directors calling the meeting.
Section 3.06 Notice . Notice of the time, date and place of all special meetings of the Board of Directors shall be given to each Director by the Secretary or Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the officer or one of the Directors calling the meeting. Notice shall be given to each Director in person or by telephone, voice mail, telegraph, teletype or other electronic means or by facsimile sent to his or her business or home address, at least 24 hours in advance of the meeting, or by written notice mailed to his or her business or home address at least 48 hours in advance of the meeting. Written notice, other than notice by electronic, telephone or similar means, is effective upon deposit in the United States mail, postage prepaid, and addressed to the Directors address shown in the Corporations records. Notice need not be given to any Director who waives notice. A Director may waive any notice before or after the date and time of the meeting. The waiver shall be in writing, signed by the Director entitled to the notice, or in the form of an electronic transmission by the Director to the Corporation, and filed with the minutes or corporate records. A Directors attendance at or participation in a meeting waives any required notice to him or her of the meeting unless the Director at the beginning of the meeting, or promptly upon his or her arrival, objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.
Section 3.07 Quorum, Action at a Meeting . At any meeting of the Directors, a quorum for any election or for the consideration of any question shall consist of a majority of the Directors then in office, but a smaller number may constitute a quorum pursuant to Section 8.55 or Section 8.56 of the MBCA in making a determination that indemnification or advancement of expenses is permissible in a specific proceeding. Whether or not a quorum is present any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, and the meeting may be held as adjourned without further notice. When a quorum is present at any meeting, the votes of a majority of the Directors present shall be requisite and sufficient for appointment to any office and shall decide any question brought before such meeting, except in any case where a larger vote is required by law, by the Articles of Organization or by these By-Laws.
Section 3.08 Action Without a Meeting . Unless the Articles of Organization otherwise provide, any action required or permitted to be taken at any meeting of the Directors may be taken without a meeting if a written consent thereto is signed by all the Directors, or delivered to the Corporation by means of electronic transmission, and such written consent is filed with the records of the meetings of the Directors. Action taken under this Section 3.08 is effective when the last Director signs or delivers the consent, unless the consent specifies a different effective date. Such consent shall be treated as a vote at a meeting for all purposes. Such consents may be executed in one or more counterparts and not every Director need sign the same counterpart.
Section 3.09 Manner of Participation . Members of the Board of Directors or any committee designated thereby may participate in a meeting of such Board or committee by, or conduct the meeting through the use of, any means of communication by which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting.
Section 3.10 Resignations and Removals . Any Director may resign at any time by delivering his or her resignation in writing to the President or the Secretary or to a meeting of the Directors. Such resignations shall take effect at such time as is specified therein, or if no such time is so specified, then upon delivery thereof to the President or the Secretary or to a meeting of the Directors.
No Director or officer who resigns or is removed shall have any right to any compensation as such Director or officer for any period following his or her resignation or removal, or any right to damages on account of such removal whether his or her compensation be by the month or by the year or otherwise; provided, however, that the foregoing provision shall not prevent such Director or officer from obtaining damages for breach of any contract of employment legally binding upon the Corporation.
Section 3.11 Presumption of Assent . A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any Corporation matter is taken shall be presumed to have assented to the action taken unless his or her dissent or abstention has been entered in the minutes of the meeting or unless he or she has filed a written dissent to such action with the person acting as the Secretary of the meeting before the adjournment thereof or has forwarded such dissent by registered mail to the Secretary of the Corporation within five days after the date such dissenting Director receives a copy of the minutes of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action.
Section 3.12 Committees . The Board of Directors, by vote of a majority of all of the Directors then in office, shall elect an Audit Committee, a Compensation Committee, an Executive Committee, and a Governance Committee, and may elect such other committees as it deems appropriate. The Board of Directors may delegate to such committees some or all of its powers except those which by law or by these By-Laws may not be delegated. Any such committee shall consist of not less than three members of the Board of Directors. No member of the Audit Committee shall be an operating officer of the Corporation. Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business
shall be conducted so far as possible in the same manner as is provided by these By-Laws for the Board of Directors. All members of such committees shall hold such offices at the pleasure of the Board of Directors. The Board of Directors may abolish any committee (other than the Audit Committee, the Compensation Committee, the Executive Committee and the Governance Committee) at any time, subject to applicable law. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors. The Board of Directors shall have power to rescind any action of any committee, but no such rescission shall have retroactive effect.
Section 3.13 Powers of Executive Committee . In addition to the powers and duties provided by law, the Executive Committee, when the Board of Directors is not in session, may act as an executive committee and exercise general supervision and control in all matters pertaining to the interests of the Corporation not otherwise provided by law or in these By-Laws, subject at all times to the direction and control of the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.01 Enumeration . The officers of the Corporation shall consist of a President, one or more Vice Presidents, a Treasurer, and a Secretary, and shall include such other officers, including without limitation a Chairman of the Board, a Chief Executive Officer, and one or more Assistant Vice Presidents, Assistant Treasurers, or Assistant Secretaries, as the Board of Directors may determine.
Section 4.02 Election . The Chairman of the Board, the Chief Executive Officer, the President, the Treasurer, and the Secretary and all officers at the level of Executive Vice President or above shall be elected by the Board of Directors at their meeting next following the annual meeting of shareholders. All other officers may be elected by the Board of Directors or appointed by the Chief Executive Officer.
Section 4.03 Qualification . Each officer shall have such qualifications as are required by law. No officer shall serve as a corporator, trustee, director or officer of any other bank holding company or savings and loan holding company, as a trustee, director or officer of any bank, credit union or thrift institution which is not a subsidiary of the Corporation, or as a trustee, director or officer of any holding company for any bank, credit union or thrift institution which is not a subsidiary of the Corporation if such service would violate the Depository Institution Management Interlocks Act or applicable sections of the Massachusetts General Laws, or a successor statute, unless such officer has received a permit from the Massachusetts Commissioner of Banks and such service would not otherwise violate the Depository Institution Management Interlocks Act.
Section 4.04 Resignation and Removal . Any officer may resign by delivering his or her written resignation to the Corporation at its main office addressed to the Chief Executive Officer, President or Secretary. Such resignation shall be effective upon receipt thereof by the Chief Executive Officer, President or Secretary, unless it is specified to be effective at some other time or upon the happening of some other event. Any officer elected by
the Board of Directors may, in addition to other provisions for removal contained in applicable laws, be removed at any time by the affirmative vote of a majority of the Board of Directors. Any officer appointed by the Chief Executive Officer, and any employee or agent of the Corporation, may be removed at any time with or without cause by the Chief Executive Officer or by the Board of Directors.
Section 4.05 Chairman of the Board . The Board of Directors may elect a Chairman of the Board annually or at such other frequency as the Directors may determine. The Chairman of the Board shall preside, when present, at all meetings of the Board of Directors.
Section 4.06 Chief Executive Officer . The Chief Executive Officer shall have, subject to the direction of the Board of Directors, general supervision and control of the Corporations business. Unless otherwise provided by the Board of Directors, the Chief Executive Officer shall preside, when present, at all meetings of shareholders and at all meetings of the Board of Directors if there is no Chairman of the Board or if the Chairman of the Board does not attend such meetings.
Section 4.07 President and Vice Presidents . The President shall have such powers and shall perform such duties as the Board of Directors may from time to time designate and shall serve as the Chief Executive Officer of the Corporation unless the Board of Directors otherwise provides.
Any Vice President shall have such powers and shall perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.
Section 4.08 Treasurer and Assistant Treasurers . The Treasurer shall have, subject to the direction of the Board of Directors, general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account. He shall have custody of all funds, securities, and valuable documents of the Corporation, except as the Board of Directors may otherwise provide. The Treasurer shall also perform such other duties as the Board of Directors may from time to time designate. Any Assistant Treasurer shall have such powers and perform such duties as the Board of Directors, the Chief Executive Officer or the Treasurer may from time to time designate.
Section 4.09 Secretary and Assistant Secretaries . The Secretary shall keep a record of the meetings of the Board of Directors and the shareholders. In the absence of the Secretary from any such meeting, an Assistant Secretary if one be elected, otherwise a Temporary Secretary designated by the person presiding at the meeting, shall perform the duties of the Secretary.
Section 4.10 Other Powers and Duties . Subject to these By-Laws, each officer of the Corporation shall have in addition to the duties and powers specifically set forth in these By-Laws, such duties and powers as are customarily incident to his or her office, and such duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer.
Section 4.11 Absence, Disability and Vacancies . In the event of the absence or disability of any officer, the Board of Directors may designate another officer to act temporarily
in such office, or the Executive Committee may make such designation until the Board of Directors shall take other action. In the case of a vacancy in any office, the vacancy may be filled by the Board of Directors to the extent provided by law, and the Executive Committee may designate a person to fill such office until the next meeting of the Board of Directors.
ARTICLE V
CAPITAL STOCK
Section 5.01 Authorized Capital Stock . The authorized amount of the capital stock and the par value, if any, of the shares shall be as fixed in the Articles of Organization. At all times when there are two or more classes of stock, the several classes of stock shall conform to the description and terms, and have the respective preferences, voting powers, restrictions and qualifications set forth in the Articles of Organization.
Section 5.02 Certificate of Stock . The Board of Directors may authorize the issue without certificates of some or all of the shares of any and all of the Corporations classes or series of stock. Except to the extent the Board of Directors has determined to issue shares without certificates, each shareholder shall be entitled to a certificate of the capital stock of the Corporation owned by him or her, in such form as shall, in conformity to law, be prescribed from time to time by the Board of Directors. Such certificate shall be signed by either the President or a Vice President, and by either the Treasurer or an Assistant Treasurer, and shall bear the corporate seal or its facsimile; but when any such certificate is signed by a transfer agent or by a registrar other than a Director, officer, or employee of the Corporation, the signature of the President or a Vice President and of the Treasurer or an Assistant Treasurer of the Corporation, or either or both such signatures may be facsimile. If any officer who has signed, or whose facsimile signature has been placed on, any such certificate shall have ceased to be such officer before such certificate is issued, the certificate may be issued by the Corporation with the same effect as if he or she were such officer at the time of issue.
Every certificate for shares of stock which are subject to any restriction on transfer pursuant to law, the Articles of Organization, these By-Laws or any agreement to which the Corporation is a party shall have the restriction noted conspicuously on the front or back of the certificate. Every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall set forth on its front or back either a summary of the variations in the rights, preferences and limitations applicable to each class and series, and the authority of the Board to determine variations for any future class or series, or a conspicuous statement that the Corporation will furnish a copy of such information to the holder of such certificate upon written request and without charge.
Section 5.03 Transfer of Shares of Stock . Subject to the restrictions, if any, stated or noted on the stock certificates, shares of stock may be transferred on the books of the Corporation only by the surrender to the Corporation, or its transfer agent, of the certificate therefor properly endorsed or accompanied by a written assignment or power of attorney properly executed, with all requisite stock transfer stamps affixed, and with such proof of the authenticity and effectiveness of the signature as the Corporation or its transfer agent shall reasonably require. Except as may otherwise be required by law, the Articles of Organization, or
these By-Laws, the Corporation shall have the right to treat the person registered on the stock transfer books as the owner of any shares of the Corporations stock as the owner-in-fact thereof for all purposes, including the payment of dividends, liability for assessments, the right to vote with respect thereto and otherwise, and accordingly shall not be bound to recognize any attempted transfer, pledge or other disposition thereof, or any equitable or other claim with respect thereto, whether or not it shall have actual or other notice thereof, until such shares shall have been transferred on the Corporations books in accordance with these By-Laws. It shall be the duty of each shareholder to notify the Corporation of his or her post office address.
Section 5.04 Transfer Agents and Registrars; Further Regulations . The Board of Directors may appoint one or more banks, trust companies or corporations doing a corporate trust business, in good standing under the laws of the United States or any state therein, to act as the Corporations transfer agent and/or registrar for shares of capital stock, and the Board may make such other and further regulations, not inconsistent with applicable law, as it may deem expedient concerning the issue, transfer and registration of capital stock and stock certificates of the Corporation.
Section 5.05 Loss of Certificates . In the case of the alleged loss, destruction, or wrongful taking of a certificate of stock, a duplicate certificate may be issued in place thereof upon receipt by the Corporation of such evidence of loss and such indemnity bond, with or without surety, as shall be satisfactory to the President and the Treasurer, or otherwise upon such terms, consistent with law, as the Board of Directors may prescribe.
Section 5.06 Record Date . The Directors may fix in advance a time, which shall not be more than 70 days before the date of any meeting of shareholders or the date for the payment of any dividend or the making of any distribution to shareholders, or the last day on which the consent or dissent of shareholders may be effectively expressed for any purpose, as the record date for determining the shareholders having the right to notice of and to vote at, such meeting and any adjournment thereof, or the right to receive such dividend or distribution, or the right to give such consent or dissent, and in such case, only shareholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the Corporation after the record date. If a record date for a specific action is not fixed by the Board of Directors, and is not otherwise specified by applicable law, the record date shall be the close of business either on the day before the first notice is sent to shareholders, or if no notice is sent, on the day before the meeting. A determination of shareholders entitled to notice of or to vote at a meeting of shareholders is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.01 Fiscal Year . Except as otherwise determined by the Board of Directors, the fiscal year of the Corporation shall end on the last day of the month of December.
Section 6.02 Seal . The Board of Directors shall have power to adopt and alter the seal of the Corporation.
Section 6.03 Execution of Instruments . All deeds, leases, transfers, contracts, bonds, notes and other instruments and obligations to be entered into by the Corporation in the ordinary course of its business without Board of Directors action may be executed on behalf of the Corporation by the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, Treasurer or, as the Board of Directors may authorize, any other officer, employee or agent of the Corporation.
Section 6.04 Voting of Securities . Unless otherwise provided by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or any other officer or agent designated by the Board of Directors may waive notice of and act on behalf of the Corporation, or appoint another person or persons to act as proxy or attorney in fact for the Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other organization, any of whose securities are held by the Corporation.
Section 6.05 Resident Agent . The Board of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation. Said resident agent shall be either an individual who is a resident of and has a business address in Massachusetts, a corporation organized under the laws of The Commonwealth of Massachusetts, or a corporation organized under the laws of any other state of the United States, which has qualified to do business in, and has an office in, Massachusetts.
Section 6.06 Corporation Records . The original, or attested copies, of the Articles of Organization, By-Laws and record of all meetings of the Directors shall be kept in Massachusetts at the main office of the Corporation, or at an office of its Secretary or resident agent.
ARTICLE VII
AMENDMENTS
Except as otherwise provided in the Articles of Organization, these By-Laws may be amended or repealed in whole or in part by the affirmative vote of the holders of at least two-thirds of the outstanding shares of each class of the capital stock at the time outstanding and entitled to vote at any annual meeting of shareholders or special meeting of shareholders; provided, however, that if the Board of Directors recommends, by the affirmative vote of at least two-thirds of the Directors then in office at a duly constituted meeting of the Board of Directors, that shareholders approve such amendment at such meeting of shareholders, such amendment shall only require the affirmative vote of a majority of the outstanding shares of each class of capital stock at the time outstanding and entitled to vote at such meeting; provided, further, that notice of the substance of the proposed amendment is stated in the notice of such meeting. If authorized by the Articles of Organization, the Directors may make, amend or repeal the By-Laws, in whole or in part, except with respect to any provision thereof which by law, the Articles of Organization or the By-Laws requires action by the shareholders. Not later than the time of
giving notice of the meeting of shareholders next following the making, amending or repealing by the Directors of any By-Law, notice thereof stating the substance of such change shall be given to all shareholders entitled to vote on amending the By-Laws.
Any By-Law adopted or amended by the Directors may be amended or reinstated by the shareholders entitled to vote on amending the By-Laws following the procedures outlined above.
ARTICLE VIII
CONTROL SHARE ACQUISITION STATUTE
The provisions of Chapter 110D of the Massachusetts General Laws shall not be applicable to the Corporation.
Exhibit 4.1
SEE LEGENDS ON REVERSE SIDE OF CERTIFICATE
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Shares |
*0* |
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Incorporated Under
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*0* |
HarborOne Bancorp, Inc.
Common Stock
Par Value $0.01 |
THIS CERTIFIES THAT **SPECIMEN** is the record holder of Zero (0) Shares of the Common Stock, Par Value $0.01, of HARBORONE BANCORP, INC. transferable only on the books of the Corporation by the holder hereof, in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed or assigned.
A statement of the rights, preferences, privileges and restrictions granted to or imposed upon the respective classes or series of shares of stock of the Corporation and upon the holders thereof as established by the Certificate of Incorporation, and the number of shares constituting each series and the designations thereof, may be obtained by any stockholder upon request and without charge at the principal office of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by its duly authorized officers this day of 20 .
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President |
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Secretary |
THE CAPITAL STOCK EVIDENCED HEREBY IS NOT AN ACCOUNT OF AN INSURABLE TYPE AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER FEDERAL OR STATE GOVERNMENTAL AGENCY.
The following abbreviations when used in the inscription of the face of this certificate shall be construed as though they were written out in full according to applicable laws or regulations.
TEN COM |
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as tenants in common |
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UNIF GIFT MIN ACT |
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Custodian |
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(Cust) |
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(Minor) |
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TEN ENT |
- |
as tenants by the entireties |
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Under Uniform Gifts to Minors Act |
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JT TEN |
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as joint tenants with right |
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of survivorship and not as |
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tenants in common |
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(State) |
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Additional abbreviates may also be used through not in the above list
For value Received, hereby sell, assign and transfer unto Shares of the Common Stock of the within named Corporation, represented by the within Certificate and do hereby irrevocably constitute and appoint Attorney to transfer the said shares of said Common Stock on the books of the said Corporation, pursuant to the provisions of the By-Laws thereof, with full powers of substitution in the premises.
Dated: A.D.
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In Presence of:
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NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE SHAREHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICLAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
Exhibit 5.1
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March 4, 2016 |
HarborOne Bancorp, Inc.
770 Oak Street
Brockton, MA 02301
Re: Securities Registered under Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to you in connection with the transactions contemplated by the Plan of Reorganization and Minority Stock Issuance of HarborOne Bank approved by the Board of Directors of HarborOne Bank on January 27, 2016 (the Plan of Reorganization) and your filing of a Registration Statement on Form S-1 (as amended or supplemented, the Registration Statement) pursuant to the Securities Act of 1933, as amended (the Securities Act). The Registration Statement relates to the issuance by HarborOne Bancorp, Inc., a Massachusetts corporation (the Company) of (1) up to 13,550,996 shares of the Companys common stock, $0.01 par value per share, to be sold in the offerings described in the Plan of Reorganization (the Offering Shares) and (2) up to 361,360 shares of the Companys common stock, $0.01 par value per share, to be contributed by the Company to the HarborOne Bank Charitable Foundationpursuant to the terms of the Plan of Reorganization (the Foundation Shares, and together with the Offering Shares, the Shares).
We have reviewed such documents and made such examination of law as we have deemed appropriate to give the opinions set forth below. We have relied, without independent verification, on certificates of public officials and, as to matters of fact material to the opinions set forth below, on certificates of officers of the Company.
The opinion set forth below is limited to the Massachusetts Business Corporation Act (which includes reported judicial decisions interpreting the Massachusetts Business Corporation Act).
Based on the foregoing, we are of the opinion that the Shares have been duly authorized and, upon issuance and delivery against payment therefor (with respect to the Offering Shares) or contribution (with respect to the Foundation Shares) in accordance with the terms of the Plan of Reorganization, the Shares will be validly issued, fully paid and non-assessable.
We hereby consent to the inclusion of this opinion as Exhibit 5.1 to the Registration Statement and to the references to our firm under the caption Legal and Tax Matters in the
Registration Statement. In giving our consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations thereunder.
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Very truly yours, |
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/s/ Goodwin Procter LLP |
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Goodwin Procter LLP |
Exhibit 8.1
March 4, 2016
HarborOne Bank
770 Oak Street
Brockton, Massachusetts 02301
RE: Federal and Massachusetts Tax Consequences Relating to Adoption of Mutual Holding Company Structure
Ladies and Gentlemen:
You have requested our opinion on certain federal and Massachusetts tax consequences relating to the proposed adoption of a mutual holding company structure (the Reorganization), pursuant to the HarborOne Bank Plan of Reorganization and Minority Stock Issuance, dated as of January 27, 2016, by and among HarborOne Bank (Mutual Bank), and, as of the date of their formation, HarborOne Mutual Bancshares (MHC), HarborOne Bancorp, Inc. (Mid-Tier Holding Company), and HarborOne Interim Stock Co-operative Bank (Stock Bank) (the Plan).(1)
For purposes of the opinions set forth below, we have reviewed and relied upon the Plan, the Subscription and Community Offering Prospectus of HarborOne Bancorp, Inc., dated March 4, 2016 (the Prospectus), included in the Registration Statement on Form S-1 filed by Mid-Tier Holding Company with the Securities and Exchange Commission (the Registration Statement), and such other documents, records and instruments as we have deemed necessary or appropriate as a basis for our opinions. In addition, in rendering our opinions we have relied upon certain statements, representations and warranties made by the parties to the Reorganization (including, without limitation, those contained in certain certified representations and those contained in or made pursuant to the Plan), which we have neither investigated nor verified. We have assumed that such statements, representations and warranties are true, correct, complete and not breached and will continue to be so through the completion of the Reorganization, that no actions that are inconsistent with such statements, representations and warranties will be taken, and that all representations, statements, and warranties made to the best knowledge of any person(s) or party(ies) or with similar qualification are and will be true, correct and complete as if made without such qualification.
We also have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to the original documents of all documents submitted to us as copies, the authority and capacity of the individual or individuals who executed any such documents on behalf of any person, the conformity to the final documents of all documents
(1) Capitalized terms used herein and not otherwise defined shall have the meanings given such terms in the Plan.
submitted to us as drafts and the accuracy and completeness of all records made available to us. In addition, we have assumed that the Reorganization will be consummated in accordance with the Plan; that the merger of Mutual Bank into Stock Bank will qualify as a merger under the applicable laws of Massachusetts; that each of the parties to the Reorganization will comply with all reporting obligations with respect to the Reorganization required under the Internal Revenue Code of 1986, as amended (the Code), the Treasury Regulations thereunder; and the Massachusetts General Laws, and that the Plan is valid and binding in accordance with its terms.
Any inaccuracy in, or breach of, any of the aforementioned statements, representations, warranties and assumptions or any change after the date hereof in applicable law could adversely affect our opinions. No ruling has been or will be sought from the Internal Revenue Service or any other taxing authority by any party to the Reorganization as to the federal income tax consequences of any aspect of the Reorganization.
I. Background .
Mutual Bank is a Massachusetts-chartered mutual co-operative bank engaged in banking and banking-related activities. Mutual Bank is regulated by the Massachusetts Commissioner of Banks, as its chartering agency, and by the Federal Deposit Insurance Corporation (FDIC), its primary federal regulator and deposit insurer. Mutual Banks deposits are insured up to applicable limits by the FDIC and by the Share Insurance Fund established by the Massachusetts General Laws for amounts in excess of the FDIC insurance limits. It is headquartered in Brockton, Massachusetts, and is the common parent of an affiliated group that files a federal consolidated income tax return. As a mutual co-operative bank, Mutual Bank has no authorized capital stock. Instead, a membership interest in Mutual Bank (Mutual Bank Equity Interest) arises from the ownership of a deposit account in Mutual Bank and is inextricably tied to the bank deposit account from the time of deposit. The Mutual Bank Equity Interest entitles the depositor to vote for the board of directors and to receive assets and other consideration in the event of the liquidation, dissolution, or winding up of Mutual Bank. The rights inherent in each Mutual Bank Equity Interest are created by operation of Massachusetts law solely as a result of the depositors ownership of a bank deposit account in Mutual Bank and cannot be transferred separately from that bank deposit account. Further, if a bank deposit account is surrendered by the depositor, the Mutual Bank Equity Interest ceases to exist, having no continuing value.
In steps occurring sequentially and contemporaneously following the receipt of all required approvals, the expiration of all required waiting periods, and the satisfaction or waiver of all of the other applicable conditions to the consummation of such steps, the Plan provides that Mutual Bank will effectuate the Reorganization in the following steps:
(1) Mutual Bank will cause the formation of a Massachusetts-chartered corporation that will become the Mid-Tier Holding Company.
(2) Mutual Bank will cause HarborOne Interim Mutual Co-operative Bank (New Mutual) to be chartered as a de novo Massachusetts-chartered mutual co-operative bank pursuant to Chapter 167I, Section 18, of the Massachusetts General Laws, and to be capitalized in an amount of not less than $10,000. New Mutual will have no other assets and no deposit liabilities or other material liabilities. In accordance with Chapter 167H of the Massachusetts General Laws, New Mutual (following its organization) will cause its charter to be amended and restated so as to become a mutual holding company, to be known as HarborOne Mutual Bancshares (MHC). As a mutual holding company, MHC will have no authorized capital stock. Instead, liquidation and limited voting rights (MHC Equity Interests) will be issued to the holders of Mutual Bank Equity Interests as consideration for the surrender of their Mutual Bank Equity Interests in the Reorganization.
(3) Concurrently with the amendment and restatement of New Mutuals charter as MHCs charter, MHC will acquire the outstanding capital stock of Mid-Tier Holding Company. MHC also will establish a wholly-owned de novo Massachusetts-chartered stock co-operative bank subsidiary (Stock Bank) in accordance with the provisions of Chapters 167H and 170 of the Massachusetts General Laws. Immediately following the amendment and restatement of New Mutuals charter as MHCs charter and the formation of Stock Bank, in accordance with the provisions of Chapter 167H, Section 7, of the Massachusetts General Laws, Mutual Bank will merge with and into Stock Bank, with Stock Bank surviving the merger under Mutual Banks name. Immediately following the merger, MHC will transfer all of its Stock Bank shares to Mid-Tier Holding Company.
All assets, rights, obligations, and liabilities of whatever nature of Mutual Bank that are not expressly transferred to MHC or Mid-Tier Holding Company upon formation shall be deemed merged into Stock Bank upon the merger of Mutual Bank with and into Stock Bank. Following the Reorganization, all persons who prior thereto held depository rights with respect to, or other rights as a creditor of, Mutual Bank shall have such rights solely with respect to Stock Bank, and the corresponding liability or obligation of Stock Bank to such persons shall be assumed by Stock Bank.
All persons who had liquidation rights pursuant to Chapter 167I, Section 15, of the Massachusetts General Laws with respect to Mutual Bank prior to the Reorganization shall continue to have such rights solely with respect to MHC. All existing and future depositors of Stock Bank shall have the same liquidation rights in MHC pursuant to Section 2 of Chapter 167H of the Massachusetts General Laws as were conferred upon depositors of Mutual Bank as in effect immediately prior to the Reorganization. All existing and future depositors of any
subsidiary banking institution or bank that is acquired by MHC in the future and is in the mutual form of organization when so acquired shall have the same liquidation rights in MHC pursuant to Section 2 of Chapter 167H of the Massachusetts General Laws as were conferred upon depositors of such acquired bank immediately prior to such acquisition; provided that if such acquired bank is merged into another subsidiary bank from which MHC draws members, the depositors of such acquired bank shall receive the same liquidation rights as the depositors of the subsidiary bank into which such acquired bank is merged.
As described in the Prospectus, Mid-Tier Holding Company intends sell up to 45% of its common stock in a subscription offering (the Subscription Offering) in order of priority to (1) depositors of Mutual Bank with aggregate balances of at least $50 as of the close of business on December 31, 2014, (2) Mutual Banks tax-qualified employee benefit plans, and (3) employees, officers and directors of Mutual Bank or any subsidiary of Mutual Bank who are not already eligible under (1) above, pursuant to subscription rights (Subscription Rights) that will be issued without payment therefor to such persons. Any shares remaining after the Subscription Offering may be sold in a community offering (the Community Offering and, together with the Subscription Offering, the Offerings), with preference given first to natural persons and trusts of natural persons residing in certain Massachusetts cities and towns.
II. Representations .
The following representations have been made by Mutual Bank and Mid-Tier Holding Company, for themselves and on behalf of Stock Bank, New Mutual and/or MHC as of the date of their formation (each, a Party and, collectively, the Parties) with respect to the Reorganization:
(a) The facts relating to the Reorganization described in the Plan and the Prospectus are true, correct, and complete in all material respects. The Plan represents the entire understanding of Mutual Bank, Stock Bank, Mid-Tier Holding Company, New Mutual, and MHC with respect to the Reorganization. The Reorganization will be consummated in compliance with the terms and conditions of the Plan, and there is no plan or intention to waive or modify any such term or condition.
(b) The fair market value of the MHC Equity Interests received by each Mutual Bank depositor pursuant to the merger will approximately equal the fair market value of the Mutual Bank Equity Interests surrendered in exchange therefor.
(c) The cash value of the Stock Bank deposit accounts received by Mutual Bank depositors pursuant to the merger will be identical to the cash value of the Mutual Bank deposit accounts exchanged therefor.
(d) No Party is aware of any plan or intention by the any holder of Mutual Bank Equity Interests to sell, exchange, or otherwise dispose of any of the MHC Equity Interests received in the merger, other than solely as a consequence of withdrawals in the ordinary course of business from deposit accounts in Stock Bank.
(e) Stock Bank will acquire at least ninety percent (90%) of the fair market value of the net assets and at least seventy percent (70%) of the fair market value of the gross assets held by Mutual Bank immediately prior to the merger. For purposes of this representation, amounts, if any, paid by or on behalf of Mutual Bank for reorganization expenses and all withdrawals made by depositors immediately preceding or in contemplation of the merger will be included as assets of Mutual Bank immediately prior to the merger. However, withdrawals of deposits in the ordinary course of Mutual Banks business as a financial institution will be excluded.
(f) Prior to the merger, MHC will be in control of Stock Bank within the meaning of Section 368(c) of the Code. Control, within the meaning of Section 368(c) of the Code, means the ownership of stock possessing at least eighty percent (80%) of the total combined voting power of all classes of stock entitled to vote and at least eighty percent (80%) of the total number shares of each other class of stock.
(g) Immediately following the transfer of Stock Bank shares by MHC to Mid-Tier Holding Company, MHC will own one hundred percent (100%) of the outstanding shares of Mid-Tier Holding Company. No consideration other than Mid-Tier Holding Company common shares will be provided to MHC in connection with such transfer.
(h) Following the merger, Stock Bank will not issue additional shares of its stock that would result in MHC (prior to the transfer of the Stock Bank shares to Mid-Tier Holding Company) or Mid-Tier Holding Company (following such transfer) losing control of Stock Bank within the meaning of Section 368(c) of the Code.
(i) Prior to the merger, Mutual Bank will not have reacquired any of its Mutual Bank Equity Interests, other than solely as a consequence of withdrawals in the ordinary course of business from deposit accounts in Mutual Bank, and will not have made any distributions with respect thereto.
(j) MHC has no plan or intention to reacquire any of its MHC Equity Interests issued in the merger or make any distributions with respect thereto.
(k) Neither MHC nor Mid-Tier Holding Company has any plan or intention to liquidate Stock Bank; to merge Stock Bank with and into another corporation; to sell or otherwise dispose of the stock of Stock Bank; or to cause Stock Bank to sell or otherwise dispose of any of the assets of Mutual Bank acquired in the merger, except for dispositions made in the
ordinary course of business and the transfer of the Stock Bank shares by MHC to Mid-Tier Holding Company.
(l) The liabilities of Mutual Bank assumed by Stock Bank and the liabilities to which the transferred assets are subject were incurred by Mutual Bank in the ordinary course of its business.
(m) Following the merger, Stock Bank will either continue the historic business of Mutual Bank or use at least fifty percent (50%) of Mutual Banks historic business assets in a business. For purposes of this representation, assets sold or otherwise disposed of by Mutual Bank prior to and in contemplation of the merger will be taken into account as part of the historic business assets of Mutual Bank.
(n) The Parties and the holders of the Mutual Bank Equity Interests will pay their respective expenses incurred in connection with the merger, other than expenses of a Party solely and directly related to the merger in accordance with the guidelines established in Revenue Ruling 73-54, 1973-1 C.B. 187.
(o) There is no intercorporate indebtedness existing between any Party that was issued, acquired, or will be settled at a discount.
(p) Neither Mutual Bank nor Stock Bank is a regulated investment company, a real estate investment trust, or a corporation fifty percent (50%) or more of the value of whose total assets are stock and securities and eighty percent (80%) or more of the value of whose total assets are held for investment. In making the percentage determinations under the preceding sentence, stock and securities in any subsidiary corporation are disregarded and the parent corporation is deemed to own its ratable share of the subsidiarys assets, and a corporation is considered a subsidiary if the parent owns fifty percent (50%) or more of the combined voting power of all classes of stock entitled to vote or fifty percent (50%) or more of the total value of all shares of all classes of stock outstanding.
(q) Mutual Bank is not under the jurisdiction of a court in a case under title 11 of the United States Code, or under the jurisdiction of a federal or state court in a receivership, conservatorship, foreclosure, or similar proceeding.
(r) The fair market value of the assets of Mutual Bank transferred to Stock Bank will equal or exceed the sum of the liabilities assumed by Stock Bank, plus the amount of liabilities, if any, to which the transferred assets are subject.
(s) The fair market value of the assets of Mutual Bank transferred to Stock Bank will equal or exceed the total adjusted basis of such assets.
(t) No stock or other property of Stock Bank will be issued in the merger. In addition, as part of the merger, Stock Bank will not be required to establish and maintain a liquidation account for the benefit of any depositors of Mutual Bank.
(u) Mutual Bank and Stock Bank will report the merger on their U.S. federal income and Massachusetts corporate excise returns in a manner consistent with the merger constituting a reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code and will comply with all reporting obligations of such a reorganization set forth in the Code and the Treasury Regulations thereunder and the Massachusetts General Laws and applicable regulations thereunder.
(v) The merger and other aspects of the Reorganization serve genuine and legitimate corporate business purposes that collectively are the principal motivation for the merger and Reorganization.
III. Opinion .
Based upon and subject to the foregoing, as well as the limitations set forth below, it is our opinion with respect to the Reorganization that, under present law:
(i) The merger of Mutual Bank with and into Stock Bank, and the issuance of the MHC Equity Interests to the depositors of Mutual Bank as consideration for the surrender of their Mutual Bank Equity Interests, will constitute a reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of Code. Mutual Bank, Stock Bank, and MHC each will be a party to a reorganization within the meaning of Section 368(b) of the Code.
(ii) No gain or loss will be recognized for federal income or Massachusetts corporate excise tax purposes by Mutual Bank on the transfer of its assets to Stock Bank in exchange for the MHC Equity Interests and the assumption by Stock Bank of the deposits and other liabilities of Mutual Bank, or on the exchange by Mutual Banks depositors of their Mutual Bank Equity Interests for MHC Equity Interests, in connection with the merger.
(iii) No gain or loss will be recognized for federal income or Massachusetts corporate excise tax purposes by Stock Bank or MHC on the receipt by Stock Bank of the assets of Mutual Bank and the surrender of the Mutual Bank Equity Interests in exchange for the MHC Equity Interests and the assumption by Stock Bank of the deposits and other liabilities of Mutual Bank, in connection with the merger.
(iv) No gain or loss will be recognized for federal income or Massachusetts corporate excise or personal income tax purposes by the depositors of Mutual Bank on the receipt of the
MHC Equity Interests in exchange for their Mutual Bank Equity Interests in connection with the merger.
(v) For federal income and Massachusetts corporate excise tax purposes, the tax basis of the Mutual Banks assets acquired by Stock Bank will be the same to Stock Bank as the tax basis of such assets to Mutual Bank immediately prior to the merger, and the holding period of the assets of Mutual Bank in the hands of Stock Bank will include the period during which those assets were held by Mutual Bank.
(vi) Stock Bank will succeed to and take into account the tax attributes of Mutual Bank described in Section 381(c) of the Code, subject to the provisions and limitations specified in Sections 381 through 384 of the Code and the regulations thereunder.
(vii) The transfer by MHC of its Stock Bank shares to Mid-Tier Holding Company will constitute a transfer described in Section 351 of the Code. As such, none of MHC, Mid-Tier Holding Company, or Stock Bank will recognize gain or loss for federal income or Massachusetts corporate excise tax purposes in connection with such transfer.
(viii) The contribution of cash by Mutual Bank to New Mutual, to the extent it is transferred to Stock Bank as part of the Reorganization, will be treated as part of the assets transferred from Mutual Bank to Stock Bank in the merger and, accordingly, will be disregarded and therefore non-taxable for federal income and Massachusetts corporate excise tax purposes.
(ix) Mid-Tier Holding Company will recognize no income, gain or loss for federal income or Massachusetts corporate excise tax purposes upon the receipt of cash in the Offerings in exchange for shares of Mid-Tier Holding Company stock.
(x) Mid-Tier Holding Company will recognize no income, gain or loss for federal income or Massachusetts corporate excise tax purposes upon the transfer of a portion of the net proceeds received by Mid-Tier Holding Company in the Offerings to Stock Bank in exchange for newly-issued shares of Stock Bank common stock.
(xi) Stock Bank will recognize no income, gain or loss for federal income or Massachusetts corporate excise tax purposes upon the receipt of the contributed Offerings proceeds from Mid-Tier Holding Company in exchange for newly-issued shares of Stock Bank common stock.
(xii) No income, gain or loss will be recognized by Mid-Tier Holding Company for federal income or Massachusetts corporate excise tax purposes as a result of the distribution of the Subscription Rights to eligible depositors of Mutual Bank and other persons.
(xiii) No income, gain or loss will be recognized for federal income or Massachusetts corporate excise or personal income tax purposes by the eligible Mutual Bank depositors and other persons described in the Plan who will receive Subscription Rights as a result of the distribution to the eligible Mutual Bank depositors and such other persons of the Subscription Rights, provided the Subscription Rights have no value at the time of receipt. Such Mutual Bank depositors and other recipients of Subscription Rights will not recognize income, gain or loss as a result of the exercise of such Subscription Rights to purchase shares of Mid-Tier Holding Company stock, provided that the amount to be paid for such stock is equal to the fair market value of such stock. The basis of the stock to the Mid-Tier Holding Companys stockholders will be the purchase price thereof plus the basis, if any, of the Subscription Rights (which, as described below, we have assumed is zero).
Under past rulings of the Internal Revenue Service (the IRS), gain may be recognized by a recipient of Subscription Rights to the extent of the fair market value of the Subscription Rights received. Whether the Subscription Rights have a market value for federal income tax purposes is a question of fact, depending upon all relevant facts and circumstances. The IRS will not issue rulings on whether subscription rights have a market value. However, we are unaware of any instance in which the IRS has taken the position that nontransferable subscription rights issued by a converting financial institution have a market value. We note that you have received a letter of RP Financial, LC., which states its belief, without undertaking any independent investigation of state or federal law or the position of the IRS, that as an ascertainable factual matter the Subscription Rights will have no market value. The letter of RP Financial, LC., has no binding effect on the IRS. We express no opinion on the fair market value of the Subscription Rights and, insofar as our opinion in paragraph 0 relates to the federal income tax consequences of the distribution of Subscription Rights, we are relying upon and assuming the accuracy of the conclusion expressed in the letter of RP Financial, LC., regarding the valuation of the Subscription Rights.
* * * *
We express no opinion herein other than the opinions expressly set forth above. In particular, no opinion is expressed as to the tax consequences of any transfers of cash or property to New Mutual or MHC or Mid-Tier Holding Company other than as described in paragraph (viii) above, or any of the transactions under any foreign, state, or local tax law, or as to the qualification of MHC as a security corporation for Massachusetts tax purposes. You should recognize that our opinions are not binding on the Internal Revenue Service (the IRS) or on the Massachusetts Department of Revenue (the DOR) and that a court or the IRS or the DOR may disagree with the opinions contained herein. Although we believe that our opinions will be sustained if challenged, there can be no assurance that this will be the case. The discussion and
conclusions set forth above are based upon current provisions of the Code, the Income Tax Regulations and Procedure and Administration Regulations promulgated thereunder, the Massachusetts General Laws, the regulations promulgated thereunder, and existing administrative and judicial interpretations thereof (collectively, Applicable Law), all of which are subject to change, potentially with retroactive effect. Changes in Applicable Law could adversely affect our opinions. We do not undertake to advise you as to any changes after the date hereof in Applicable Law that may affect our opinions.
This opinion letter is being provided to you in connection with the filing of the Registration Statement. This opinion letter may be used by the FDIC, Massachusetts Division of Banks and the Board of Governors of the Federal Reserve System as part of their review and approval of the Reorganization, including the FDICs notice pursuant to 12 C.F.R. § 303.161. Without our prior written consent, it may not be relied upon by any other person or entity or used for any other purpose.
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Very truly yours, |
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/s/ Goodwin Procter LLP |
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Goodwin Procter LLP |
Exhibit 10.1
HARBORONE BANK
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
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Page |
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ARTICLE I - THE PLAN |
2 |
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1.01 |
Interpretation of Plan Document |
2 |
1.02 |
Exclusive Benefit |
2 |
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ARTICLE II - DEFINITIONS |
3 |
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2.01 |
Account |
3 |
2.02 |
Affiliated Company |
3 |
2.03 |
Allocation Date |
3 |
2.04 |
Beneficiary |
3 |
2.05 |
Board |
3 |
2.06 |
Committee |
3 |
2.07 |
Company |
3 |
2.08 |
Compensation |
4 |
2.09 |
Dividend Account |
4 |
2.10 |
Effective Date |
4 |
2.11 |
Employee |
4 |
2.12 |
Entry Date |
5 |
2.13 |
Hour of Service |
5 |
2.14 |
Limitation Year |
7 |
2.15 |
Member |
7 |
2.16 |
One-Year Break in Service |
7 |
2.17 |
Participating Company |
7 |
2.18 |
Period of Service |
7 |
2.19 |
Period of Severance |
9 |
2.20 |
Plan |
9 |
2.21 |
Plan Year |
9 |
2.22 |
Stock |
9 |
2.23 |
Trust |
9 |
2.24 |
Trustee |
10 |
2.25 |
Year of Vesting Service |
10 |
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ARTICLE III - MEMBERSHIP |
11 |
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3.01 |
Eligibility for Membership |
11 |
3.02 |
Determination of Eligibility by the Committee |
11 |
3.03 |
Duration of Membership |
11 |
3.04 |
Unpaid Leaves of Absence |
11 |
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ARTICLE IV - CONTRIBUTIONS |
13 |
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4.01 |
Company Contribution |
13 |
4.02 |
Payment of Contributions |
13 |
4.03 |
Reversion of Certain Contributions |
13 |
4.04 |
Members Contributions |
14 |
ARTICLE V - MEMBERS ACCOUNTS |
15 |
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5.01 |
Maintenance of Accounts |
15 |
5.02 |
Compensation Schedule |
16 |
5.03 |
Allocation of Company Contributions |
16 |
5.04 |
Allocation of Forfeitures |
16 |
5.05 |
Valuation of Assets Other than Stock |
16 |
5.06 |
Allocation of Trust Assets Other than Stock |
17 |
5.07 |
Dividends on Stock |
18 |
5.08 |
Distributions and Forfeitures |
18 |
5.09 |
Limitations on Allocations |
19 |
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ARTICLE VI - BENEFITS |
22 |
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6.01 |
Restrictions on Payments and Distributions |
22 |
6.02 |
Retirement |
22 |
6.03 |
Disability Retirement |
22 |
6.04 |
Death Benefits |
23 |
6.05 |
Termination of Employment Prior to Retirement or Death |
25 |
6.06 |
Reemployment |
26 |
6.07 |
Manner and Timing of Distributions |
27 |
6.08 |
Discharge of Trustees Obligations to Make Payment |
29 |
6.09 |
Special Distribution from Account and Dividend Account |
29 |
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ARTICLE VII - AMENDMENT AND TERMINATION |
31 |
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7.01 |
Right to Amend or Terminate |
31 |
7.02 |
Amendment for Tax Exemption |
31 |
7.03 |
Liquidation of Trust in Event of Termination |
31 |
7.04 |
Termination of Plan and Trust |
32 |
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ARTICLE VIII - ADMINISTRATION OF THE PLAN |
33 |
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8.01 |
Named Fiduciaries |
33 |
8.02 |
Appointment of Committee |
33 |
8.03 |
Powers of Committee |
34 |
8.04 |
Action by Committee |
34 |
8.05 |
Discretionary Action |
34 |
8.06 |
Evidence on Which Committee May Act |
35 |
8.07 |
Employment of Agents |
35 |
8.08 |
Compensation and Expense of Committee |
36 |
8.09 |
Indemnification |
36 |
8.10 |
Claims Procedure |
36 |
8.11 |
Claims Procedure for Disability Determinations |
39 |
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ARTICLE IX - THE TRUST |
45 |
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9.01 |
Trust Agreement |
45 |
9.02 |
Exercise of Voting Rights |
45 |
9.03 |
Tender Offer or Exchange Offer |
46 |
ARTICLE X - THE COMPANY |
48 |
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10.01 |
Powers of the Company |
48 |
10.02 |
No Contract of Employment |
48 |
10.03 |
Liability of Company |
48 |
10.04 |
Action by Company |
48 |
10.05 |
Successor to Business of Company |
49 |
10.06 |
Dissolution of the Company |
49 |
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ARTICLE XI - ESOP LOANS |
50 |
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11.01 |
ESOP Loan |
50 |
11.02 |
Use of ESOP Loan Proceeds |
50 |
11.03 |
Terms and Conditions |
50 |
11.04 |
Collateral for ESOP Loan |
51 |
11.05 |
Suspense Accounts |
51 |
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ARTICLE XII - TOP-HEAVY PROVISIONS |
53 |
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12.01 |
Article Controls |
53 |
12.02 |
Definitions |
53 |
12.03 |
Top-Heavy Status |
56 |
12.04 |
Minimum Benefit |
56 |
12.05 |
Termination of Top-Heavy Status |
57 |
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ARTICLE XIII - ADDITIONAL PARTICIPATING COMPANIES |
58 |
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13.01 |
Participation |
58 |
13.02 |
Effective Date |
58 |
13.03 |
Administration |
58 |
13.04 |
Termination |
58 |
13.05 |
Allocation of Forfeitures |
58 |
13.06 |
Contributions |
58 |
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ARTICLE XIV - MISCELLANEOUS |
60 |
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14.01 |
Spendthrift Provision |
60 |
14.02 |
Appointment of Person to Receive Payment |
60 |
14.03 |
Construction |
60 |
14.04 |
Impossibility of Performance |
61 |
14.05 |
Definition of Words |
61 |
14.06 |
Titles |
61 |
14.07 |
Merger or Consolidation |
61 |
14.08 |
Special Provisions for Certain Leased Employees |
61 |
14.09 |
USERRA and HEART ACT |
62 |
14.10 |
Correction Methods |
63 |
14.11 |
Writings |
63 |
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ARTICLE XV - DIRECT ROLLOVERS |
64 |
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15.01 |
Application of this Article |
64 |
15.02 |
Definitions |
64 |
ARTICLE XVI - |
MINIMUM DISTRIBUTION REQUIREMENTS |
67 |
16.01 |
General Rules |
67 |
16.02 |
Time and Manner of Distribution |
67 |
16.03 |
Required Minimum Distributions During Members Lifetime |
68 |
16.04 |
Required Minimum Distributions After Members Death |
69 |
16.05 |
Definitions |
69 |
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ARTICLE XVII - |
CHANGE IN CONTROL |
71 |
17.01 |
Definition of Change in Control; Pending Change in Control |
71 |
17.02 |
Vesting on Change in Control |
74 |
17.03 |
Repayment of Share Acquisition Loan |
74 |
17.04 |
Plan Termination After Change in Control |
74 |
17.05 |
Amendment of Article XVII |
74 |
HARBORONE BANK
EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, HarborOne Bank plans to reorganize into a two-tier mutual holding company structure and offer up to 49.9 percent of common stock of HarborOne Bancorp, Inc., a mid-tier stock holding company (the Minority Stock Offering); and
WHEREAS, in connection with the Minority Stock Offering, HarborOne Bank wishes to recognize the contribution being made to the successful operation of its business by its employees and desires to reward such contribution by establishing an employee stock ownership plan for its employees (and the employees of participating affiliated entities as hereinafter defined), who are or shall hereafter become eligible as participants under the plan enacted hereunder.
NOW, THEREFORE, in consideration of the foregoing, HarborOne Bank hereby adopts the HarborOne Bank Employee Stock Ownership Plan as hereinafter provided effective .
ARTICLE I - THE PLAN
1.01 Interpretation of Plan Document . The Plan and the Trust are established for the purpose of providing retirement and other benefits to the Employees of the Company in the form of deferred stock bonuses and is established for the exclusive benefit of the eligible Employees and their Beneficiaries. The Plan is hereby designated as an employee stock ownership plan within the meaning of Section 407(d)(6) of the Employee Retirement Income Security Act of 1974, as amended from time to time (ERISA) and Section 4975(e)(7) of the Internal Revenue Code of 1986, as amended from time to time (the Code) and as such is designed to invest primarily in qualified employer securities. Reference to a specific Section of the Code or ERISA shall include such provisions, any valid regulation or ruling promulgated thereunder and any provision of future law that amends, supplements or supersedes such provision. So far as possible, this Plan document shall be interpreted in a manner consistent with these purposes and with the intent of the Company that the Plan established hereunder and the related trust shall satisfy those provisions of the Code and ERISA relating to exempt employees plans and trusts.
1.02 Exclusive Benefit . Except as expressly authorized in Section 4.03, in no event shall the corpus or income of the Plan be paid or diverted to the Company or be used for any purpose other than the exclusive benefit of the Members or their Beneficiaries; provided, however, that neither the use of qualifying employer securities held by the Plan as a pledge, as collateral or otherwise, to secure any ESOP Loan pursuant to Article XI nor any subsequent loss of such securities in connection with a default of such loan nor the use of any assets of the Trust to pay interest on or to repay such loan pursuant to Article XI shall constitute a violation of this provision.
ARTICLE II - DEFINITIONS
Whenever used herein, unless the context clearly indicates otherwise, the following words shall have the following meanings:
2.01 Account means the account established and maintained for each Member pursuant to Article V.
2.02 Affiliated Company means (a) a corporation which, together with the Company, is a member of a controlled group of corporations (as defined in Section 414(b) of the Code), (b) a trade or business (whether or not incorporated) which is under common control (as defined in Section 414(c) of the Code) with the Company, (c) a corporation, partnership or other entity which, together with the Company, is a member of an affiliated service group (as defined in Section 414(m) of the Code) or (d) any other entity required to be aggregated with the Company pursuant to regulations promulgated under Section 414(o) of the Code. For purposes of determining an Employees Hours of Service, Periods of Eligibility Service, Years of Vesting Service and the occurrence of a One-Year Break in Service, any period of employment with an Affiliated Company shall be deemed to be employment with the Company.
2.03 Allocation Date means December 31 and any other date which the Committee in its sole discretion may select.
2.04 Beneficiary means the person or persons designated pursuant to the provisions of Section 6.04 of this Plan to receive distribution of such Members share upon his death.
2.05 Board means the board of directors of the Company in office from time to time.
2.06 Committee means the ESOP Committee constituted under Article VIII of this Plan in office from time to time.
2.07 Company means HarborOne Bank, or any successor to all or a major portion of its business which adopts and continues the Plan and the Trust pursuant to Section 10.05.
2.08 Compensation of a Member for any period includes all wages and other compensation reported on Box 1 of Form W-2 and shall include all amounts which would have been paid to the Member as Compensation but for an election by such Member under Section 125, 132(f) or 401(k) of the Code, but excludes (a) all contributions or benefits under this Plan or any other qualified retirement plan, (b) any compensation paid prior to the Members Entry Date, (c) reimbursements and other expense allowances, fringe benefits (cash or non-cash), moving expenses, deferred compensation and welfare benefits, and (d) all non-cash compensation. A Members Compensation for any Limitation Year shall not be taken into account for any purpose of the Plan, to the extent that such Compensation exceeds $265,000 (as adjusted by the Commissioner for increases in the cost-of-living in accordance with Section 401(a)(17)(B) of the Code). The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, beginning in such calendar year over which compensation is determined (determination period). If a determination period consists of fewer than 12 months, the annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12.
2.09 Dividend Account means the account established and maintained for each Member pursuant to Article V for the purpose of holding dividends paid by HarborOne Bancorp, Inc. with respect to allocated shares of Stock held in the Trust. This Dividend Account shall be fully vested and nonforfeitable at all times.
2.10 Effective Date means , 2016, the effective date of the Plan.
2.11 Employee means any person who is employed by the Company or a Participating Company as a common law employee at the time such persons services are
rendered to the Company or a Participating Company, has federal income tax withheld by the Company or a Participating Company at such times, and who receives a Form W-2 from the Company or a Participating Company in the ordinary course with respect to such service. An Employees employment shall be deemed to have commenced on the date on which he first performs an Hour of Service as an Employee. An individual classified by the Company or a Participating Company as performing service in a nonemployee capacity (including, but not limited to, an individual classified as an independent contractor, or consultant) shall not be considered an Employee for purposes of the Plan (regardless of the status of the individual for income tax withholding or other purposes) for any period during which he is so classified even if such classification is later changed for any reason.
2.12 Entry Date means the Effective Date and the first day of each calendar month thereafter.
2.13 Hour of Service means:
(a) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Company or an Affiliated Company. These hours shall be credited to the Employee for the Computation Period or Periods in which duties are performed;
(b) Each hour for which an Employee is paid, or entitled to payment, by the Company or an Affiliated Company on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty or other leave of absence; provided that no more than 501 Hours of Service shall be credited under this paragraph with respect to any single continuous period of absence for which no duties are performed. Hours
under this paragraph shall be calculated and credited pursuant to Section 2530.200b-2(b) and (c) of the Department of Labor Regulations which are incorporated herein by this reference;
(c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Company or an Affiliated Company. The same Hours of Service shall not be credited both under paragraph (a) or paragraph (b), as the case may be, and under this paragraph (c). These hours shall be credited to the Employee for the Plan Year to which the award or agreement pertains rather than the Plan Year in which the award, agreement or payment is made; and
(d) Each hour for which an Employee is credited pursuant to Section 3.04;
(e) Solely for purposes of determining whether a One-Year Break in Service, as defined in Section 2.16, has occurred in a Plan Year, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, eight Hours of Service per day of such absence. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence: (i) by reason of the pregnancy of the individual; (ii) by reason of the birth of the child of the individual; (iii) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual; or (iv) for purposes of caring for such child for a period beginning immediately following such birth or placement. The total number of hours treated as Hours of Service under this paragraph (e) by reason of any one such pregnancy or placement shall not exceed 501 hours. Hours of Service credited under this paragraph (e) shall be credited in the first Computation Period in which such crediting is necessary to prevent a One-Year Break in Service.
(f) An Hour of Service also means each hour for which an Employee was directly or indirectly paid or entitled to payment by Nations Heritage Federal Credit Union or Merrimack Mortgage Company, Inc. prior to the time it became an Affiliated Company.
2.14 Limitation Year means the 12-consecutive-month period ending on December 31 of each year.
2.15 Member means any Employee who is eligible to participate in the Plan as determined under Article III of this Plan.
2.16 One-Year Break in Service means any Plan Year during which an Employee has not completed or been credited with more than 500 Hours of Service.
2.17 Participating Company means an Affiliated Company which has adopted this Plan.
2.18 Period of Service means a period of employment commencing on the Employees Employment Commencement Date or Reemployment Commencement Date, whichever is applicable, and ending on the Employees Severance from Service Date. For purposes of this Section, the following definitions shall apply:
(a) Employment Commencement Date means the date on which the Employee first performs an Hour of Service.
(b) Reemployment Commencement Date means the first date, following a Period of Severance that is not required to be taken into account under the service spanning rules described below in this Section, on which the Employee performs an Hour of Service.
(c) Severance from Service Date means the earlier of:
(i) The date on which an Employee incurs a termination from employment by reason of a quit, retirement, discharge or death; or
(ii) The first anniversary of the first date of a period in which an Employee remains absent from employment (with or without pay) with the Company or an Affiliated Company for any reason other than a quit, retirement, discharge or death, such as vacation, holiday, sickness, disability, leave of absence or layoff. Notwithstanding the foregoing, the Severance from Service Date of an Employee who is absent from employment beyond the first anniversary of the first day of absence for maternity or paternity reason is the second anniversary of the first day of such absence.
Periods of Service shall generally be aggregated unless such Periods of Service may be disregarded under Section 410(b)(5) or 411(a)(4) of the Code. In determining a Period of Service, the Plan shall take into account the following Periods of Severance, if any:
(1) The Period of Severance from the date on which an Employee incurs a Severance from Service Date by reason of a quit, discharge or retirement to the date on which such Employee performs an Hour of Service, provided that such Hour of Service is performed within 12 months of the Severance from Service Date; and
(2) The Period of Severance from the date on which an Employee incurs a Severance from Service Date by reason of a quit, discharge or retirement during an absence from employment of 12 months or less for any reason other than a quit, discharge, retirement or death, to the date on which such Employee performs an Hour of Service provided that such Hour of Service is performed within 12 months of the date on which such Employee was first absent from employment.
For purposes of measurement, a period of Service may be divided into 12-month periods, each constituting a one-year Period of Service. A one-year Period of Service determined for eligibility purposes shall be referred to herein as a Period of Eligibility Service, which shall be
credited only at the end of the 12-month period and an Employee shall not be deemed to accumulate proportionate amounts of such Periods of Eligibility Service during the period.
2.19 Period of Severance means a continuous period of time that begins on an Employees Severance from Service Date, and ends when an Employee returns to employment with the Company or an Affiliated Company.
In the case of an Employee who is absent from work for maternity or paternity reason beyond the first anniversary of the first day of such absence, a Period of Severance begins on the second anniversary of the first day of such absence. The period of absence between the first and second anniversaries of the first day of absence from work for maternity or paternity reason is neither a Period of Service nor a Period of Severance.
A one-year Period of Severance shall be determined on the basis of a 12-consecutive-month period, beginning on the Severance from Service Date and ending on the first anniversary of such date, provided that the Employee during such 12-consecutive-month periods does not perform an Hour of Service.
2.20 Plan means the HarborOne Bank Employee Stock Ownership Plan as set forth herein, and as it may be amended from time to time.
2.21 Plan Year means the fiscal year of the Trust, being the 12-consecutive-month period ending on December 31 of each year, except that the Plan Year ending December 31, 2016 shall only cover the period from the Effective Date to December 31, 2016.
2.22 Stock means shares of the voting common stock of HarborOne Bancorp, Inc.
2.23 Trust means the sum of the assets held in the trust or trusts established pursuant to the Plan plus all contributions made hereunder and held by the Trustee in a trust or trusts created pursuant hereto, increased by gains, profits, or income thereon and decreased by any
losses thereon, by any expenses properly incurred in the administration of the Plan and Trust paid therefrom, and by any payments made therefrom under the Trust.
2.24 Trustee means the trustee or trustees appointed by the Company as Trustee(s) of the Trust in accordance with Article IX.
2.25 Year of Vesting Service for any Employee means each Plan Year during which such Employee is credited with at least 1,000 Hours of Service. All Years of Vesting Service shall be credited to an Employee, including Years of Vesting Service with Nations Heritage Federal Credit Union and Merrimack Mortgage Company, Inc., except that Years of Vesting Service credited before an Employees 18 th birthday shall be excluded.
ARTICLE III - MEMBERSHIP
3.01 Eligibility for Membership . Each Employee employed on the Effective Date who has attained age 21 and has completed a Period of Eligibility Service shall become a Member on the Effective Date. Each other Employee, including each future Employee, shall become a Member under the Plan on the Entry Date coincident with or next following the date on which he attains age 21 and completes one Period of Eligibility Service.
3.02 Determination of Eligibility by the Committee . The determination of an Employees eligibility for membership under the Plan shall be made by the Committee from the Companys records, and the Committees decisions on these matters shall be conclusive and binding upon all persons.
3.03 Duration of Membership . A Member shall continue as an active Member until his employment with the Company is terminated and, except as otherwise provided in Article V, shall cease to be an active Member entitled to share in contributions hereunder immediately upon such termination of employment. A former active Member shall once again become an active Member on the date on which he again becomes an Employee of the Company.
3.04 Unpaid Leaves of Absence . In the case of an Employee who leaves the Company to enter the armed services of the United States of America and who returns to its employ at or before the expiration of 90 days after the date on which he is first entitled to be released from active duty in the armed services (or at such later date as the Company may approve or as may be required by law) or an Employee who, with the approval of the Company and without pay, is absent from work on account of sickness, temporary disability, temporary layoff, jury duty, vacation or for any other similar reason, shall be credited by the Committee with the number of Hours of Service obtained by multiplying the number of hours in his regular work week immediately prior to the date such absence began by the duration (in weeks) of the absence. For
purposes of granting leaves of absence and determining the number of credited hours, Employees in similar circumstances shall be treated alike in accordance with the standards set forth in Section 8.05. Nothing herein contained shall restrain the Companys right to terminate the employment of any Employee, whether or not during a leave of absence.
ARTICLE IV - CONTRIBUTIONS
4.01 Company Contribution . For each Plan Year, the Company shall contribute to the Trust that amount of cash and/or that number of shares of Stock as may be voted by the Board as a regular contribution to the Trust. The amount of the Company contributions to the Trust for any Plan Year, when added to any contributions made with respect to that Plan Year under any other qualified plan to which the Company contributes, shall not exceed the maximum amount deductible for Federal income tax purposes for the Companys fiscal year beginning in the Plan Year with respect to which such contributions are made. Notwithstanding the foregoing, if the Plan borrows money to acquire shares of Stock, the Company shall contribute cash to the Plan at such times and in such amounts as are necessary to enable the Plan to meet its obligations under any such loan. In the event that any contribution made by the Company is in excess of the maximum amount deductible for Federal income tax purposes for the Companys fiscal year beginning in the Plan Year, such excess contribution shall be carried over to a subsequent fiscal year of the Company when it can be deducted from the Companys income.
4.02 Payment of Contributions . The contributions made by the Company to the Trust for each Plan Year shall be paid into the Trust at such time or times as the Company determines but not later than the time required by law in order for the Company to obtain a deduction of the amount of such payment for Federal income tax purposes.
4.03 Reversion of Certain Contributions . Except as otherwise expressly provided in Section 4.01, all contributions made by the Company pursuant to Sections 4.01 shall be made upon the condition that such contributions are fully deductible for Federal income tax purposes. In the event that any such deduction is disallowed in whole or in part, then the Company may direct the Trustee to return such contribution (to the extent disallowed) to the Company at any time within the 12-month period commencing on the date of disallowance. In the event the
Company shall make a contribution hereunder on the basis of a mistake of fact, the Company may direct the Trustee to return such contribution to the Company at any time within the 12-month period commencing on the date of contribution.
4.04 Members Contributions . Contributions by Members shall not be permitted.
ARTICLE V - MEMBERS ACCOUNTS
5.01 Maintenance of Accounts . The Committee shall maintain a book Account for each Member for the purpose of recording his interest in the Trust. The Account of each Member shall be credited as of each Allocation Date with such Members share of Company contributions, his share of any forfeitures, and his share of the net increase or decrease in the Trust assets by reason of any changes in the value of the Trust assets other than Stock, any earnings on the Trust assets, and any expenses charged against the Trust. Each Members Account shall be in two parts (Part A and Part B). Part A shall consist of that number of shares representing the Members share of the Stock (other than Stock held in a suspense account pursuant to Article XI) held by the Trust, and Part B shall consist of that number of dollars representing the Members share of the other assets of the Trust. In maintaining the Accounts of Members and the parts thereof, the Committee shall direct the Trustee to adopt such accounting methods or make such equitable adjustments as the Committee determines to be necessary or appropriate as long as such methods or adjustments are consistent with the standards set forth in this Plan. The Committee shall direct the Trustee to maintain adequate records of the cost basis of all shares of Stock allocated to each Members Account. In the event that Trust assets other than Stock are used to acquire Stock, the Committee shall direct the Trustee to debit Part B of the Account of each Member and to credit the acquired Stock to Part A of the Account of each Member in proportion to such Members share of the assets so used. In the event Stock is disposed of in return for such other assets, the Committee shall direct the Trustee to debit Part A of the Account of each Member and to credit the acquired assets to Part B of the Account of each Member in proportion to such Members share of the disposed Stock. Notwithstanding the foregoing, the Committee shall also direct the Trustee to maintain a Dividend Account for each
Member to which shall be allocated each Members share of dividends paid by HarborOne Bancorp, Inc. with respect to allocated shares of Stock held in the Trust.
5.02 Compensation Schedule . As soon as practicable after the end of each Plan Year, the Company shall deliver to the Committee a schedule showing the name of each Member (a) who was an Employee on the last day of the Plan Year, or (b) who retired, became disabled or died (within the meaning of Section 6.02 to 6.04) during such Plan Year, and opposite the name of each such Member the amount of Compensation paid to him during such Plan Year. The schedule shall also contain such other information as the Committee may reasonably require for the proper administration of the Plan and Trust.
5.03 Allocation of Company Contributions . Once the total contributions have been made by the Company for the Plan Year and the Company has provided the schedule required to be furnished to the Committee pursuant to Section 5.02, and after the Account balances of the Members have been adjusted as provided in Section 5.06 and forfeitures determined and allocated under Section 5.04, the Committee shall allocate a portion of the sum of Company contributions to the Account of each Member listed on said schedule, which amount shall bear the same ratio to the sum of Company contributions as the Compensation of each Member shown on said schedule bears to the total Compensation listed for all such Members.
5.04 Allocation of Forfeitures . Any amounts forfeited by Members pursuant to Section 6.05(d) shall be allocated, as of the end of each Plan Year, to the Accounts of Members who are entitled to share in the Company contributions for such Plan Year on the same basis as that described in Section 5.03 for the allocation of the Company contributions to the Trust.
5.05 Valuation of Assets Other than Stock . As of each Allocation Date, the Trustee shall determine the total net worth of the Trust assets (other than Stock) by evaluating all of such
assets and its liabilities (other than liabilities covered by Article XI) as of that date, but excluding from the assets (a) the amount of the contributions made by the Company with respect to the period which includes said Allocation Date, and (b) any dividends on allocated shares of Stock which accrued after the preceding Allocation Date (Current Dividends). In determining the net worth of such Trust assets, the Trustee shall value such Trust assets at their fair market value and shall determine the fair market value of assets with no readily ascertainable market value on any reasonable basis it deems appropriate. There shall be included as of the Allocation Date, without implied limitation, income on hand, income accrued, dividends payable but not paid, and uninvested cash, whether income or principal; and there shall be deducted as of the Allocation Date, without implied limitation, liabilities accrued (other than liabilities covered by Article XI). A determination by the Trustee of the fair market value of any of the Trust assets, or of the net worth of said Trust assets, shall be conclusive and binding upon all persons.
5.06 Allocation of Trust Assets Other than Stock . The net worth of such Trust assets as determined on each Allocation Date pursuant to Section 5.05 shall be compared with the total of all amounts standing to the credit of Part B of the Accounts all Members of the Plan, as of such Allocation Date, excluding from Part B of the Accounts of said Members any Current Dividends and any amounts credited from the contributions of the Company with respect to the period ending with said Allocation Date. The excess or deficiency of such net worth as so compared with the total Part B account balances of the Accounts of all Members shall be credited or charged to Part B of the Accounts of all such Members in the proportion that each such Part B account balance bears to the total of all such Part B account balances. Current Dividends shall be credited to the Dividend Account of each Member. Prior to the time that the Current Dividends are reinvested in shares of Stock or distributed in cash to Members, they shall
be invested in a short-term money market vehicle or other similar cash equivalents. Dividend Accounts shall be adjusted each Allocation Date in a manner similar to the adjustments to Part B of the Members Accounts as prescribed by this Section 5.06.
5.07 Dividends on Stock . At the sole discretion of the Company, dividends on allocated shares of Stock held under the Trust on the record date may be (a) paid in cash directly to the Members, (b) paid to the Trustee and distributed in cash to the Members no later than 90 days after the close of the Plan Year in which paid, or (c) paid to the Trustee and allocated to the Members Accounts as provided in Section 5.06. Members may elect to receive any Current Dividends allocated to their Dividend Accounts in cash within 90 days after the close of the Plan Year in which paid, or reinvested in shares of Stock. A Member who fails to make an affirmative dividend election shall be deemed to have elected to reinvest the Current Dividends in shares of Stock. If any dividend on allocated shares of Stock is to be distributed in cash to the Members, the Committee shall direct the Trustee to follow the provisions of Section 5.06 in determining the amount of cash which is to be distributed to each Member. Dividends on unallocated shares of Stock held under the Trust on the record date shall be paid to the Trustee and applied towards payments on an ESOP Loan described in Article XI.
5.08 Distributions and Forfeitures . Whenever a distribution is made to or in behalf of a Member in accordance with the provisions of Article VI, such Members Accounts shall be charged with the amount of such distribution. Whenever a Member shall forfeit all or any portion of the amount standing to the credit of his Accounts in accordance with the provisions of Section 6.05, such Members Accounts shall be charged with the amount of such forfeiture.
In the event that a Member forfeits a portion of his Accounts pursuant to Section 6.05(d), such forfeiture shall be made with respect to the various types of assets in his Accounts on the following basis:
(a) such forfeiture shall first be made with respect to assets other than Stock, if any;
(b) to the extent that such forfeiture exceeds the amount of assets available under (a), it shall next be made with respect to Stock, if any, which had not been released to the Members Accounts from a Suspense Account established pursuant to Article XI; and
(c) to the extent that such forfeiture exceeds the amount of assets available under (a) and (b), it shall be made with respect to any other Stock credited to the Members Accounts.
5.09 Limitations on Allocations . Notwithstanding anything hereinabove to the contrary, the amount credited to the Account of any Member for any Limitation Year pursuant to Section 5.03 (dealing with Company contributions), or this Section 5.09 or as a forfeiture pursuant to Section 5.04 shall be reduced to the extent that such amount would cause
(a) the amount of such Members nondeductible contributions under any other qualified plan maintained by the Company or any affiliate (within the meaning of Sections 414(b), (c), (m) and (o) of the Code and subject to Section 415(h) thereof), plus
(b) the Company contributions and the forfeitures credited to the accounts of such Member under the Plan and any other defined contribution plan maintained by the Company or any affiliate (within the meaning of Sections 414(b), (c), (m) and (o) of the Code and subject to Section 415(h) thereof) for such Limitation Year to exceed the lesser of
(A) $53,000, as adjusted pursuant to Section 415(d) of the Code, or
(B) One-hundred percent of such Members compensation (determined in accordance with Treasury Regulations Section 1.415c-2(d)(4) for such Limitation Year.
The compensation limit referred to in (B) above shall not apply to any contribution for medical benefits after separation from service (within the meaning of Section 401(h) or Section 419A(f)(2) of the Code) which is otherwise treated as an annual addition.
For purposes of this Section 5.09, the Company and all Affiliated Companies shall be considered one employer, and the limitations shall be applicable to the total benefits received from the Company and all Affiliated Companies. Furthermore, in determining what is an Affiliated Company for this purpose, the phrase more than 50% shall be substituted for at least 80% each place it appears in Section 1563(a)(i) of the Code.
If the amount allocated to a Members Accounts exceeds the maximum permissible amount permitted by this Section 5.09, the error shall be corrected in accordance with the correction methods under the Employee Plans Compliance Resolution System.
Solely for purposes of this Section 5.09, a Members compensation as used herein shall also include the following items of compensation if they are paid after the Members severance from employment with the Company, provided that such compensation is paid by the later of 2½ months after severance from employment with the Company or the end of the Limitation Year that includes the date of severance from employment, and such amounts would have been included in the definition of compensation if they were paid prior to the Members severance from employment:
(1) Compensation for services during the Members regular working hours, or compensation outside the Members regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments, if such payment would have been made if the Member had continued in employment with the Company;
(2) Payment for unused accrued bona fide sick, vacation or other leave, but only if the Member would have been able to use the leave if employment had continued; and
(3) Payment under a nonqualified deferred compensation plan, but only if the payment would have been paid to the Member at the same time if the Member had continued in employment with the Company and only to the extent that the payment is includible in the Members gross income.
Other post-severance payments not described above shall not be considered compensation under this Section 5.09.
Notwithstanding the foregoing, if no more than one-third of the Company contributions for any Limitation Year are allocated to the group of Members consisting of Highly Compensated Employees (within the meaning of Section 414(q) of the Code), Company contributions applied to the repayment of interest on such ESOP Loan (as defined in Article XI) and forfeitures of Stock acquired with the proceeds of such loan allocated to a Members Account shall be disregarded in determining the maximum amount that can be allocated to his Account under this Section 5.09.
ARTICLE VI - BENEFITS
6.01 Restrictions on Payments and Distributions . No shares of Stock or other property of the Trust shall be paid out or distributed by the Trustee except (a) for the purchase or other acquisition of Stock or other appropriate investments, (b) for defraying the expenses, including taxes, if any, of administering the Plan and Trust as elsewhere provided herein, (c) for the repayment of loans or indebtedness or satisfaction of obligations incurred in connection with loans made to the Trust or indebtedness incurred by it, (d) for the purpose of making distributions to or for the benefit of Members in accordance with the provisions of this Article VI or Section 5.07, or (e) for the return of Company contributions pursuant to Sections 1.03 or 4.03.
All benefits payable under the Plan shall be paid or provided for solely from the Trust, and the Company, Committee and Trustee assume no liability or responsibility therefor.
6.02 Retirement . Upon retirement of a Member, which shall be deemed to mean any termination of his employment with the Company at or after his attainment of age 55, for a reason other than the disability or death of such Member, the Committee shall direct the Trustee to distribute, in accordance with the provisions of Section 6.07, the full amount standing to the credit of such Members Account and Dividend Account. A Member shall become fully vested in his Account upon his attainment of age 55.
6.03 Disability Retirement . If a Member is disabled, the Committee shall direct the Trustee to distribute, in accordance with the provisions of Section 6.07, the full amount standing to the credit of such Members Account and Dividend Account. A Member is considered disabled for purposes of this Plan if he becomes eligible to receive Social Security disability benefits.
6.04 Death Benefits.
(a) Upon the death of any Member who has a surviving spouse, the Committee shall direct the Trustee to distribute the full amount standing to the credit of such Members Account and Dividend Account to the Members surviving spouse, unless the exception provided by paragraph (b) of this Section 6.04 applies.
(b) The requirement of paragraph (a) of this Section 6.04 shall not apply if (i) the Member elects to designate a Beneficiary other than his spouse and (A) his spouse consents to such election in a writing that acknowledges the effect of the election, (B) such election designates a Beneficiary which may not be changed without the consent of the spouse (or the consent of the spouse expressly permits designations by the Member without any requirement of further consent by the spouse), and (C) the spouses consent acknowledges the effect of the election and is witnessed by a notary public or a representative of the Plan, or (ii) it is established to the satisfaction of the Committee that the consent of the surviving spouse could not have been obtained because there is no spouse, because the spouse cannot be located, or because of other circumstances prescribed by regulations under Section 417(a)(2) of the Code.
A former spouse shall be treated as a surviving spouse to the extent benefits must be paid to such former spouse upon the Members death pursuant to a qualified domestic relations order (as defined in Section 414(p) of the Code), except that no consent shall be required from such former spouse with respect to the designation of a Beneficiary to receive benefits not subject to said order.
(c) If, and only if, a Member is permitted under this Section 6.04 to designate a Beneficiary other than his surviving spouse, then such Members Account and Dividend Account shall be distributed in accordance with this paragraph (c) of Section 6.04. Such a
Member shall have the right to designate one or more Beneficiaries, including contingent Beneficiaries, entitled to receive the amount payable in behalf of such Member under the provisions of this Plan in the event of death. Such designation shall be made in writing in such manner as the Committee shall determine. A Member may change such designation from time to time, and may revoke such designation, provided, however, that any subsequent designation must meet the requirements of this Section 6.04. Upon the death of any Member, the Committee shall distribute, for the benefit of such Members Beneficiaries and in accordance with the provisions of Section 6.07, the full amount standing to the credit of the Members Account. If a Member dies without having designated a Beneficiary, or if none of the designated Beneficiaries survives the Member, or if the Committee is in doubt as to the effective status of a Beneficiary designation, all amounts payable in behalf of the Member shall be distributed to:
(a) his spouse,
(b) his natural and adopted children, per stirpes ,
(c) his parents, in equal shares,
(d) his brothers and sisters, in equal share,
(e) his executors and administrators.
The amount payable shall be paid to the first-named person surviving the Member or class with one or more persons surviving the Member, in the order named, to the exclusion of all subsequently-named persons and classes. If a Beneficiary entitled to receive any amount payable on behalf of a Member under the Plan dies prior to having received the entire amount, the undistributed balance, together with any accumulated interest thereon, shall be distributed to the estate of such Beneficiary in accordance with Section 6.07.
6.05 Termination of Employment Prior to Retirement or Death.
(a) If a Members employment with the Company and all Affiliated Companies is terminated under circumstances other than as provided in Sections 6.02 through 6.04, such Member shall be entitled to a benefit equal to the amount standing to the credit of his Dividend Account and the vested percentage standing to the credit of his Account determined in accordance with the following schedule:
Years of Vesting Service |
|
Percentage Vested |
|
|
|
|
|
Less than 2 |
|
0 |
% |
At least 2 but less than 3 |
|
20 |
% |
At least 3 but less than 4 |
|
40 |
% |
At least 4 but less than 5 |
|
60 |
% |
At least 5 but less than 6 |
|
80 |
% |
6 or more |
|
100 |
% |
A Member absent from the employ of the Company on an absence with respect to which he is credited with Hours of Service pursuant to Section 3.04 shall not be considered to have terminated his employment for purposes of this Section.
(b) The benefit determined in accordance with the provisions of this Section 6.05 shall never be adjusted or altered in any fashion on account of any Years of Vesting Service which the Member completes upon any reemployment with the Company, except as provided in Section 6.06.
(c) The determination of the amount to which such Member is entitled in accordance with this Section 6.05 shall be made by the Committee and communicated to the Trustee, and the Committees determination shall be conclusive and binding upon all persons. Distribution of such benefit shall be made in accordance with the provisions of Section 6.07.
(d) Any amounts standing to the credit of a Members Account to which he is not entitled at the time of his termination of employment with the Company and all Affiliated
Companies shall be forfeited by him the earlier of (a) the date the Member receives a total distribution of his vested account balances from the Plan or (b) the date he incurs five consecutive One-Year Breaks in Service. Amounts forfeited pursuant to this paragraph shall be allocated to the Accounts of remaining Members in accordance with the provisions of Section 5.04 as of the end of the Plan Year in which the forfeiture occurs.
6.06 Reemployment . If a terminated Member is reemployed by the Company, he shall again become a Member upon reemployment pursuant to Section 3.03. Except as provided below, all future Company contributions on his behalf shall be credited to his Account, and all his prior Years of Vesting Service shall be restored for the purpose of calculating the vested portion of such Account.
If such a terminated Member was not 100 percent vested under Section 6.05(a) at the time of his prior termination, the following special provisions shall apply:
(a) If such a terminated Member is reemployed after incurring five or more consecutive One Year Breaks in Service, he shall have no right to the previously forfeited portion of his Account.
(b) If such a terminated Member is reemployed before incurring five consecutive One Year Breaks in Service, the full amount, if any, which was forfeited from his Account as a result of his prior termination shall be restored to his Account as of the last day of the Plan Year which contains the date of reemployment. In order to effect the restoration of previously forfeited amounts to a Members Account, the Committee shall have the authority to direct the Trustee to use any unallocated amounts for said purpose. In making such restoration, the Committee shall direct the Trustee to first utilize any available forfeitures, and then Company contributions.
6.07 Manner and Timing of Distributions.
(a) Whenever a Members Account and Dividend Account become distributable pursuant to Sections 6.02 through 6.05 hereof to such Member or his Beneficiary, distribution of said Accounts shall be made by the payment of the full amount distributable in one lump sum, in cash or in shares of Stock or partially in cash and partially in shares of Stock as selected by such Member or his Beneficiary in writing; provided, however, that the Committee shall direct the Trustee to distribute cash in lieu of fractional shares. Distributions shall generally be processed on a quarterly basis on such date selected by the Committee with respect to terminated Members (or Beneficiaries in the case of deceased Members) who have returned their distribution forms to the Committee at least 15 days (or such other period permitted by the Committee) prior to the quarterly distribution date. If cash is to be distributed in lieu of shares of Stock, the Trustee may either sell such shares at fair market value to HarborOne Bancorp, Inc. or on the open market and distribute the cash proceeds (net of selling expenses) or utilize cash already held in the Trust.
(b) Whenever during any Plan Year, the amount standing to the credit of a Members Accounts become distributable pursuant to Sections 6.02 through 6.05, the Committee shall direct the Trustee to distribute the vested portion of the Members Accounts within a reasonable time after such separation of service or death. Such distributions may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that:
(i) the Committee clearly informs the Member that the Member has a right to a period of at least 30 days after receiving the notice to consider the decision of
whether or not to elect a distribution (and, if applicable, a particular distribution option), and
(ii) the Member, after receiving the notice, affirmatively elects a distribution.
(c) Notwithstanding any provision elsewhere herein to the contrary, in order to comply with Sections 401(a)(14), 411(a)(11), 414(p) and 417 of the Code, the following provisions shall apply:
(i) If a Members aggregate account balance to be distributed upon disability or severance under Section 6.03 or 6.05 is greater than $1,000, such Account shall not be distributed in whole or in part until the Member attains age 65, dies or requests a distribution in writing whichever is earliest. If a Members aggregate account balance to be distributed upon disability or severance under Section 6.03 or 6.05 does not exceed $1,000, the Committee shall direct the Trustee to distribute such Account directly to the Member in a lump sum payment.
(ii) In no event (unless the Member otherwise consents in writing) shall the distribution of a Members account begin later than the 60 th day after the close of the Plan Year in which the later of the following events occurs:
(A) the Members 65 th birthday; or
(B) the tenth anniversary of the date on which the Member first became a Member; or
(C) the Members termination of employment with the Company.
(iii) If, and to the extent that, any portion of a Members Account is payable to a former spouse or dependent pursuant to a qualified domestic relations order within the meaning of Sections 401(a)(13)(B) and 414(p) of the Code, the provisions of said order shall govern the distribution thereof. Distribution may be made to the alternate payee under a qualified domestic relations order with respect to the Member prior to the time such Members Account otherwise becomes distributable if such Member would have been entitled to receive such amount under this Article VI had he terminated employment with the Company.
6.08 Discharge of Trustees Obligations to Make Payment . Whenever the Trustee is required to make any payment or payments to any person in accordance with the provisions of this Article VI or Article VII, the Committee shall notify the Trustee in writing of such persons last known address as it appears in the Companys records; and the obligation of the Trustee to make such payment or payments shall be fully discharged by mailing the same to the address specified by the Committee.
6.09 Special Distribution from Account and Dividend Account.
(a) For the first Plan Year in which a Member attains age 55 and completes at least ten years of Plan membership, and for the five succeeding Plan Years, such Member may elect to receive an amount from his Account and Dividend Account not exceeding his Diversified Investment Amount determined as of the end of the Plan Year. Such election must be filed in writing with the Committee during the 90 day period immediately following the end of the Plan Year to which it relates.
(b) For purposes of (a) above, a Members Diversified Investment Amount for each Plan Year is equal to (i) 25 percent of the sum of (A) the portion of the Members account
balances as of the end of the Plan Year attributable to Stock, and (B) amounts previously distributed to the Member pursuant to this Section 6.09, minus (ii) amounts previously distributed to the Member pursuant to this Section 6.09. The portion of the Members account balance attributable to Stock shall be determined by multiplying the number of shares of Stock held in his Account and Dividend Account by a fraction the numerator of which is the number of shares of Stock allocated under the Plan to the Accounts and Dividend Accounts of all Members (not to exceed the number of shares of Stock held under the Plan as of the end of the Plan Year) and the denominator of which is the total number of shares of Stock allocated under the Plan to the Accounts and Dividend Accounts of all Members as of the end of the Plan Year.
(c) Any distribution required to be made under this Section 6.09 shall be made no later than 180 days after the end of the Plan Year to which such distribution relates.
(d) Notwithstanding anything to the contrary above, 50 percent shall be substituted for 25 percent in (b)(i) above for the last Plan Year for which the Member may make an election under this Section 6.09.
(e) Notwithstanding anything to the contrary above, if the fair market value (determined as of the date immediately preceding the first day a Member is eligible to make an election under (a) above) of the portion of a Members account balance attributable to Stock acquired by the Plan is $500 or less, then the provisions of this Section 6.09 shall not be applicable to such Member and he shall not be eligible to receive a distribution from his Account and Dividend Account pursuant to this Section 6.09.
ARTICLE VII - AMENDMENT AND TERMINATION
7.01 Right to Amend or Terminate . The Company reserves the right at any time and from time to time to amend the Plan, or discontinue or terminate the Plan and the Trust by delivering to the Trustee a copy of an amendment or appropriate Boards resolution of discontinuance or termination certified by an officer of the Company. Notwithstanding the foregoing, and except as provided in Section 7.02 or as permitted by the Code or ERISA, the Company shall not have any power to amend or terminate this Plan in such manner as would cause or permit any of the Trust assets to be diverted to purposes other than for the exclusive benefit of the Employees of the Company or their Beneficiaries or would cause a reduction in the amount theretofore credited to any Members Account and Dividend Account or would cause or permit any portion of the Trust assets to revert to or become the property of the Company; and provided further that the rights and responsibilities of the Trustee with respect to the Trust assets shall not be altered in any manner without its written consent.
7.02 Amendment for Tax Exemption . The Company reserves the right to amend the Plan and the Trust in such manner as may be necessary or advisable so that the Plan and may qualify and continue to qualify as a tax-qualified plan and that the Trust may qualify and continue to qualify as an exempt employees trust under the provisions of the Code as now in force or as it may hereafter be changed or amended; and any such amendment may be made retroactively.
7.03 Liquidation of Trust in Event of Termination . In the event of termination or partial termination (within the meaning of Section 411(d)(3) of the Code) of the Plan and the Trust, or complete discontinuance of contributions thereto by the Company, the rights of all Members (or, in the case of a partial termination, the Members affected thereby) to amounts theretofore credited to their accounts shall be fully vested and nonforfeitable. In the event of
such termination, partial termination or discontinuance, the Trustee shall hold the assets of the Trust in accordance with the provisions of the Plan and distribute such assets from time to time to Members entitled thereto in accordance with such provisions; provided that the Committee in its discretion may direct the Trustee to apply the amount standing to the credit of an affected Members Account and Dividend Account for his benefit, in accordance with Section 6.07, at any time after such termination, partial termination or discontinuance but prior to the time when such Member would otherwise become entitled thereto under the Plan. In the event that the Company shall terminate the Trust at any time prior to the complete distribution of all property held by the Trustee pursuant to such provisions, the Trustee shall (a) pay the liabilities, if any, of the Trust; (b) value the remaining assets of the Trust as of the date of termination and adjust the Accounts of the Members in accordance with Sections 5.05 and 5.06; and (c) distribute the assets of the Trust in Stock or partly in Stock and partly in cash to and among the Members in liquidation in proportion to the amounts standing to the credit of their respective Accounts and Dividend Accounts under the Trust as of the termination date.
7.04 Termination of Plan and Trust . The Plan and the Trust hereunder shall in any event terminate whenever all property held by the Trustee shall have been distributed in accordance with the terms hereof.
ARTICLE VIII - ADMINISTRATION OF THE PLAN
8.01 Named Fiduciaries . The named fiduciaries with respect to the Plan shall be the Company, the Committee and the Trustee. The responsibilities of the named fiduciaries shall be allocated as provided herein, and each such fiduciary shall have only those responsibilities and obligations that are specifically imposed upon it by this Plan document and the Trust agreement. It is intended that each of the named fiduciaries shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan and shall not be responsible for any act or omission of any other fiduciary. The Company and the Committee, as named fiduciaries, shall be entitled to delegate all or any part of their fiduciary responsibilities and obligations to any other person or entity. In the event of any such delegation, (a) the named fiduciary shall not be liable for any act or omission of the person to whom the responsibility has been delegated as long as the selection and retention of such person is prudent and (b) the person to whom the fiduciary powers and obligations are delegated shall be responsible only for the proper exercise of the powers, duties, responsibilities and obligations that have been specifically delegated to him.
8.02 Appointment of Committee . The Company shall appoint a Committee of three or more persons, any or all of whom may be officers or Employees of the Company or any other individuals, to be known as an ESOP Committee. The Committee is the Plan Administrator for all purposes of ERISA. The members of the Committee shall serve at the pleasure of and may be removed by the Company. Vacancies in the Committee arising by resignation, death, removal or otherwise shall be filled by the Company. The number of members of the Committee shall be as designated by the Company from time to time. The Trustee shall accept and may rely upon a certification by the Company as to the number and identity of the individuals comprising the Committee from time to time.
8.03 Powers of Committee . The Committee is hereby vested with all the discretionary powers and authority necessary in order to carry out its duties and responsibilities in connection with the administration of the Plan and the Trust as herein provided, and is authorized to make such rules and regulations as it may deem necessary or desirable to carry out the provisions of the Plan and the Trust. The Committee shall determine, in its sole discretion, any question arising in the administration, interpretation and application of the Plan and the Trust, including, without limitation, any questions of fact and any questions submitted by the Trustee on a matter necessary for it properly to discharge its duties; and the decision of the Committee shall be conclusive and binding on all persons.
8.04 Action by Committee . The Committee shall act by a majority of its members at the time in office and such action may be taken by vote at a meeting or in writing without a meeting. The Committee may by such majority action authorize any one or more of its members, or any other person, to execute any direction or document or take any other action on behalf of the Committee, and in such event any one of the members of the Committee may certify in writing to the Trustee or any other person the taking of such action and the name or names of the persons so authorized, including himself. The execution of any direction, document, or certificate in behalf of the Committee by any of its members shall constitute his certification of his authority with respect thereto, and the Trustee or other person shall be protected in accepting and relying upon any such direction, document, or certificate and is released from inquiry into the authority of any of the members of the Committee.
8.05 Discretionary Action . Wherever under the provisions of this Plan the Committee is given any discretionary power or powers, such power or powers shall not be exercised in such
manner as to cause any discrimination in favor of or against any Employee or class of Employees.
8.06 Evidence on Which Committee May Act . In taking any action or determining any fact or question which may arise under the Plan and the Trust, the Committee may, with respect to the affairs of any the Company or its Employees, rely upon any statement by the Company with respect thereto. In the event that any dispute may arise regarding the distribution of any sums or regarding any act to be performed by the Committee or the Trustee, the Committee may in its sole discretion direct that such distribution be retained or postponed or direct the postponement of the performance of such act until actual adjudication of such dispute shall have been made in a court of competent jurisdiction, or until the Company, the Committee or the Trustee shall have been indemnified against loss to the satisfaction of the Committee; provided, however, that in the event of any such dispute, the Committee may rely upon and act in accordance with any directions received from the Company.
8.07 Employment of Agents . The Committee may employ agents, including, but not limited to, custodians, record keepers, accountants, consultants or attorneys, to exercise and perform such of the powers and duties of the Committee hereunder as the Committee may delegate to them, and otherwise to render such services to the Committee as the Committee may determine, and the Committee may enter into agreements setting forth the terms and conditions of such service. The compensation of such agents shall be an expense chargeable in accordance with Section 8.08. The Committee shall be fully protected in delegating any such power or duty to, or in acting upon the advice of, any such agent, in whole or in part, and except as may be required by Federal law, shall not be liable for any act or omission of any such agent, the
Committees only duty being to use reasonable care in the selection and retention of any such agent.
8.08 Compensation and Expense of Committee . The members of the Committee shall serve without compensation for services as such, but all expenses of the Committee, shall be paid by the Trust; provided, the Company, in its sole discretion, may elect to pay all or any portion of such expenses. Such expenses shall include any expenses incident to the functioning of the Trust, including but not limited to attorneys fees and the compensation of other agents, accounting and clerical charges, expenses, if any, of being bonded as required by ERISA, and other costs of administering the Plan and the Trust.
8.09 Indemnification . The Company shall indemnify and hold harmless each member of the Committee from and against any and all claims, losses, damages, expenses (including reasonable attorneys fees approved by the Company), and liability (including any reasonable amounts paid in settlement with the Companys approval), arising from any act or omission of such member, except with respect to a matter as to which such member shall have been judicially determined (or determined by the majority vote of disinterested members of the Board in the event such matter shall have been compromised or settled) not to have acted in good faith in the reasonable belief that the action or omission of such member was in the best interest of the Members and Beneficiaries of the Trust.
8.10 Claims Procedure .
(a) If a Member, Beneficiary, alternate payee, or their authorized representative (hereinafter the Claimant) asserts a right to a benefit under the Plan which has not been received, the Claimant must file a claim for such benefit with the Committee on forms
provided by the Committee. The Committee shall render its decision on the claim within 90 days after its receipt of the claim.
If special circumstances apply, the 90-day period may be extended by an additional 90 days; provided, written notice of the extension is provided to the Claimant during the initial 90-day period and such notice indicates the special circumstances requiring an extension of time and the date by which the Committee expects to render its decision on the claim.
If the Committee wholly or partially denies the claim, the Committee shall provide written notice to the Claimant within the time limitations of the immediately preceding paragraph. Such notice shall set forth:
(i) the specific reasons for the denial of the claim;
(ii) specific reference to pertinent provisions of the Plan on which the denial is based;
(iii) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary;
(iv) a description of the Plans claims review procedures, and the time limitations applicable to such procedures; and
(v) a statement of the Claimants right to bring a civil action under Section 502(a) of ERISA if the claim denial is appealed to the Committee and the Committee fully or partially denies the claim.
(b) A Claimant whose application for benefits is denied may request a full and fair review of the decision denying the claim by filing, in accordance with such procedures as the Committee may establish, a written appeal which sets forth the documents, records and other information relating to the claim within 60 days after receipt of the notice of the denial from the
Committee. In connection with such appeal and upon request by the Claimant, a Claimant may review (or receive free copies of) all documents, records or other information relevant to the Claimants claim for benefit, all in accordance with such procedures as the Committee may establish. If a Claimant fails to file an appeal within such 60-day period, he shall have no further right to appeal.
(c) A decision on the appeal by the Committee shall include a review by the Committee that takes into account all comments, documents, records and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial claim determination. The Committee shall render its decision on the appeal not later than 60 days after the receipt by the Committee of the appeal. If special circumstances apply, the 60-day period may be extended by an additional 60 days; provided, written notice of the extension is provided to the Claimant during the initial 60-day period and such notice indicates the special circumstances requiring an extension of time and the date by which the Committee expects to render its decision on the claim on appeal.
If the Committee wholly or partly denies the claim on appeal, the Committee shall provide written notice to the Claimant within the time limitations of the immediately preceding paragraph. Such notice shall set forth:
(i) the specific reasons for the denial of the claim;
(ii) specific reference to pertinent provisions of the Plan on which the denial is based;
(iii) a statement of the Claimants right to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimants claim for benefits; and
(iv) a statement of the Claimants right to bring a civil action under Section 502(a) of ERISA.
(d) In no event may a claim for benefits be filed by a Claimant more than 120 days after the applicable Notice Date, as defined in (i) through (iii) below.
(i) In any case where benefits are paid to the Claimant as a lump sum, the Notice Date shall be the date of payment of the lump sum.
(ii) In any case where the Committee (prior to the filing of a claim for benefits under this Section 8.10) determines that an individual is not entitled to benefits from the Plan and the Committee provides written notice to such individual of its determination, the Notice Date shall be the date of the individuals receipt of such notice.
(iii) In any case where the Committee provides an individual, in connection with a distributable event under the Plan, a written statement of the vested account balance as of a specific date, the Notice Date shall be the latest date of the individuals receipt of such notice.
In no event may any legal proceeding regarding entitlement to benefits or any aspect of benefits under the Plan be commenced later than the earliest of (i) two years after the applicable Notice Date; or (ii) one year after the date a Claimant receives a decision from the Committee regarding his appeal, or (iii) the latest date otherwise prescribed by applicable law.
8.11 Claims Procedure for Disability Determinations
(a) If a Member, Beneficiary, alternate payee, or their authorized representative (hereinafter the Claimant) asserts a right to a benefit on account of disability under the Plan which has not been received, the Claimant must file a claim for such benefit with
the Committee on forms provided by the Committee. The Committee shall render its decision on the claim within 45 days after its receipt of the claim.
If special circumstances apply, the 45-day period may be extended by an additional 30 days if necessitated by matters beyond the control of the Plan. If such an extension of time is required, written notice of the extension shall be furnished to the Claimant before the end of the original 45-day period. This 30-day period may be extended for an additional 30-day period if necessitated by matters beyond the control of the Plan. If such an extension of time is required, written notice of the extension shall be furnished to the Claimant before the end of the first 30-day period.
Each notice of an extension shall be given in writing and shall describe
(i) the circumstances for the extension,
(ii) the date by which a decision is expected,
(iii) the requirements for benefit eligibility,
(iv) the unresolved issues preventing a decision,
(v) the additional information needed to resolve the issues,
(vi) the date by which the additional information must be provided (which shall not be less than 45 days after the notice is provided).
(vii) a statement that (A) if a Claimant fails to submit the requested information within the time specified in accordance with (vi) above, the claim decision will be made based on the information available for review and (B) the review period (as extended) will be tolled until the end of the time specified in (vi) above or, if earlier, the date the information is received.
If the Committee wholly or partially denies the claim, the Committee shall provide written notice to the Claimant within the time limitations of the immediately preceding paragraph. Such notice shall set forth:
(viii) the specific reasons for the denial of the claim;
(ix) specific reference to pertinent provisions of the Plan on which the denial is based;
(x) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary;
(xi) a description of the Plans claims review procedures, and the time limitations applicable to such procedures;
(xii) a statement of the Claimants right to bring a civil action under Section 502(a) of ERISA if the claim denial is appealed to the Committee and the Committee fully or partially denies the claim;
(xiii) notification of the right to receive, without charge, upon request, a copy of any internal rules, guidelines, protocols, or other similar criteria used as a basis for the denial; and
(xiv) if the denial is based on a medical necessity or experimental or similar exclusion or limit, notification of the right to receive, upon request, an explanation of the scientific or clinical judgment that was used in applying the terms of the Plan to the medical circumstances.
(b) A Claimant whose application for benefits is denied may request a full and fair review of the decision denying the claim by filing, in accordance with such procedures as the Committee may establish, a written appeal which sets forth the documents, records and other
information relating to the claim within 180 days after receipt of the notice of the denial from the Committee. In connection with such appeal and upon request by the Claimant, a Claimant may review (or receive free copies of) all documents, records or other information relevant to the Claimants claim for benefit, all in accordance with such procedures as the Committee may establish. If a Claimant fails to file an appeal within such 180-day period, he shall have no further right to appeal.
(c) A decision on the appeal by the Committee shall include a review by the Committee that takes into account all comments, documents, records and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial claim determination. The Committee shall render its decision on the appeal not later than 45 days after the receipt by the Committee of the appeal. If special circumstances apply, the 45-day period may be extended by an additional 45 days; provided, written notice of the extension is provided to the Claimant during the initial 45-day period and such notice indicates the special circumstances requiring an extension of time and the date by which the Committee expects to render its decision on the claim on appeal.
If the Committee wholly or partly denies the claim on appeal, the Committee shall provide written notice to the Claimant within the time limitations of the immediately preceding paragraph. Such notice shall set forth:
(i) the specific reasons for the denial of the claim;
(ii) specific reference to pertinent provisions of the Plan on which the denial is based;
(iii) a statement of the Claimants right to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimants claim for benefits;
(iv) a statement of the Claimants right to bring a civil action under Section 502(a) of ERISA;
(v) notification of the right to receive, without charge, upon request, a copy of any internal rules, guidelines, protocols, or other similar criteria used as a basis for the denial; and
(vi) if the denial is based on a medical necessity or experimental or similar exclusion or limit, notification of the right to receive, upon request, an explanation of the scientific or clinical judgment that was used in applying the terms of the Plan to the medical circumstances.
(d) In no event may a claim for benefits be filed by a Claimant more than 120 days after the applicable Notice Date, as defined in (i) through (iii) below.
(i) In any case where benefits are paid to the Claimant as a lump sum, the Notice Date shall be the date of payment of the lump sum.
(ii) In any case where the Committee (prior to the filing of a claim for benefits under this Section 8.11) determines that an individual is not entitled to benefits from the Plan and the Committee provides written notice to such individual of its determination, the Notice Date shall be the date of the individuals receipt of such notice.
(iii) In any case where the Committee provides an individual, in connection with a distributable event under the Plan, a written statement of the vested
account balance as of a specific date, the Notice Date shall be the latest date of the individuals receipt of such notice.
In no event may any legal proceeding regarding entitlement to benefits or any aspect of benefits under the Plan be commenced later than the earliest of (i) two years after the applicable Notice Date; or (ii) one year after the date a Claimant receives a decision from the Committee regarding his appeal, or (iii) the latest date otherwise prescribed by applicable law.
ARTICLE IX - THE TRUST
9.01 Trust Agreement . The Company shall have in effect an agreement with one or more individuals or with a corporate trustee or trustees selected by the Company to manage and operate the Trust and to receive, hold, invest and disburse the contributions and other income of the Trust in accordance with the Plan. The Company may modify any such agreement from time to time to accomplish the purposes of the Plan, and the Company may remove any Trustee and appoint any successor or successors. The Trustee shall pay from the Trust any expenses incident to the operation of the Plan or the Trust to the extent authorized by the Company in accordance with the applicable provisions of ERISA and this Plan.
9.02 Exercise of Voting Rights.
(a) Except as otherwise provided in subsection (b), the Trustee is hereby authorized to vote upon the Stock and any other securities comprising the Trust or otherwise consent to or request any action on the part of the issuer of such securities, and to give general and special proxies or powers of attorney, with or without power of substitution, and to participate in reorganizations, recapitalizations, consolidations, mergers and similar transactions with respect to such securities; to deposit such securities (if any) in a voting trust, or with any protective or like committee, or with a Trustee, or with depositories designated thereby; and generally to exercise any of the powers of an owner with respect to such securities which the Trustee deems to be for the best interest of the Trust to exercise.
(b) Each Member shall have the power to instruct the Trustee as to how the Stock (including any fractional shares) held in his Account and Dividend Account should be voted at all stockholders meetings. The Trustee shall vote such Stock in accordance with such instructions. To facilitate such right, the Trustee, with the assistance of the Committee, shall deliver to each Member a copy of all proxies, notices and other information which HarborOne
Bancorp, Inc. distributes to its shareholders generally and the Committee shall establish such procedures for the collection of Members instructions in the voting of such Stock and the timely transmission of such instructions to the Trustee as it shall determine to be appropriate. Any such Stock with respect to which voting instructions have been sought but have not been timely received by the Trustee shall not be voted by the Trustee. Any Stock with respect to which the Trustee has the power to vote but which has not been allocated to the accounts of any Member shall be voted by the Trustee in the same proportion as the Trustee is directed to vote the Stock with respect to which instructions have been received up to 24 hours before the commencement of the shareholders meeting. In the event no shares have been allocated, the Trustee shall vote all shares of unallocated Stock as directed by the Committee. Members do not acquire ownership of Stock held by the Trustee for their account unless and until the Trustee delivers to them in accordance with Article VI hereof, stock certificates which have been registered in their names on the stock books of HarborOne Bancorp, Inc.
9.03 Tender Offer or Exchange Offer . In the event of a tender offer or exchange offer by any person (including the Company or HarborOne Bancorp, Inc.) for any or all shares of Stock held in the Trust, each Member shall have the right and shall be afforded the opportunity to direct in writing whether the Stock (including any fractional shares) allocable to his Account and Dividend Account shall be tendered or exchanged in response to such offer. The Trustee shall act with respect to such Stock in accordance with such written instructions. Any Stock held by the Trustee which is not yet allocable to any Members Account and Dividend Account and any Stock with respect to which written instructions have been sought but have not been timely received by the Trustee shall be tendered or exchanged in the same proportion as the Stock which is allocable to the Members Accounts and Dividend Accounts and with respect to which
written instructions have been timely received is being tendered or exchanged. To facilitate the foregoing right of the Members, the Committee shall distribute or cause to be distributed to each Member substantially the same information as may be distributed to the stockholders of HarborOne Bancorp, Inc. in connection with such offer and the Committee shall establish such procedures for the collection of Members instructions with respect to such Stock and the timely transmission of such instructions to the Trustee as it shall determine to be appropriate.
ARTICLE X - THE COMPANY
10.01 Powers of the Company . The Company shall have the power to amend or terminate the Plan and the Trust as provided in Article VII, to appoint and remove members of the Committee as provided in Article VIII, to appoint and remove the Trustee as provided in Article IX, and to do such other acts and things as are provided elsewhere herein.
10.02 No Contract of Employment . Neither the Plan nor the Trust shall not be construed as creating any contract of employment between the Company and any Member, Employee or other person, and nothing herein contained shall give any person the right to be retained in the employ of the Company or otherwise restrain the Companys right to deal with its employees, including Members and Employees, and their hiring discharge, layoff, compensation, and all other conditions of employment in all respects as though the Plan and the Trust did not exist.
10.03 Liability of Company . Subject to its agreement to indemnify the Committee as provided in Section 8.09 and except as otherwise provided by applicable Federal law, neither the Company nor any person acting on behalf of the Company shall be liable for any act or omission on the part of any member of the Committee or the Trustee, or for any act performed or the failure to perform any act by any person with respect to the Plan or Trust, the Companys only duty being to use reasonable care in the selection of the members of the Committee and the Trustee.
10.04 Action by Company . Whenever under the terms of this Plan the Company is permitted or required to take any action, such action shall be taken by the Board or by any committee or officer of the Company thereunto duly authorized, by the Board or otherwise. In such event, any such committee or officer may certify to the Trustee or any person the taking of such action and the name and names of the officers so authorized, including himself. The
execution of any direction, document or certificate on behalf of the Company by any of its officers shall constitute his certification of his authority with respect thereto, and the Trustee or other person shall be protected in accepting and relying upon any such direction, document or certificate and are released from inquiry into the authority of any officer of the Company.
10.05 Successor to Business of Company . Unless this Plan and the Trust be sooner terminated, a successor to the business of the Company, by whatever form or manner resulting, may continue the Plan and the Trust by executing an appropriate supplemental agreement and such successor shall ipso facto succeed to all the rights, powers and duties of the Company hereunder. The employment of any Employee who has continued in the employ of such successor shall not be deemed to have been terminated or severed for any purposes hereunder by reason of such succession.
10.06 Dissolution of the Company . In the event that the Company is dissolved by reason of bankruptcy or insolvency or otherwise, without any provision being made for the continuation of this Plan and the Trust by a successor to the business of the Company, the Plan and the Trust hereunder shall terminate, and the Trustee shall proceed in the same manner as though the Plan and the Trust were being terminated by the Company as provided in Section 7.03.
ARTICLE XI - ESOP LOANS
11.01 ESOP Loan . For purposes of this Article XI, an ESOP Loan means a loan made to the Trust by a party in interest (as that term is defined in Section 3(14) of ERISA) or a loan to the Trust which is guaranteed or otherwise secured by a party in interest and which, in either case, satisfies all of the requirements for an exempt loan under Section 408(b)(3) of ERISA and Section 4975(d)(3) of the Code and all applicable regulations thereunder (such statutes and regulations being collectively referred to herein as the ESOP Rules).
11.02 Use of ESOP Loan Proceeds . The Plan is designed to invest primarily in Stock and the Trustee is authorized and directed pursuant to the Plan document and the Trust agreement to acquire shares of Stock to the extent such Stock is reasonably available. To effectuate this purpose, the Trustee is authorized to enter into ESOP Loans and to apply the proceeds thereof to the acquisition of shares of Stock or to the repayment of such ESOP Loans or a prior ESOP Loan. All shares of Stock acquired with the proceeds of an ESOP Loan shall while held by the Trustee be free from any put, call or other option, or any buy-sell or similar arrangement. Any actions by the Trustee under this Section shall be at the direction of the Committee.
11.03 Terms and Conditions . Any such ESOP Loan shall be upon such terms and conditions, consistent with the ESOP Rules and this Article XI, as the Committee shall determine. Such terms and conditions shall, in addition to those terms and conditions required by the ESOP Rules, include the following:
(a) the recourse of the lender against the Trust shall be limited to one or more of the following: (i) any collateral given for the ESOP Loan, (ii) Company contributions made subsequent to the date of the ESOP Loan, and (iii) earnings attributable to such collateral or the investment of such contributions;
(b) the aggregate of all payments under the ESOP Loan by the Trust shall not exceed the aggregate of items (ii) and (iii) under (a) above at the date of any such payment;
(c) in the event of a default under an ESOP Loan, the value of Trust assets transferred to the lender shall not exceed the amount of the default, provided further that if the lender is a party in interest a transfer of Trust assets upon default shall be made only if, and to the extent of, the Trusts failure to meet the ESOP Loans payment schedule;
(d) the interest rate must not be in excess of a reasonable rate;
(e) the ESOP Loan must be for a specific term and may not be payable at the demand of any person, except in the case of default.
11.04 Collateral for ESOP Loan . The Committee is hereby authorized to direct the Trustee to collateralize an ESOP Loan by giving a security interest in all or any portion of the Stock acquired with the proceeds of said Loan (or the proceeds of a previous ESOP Loan repaid by said Loan). No other Trust assets may be so used as collateral. In the event that Stock is used by the Trustee as collateral for an ESOP Loan, such Stock shall be released from such encumbrance at an annual rate which is geared to the rate of total repayment (principal plus interest) of the ESOP Loan or the rate of principal repayment of the ESOP Loan provided that all applicable requirements of the ESOP Rules shall be satisfied.
11.05 Suspense Accounts . All Stock acquired with the proceeds of an ESOP Loan shall be credited to a Suspense Account rather than allocated among the Members Accounts. In the event there is more than one ESOP Loan outstanding, two or more Suspense Accounts shall be established as provided herein. If such Stock is being used as collateral, it shall be withdrawn from the Suspense Account at the same time and on the same basis as it is released from encumbrance. If such Stock is not used as collateral, it shall be withdrawn from the Suspense
Account as if it had been so used and was being released from encumbrance at a rate geared to the repayment of the ESOP Loan. If, during any Plan Year, Stock is withdrawn from the Suspense Account, it shall be allocated among the Members Accounts in accordance with the provisions of Section 5.03.
No Member shall have any interest in, or rights with respect to, any Stock while it is held in a Suspense Account. In the event that any Stock held in a Suspense Account is sold, the proceeds may be used to repay the ESOP Loan to the extent permitted by applicable law, and any excess amount (including any shares of Stock released from encumbrance by reason of such repayment) shall be allocated among the Accounts and Dividend Accounts of all Members in proportion to the aggregate value (Part A plus Part B) of each such Members Account and Dividend Account.
ARTICLE XII - TOP-HEAVY PROVISIONS
12.01 Article Controls . Any provisions of the Plan to the contrary notwithstanding, the provisions of this Article XII shall control the Plan to the extent required to cause the Plan to comply with the requirements imposed by Section 416 of the Code.
12.02 Definitions . Where the following words and phrases appear in this Article XII, they shall have the respective meanings set forth below, unless their context clearly indicates to the contrary:
(a) Account Balance . As of any Valuation Date, the aggregate amount credited to an individuals account or accounts under the Plan and all other qualified defined contribution plans maintained by the Company or an Affiliated Company increased by (i) the aggregate distributions made to such individual from the Plan or any other such plan during a five-year period ending on the Determination Date, and (ii) the amount of any contributions due as of the Determination Date immediately following such Valuation Date. The amount of Account balances of a Member as of the Determination Date shall be increased by the distributions made with respect to the Member under the Plan and any plan in the Aggregation Group during the one-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been in the Aggregation Group. In the case of a distribution made for a reason other than severance from employment, death, or disability, this provision shall be applied by substituting five-year period for one-year period.
(b) Accrued Benefit . As of any Valuation Date, the present value of the cumulative accrued benefit (excluding the portion thereof which is attributable to rollover or transfer contributions made by or on behalf of such individual to such plan from another qualified plan sponsored by an entity other than the Company or an Affiliated Company, to
proportional subsidies, or to ancillary benefits) of an individual under an qualified defined benefit plan maintained by the Company or an Affiliated Company increased by (i) the aggregate distributions made to such individual from such plan within a five-year period ending on the Determination Date and (ii) the estimated benefit accrued by such individual between such Valuation Date and the Determination Date immediately following such Valuation Date. The Accrued Benefit of Non-Key Employees shall be determined under (A) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Company and Affiliated Company, or (B) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under Section 411(b)(1)(C) of the Code. The Accrued Benefit of a Member as of the Determination Date shall be increased by the distributions made with respect to the Member under the Plan and any plan in the Aggregation Group during the one-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been in the Aggregation Group. In the case of a distribution made for a reason other than severance from employment, death, or disability, this provision shall be applied by substituting five-year period for one-year period.
(c) Aggregation Group . The group of qualified plans (whether or not terminated) maintained by the Company and each Affiliated Company consisting of (i) each plan in which a Key Employee participates and each other plan which enables a plan in which a Key Employee participates to meet the requirements of Sections 401(a)(4) or 410 of the Code, or (ii) each plan in which a Key Employee participates, each other plan which enables a plan in which a Key Employee participates to meet the requirements of Sections 401(a)(4) or 410 of the Code, and any other plan which the Committee elects to include as a part of such group;
provided, however, that the Committee may not elect to include a plan if its inclusion would cause the group to fail the requirements of Sections 401(a)(4) and 410 of the Code.
(d) Determination Date . For the first Plan Year of any plan, the last day of such Plan Year, and for each subsequent Plan Year of such plan, the last day of the preceding Plan Year. If two or more plans are being aggregated, they shall be aggregated by adding together the results for each plan as of the Determination Dates for such plans that fall within the same calendar year.
(e) Former Key Employee . With respect to any Plan Year, any individual who was a Key Employee in a previous Plan Year but who is not a Key Employee with respect to such Plan Year. For purposes of this definition, a beneficiary (who would not otherwise be a Key Employee) of a deceased former Key Employee shall be deemed to be a Former Key Employee in substitution for such deceased Former Key Employee.
(f) Key Employee . With respect to any Plan Year, any employee (and any beneficiary of a deceased employee) of the Company or an Affiliated Company who is a Key Employee as determined in accordance with Section 416(i)(1) of the Code.
(g) Non-Key Employee . With respect to any Plan Year, any employee of the Company or an Affiliated Company who is not a Key Employee.
(h) Plan Year . With respect to any plan, the annual accounting period used by such plan for annual reporting purposes.
(i) Valuation Date . With respect to any Plan Year, the most recent date within the 12-month period ending on a Determination Date as of which the Trust fund established was valued and the net income (or loss) thereof allocated to Members accounts.
12.03 Top-Heavy Status . The Plan shall be deemed to be top-heavy if, as of any Determination Date, (i) the sum (computed in accordance with Section 416(g) of the Code and the regulations promulgated thereunder) of the Account Balances of Key Employees under the Plan exceeds 60 percent of the sum of the Account Balances of all individuals (excluding Former Key Employees and individuals who have not performed any services for the Company or an Affiliated Company at any time during the one-year period ending on the Determination Date) under the Plan unless an Aggregation Group including the Plan is not top-heavy or (ii) an Aggregation Group including the Plan is top-heavy. An Aggregation Group shall be deemed to be top-heavy as of a Determination Date if the sum (computed in accordance with Section 416(g)(2)(B) of the Code and the regulations promulgated thereunder) of the Account Balances of the Key Employees under all defined contribution plans included in the Aggregation Group and the Accrued Benefit of all Key Employees under all defined benefit plans included in the Aggregation Group exceeds 60 percent of the sum of the Account Balances and the Accrued Benefit of all individuals (excluding the Account Balances and the Accrued Benefit of former Key Employees and individuals who have not performed any services for the Company or an Affiliated Company at any time during the one-year period ending on the Determination Date) under such plans. The foregoing determination shall be made by the Committee.
12.04 Minimum Benefit . If the Plan is determined to be top-heavy for a Plan Year, then each Member who is a Non-Key Employee and who is an Eligible Employee as of the last day of such Plan Year shall be entitled to a minimum contribution which, when added to the amount of any Company contributions and forfeitures allocated under this Plan and all other defined contribution plans maintained by the Company or an Affiliated Company will cause the sum of such contributions to equal the lesser of (i) 3 percent of such Eligible Employees compensation
(within the meaning of Section 415 of the Code) for such Plan Year, or (ii) the percentage at which contributions are made for the Key Employee for whom such percentage is the highest for such Plan Year.
12.05 Termination of Top-Heavy Status . If the Plan has been top-heavy for one or more Plan Years and thereafter ceases to be top-heavy, the provisions of this Article XII shall cease to apply to the Plan effective as of the day following the Determination Date on which the Plan is determined to no longer be top-heavy.
ARTICLE XIII - ADDITIONAL PARTICIPATING COMPANIES
13.01 Participation . Any Affiliated Company may become a Participating Company by vote of the board of directors of such Affiliated Company adopting the Plan and the Trust as a plan and trust for the benefit of its employees.
13.02 Effective Date . The participation of any Participating Company shall take effect as of the date specified in its action to adopt the Plan and the Trust.
13.03 Administration . Each Participating Company shall be deemed the Company with respect to its Employees and shall have and exercise all the rights, powers, and duties thereof with respect to the Plan as applied to itself and its Employees and that part of the Trust which represents the Accounts of Members employed by it. Subject to Sections 13.04 and 13.06, each Participating Company hereby authorizes HarborOne Bank to exercise on its behalf all such rights, powers, and duties, including amendment or termination of the Plan.
13.04 Termination . If the Plan shall be terminated by any one Participating Company, the Trust shall be valued and assets representing the Accounts of all Members employed by such Participating Company shall be segregated into a separate trust and held subject to the provisions of the Plan and all rights, powers, and duties of the Company with respect to such separate trust shall be exercised by such Participating Company.
13.05 Allocation of Forfeitures . Whenever part or all of the Account of any Member shall be forfeited by him and reallocated among the Accounts of the remaining eligible Members pursuant to Sections 5.04 and 6.05(d), such amount shall be reallocated to the Accounts of all eligible Members, regardless of whether they are Employees of the Participating Company which last employed the former Member whose Account (or part thereof) is being forfeited.
13.06 Contributions . Each participating employer, including the Company and each Participating Company, shall make contributions hereunder, on behalf of its Employees, in
accordance with Section 4.01, and as determined by such participating employer. All contributions made by a Participating Company with respect to any fiscal year of such Participating Company shall be made no later than the date specified in Section 4.02 and shall be allocated pursuant to the provisions of Section 5.03.
ARTICLE XIV - MISCELLANEOUS
14.01 Spendthrift Provision . Beneficial interests of Members or their Beneficiaries in the Trust shall not be assignable nor subject to attachment nor receivership, nor shall they pass to any trustee in bankruptcy or be reached or applied by any legal process for the payment of any obligations of any such person, except as otherwise provided under Section 401(a)(13) of the Code.
14.02 Appointment of Person to Receive Payment . Upon the appointment by a court having jurisdiction of a legal representative for a Member or Beneficiary, following a judicial determination that such Member or Beneficiary is of unsound mind, any payment or distribution hereunder shall thereafter be made to such legal representative. In the event any amount shall become payable hereunder to any person (or his Beneficiary or estate), and if after written notice from the Committee mailed to such persons last known address as shown on the Companys records, such person or his personal representative shall not have presented himself to the Committee or notified the Committee in writing of his address within one year after the mailing of such notice, then the Committee shall in its discretion appoint one or more of the spouse or blood relatives of such person to receive such amount, including any amount thereafter becoming due to such person (or his estate), in the proportions determined by the Committee. Any action of the Committee hereunder shall be binding and conclusive upon all persons.
14.03 Construction . In any question of interpretation or other matter of doubt, the Committee, the Trustee and the Company may rely upon the opinion of counsel for the Company or any other attorney-in-law designated by the Company. The provisions of this Plan shall be construed, administered and enforced according to the laws of the United States and, to the extent permitted by such laws, by the laws of the Commonwealth of Massachusetts. All contributions to the Trust shall be deemed to be made in the Commonwealth of Massachusetts.
14.04 Impossibility of Performance . In case it becomes impossible for the Company, the Committee or the Trustee to perform any act under this Plan and the Trust, that act shall be performed which in the judgment of the Company, the Committee or the Trustee, respectively, will most nearly carry out the intent and purpose of this Plan and the Trust. All parties who are in any way interested in this Plan and the Trust shall be bound by any acts performed under such condition.
14.05 Definition of Words . Feminine or neuter pronouns shall be substituted for those of the masculine form, and the plural shall be substituted for the singular, in any place or places herein where the context may require such substitution or substitutions.
14.06 Titles . The titles of articles and sections are included only for convenience and shall not be construed as a part of this Plan or in any respect affecting or modifying its provisions.
14.07 Merger or Consolidation . In the event that this Plan is merged with or consolidated with any other plan, or the assets or liabilities accrued under this Plan are transferred to any other plan, each Members benefit under such other plan shall be at least as great immediately after such merger, consolidation or transfer (if such plan were then to terminate) as the benefit to which he would have been entitled under this Plan immediately before such merger, consolidation or transfer (if the Plan were then to terminate).
14.08 Special Provisions for Certain Leased Employees . A leased employee shall receive credit for Hours of Service, Periods of Eligibility Service and Years of Vesting Service for the entire period during which he is a leased employee of the Company or an Affiliated Company as if he were an Employee of the Company or an Affiliated Company; provided, however, that a leased employee shall not be an Employee eligible to participate in the Plan as
long as he remains a leased employee. For purpose of this Section 14.08, the term leased employee means any person (a) who is not an Employee of the Company or an Affiliated Company and (b) who pursuant to an agreement between the Company or an Affiliated Company and any other person (a leasing organization) has performed services for the Company or an Affiliated Company on a substantially full-time basis for a period of at least one year and such services are performed under the primary direction or control by the Company or an Affiliated Company. Notwithstanding the foregoing, if leased employees constitute less than 20 percent of the Companys and Affiliated Companys nonhighly compensated work force within the meaning of Section 414(n)(5) of the Code, a person who is covered by a money purchase pension plan maintained by the leasing organization which provides a nonintegrated employer contribution rate of at least 10 percent of compensation, immediate participation and full and immediate vesting shall not be considered a leased employee.
14.09 USERRA and HEART ACT .
(a) Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credits with respect to qualified military service shall be provided in accordance with Section 414(u) of the Code.
(b) (i) An individual receiving a differential wage payment from the Company, as defined in Section 3401(h)(2) of the Code, shall be treated as an Employee of the Company, (ii) the differential wage payment is treated as Compensation, and (iii) the Plan shall not be treated as failing to meet the requirements of any provision described in Section 414(u)(1)(C) of the Code by reason of any contribution or benefit which is based on the differential wage payment.
(c) The Beneficiaries of a Member who dies while performing qualified military service shall be entitled to any additional benefits provided under the Plan as if the Member resumed service with the Company and then terminated employment on account of death.
(d) A Member who dies or becomes disabled while performing qualified military service shall be treated as if the Member had resumed employment in accordance with the Members reemployment rights under Section 414(u) of the Code on the date before the actual date of death or disability (as the case may be) and terminated employment on the actual date of death or disability (as the case may be). Accordingly, such Member shall receive vesting service during his period of qualified military service and shall receive employer contributions for such service to the extent required by Section 414(u) of the Code.
14.10 Correction Methods . The Company may make any corrections under the Plan necessary to retain the qualified status of the Plan and the Trust under Code Sections 401(a) and 501(a). Such corrections shall include, but not be limited to, any corrections described in the Internal Revenue Services Employee Plans Compliance Resolution System.
14.11 Writings . Whenever under the terms of the Plan a Member, former Member, Beneficiary or alternate payee is required to make a claim, request, election or direction in writing, such claim, request, election or direction may be made in such other form allowable by the Committee on a nondiscriminatory basis.
ARTICLE XV - DIRECT ROLLOVERS
15.01 Application of this Article . Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributees election under this Article, a distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover.
15.02 Definitions . Whenever used in this Article, the following words shall have the following meanings:
(a) Eligible rollover distribution : An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributees designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and a hardship distribution. Any amount that is distributed on account of hardship shall not be eligible rollover distribution and the distributee may not elect to have any portion of such a distribution paid directly to an eligible retirement plan. A direct trustee-to-trustee transfer to an individual retirement account described in Section 408(a) or Section 408A of the Code or an individual retirement annuity described in Section 408(b) of the Code established for purposes of receiving a distribution on behalf of a non-spouse beneficiary shall also be considered an eligible rollover distribution.
(b) Eligible retirement plan : An eligible retirement plan is an individual retirement account described in Section 408(a) or Section 408A of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, an annuity plan described in Section 403(b) of the Code, a qualified trust described in Section 401(a) of the Code that accepts the distributees eligible rollover distribution and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from the Plan. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse or surviving non-spouse beneficiary, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order, as defined in Section 414(p) of the Code; provided however that in the case of an eligible rollover distribution to a surviving non-spouse beneficiary, an eligible retirement plan is an individual retirement account described in Section 408(a) or Section 408A (IRA) of the Code and an individual retirement annuity described in Section 408(b) of the Code that will be treated as an inherited IRA pursuant to the provisions of Section 402(c)(11) of the Code.
(c) Distributee : A distributee includes an employee or former employee. In addition, the employees or former employees surviving spouse or surviving non-spouse beneficiary and the employees or former employees spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse, non-spouse beneficiary or former spouse. In the case of a rollover to a non-spouse beneficiary, the determination of any required
minimum distribution under Section 401(a)(9) of the Code that is ineligible for rollover shall be made in accordance with Notice 2007-7, Q&A 17 and 18, 2007-5 I.R.B. 395.
(d) Direct rollover : A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee.
ARTICLE XVI - MINIMUM DISTRIBUTION REQUIREMENTS
16.01 General Rules .
(a) Precedence . The requirements of this Article will take precedence over any inconsistent provisions of the Plan.
(b) Requirements of Treasury Regulations Incorporated . All distributions required under this Article will be determined and made in accordance with the Treasury regulations under Section 401(a)(9) of the Internal Revenue Code.
16.02 Time and Manner of Distribution .
(a) Required Beginning Date . The Members entire interest will be distributed, or begin to be distributed, to the Member no later than the Members Required Beginning Date.
(b) Death of Member Before Distributions Begin . If the Member dies before distributions begin, the Members entire interest will be distributed as follows:
(i) By December 31 of the calendar year containing the fifth anniversary of the Members death.
(ii) If the Members surviving spouse is the Members sole Designated Beneficiary and the surviving spouse dies after the Member but before distributions to the surviving spouse begin, this Section 16.02(b) will apply as if the surviving spouse were the Member.
For purposes of this Section 16.02(b) and Section 16.04, unless Section 16.02(b)(ii) applies, distributions are considered to begin on the Members Required Beginning Date. If Section 16.02(b)(ii) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section 16.02(b)(i).
(c) Forms of Distribution . Unless the Members interest is distributed in a single sum on or before the Required Beginning Date, as of the first Distribution Calendar Year distributions will be made in accordance with Sections 16.03 and 16.04 of this Article.
16.03 Required Minimum Distributions During Members Lifetime.
(a) Amount of Required Minimum Distribution for each Distribution Calendar Year . During the Members lifetime, the minimum amount that will be distributed for each Distribution Calendar Year is the lesser of:
(i) the quotient obtained by dividing the Members account balance by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury regulations, using the Members age as of the Members birthday in the Distribution Calendar Year; or
(ii) if the Members sole Designated Beneficiary for the Distribution Calendar Year is the Members spouse, the quotient obtained by dividing the Members account balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury regulations, using the Members and spouses attained ages as of the Members and spouses birthdays in the Distribution Calendar Year.
(b) Lifetime Required Minimum Distributions Continue Through Year of Members Death . Required minimum distributions will be determined under this Section 16.03 beginning with the first Distribution Calendar Year and up to and including the Distribution Calendar Year that includes the Members date of death.
16.04 Required Minimum Distributions After Members Death . If the Member dies on or after the date distributions begin, his remaining account balance shall be distributed to his Beneficiary in a lump sum as soon as practicable.
16.05 Definitions.
(a) Designated Beneficiary . The individual who is designated as the Beneficiary under Section 6.04 of the Plan and is the designated beneficiary under Section 401(a)(9) of the Internal Revenue Code and Section 1.401(a)(9)-4, Q&A-1, of the Treasury regulations.
(b) Distribution Calendar Year . A calendar year for which a minimum distribution is required. For distributions beginning before the Members death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Members Required Beginning Date. For distributions beginning after the Members death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin under Section 16.02(b). The required minimum distribution for the Members first Distribution Calendar Year will be made on or before the Members Required Beginning Date. The required minimum distribution for other Distribution Calendar Years, including the required minimum distribution for the Distribution Calendar Year in which the Members Required Beginning Date occurs, will be made on or before December 31 of that Distribution Calendar Year.
(c) Life Expectancy . Life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9 of the Treasury regulations.
(d) Members Account Balance . The account balance as of the last valuation date in the calendar year immediately preceding the Distribution Calendar Year (valuation
calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the Distribution Calendar Year if distributed or transferred in the valuation calendar year.
(e) Required Beginning Date . Distribution of benefits to a Member who attains age 70½ shall begin no later than the April 1 next following the calendar year in which such Member (i) attains age 70½ or (ii) terminates employment with the Company and all Affiliated Employers, whichever is later. Clause (ii) shall not apply in the case of a Member who is a Five Percent Owner at any time during the Plan Year ending in the calendar year in which the Member attains age 70½. If the Member becomes a Five Percent Owner during any subsequent Plan Year, the required distribution date shall be April 1 of the calendar year following such Plan Year. For purposes of this subsection, a Five Percent Owner is defined in Section 416(i)(1)(B)(i) of the Code.
ARTICLE XVII - CHANGE IN CONTROL
17.01 Definition of Change in Control; Pending Change in Control.
(a) A Change in Control shall be deemed to have occurred upon the happening of any of the following events:
(i) any Person, as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the Act) (other than HarborOne Bancorp, Inc., any of its subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of HarborOne Bancorp, Inc. or any of its subsidiaries), together with all affiliates and associates (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the beneficial owner (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of HarborOne Bancorp, Inc. representing 40 percent or more of the combined voting power of HarborOne Bancorp, Inc.s then outstanding securities having the right to vote in an election of HarborOne Bancorp, Inc.s Board of Directors (Voting Securities) (in such case other than as a result of an acquisition of securities directly from HarborOne Bancorp, Inc.); or
(ii) persons who, as of the Effective Date, constitute the Board of Directors of HarborOne Bancorp, Inc. (the Incumbent Directors) cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of such Board of Directors, provided that any person becoming a director of HarborOne Bancorp, Inc. subsequent to the date hereof shall be considered an Incumbent Director if such persons election was approved by or such person was nominated for election by either (A) a vote of at least a majority of the Incumbent Directors or (B) a vote of at least a majority of the Incumbent Directors
who are members of a nominating committee comprised, in the majority, of Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board of Directors of HarborOne Bancorp, Inc. or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of HarborOne Bancorp, Inc., including by reason of an agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or
(iii) the consummation of (A) any consolidation or merger of HarborOne Bancorp, Inc. where the stockholders of HarborOne Bancorp, Inc., immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate more than 50 percent of the voting shares of the company or entity issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), and the entity which results from such consolidation or merger agrees in writing to assume and perform HarborOne Bancorp, Inc.s and the Companys obligations under the Plan or (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of HarborOne Bancorp, Inc. or of the Bank.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred for purposes of the foregoing, solely as the result of an acquisition of securities by HarborOne Bancorp, Inc. that, by reducing the number of shares of Voting Securities
outstanding, increases the proportionate number of shares of Voting Securities beneficially owned by any person to 40 percent or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from HarborOne Bancorp, Inc.) and immediately thereafter beneficially owns 25 percent or more of the combined voting power of all then outstanding Voting Securities, then a Change in Control shall be deemed to have occurred for purposes of the foregoing clause (i).
(b) A Pending Change in Control shall be deemed to have occurred upon the happening of any of the following events:
(i) approval by the stockholders of HarborOne Bancorp, Inc. of a transaction, or a plan for the consummation of a transaction, which, if consummated, would result in a Change in Control;
(ii) approval by the Board of Directors of HarborOne Bancorp, Inc. of a transaction, or a plan for the consummation of a transaction, which, if consummated, would result in a Change in Control;
(iii) the commencement of a tender offer (within the meaning of section 14(d)(i) of the Exchange Act, as amended) for securities issued by HarborOne Bancorp, Inc., which, if completed, would result in a Change in Control;
(iv) the furnishing or distribution of a proxy statement or other document, whether or not in opposition to management, soliciting proxies, consents or authorizations (within the meaning of section 14 of the Exchange Act) in respect of
securities issued by HarborOne Bancorp, Inc. in favor of any election, transaction or other action which, if effected, would result in a Change in Control.
17.02 Vesting on Change in Control . Notwithstanding any other provision of the Plan, upon the effective date of a Change in Control, the Account of each person who would then, upon termination of the Plan, be entitled to a benefit, shall be fully vested and nonforfeitable.
17.03 Repayment of Share Acquisition Loan . Notwithstanding any other provision of the Plan, upon the occurrence of a Change in Control, the Committee shall direct the Trustee to sell a sufficient number of shares of Stock to repay any outstanding ESOP Loan, all remaining shares of Stock which had been unallocated (or the proceeds from the sale thereof, if applicable) shall be allocated among the accounts of all individuals with undistributed Account balances on the effective date of such Change in Control who are employed by the Company on the effective date of such Change in Control. Such allocation of shares of Stock or proceeds shall be in proportion to the balance credited to their Accounts immediately prior to such allocation.
17.04 Plan Termination After Change in Control . Notwithstanding any other provision of the Plan, after repayment of the loan and allocation of shares of Stock or proceeds as provided in Section 17.03, the Plan shall be terminated and all amounts shall be distributed as soon as practicable.
17.05 Amendment of Article XVII . Notwithstanding any other provision of the Plan, this Article XVII of the Plan may not be amended after the earliest date on which a Change in Control or Pending Change in Control occurs, except to the extent any amendment is required by the Internal Revenue Service as a condition to the continued treatment of the Plan as a tax-qualified plan under section 401(a) of the Code.
IN WITNESS WHEREOF this amended and restated Plan is executed for and on behalf of the Company by its duly authorized officer this of , 2016.
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HARBORONE BANK |
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By: |
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Title: |
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Exhibit 10.2
HARBORONE BANK
ESOP RESTORATION PLAN
TABLE OF CONTENTS
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Page |
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ARTICLE I - DEFINITIONS |
1 |
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1.1 |
Applicable Limitation |
1 |
1.2 |
Beneficiary |
1 |
1.3 |
Board |
1 |
1.4 |
Code |
1 |
1.5 |
Committee |
1 |
1.6 |
Company |
1 |
1.7 |
Company Contributions |
1 |
1.8 |
Effective Date |
1 |
1.9 |
Eligible Employee |
1 |
1.10 |
Employee |
1 |
1.11 |
ERISA |
1 |
1.12 |
ESOP |
1 |
1.13 |
Fair Market Value of a Share |
1 |
1.14 |
Plan |
2 |
1.15 |
Share |
2 |
1.16 |
Stock Unit |
2 |
1.17 |
Separation from Service |
2 |
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ARTICLE II - PARTICIPATION |
2 |
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2.1 |
Eligibility for Participation |
2 |
2.2 |
Commencement of Participation |
2 |
2.3 |
Termination of Participation |
2 |
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ARTICLE III - BENEFITS TO MEMBERS |
2 |
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3.1 |
Supplemental ESOP Benefits. |
2 |
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ARTICLE IV - DEATH BENEFITS |
4 |
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ARTICLE V - TRUST FUND |
4 |
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5.1 |
Establishment of Trust |
4 |
5.2 |
Contributions to Trust |
4 |
5.3 |
Unfunded Character of Plan |
5 |
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ARTICLE VI - ADMINISTRATION |
5 |
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6.1 |
The Committee |
5 |
6.2 |
Liability of Committee Members and Their Delegates |
6 |
6.3 |
Plan Expenses |
6 |
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ARTICLE VII - AMENDMENT AND TERMINATION |
6 |
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7.1 |
Amendment by the Company |
6 |
7.2 |
Termination |
6 |
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ARTICLE VIII - MISCELLANEOUS PROVISIONS |
6 |
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8.1 |
Construction and Language |
6 |
8.2 |
Headings |
6 |
8.3 |
Non-Alienation of Benefits |
7 |
8.4 |
Severability |
7 |
8.5 |
Waiver |
7 |
8.6 |
Governing Law |
7 |
8.7 |
Withholding |
7 |
8.8 |
No Deposit Account |
7 |
8.9 |
Rights of Employees |
7 |
8.10 |
Status of Plan Under ERISA |
7 |
8.11 |
Successors and Assigns |
8 |
8.12 |
Claims Procedures |
8 |
HARBORONE BANK
ESOP RESTORATION PLAN
ARTICLE I - DEFINITIONS
1.1 Applicable Limitation means any of the following: (a) the limitation on annual compensation that may be recognized under a tax-qualified plan for benefit computation purposes pursuant to Section 401(a)(17) of the Code; and (b) the maximum limitation on annual additions to a tax-qualified defined contribution plan pursuant to Section 415(c) of the Code.
1.2 Beneficiary means any person, other than a Member or Former Member, who is determined to be entitled to benefits under the terms of the Plan.
1.3 Board means the Board of Directors of the Company.
1.4 Code means the Internal Revenue Code of 1986, as amended from time to time. Reference to a specific Section of the Code shall include such provisions, any valid regulation or ruling promulgated thereunder and any provision of future law that amends, supplements or supersedes such provision.
1.5 Committee means the Compensation Committee of the Board of Directors of HarborOne Bancorp, Inc., or such other person, committee or other entity as shall be designated by or on behalf of such Board to perform the duties set forth in Article VI.
1.6 Company means HarborOne Bank or any successor thereto.
1.7 Company Contributions means contributions by the Company to the ESOP.
1.8 Effective Date means , 2016.
1.9 Eligible Employee means an Employee who is eligible for participation in the Plan in accordance with the provisions of Article II.
1.10 Employee means any person, including an officer, who is employed by the Company as a common law employee.
1.11 ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time. Reference to a specific Section of ERISA shall include such provisions, any valid regulation or ruling promulgated thereunder and any provision of future law that amends, supplements or supersedes such provision.
1.12 ESOP means the HarborOne Bank Employee Stock Ownership Plan, as amended from time to time.
1.13 Fair Market Value of a Share means, with respect to a Share on a specified date, the closing price of the share as reported on the National Association of Securities Dealers Automated Quotation System, NASDAQ Global Market or another national securities exchange.
If there is no trading on such date, the determination shall be made by reference to the closing price of the Shares on the last date preceding such date on which the Shares were traded.
1.14 Plan means the HarborOne Bank ESOP Restoration Plan, as amended from time to time.
1.15 Share means a share of common stock, par value $0.01 per share, of HarborOne Bancorp, Inc.
1.16 Stock Unit means a right to receive a payment under the Plan in an amount equal, on the date as of which such payment is made, to the Fair Market Value of a Share.
1.17 Separation from Service means an Employees separation from service (within the meaning of Section 409A of the Code) with all Affiliated Companies as an Employee, whether by resignation, discharge, death, disability, retirement or otherwise.
ARTICLE II - PARTICIPATION
2.1 Eligibility for Participation . Only Eligible Employees may be or become Members. An Employee shall become an Eligible Employee if:
(a) he has been designated an Eligible Employee by resolution of the Compensation Committee; and
(b) he is a Member in the ESOP and the benefits to which he is entitled thereunder are limited by one or more of the Applicable Limitations;
provided, however, that no person shall be named an Eligible Employee, nor shall any person who has been an Eligible Employee continue as an Eligible Employee, to the extent that such persons participation, or continued participation, in the Plan would cause the Plan to fail to be considered maintained for the primary purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of ERISA.
2.2 Commencement of Participation . An Employee shall become a Member on the date when he first becomes an Eligible Employee, but not earlier than the Effective Date.
2.3 Termination of Participation . Participation in the Plan shall cease on the earliest of (a) the date of the Members Separation from Service, (b) the date on which he or she ceases to be an Eligible Employee, or (c) the date the Plan is terminated.
ARTICLE III - BENEFITS TO MEMBERS
3.1 Supplemental ESOP Benefits .
(a) A Member whose benefits under the ESOP are limited by one or more of the Applicable Limitations shall be eligible for a supplemental ESOP benefit under this Plan in an amount equal to the sum of -
(i) a number of Stock Units equal to the excess (if any) of (A) the aggregate number of Shares (including any reallocation of Shares forfeited upon the termination of employment of others participating in the ESOP and any allocation of Shares upon full repayment of any loan by the ESOP) that would have been credited to the Members account under the ESOP in the absence of the Applicable Limitations over (B) the number of Shares actually credited to his account under the ESOP; plus
(ii) if and to the extent that Company Contributions to the ESOP result in allocations to the Members account of assets other than Shares, an amount equal to the excess (if any) of (A) the aggregate amount of Company Contributions (including any reallocation of amounts forfeited upon the termination of employment of others participating in the ESOP and any allocation of cash upon full repayment of any loan by the ESOP) that would have been credited to the Members account under the ESOP in the absence of the Applicable Limitations over (B) the aggregate amount of Company Contributions (including any reallocation of amounts forfeited upon the termination of employment of others participating in the ESOP) actually credited to the Members account under the ESOP; adjusted for earnings and losses as provided section 3.1(b)
(b) The Committee shall cause to be maintained a bookkeeping account to reflect all Shares and Company Contributions (including any reallocation of amounts forfeited upon the termination of employment of others participating in the ESOP) that cannot be allocated to a Members account under the ESOP due to the Applicable Limitations and shall cause such bookkeeping account to be credited with such Company Contributions and Stock Units reflecting such Shares as of the date on which such Company Contributions and Shares, respectively, would have been credited to the Members account in the ESOP in the absence of the Applicable Limitations. The balance credited to such bookkeeping account shall be adjusted for earnings or losses as follows:
(i) all Stock Units shall be adjusted from time to time so that the value of a Stock Unit on any date is equal to the Fair Market Value of a Share on such date, and the number of Stock Units shall be adjusted as and when appropriate to reflect any stock dividend, stock split, reverse stock split, exchange, conversion, or other event generally affecting the number of Shares held by all holders of Shares; and
(ii) the balance credited to such bookkeeping account that does not consist of Stock Units shall be credited with interest as of the last day of each calendar quarter at the highest rate of interest credited on certificates of deposit issued by the Bank during that calendar quarter.
(iii) In the event HarborOne Bancorp, Inc. declares any cash dividends on its Shares, the Stock Units in the bookkeeping account established for each Member under this Plan shall be credited with dividend equivalent amounts equal to the cash dividends that would be payable if the Stock Units were outstanding Shares and such amounts shall be converted to additional Stock Units at Fair Market Value on the date the cash dividend is otherwise payable to the shareholders of HarborOne Bancorp, Inc.
(c) The vested supplemental ESOP benefit payable to a Member hereunder shall be paid in a single lump sum within 90 days following the last day of the calendar year in which the Members Separation from Service occurs and shall be in an amount equal to the balance credited to his bookkeeping account; provided, however, that if at the time of a Members Separation from Service, the Member is considered a specified employee within the meaning of Section 409A(a)(2)(B)(i) of the Code, then no such payment shall be payable prior to the date that is the earlier of (yy) the date following the date that is six months after the Members Separation from Service, or (zz) the Members death. The vesting determination of a Members supplemental ESOP benefit shall be made in the same manner as under the ESOP.
ARTICLE IV - DEATH BENEFITS
A Member may designate a Beneficiary or Beneficiaries to receive any benefits payable under the Plan following his or her death. Any such designation, or change therein or revocation thereof, shall be made in writing in the form and manner prescribed by the Committee, shall be revocable until the death of the Member, and shall thereafter be irrevocable; provided, however, that any change or revocation shall be effective only if received by the Committee prior to the Members death. If a Member shall die without having effectively named a Beneficiary, he or she shall be deemed to have named his estate as his sole Beneficiary. If a Member and his designated Beneficiary shall die in circumstances which give rise to doubt as to which of them shall have been the first to die, the Member shall be deemed to have survived the Beneficiary. If a Member designates more than one Beneficiary, all shall be deemed to have equal shares unless the Member shall expressly provide otherwise.
ARTICLE V - TRUST FUND
5.1 Establishment of Trust . The Company may establish a trust fund which may be used to accumulate funds to satisfy benefit liabilities to Members and their Beneficiaries under the Plan; provided, however, that the assets of such trust shall be subject to the claims of the creditors of the Participating Companies in the event that it is determined that the Participating Companies are insolvent; and provided, further, that the trust agreement shall contain such terms, conditions and provisions as shall be necessary to cause the Participating Companies to be considered the owner of the trust fund for federal, state or local income tax purposes with respect to all amounts contributed to the trust fund or any income attributable to the investments of the trust fund. The Company shall pay all costs and expenses incurred in establishing and maintaining such trust. Any payments made to a Member or Beneficiary from a trust established under this section 5.1 shall offset payments which would otherwise be payable by the Company in the absence of the establishment of such trust. Any such trust will conform to the terms of the model trust prescribed by Revenue Procedure 92-64, as the same may be modified from time to time.
5.2 Contributions to Trust . If a trust is established in accordance with Section 5.1, the Company shall make contributions to such trust in such amounts and at such times as may be specified by the Committee or as may be required pursuant to the terms of the agreement governing the establishment and operation of such trust.
5.3 Unfunded Character of Plan . Notwithstanding the establishment of a trust pursuant to section 5.1, the Plan shall be unfunded for purposes of the Code and ERISA. Any liability of the Company to any person with respect to benefits payable under the Plan shall be based solely upon such contractual obligations, if any, as shall be created by the Plan, and shall give rise only to a claim against the general assets of the Company. No such liability shall be deemed to be secured by any pledge or any other encumbrance on any specific property of the Company.
ARTICLE VI - ADMINISTRATION
6.1 The Committee . The administration of the Plan shall be the responsibility of the Committee. The Committee shall have the power and the duty to take all actions and to make all decisions necessary or proper to carry out the Plan. The determination of the Committee as to any question involving the general administration and interpretation of the Plan shall be final, conclusive and binding. Any discretionary actions to be taken under the Plan by the Committee shall be uniform in their nature and applicable to all persons similarly situated. Without limiting the generality of the foregoing, the Committee shall have the following powers:
(a) to furnish to all Members, upon request, copies of the Plan and to require any person to furnish such information as it may request for the purpose of the proper administration of the Plan as a condition to receiving any benefits under the Plan;
(b) to make and enforce such rules and regulations and prescribe the use of such forms as it shall deem necessary for the efficient administration of the Plan;
(c) to interpret the Plan, and to resolve ambiguities, inconsistencies and omissions, and the determinations of the Committee in respect thereof shall be binding, final and conclusive upon all interested parties;
(d) to decide on questions concerning the Plan in accordance with the provisions of the Plan (including facts necessary to administer the Plan);
(e) to determine the amount of benefits which shall be payable to any person in accordance with the provisions of the Plan, to hear and decide claims for benefits, and to provide a full and fair review to any Member whose claim for benefits has been denied in whole or in part;
(f) to designate a person, who may or may not be a member of the Committee, as plan administrator for purposes of the ERISA;
(g) to allocate any such powers and duties to or among individuals of the Committee; and
(h) the power to designate persons other than Committee members to carry out any duty or power which would otherwise be a responsibility of the Committee or Administrator, under the terms of the Plan.
6.2 Liability of Committee Members and Their Delegates . To the extent permitted by law, the Committee and any person to whom it may delegate any duty or power in connection with administering the Plan, the Company, and the officers and directors thereof, shall be entitled to rely conclusively upon, and shall be fully protected in any action taken or suffered by them in good faith in the reliance upon, any actuary, counsel, accountant, other specialist, or other person selected by the Committee, or in reliance upon any tables, valuations, certificates, opinions or reports which shall be furnished by any of them. Further, to the extent permitted by law, no member of the Committee, nor the Company, nor the officers or directors thereof, shall be liable for any neglect, omission or wrongdoing of any other members of the Committee, agent, officer or employee of the Company. Any person claiming benefits under the Plan shall look solely to the Company for redress.
6.3 Plan Expenses . All expenses incurred prior to the termination of the Plan that shall arise in connection with the administration of the Plan (including, but not limited to administrative expenses, proper charges and disbursements, compensation and other expenses and charges of any actuary, counsel, accountant, specialist, or other person who shall be employed by the Committee in connection with the administration of the Plan), shall be paid by the Company.
ARTICLE VII - AMENDMENT AND TERMINATION
7.1 Amendment by the Company . The Company reserves the right, in its sole and absolute discretion, at any time and from to time, by action of the Board, to amend the Plan in whole or in part. In no event, however, shall any such amendment adversely affect the right of any Member, Former Member or Beneficiary to receive any benefits under the Plan in respect of participation for any period ending on or before the later of the date on which such amendment is adopted or the date on which it is made effective.
7.2 Termination . The Company also reserves the right, in its sole and absolute discretion, by action of the Board, to terminate the Plan. In such event, undistributed benefits attributable to participation prior to the date of termination shall be distributed in accordance with Section 3.1(c); provided however that benefit payments may be accelerated to the extent permitted by Section 409A of the Code.
ARTICLE VIII - MISCELLANEOUS PROVISIONS
8.1 Construction and Language . Wherever appropriate in the Plan, words used in the singular may be read in the plural, words used in the plural may be read in the singular, and the masculine gender may be read as referring equally to the feminine gender or the neuter. Any reference to an Article or section shall be to an Article or section of the Plan, unless otherwise indicated. If there is any conflict between such headings and the text of the Plan, the text shall control.
8.2 Headings . The headings of Articles and sections are included solely for convenience of reference. If there is any conflict between such headings and the text of the Plan, the text shall control.
8.3 Non-Alienation of Benefits . Except as may otherwise be required by law, no distribution or payment under the Plan to any Member or Beneficiary shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, whether voluntary or involuntary, and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void; nor shall any such distribution or payment be in any way liable for or subject to the debts, contracts, liabilities, engagements or torts of any person entitled to such distribution or payment. If any Member or Beneficiary is adjudicated bankrupt or purports to anticipate, alienate, sell, transfer, assign, pledge encumber or charge any such distribution or payment, voluntarily or involuntarily, the Committee, in its sole discretion, may cancel such distribution or payment or may hold or cause to be held or applied such distribution or payment, or any part thereof, to or for the benefit of such Member or Beneficiary, in such manner as the Committee shall direct; provided, however, that no such action by the Committee shall cause the acceleration or deferral of any benefit payments from the date on which such payments are scheduled to be made.
8.4 Severability . A determination that any provision of the Plan is invalid or unenforceable shall not affect the validity or enforceability of any other provision hereof.
8.5 Waiver . Failure to insist upon strict compliance with any of the terms, covenants or conditions of the Plan shall not be deemed a waiver of such term, covenant or condition. A waiver of any provision of the Plan must be made in writing, designated as a waiver, and signed by the party against whom its enforcement is sought. Any waiver or relinquishment of any right or power hereunder at any one or more times shall not be deemed a waiver or relinquishment of such right or power at any other time or times.
8.6 Governing Law . The Plan shall be construed, administered and enforced according to the laws of the Commonwealth of Massachusetts without giving effect to the conflict of laws principles thereof, except to the extent that such laws are preempted by federal law. Any payments made pursuant to this Plan are subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder.
8.7 Withholding . Payments from this Plan shall be subject to all applicable federal, state and local income withholding taxes.
8.8 No Deposit Account . Nothing in this Plan shall be held or construed to establish any deposit account for any Member or any deposit liability on the part of the Company. Members rights hereunder shall be equivalent to those of a general unsecured creditor of the Company.
8.9 Rights of Employees . No Employee shall have any right or claim to any benefit under the Plan except in accordance with the provisions of the Plan. The establishment of the Plan shall not be construed as conferring upon any Employee or other person any legal right to a continuation of employment or to any terms or conditions of employment, nor as limiting or qualifying the right of the Company to discharge any Employee.
8.10 Status of Plan Under ERISA . The Plan is intended to be (a) to the maximum extent permitted under applicable laws, an unfunded, non-qualified excess benefit plan as
contemplated by section 3(36) of ERISA for the purpose of providing benefits in excess of the limitations imposed under section 415 of the Code, and (b) to the extent not so permitted, an unfunded, non-qualified plan maintained primarily for the purpose of providing deferred compensation for highly compensated employees, as contemplated by sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. The Plan is not intended to comply with the requirements of section 401 (a) of the Code or to be subject to Parts 2, 3 and 4 of Title I of ERISA. The Plan shall be administered and construed so as to effectuate this intent.
8.11 Successors and Assigns . The provisions of the Plan will inure to the benefit of and be binding upon the Members and their respective legal representatives and testate or intestate distributes, and the Company and its successor and assigns, including any successor by merger or consolidation or a statutory receiver or any other person or firm or corporation to which all or substantially all of the assets and business of the Company may be sold or otherwise transferred.
8.12 Claims Procedures . If a Member, Beneficiary, alternate payee or their authorized representative asserts a right to benefit under the Plan which has not been received, the Claims Procedures set forth in the ESOP shall govern.
Exhibit 10.3
HARBORONE BANK
SENIOR MANAGEMENT LONG TERM INCENTIVE PLAN
This SENIOR MANAGEMENT LONG TERM INCENTIVE PLAN ( Plan ) is restated this 21st day of December, 2015 by HARBORONE BANK, a state-chartered co-operative bank located in Brockton, Massachusetts (the Bank ), for the benefit of one or more members of a select group of management or highly compensated employees who contribute materially to the continued growth, development and future business success of the Bank. This Plan shall be unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974 ( ERISA ), as amended from time to time.
Article 1
Definitions
Whenever used in this Plan, the following words and phrases shall have the meanings specified:
1.1 Account Balance means the Banks accounting of the Executives accumulated Deferred Incentive Awards plus accrued interest, less distributions.
1.2 Base Salary means the annual cash compensation relating to services performed during any calendar year, excluding distributions from nonqualified deferred compensation plans, bonuses, commissions, overtime, fringe benefits, stock options, relocation expenses, incentive payments, non-monetary awards, and other fees, and automobile and other allowances paid to the Executive for employment rendered (whether or not such allowances are included in the Executives gross income). Base Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Executive pursuant to all qualified or non-qualified plans of the Bank and shall be calculated to include amounts not otherwise included in the Executives gross income under Code Section 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by the Bank; provided , however , that all such amounts will be included in compensation only to the extent that had there been no such plan, the amount would have been payable in cash to the Executive.
1.3 Beneficiary means each designated person or entity, or the estate of the deceased Executive entitled to benefits, if any, upon the death of the Executive.
1.4 Beneficiary Designation Form means the form established from time to time by the Plan Administrator that the Executive completes, signs and returns to the Plan Administrator to designate one or more Beneficiaries.
1.5 Benefit Date means the date three (3) years from the date of a Deferred Incentive Award allocation.
1.6 Board means the Board of Directors of the Bank as from time to time constituted.
1.7 CEO means the Chief Executive Officer of the Bank.
1.8 Change in Control means the occurrence of any one of the following events:
(a) any Person, as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the Act ) (other than HarborOne Bancorp or the Company (as defined below), any of their subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all affiliates and associates (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the beneficial owner (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing forty percent (40%) or more of the combined voting power of the Companys then outstanding securities having the right to vote in an election of the Companys Board of Directors ( Voting Securities ) (in such case other than as a result of an acquisition of securities directly from the Company or in connection with a public offering); or
(b) persons who, as of the date hereof, constitute the Companys Board of Directors (the Incumbent Directors ) cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Companys Board of Directors, provided that any person becoming a director of the Company subsequent to the date hereof shall be considered an Incumbent Director if such persons election was approved by or such person was nominated for election by either (i) a vote of at least a majority of the Incumbent Directors or (ii) a vote of at least a majority of the Incumbent Directors who are members of a nominating committee comprised, in the majority, of Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Companys Board of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Companys Board of Directors, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or
(c) the consummation of (i) any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate more than fifty percent (50%) of the voting shares of the Company issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or of the Bank.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred for purposes of the foregoing clause (a) solely as the result of an acquisition of securities by the Company that, by reducing the number of shares of Voting Securities
outstanding, increases the proportionate number of shares of Voting Securities beneficially owned by any person to forty percent (40%) or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns forty percent (40%) or more of the combined voting power of all then outstanding Voting Securities, then a Change in Control shall be deemed to have occurred for purposes of the foregoing clause (a).
1.9 Code means the Internal Revenue Code of 1986, as amended, and all regulations and guidance thereunder, including such regulations and guidance as may be promulgated after the Effective Date.
1.10 Company means HarborOne Bancorp, Inc., a Massachusetts stock holding company.
1.11 Deferred Incentive Award means the annual Bank contribution, if any, added to the Account Balance during each Plan Year following the receipt and acceptance of the audited financial statements of the Bank by the Board or an applicable committee thereof. The Deferred Incentive Award shall be equal to the Deferral Percentage multiplied by the Executives Base Salary for the current Plan Year. Any Deferred Incentive Award(s) made to the Executive will be documented in writing.
1.12 Deferral Percentage means the percentage determined by the Plan Administrator in its sole discretion each Plan Year based on the Executives or Banks achievement of applicable Performance Goals.
1.13 Disability means the Executive: (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees or directors of the Bank. Medical determination of Disability may be made by either the Social Security Administration or by the provider of disability insurance covering employees or directors of the Bank; provided that the definition of disability applied under such insurance program complies with the requirements of the preceding sentence. Upon the request of the Plan Administrator, the Executive must submit proof to the Plan Administrator of the Social Security Administrations or the providers determination.
1.14 Early Termination means the Executives Separation from Service before attainment of Normal Retirement Age except when such Separation from Service occurs within twenty-four (24) months following a Change in Control, or results from the Death or Disability of the Executive.
1.15 Effective Date means January 1, 2015.
1.16 Executive means the Bank employee who has been granted participation in the Plan by the Board of Directors of the Bank in its sole discretion.
1.17 Interest Crediting Rate means the Prime Rate reported in The Wall Street Journal at the beginning of the Plan Year. If the beginning of the Plan Year is a day in which The Wall Street Journal is not published, then the Prime Rate published for the date immediately prior to the beginning of the Plan Year shall be used.
1.18 Normal Retirement Age means the Executives age sixty-five (65) OR attainment of age sixty two (62) while in the employ of the Bank and with 10 or more Years of Service with the Bank.
1.19 Performance Goals means the performance targets established by the Board or CEO for the Bank and / or the Executive. The CEO and Board shall review, and may revise, the Performance Goals from time to time in order to work in conjunction with the Banks strategic plan and Executive performance management process. There will typically he no more than four performance measures for this plan and each measure will be weighted. Performance measures will be reviewed and approved each Plan Year but need not be changed annually.
1.20 Plan Administrator means the Board or such committee or person as the Board shall appoint.
1.21 Plan Year means each twelve (12) month period commencing on January 1 and ending on December 31 of each year. The first Plan Year commences on the Effective Date and ends on December 31 of that year.
1.22 Separation from Service means termination of the Executives employment with the Bank for reasons other than death or Disability. Whether a Separation from Service has occurred is determined in accordance with the requirements of Code Section 409A based on whether the facts and circumstances indicate that the Bank and Executive reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the Executive would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period of services to the Bank if the Executive has been providing services to the Bank less than thirty-six (36) months).
1.23 Specified Employee means an Executive who, as of the date of his Separation from Service, is a specified employee (within the meaning of Code Section 409A(a)(2)(B)(i)).
1.24 Termination for Cause means Separation from Service for:
(a) Gross negligence or gross neglect of duties to the Bank;
(b) Conviction or entry of a nolo contendere plea to a felony, a crime of moral turpitude, dishonesty, breach of trust or unethical business conduct, or any other crime or gross misdemeanor which materially affects the business of the Bank;
(c) Fraud, embezzlement, misappropriation, disloyalty, dishonesty, gross insubordination or willful violation of any law or significant Bank policy committed in connection with the Executives employment and resulting in a material adverse effect on the Bank;
(d) Illegal use of drugs;
(e) Failure to honor his or her fiduciary duties to the Bank, including the duty to act in the best interests of the Bank.
1.25 Years of Service means the number of completed years from the Executives initial date of hire with the Bank to the date of the Executives Separation from Service from the Bank.
Article 2
Account Balance
2.1 Establishing and Crediting . The Bank shall establish an Account Balance on its books for each Executive and shall credit to the Account Balance the following amounts:
2.1.1 Deferred Incentive Award . Any Deferred Incentive Award hereunder;
2.1.2 Interest . Interest will be credited to the Account Balance on the last day of each month at an annual rate equal to the Interest Crediting Rate, compounded monthly.
Article 3
Distributions During Lifetime
3.1 Deferred Incentive Award Benefit . If the Executive has been granted a Deferred Incentive Award, has an Account Balance greater than zero dollars ($0) and is actively employed by the Bank, a benefit shall be payable as follows:
3.1.1 Amount of Benefit . The benefit under this Section 3.1 shall be the value of the Deferred Incentive Award awarded to the Executive three (3) years prior to the Benefit Date plus the interest accrued over that period at the Interest Crediting Rate.
3.1.2 Distribution of Benefit . The Bank shall distribute the benefit to the Executive in a lump-sum commencing on the Benefit Date. The Bank shall continue to credit interest at the Interest Crediting Rate on the remaining Account Balance for Deferred Incentive Awards granted less than three (3) years prior.
3.2 Early Termination Benefit . If Early Termination occurs, the Bank shall distribute no further benefits under this Plan.
3.3 Disability Benefit . If the Executive experiences a Disability, the Bank shall distribute to the Executive the benefit described in this Section 3.3 in lieu of any other benefit under this Plan.
3.3.1 Amount of Benefit . The benefit under this Section 3.3 is one hundred percent (100%) of the Account Balance.
3.3.2 Distribution of Benefit . The Bank shall distribute the benefit to the Executive in a lump-sum commencing on the first day of the month following Separation from Service resulting from the Executives Disability.
3.4 Change in Control Benefit . If a Change in Control occurs, followed within twenty-four (24) months by Separation from Service prior to Normal Retirement Age. the Bank shall distribute to the Executive the benefit described in this Section 3.4 in lieu of any other benefit under this Plan.
3.4.1 Amount of Benefit . The benefit under this Section 3.4 is one hundred percent (100%) of the Account Balance.
3.4.2 Distribution of Benefit . The Bank shall distribute the benefit to the Executive in a lump-sum commencing on the first day of the month following Separation from Service.
3.5 Normal Retirement Benefit . If the Executive Separates from Service after attainment of Normal Retirement Age while in the employ of the Bank, the Bank shall distribute to the Executive the benefit described in this Section 3.5 in lieu of any other benefit under this Plan.
3.5.1 Amount of Benefit . The benefit under this Section 3.5 is one hundred percent (100%) of the Account Balance.
3.5.2 Distribution of Benefit . The Bank shall distribute the benefit to the Executive in a lump-sum commencing on the first day of the month following Separation from Service following Normal Retirement Age.
3.6 Distributions Upon Taxation of Amounts Deferred . If, pursuant to Code Section 409A, the Federal Insurance Contributions Act or other state, local or foreign tax, the Executive becomes subject to tax on the amounts deferred hereunder, then the Bank may make a limited distribution to the Executive in a manner that conforms to the requirements of Code Section 409A. Any such distribution will decrease the Executives benefits distributable under this Plan.
3.7 Change in Form or Timing of Distributions . For distribution of benefits under this Article 3, the Executive and the Bank may, subject to the terms of Section 9.1, amend this Plan to delay the timing or change the form of distributions. Any such amendment:
(a) may not accelerate the time or schedule of any distribution, except as provided in Code Section 409A;
(b) must, for benefits distributable under Sections 3.1, 3.2 and 3.4, delay the commencement of distributions for a minimum of five (5) years from the date the first distribution was originally scheduled to be made (for this purpose, each installment payment shall be considered a separate distribution); and
(c) must take effect not less than twelve (12) months after the amendment is made.
3.8 Six-Month Delay . Notwithstanding anything to the contrary in the foregoing, if at the time of the Executives Separation from Service the Executive is considered a Specified Employee by the Bank, then the commencement of any payment that the Executive is entitled to receive under this Plan on account of his Separation from Service shall be delayed until six months and a day after the Executives Separation from Service.
Article 4
Distribution at Death
4.1 Death During Active Service . If the Executive dies prior to Separation from Service, the Bank shall distribute to the Beneficiary the benefit described in this Section 4.1. This benefit shall be distributed in lieu of any benefit under this Plan.
4.1.1 Amount of Benefit . The benefit under this Section 4.1 is one hundred percent (100%) of the Account Balance.
4.1.2 Distribution of Benefit . The Bank shall distribute the benefit to the beneficiary of the Executive in a lump sum payment within 90 days following the date of death; provided , however , that any Deferred Incentive Award due but not credited to the Executives Account Balance as of such date shall be distributed not later than the March 15th following the end of the year in which the death occurred. The Bank shall continue to credit interest on the Account Balance from the date of the Executives death until the date of payment in accordance with Section 2.1.2. The Beneficiary shall be required to provide to the Bank the Executives death certificate.
4.2 Death Before Benefit Distributions Commence . If the Executive is entitled to benefit distributions under this Plan but dies prior to the date that commencement of said benefit distributions are scheduled to be made under this Plan, the Bank shall distribute to the Beneficiary the same benefits to which the Executive was entitled prior to death, except that the benefit distributions shall be paid in the manner specified in Section 4.1.2 and shall commence on the first day of the fourth month following the Executives death. The Beneficiary shall be required to provide to the Bank the Executives death certificate.
Article 5
Beneficiaries
5.1 In General . The Executive shall have the right, at any time, to designate a Beneficiary to receive any benefit distributions under this Plan upon the death of the Executive. The Beneficiary designated under this Plan may be the same as or different from the beneficiary designated under any other plan of the Bank in which the Executive participates.
5.2 Designation . The Executive shall designate a Beneficiary by completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator or its designated agent. The Executives beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as Beneficiary and the marriage is subsequently dissolved. The Executive shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Plan Administrators rules and procedures. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled. The Plan Administrator shall be entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by the Plan Administrator prior to the Executives death.
5.3 Acknowledgment . No designation or change in designation of a Beneficiary shall be effective until received, accepted and acknowledged in writing by the Plan Administrator or its designated agent.
5.4 No Beneficiary Designation . If the Executive dies without a valid beneficiary designation, or if all designated Beneficiaries predecease the Executive, then the Executives spouse shall be the designated Beneficiary. If the Executive has no surviving spouse, any benefit shall be paid to the Executives estate.
5.5 Facility of Distribution . If the Plan Administrator determines in its discretion that a benefit is to be distributed to a minor, to a person declared incompetent or to a person incapable of handling the disposition of that persons property, the Plan Administrator may direct distribution of such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Plan Administrator may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Any distribution of a benefit shall be a distribution for the account of the Executive and the Beneficiary, as the case may be, and shall completely discharge any liability under this Plan for such distribution amount.
Article 6
General Limitations
6.1 Termination for Cause . Notwithstanding any provision of this Plan to the contrary, an Executives Account shall be forfeited, and no benefit shall be due under this Plan, if the
Executives employment with the Bank is terminated by the Bank or an applicable regulator due to a Termination for Cause.
6.2 Removal . Notwithstanding any provision of this Plan to the contrary, the Bank shall not distribute any benefit under this Plan if the Executive is subject to a final removal or prohibition order issued by an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act.
6.3 Forfeiture Provision . The Executive shall forfeit all or a portion of the Executives Account Balance if, and to the extent, that the Deferred Incentive Award is based on performance measurements that are subsequently restated due to the material noncompliance with respect to applicable financial reporting requirements under applicable banking regulations, generally accepted accounting principles, or securities laws, as determined by the members of the Banks Board of Directors who would be considered to be Independent for purposes of the listing standards of the NASDAQ).
Article 7
Administration of Plan
7.1 Plan Administrator Duties . The Plan Administrator shall administer this Plan according to its express terms and shall also have the discretion and authority to (i) make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Plan and (ii) decide or resolve any and all questions, including interpretations of this Plan, as may arise in connection with this Plan to the extent the exercise of such discretion and authority does not conflict with Code Section 409A.
7.2 Agents . In the administration of this Plan, the Plan Administrator may employ agents and delegate to them such administrative duties as the Plan Administrator sees fit, including acting through a duly appointed representative, and may from time to time consult with counsel who may be counsel to the Bank.
7.3 Binding Effect of Decisions . Any decision or action of the Plan Administrator with respect to any question arising out of or in connection with the administration, interpretation or application of this Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon ail persons having any interest in this Plan.
7.4 Indemnity of Plan Administrator . The Bank shall indemnify and hold harmless the Plan Administrator against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Plan Administrator.
7.5 Bank Information . To enable the Plan Administrator to perform its functions, the Bank shall supply full and timely information to the Plan Administrator on all matters relating to the date and circumstances of the Executives death. Disability or Separation from Service, and such other pertinent information as the Plan Administrator may reasonably require.
7.6 Annual Statement . The Plan Administrator shall provide to the Executive, within one hundred twenty (120) days after the end of each Plan Year, a statement setting forth the benefits to be distributed under this Plan.
7.7 Actions . Any actions authorized or required to be taken by the Bank or the Plan Administrator shall be undertaken by the Board or its authorized designees.
Article 8
Claims and Review Procedures
8.1 Claims Procedure . An Executive or Beneficiary ( claimant ) who has not received benefits under this Plan that he or she believes should be distributed shall make a claim for such benefits as follows:
8.1.1 Initiation - Written Claim . The claimant initiates a claim by submitting to the Plan Administrator a written claim for the benefits. If such a claim relates to the contents of a notice received by the claimant, the claim must be made within sixty (60) days after such notice was received by the claimant. All other claims must be made within ninety (90) days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the claimant.
8.1.2 Timing of Plan Administrator Response . The Plan Administrator shall respond to such claimant within ninety (90) days after receiving the claim. If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional ninety (90) days by notifying the claimant in writing, prior to the end of the initial ninety (90) day period that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision.
8.1.3 Notice of Decision . If the Plan Administrator denies part or all of the claim, the Plan Administrator shall notify the claimant in writing of such denial. The Plan Administrator shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:
(a) The specific reasons for the denial;
(b) A reference to the specific provisions of this Plan on which the denial is based;
(c) A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed;
(d) An explanation of this Plans review procedures and the time limits applicable to such procedures; and
(e) A statement of the claimants right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.
8.2 Review Procedure . If the Plan Administrator denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Plan Administrator of the denial as follows:
8.2.1 Initiation - Written Request . To initiate the review, the claimant, within sixty (60) days after receiving the Plan Administrators notice of denial, must file with the Plan Administrator a written request for review.
8.2.2 Additional Submissions - Information Access . The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Plan Administrator shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of. all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimants claim for benefits.
8.2.3 Considerations on Review . In considering the review, the Plan Administrator shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.
8.2.4 Timing of Plan Administrator Response . The Plan Administrator shall respond in writing to such claimant within sixty (60) days after receiving the request for review. If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional sixty (60) days by notifying the claimant in writing, prior to the end of the initial sixty (60) day period that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision.
8.2.5 Notice of Decision . The Plan Administrator shall notify the claimant in writing of its decision on review. The Plan Administrator shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:
(a) The specific reasons for the denial;
(b) A reference to the specific provisions of this Plan on which the denial is based;
(c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to. and copies of. all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimants claim for benefits; and
(d) A statement of the claimants right to bring a civil action under ERISA Section 502(a).
Article 9
Amendments and Termination
9.1 Amendments . This Plan may be amended by an action of the Board in writing; provided , however that any amendment that reduces the accrued benefit to an Executive shall only be effective to the extent set forth in a written agreement authorized by the Board and signed by the Bank and the Executive. Notwithstanding the foregoing, the Board may unilaterally amend this Plan to conform with written directives to the Bank from its auditors or banking regulators or to comply with legislative changes or tax law, including without limitation Code Section 409A.
9.2 Plan Termination Generally . This Plan may be terminated by action of the Board in writing. The benefit shall be the Account Balance as of the date this Plan is terminated. Except as provided in Section 9.3, the termination of this Plan shall not cause a distribution of benefits under this Plan. Rather, upon such termination benefit distributions will be made at the earliest distribution event permitted under Article 3 or Article 4.
9.3 Plan Terminations Under Code Section 409A . Notwithstanding anything to the contrary in Section 8.2, if the Board terminates this Plan in the following circumstances:
(a) Within thirty (30) days before or twelve (12) months after a Change in Control; provided that all distributions are made no later than twelve (12) months following such termination of this Plan; and further provided that all the Banks arrangements which are substantially similar to this Plan are terminated so the Executive and all participants in the similar arrangements are required to receive all amounts of compensation deferred under the terminated arrangements within twelve (12) months of such termination;
(b) Upon the Banks dissolution or with the approval of a bankruptcy court; provided that the amounts deferred under this Plan are included in the Executives gross income in the latest of (i) the calendar year in which this Plan terminates; (ii) the calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or (iii) the first calendar year in which the distribution is administratively practical; or
(c) Upon the Banks termination of this and all other arrangements that would be aggregated with this Plan pursuant to Treasury Regulations Section 1.409A-l(c) if the Executive participated in such arrangements ( Similar Arrangements ); provided that (i) the termination and liquidation does not occur proximate to a downturn in the financial health of the Bank, (ii) all termination distributions are made no earlier than twelve (12) months and no later than twenty-four (24) months following such termination, and (iii) the Bank does not adopt any new arrangement that would be a Similar Arrangement for a minimum of three (3)
years following the date the Bank takes all necessary action to irrevocably terminate and liquidate the Plan;
(d) The Bank may distribute the Account Balance, determined as of the date of the termination of this Plan, to the Executive in a lump sum subject to the above terms.
Article 10
Miscellaneous
10.1 Binding Effect . This Plan shall bind the Executive and the Bank and their beneficiaries, survivors, executors, administrators and transferees.
10.2 No Guarantee of Employment . This Plan is not a contract for employment. It does not give the Executive the right to remain as an employee of the Bank nor interfere with the Banks right to discharge the Executive. It does not require the Executive to remain an employee nor interfere with the Executives right to terminate employment at any time.
10.3 Non-Transferability . Benefits under this Plan cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.
10.4 Tax Withholding and Reporting . The Bank shall withhold any taxes that are required to be withheld, including but not limited to taxes owed under Code Section 409A from the benefits provided under this Plan. The Executive acknowledges that the Banks sole liability regarding taxes is to forward any amounts withheld to the appropriate taxing authorities. The Bank shall satisfy all applicable reporting requirements, including those under Code Section 409A.
10.5 Applicable Law . This Plan and all rights hereunder shall be governed by the laws of the Commonwealth of Massachusetts except to the extent preempted by the laws of the United States of America.
10.6 Unfunded Arrangement . The Executive and the Beneficiary are general unsecured creditors of the Bank for the distribution of benefits under this Plan. The benefits represent the mere promise by the Bank to distribute such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors. Any insurance on the Executives life or other informal funding asset is a general asset of the Bank to which the Executive and Beneficiary have no preferred or secured claim.
10.7 Reorganization . The Bank shall not merge or consolidate into or with another bank, or reorganize, or sell substantially all of its assets to another bank, firm or person unless such succeeding or continuing bank, firm or person agrees to assume and discharge the obligations of the Bank under this Plan. Upon the occurrence of such an event, the term Bank as used in this Plan shall be deemed to refer to the successor or survivor entity.
10.8 Entire Plan . This Plan constitutes the entire Plan between the Bank and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Plan other than those specifically set forth herein.
10.9 Interpretation . Wherever the fulfillment of the intent and purpose of this Plan requires and the context will permit, the use of the masculine gender includes tire feminine and use of the singular includes the plural.
10.10 Alternative Action . In the event it shall become impossible for the Bank or the Plan Administrator to perform any act required by this Plan due to regulatory or other constraints, the Bank or Plan Administrator may perform such alternative act as most nearly carries out the intent and purpose of this Plan and is in the best interests of lire Bank; provided that such alternative act does not violate Code Section 409A.
10.11 Headings . Article and section headings are for convenient reference only and shall not control or affect the meaning or construction of any provision herein.
10.12 Validity . If any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been included herein.
10.13 Notice . Any notice or filing required or permitted to be given to the Bank or Plan Administrator under this Plan shall be sufficient if in wilting and hand-delivered or sent by registered or certified mail to the address below:
Human Resources Officer
HarborOne Bank
770 Oak Street
Brockton, MA 02303
Such notice shall be deemed given as of the date of delivery or. if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.
Any notice or filing required or permitted to be given to the Executive under this Plan shall be sufficient if in writing and hand-delivered or sent by mail to the last known address of the Executive.
10.14 Deduction Limitation on Benefit Payments . If the Bank reasonably anticipates that the Banks deduction with respect to any distribution under this Plan would be limited or eliminated by application of Code Section 162(m), then to the extent deemed necessary by the Bank to ensure that the entire amount of any distribution from this Plan is deductible, the Bank may delay payment of any amount that would otherwise be distributed under this Plan. The delayed amounts shall be distributed to the Executive (or the Beneficiary in the event of the Executives death) at the earliest date the Bank reasonably anticipates that the deduction of the payment of the amount will not be limited or eliminated by application of Code Section 162(m).
10.15 Compliance with Section 409A . This Plan shall be interpreted and administered consistent with Code Section 409A.
IN WITNESS WHEREOF , a duly authorized representative of the Bank has signed this Plan.
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HARBORONE BANK |
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By: |
/s/ Timothy R. Lynch |
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Name: |
Timothy R. Lynch |
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Title: |
Chairman of the Board |
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/s/ James Blake |
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President and CEO |
Exhibit 10.4
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT made and entered into as of the 1st day of March, 2016, by and among HarborOne Bancorp, Inc., a Massachusetts stock holding company (the Company), HarborOne Bank, a Massachusetts-chartered co-operative bank with its principal place of business in Brockton, Massachusetts (the Bank) (the Bank and the Company shall be hereinafter collectively referred to as the Employers), and James W. Blake, of South Easton, Massachusetts (the Employee).
WITNESSETH THAT:
WHEREAS, the Employee is currently, and has been for approximately twenty-three (23) years, employed by the Employers; and
WHEREAS , the Employees experience in the financial services industry and the Employees reputation and contacts in such industry are valuable to the Employers; and
WHEREAS, the Employers desire to continue to employ the Employee in an executive capacity in the conduct of its business; and
WHEREAS, the Employee desires to continue his employment with the Employers; and
WHEREAS , the Bank and the Employee have previously entered into an Employment Agreement dated July 31, 2013, which they wish to amend and restate in its entirety as set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Employers hereby agree to continue the employment of the Employee and the Employee hereby agrees to continue in the employ of the Employers on the terms and conditions hereinafter set forth.
2. Effective Date, Term. The effective date of this Agreement (the Effective Date) shall be the day first written above. The term of the Employees employment pursuant to this Agreement shall commence on the Effective Date and shall continue thereafter until terminated as provided in Section 5.
3. Capacity and Extent of Service .
(a) During the term of this Agreement, the Employers shall employ the Employee as their President and Chief Executive Officer, subject to his election by the Employers Boards of Directors (the Boards of Directors).
(b) The Employee shall be employed on a full-time basis and shall be assigned only such duties and tasks as are appropriate for a person in the position of President
and Chief Executive Officer. It is the intention of the Employers and the Employee that, subject to each of the Employers Charter and By-Laws, and the Employees legal responsibilities as an officer of the Employers, the Employee shall have full discretionary authority to control the day-to-day operations of the Employers and to incur such obligations on behalf of the Employers as may be necessary or appropriate in the ordinary course of its business.
(c) During his employment hereunder, the Employee shall devote his full business time and his best efforts, business judgment, skill and knowledge to the performance of his duties and responsibilities hereunder. The Employee shall not engage in any other business activity during the term of this Agreement except as may be approved by the Board of Directors.
(d) The Employers encourage participation by the Employee on community boards and committees and in activities generally considered to be in the public interest, but the Board of Directors shall have the right to approve or disapprove, in its sole discretion, the Employees participation on such boards and committees.
4. Compensation and Benefits .
(a) Base Salary . As compensation for services performed under and during the term of this Agreement, the Employee shall receive a minimum annual base salary (Base Salary) at a rate of Six Hundred Thirty-Six Thousand Five Hundred Seventy-One Dollars ($636,571). The Employees minimum Base Salary may be increased (but not decreased) from time to time during the term hereof by such amounts as the Compensation Committee of the Companys Board of Directors in its sole discretion may determine.
(b) Incentive and/or Bonus Compensation . In addition to the foregoing minimum Base Salary, the Employee shall be eligible during the term of this Agreement to receive incentive compensation determined and payable in accordance with any incentive compensation plans of the Employers in effect from time to time for members of executive management generally, but in no event with terms less favorable than those in effect under the Employers incentive compensation program in effect at any time during the three (3) years immediately preceding the Effective Date.
(c) Fringe Benefits . At all times during the term of this Agreement, the Employers shall provide the Employee with fringe benefits as set forth in Exhibit A to this Agreement, which Exhibit is incorporated herein by reference and the terms of which are thereby made a part hereof. The Employee shall also be entitled to participate in any employee benefit plans, including without limitation the Employers Section 401(k) Plan, from time to time in effect for executive officers of the Employers generally.
(d) Business Expenses . The Employers shall reimburse the Employee for all reasonable travel and other business expenses incurred by him in the performance of his duties and responsibilities, subject to such reasonable requirements with respect to substantiation and documentation as may be specified by the Employers, their auditors, the Internal Revenue Service or other regulatory authorities having jurisdiction over the Employers and their operations.
(e) Endorsement Split-Dollar Insurance . The Bank and the Employee have entered into an Endorsement Split-Dollar Agreement dated as of November [6], 2015, a copy of which is attached hereto as Exhibit B, which Exhibit is incorporated herein by this reference and the terms of which are thereby made a part hereof. The Bank and the Employee agree to fulfill their respective obligations under the Endorsement Split-Dollar Agreement.
5. Termination and Termination Benefits .
Notwithstanding the provisions of Section 2, the Employees employment hereunder shall terminate under the following circumstances:
(a) Death . In the event of the Employees death during his employment under this Agreement, the Employees employment shall terminate on the date of his death; provided, however, that if the Employee is survived by his spouse, the Employers shall continue to pay to his spouse the Employees Base Salary in effect at the time of his death until the expiration of two (2) months following the Employees death.
(b) Disability . The Employers may terminate the Employees employment if he is disabled and unable to perform the essential functions of the Employees then existing position or positions under this Agreement with or without reasonable accommodation for a period of one hundred eighty (180) days (which need not be consecutive) in any twelve (12) month period. If any question shall arise as to whether during any period the Employee is disabled so as to be unable to perform the essential functions of the Employees then existing position or positions with or without reasonable accommodation, the Employee may, and at the request of the Employers shall, submit to the Employers a certification in reasonable detail by a physician mutually agreeable to the Employers and the Employee or the Employees guardian as to whether the Employee is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue. The Employee shall cooperate with any reasonable request of the physician in connection with such certification. If such question shall arise and the Employee through his own fault shall fail to submit such certification, the Employers determination of such issue shall be binding on the Employee. Nothing in this Section 5(b) shall be construed to waive the Employees rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. §2601 et seq . and the Americans with Disabilities Act, 42 U.S.C. §12101 et seq.
(c) Termination by the Employee Without Cause . Notwithstanding the provisions of Section 2, the Employee may resign from the Employers at any time upon sixty (60) days prior written notice to the Boards of Directors. In the event of resignation by the Employee under this Section 5(c), the Boards of Directors in their sole discretion may elect to waive the period of notice, or any portion thereof. From and after the effective date of such termination by the Employee of his employment hereunder, the Employers shall have no further liability to the Employee for salary or other compensation or benefits, except as provided pursuant to the terms of any employee benefit plan of the Employers in which the Employee is then a participant.
(d) Termination by the Employers Without Cause . The Employees employment under this Agreement may be terminated without cause by a vote of two-thirds
(2/3 rds ) of all (except the Employee) of the members of each Board of Directors and on written notice to the Employee. In the event of such termination, the Employee shall be entitled to the following benefits:
(i) For a period of twenty-four (24) months, the Employers shall continue to pay to the Employee, or to the Employees designated beneficiary (or to his estate if he fails to make such designation) the Employees salary at the rate of his Base Salary in effect as of the date of such termination;
(ii) For each year during the period specified in paragraph (i) of this Section 5(d), the Employee shall be entitled to receive incentive compensation equal to the average incentive compensation received by the Employee during the three (3) full fiscal years of the Employers immediately preceding such termination, with such amount to be paid when incentive compensation is otherwise paid to other executives of the Employers in the first seventy-five (75) days of the Employers fiscal year;
(iii) If the Employee was participating in the Employers group health plan immediately prior to the date of termination and elects COBRA health continuation, then the Employers shall pay to the Employee a monthly cash payment for eighteen (18) months or the Employees COBRA health continuation period, whichever ends earlier, in an amount equal to the monthly employer contribution that the Employers would have made to provide health insurance to the Employee if the Employee had remained employed by the Employers; and
(iv) The Employee shall be entitled to receive a payment equal to the amount the Employers would have contributed on his behalf to any qualified pension, profit sharing or 401(k) or similar plan had he remained in the employ of the Employers for an additional twenty-four (24) month period at the same Base Salary as in effect as of the date of the Employees termination. Such amount shall be paid in the twenty-fourth (24 th ) month following termination of employment.
Notwithstanding the above, in the event of a termination by the Employers without Cause that occurs within twenty-four (24) months after a Change in Control, the amounts payable under Section 5(d)(i) shall be increased to three (3) times the Employees Base Salary and be paid to the Employee in a single lump sum within ten (10) days following the termination of employment, and the Employee shall have no further obligations to the Employers except his obligations under Sections 6(a) and 6(b).
(e) Termination by the Employee For Good Reason . The Employee may terminate his employment hereunder for Good Reason. Only the following shall constitute Good Reason for such termination:
(i) Failure of the Employers to continue the Employee in the position of President and Chief Executive Officer during the term of this Agreement;
(ii) Material change by the Employers in the nature or scope of the Employees responsibilities, title, authorities, powers, functions or duties from the responsibilities, title, authorities, powers, functions or duties normally exercised by an executive in the position of President and Chief Executive Officer, or any reassignment of the Employee to a place of business which is more than fifty (50) miles from Brockton, Massachusetts;
(iii) Material breach by the Employers of Section 4 hereof or of any other provision of this Agreement, which breach continues for more than thirty (30) days following written notice given by the Employee to the Employers, such written notice to set forth in reasonable detail the nature of such breach; or
In the event the Employee terminates his employment for Good Reason, the Employee shall be entitled to the termination benefits set forth in Section 5(d) above, provided, however, that, in the event of a termination for Good Reason that occurs within twenty-four (24) months after a Change in Control, the amounts payable under Section 5(d)(i) shall be increased to three (3) times the Employees Base Salary and be paid to the Employee in a single lump sum within ten (10) days following the termination of employment, and the Employee shall have no further obligations to the Employers except his obligations under Sections 6(a) and 6(b).
For purposes hereof, a Change in Control shall be deemed to occur upon the occurrence of any one of the following events:
(A) any Person, as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the Act) (other than HarborOne Bancorp or the Company), any of their subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all affiliates and associates (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the beneficial owner (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing forty percent (40%) or more of the combined voting power of the Companys then outstanding securities having the right to vote in an election of the Companys Board of Directors (Voting Securities) (in such case other than as a result of an acquisition of securities directly from the Company or in connection with a public offering); or
(B) persons who, as of the date hereof, constitute the Companys Board of Directors (the Incumbent Directors) cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Companys Board of Directors, provided that any person becoming a director of the Company subsequent to the date hereof shall be considered an Incumbent Director if such persons election was approved by or such person was nominated for
election by either (1) a vote of at least a majority of the Incumbent Directors or (2) a vote of at least a majority of the Incumbent Directors who are members of a nominating committee comprised, in the majority, of Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Companys Board of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Companys Board of Directors, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or
(C) the consummation of (1) any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate more than fifty percent (50%) of the voting shares of the Company issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), or (2) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or of the Bank.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred for purposes of the foregoing clause (A) solely as the result of an acquisition of securities by the Company that, by reducing the number of shares of Voting Securities outstanding, increases the proportionate number of shares of Voting Securities beneficially owned by any person to forty percent (40%) or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns forty percent (40%) or more of the combined voting power of all then outstanding Voting Securities, then a Change in Control shall be deemed to have occurred for purposes of the foregoing clause (A).
(f) Termination by the Employers For Cause . The Employees employment hereunder may be terminated for cause by the Employers, effective immediately, by a vote, at a meeting duly called for such purpose of the members of the Boards of Directors and on written notice to the Employee setting forth in reasonable detail the nature of such cause. The Boards of Directors shall vote separately on the issue of cause and on the issue of termination, but such separate votes may be taken at the same meeting. A determination that cause exists and a determination to terminate the Employee following an affirmative determination of cause shall
require a two-thirds (2/3 rds ) vote of all (except the Employee) of the members of each Board of Directors. Only the following shall constitute cause for such termination:
(i) Conviction by a court of competition jurisdiction (or plea of nolo contendere) for felony criminal conduct or other criminal conduct involving dishonesty or moral turpitude;
(ii) Willful misconduct in the performance of the Employees duties hereunder;
(iii) Gross negligence in the performance of the Employees duties hereunder that results in a material detriment to the Employers or their affiliates;
(iv) Chronic substance abuse which interferes with Employees performance of his duties hereunder, as reasonably determined in good faith by Board; or
(v) Fraud, embezzlement, theft, intentional misrepresentation or other similar acts by the Employee with respect to the Employers or any of their affiliates.
In the event of the termination of the Employee under this Section 5(f), the Employers shall have no further obligation to the Employee, except as required pursuant to the terms of any employee benefit plan of the Employers in which the Employee is then a participant.
(g) Vote of Boards of Directors Pursuant to Sections 5(d) or 5(f) . In the event of a vote of the Boards of Directors pursuant to Sections 5(d) or 5(f) of this Agreement, including any vote to give written notice of cause pursuant to Sections 5(f), the Employee shall not be entitled to vote.
6. Non-Competition, Non-Solicitation and Confidential Information .
(a) Non-Competition and Non-Solicitation . During the term of the Employees employment under this Agreement and for twelve (12) months thereafter (or, in the event of a termination of the Employee without Cause or resignation of the Employee for Good Reason pursuant to Section 5(e), during such longer period as the Employers are making payments of severance compensation to the Employee in accordance with the provisions of Section 5(a)(i) hereof), the Employee (i) will not, directly or indirectly, whether as owner, partner, shareholder consultant, agent, employee, co-venturer or otherwise, engage, participate, assist or invest in any business conducted anywhere in any town in which the Employers have a branch or any town contiguous thereto or within a thirty-five (35) mile radius of the Employers headquarters that is competitive with any business that the Employers or any of their affiliates conduct or propose to conduct at any time during the employment of the Employee; (ii) will refrain from directly or indirectly employing, attempting to employ, recruiting or otherwise soliciting, inducing or influencing any person to leave employment with the Employers (other than terminations of employment of subordinate employees undertaken in the course of the Employees employment with the Employers); and (iii) will refrain from soliciting or encouraging any customer or supplier to terminate or otherwise modify adversely its business
relationship with the Employers. Notwithstanding the foregoing, the Employee may own up to three percent (3%) of the outstanding stock of a publicly held corporation which constitutes or is affiliated with a Competing Business.
(b) Confidential Information . The Employee shall not at any time divulge, use, furnish, disclose or make accessible to anyone other than an employee or director of the Employers with a reasonable need to know, any knowledge or information with respect to confidential or secret data, procedures or techniques of the Employers, provided, however, that nothing in this Section 6(b) shall prevent the disclosure by the Employee of any such information which at any time comes into the public domain other than as a result of the violation of the terms of this Section 6(b) by the Employee or which is otherwise lawfully acquired by the Employee.
(c) The Employee understands that the restrictions set forth in this Section 6 are intended to protect the Employers interest in their Confidential Information and established employee, customer and supplier relationships and goodwill, and agrees that such restrictions are reasonable and appropriate for this purpose.
7. Withholding . All payments made by the Employers under this Agreement shall be subject to withholding of any tax or other amounts required to be withheld by the Employers under applicable law or benefit plans of the Employers in which the Employee is participating.
8. Indemnification . The Employers agree to indemnify the Employee in his capacity as an officer of the Employers and, to the extent he serves with the approval of the Employers as a representative, an officer or a Board member of any community organization or financial services industry association or similar entity, as set forth in the Charter or By-laws of each of the Employers, as amended from time to time; provided, however, that the terms of such indemnification shall be no less favorable to the Employee than those set forth in the Charter or By-laws of each of the Employers as of the date of this Agreement.
9. Notices . Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by registered or certified mail, postage paid, to the Employee at the last address the Employee has filed in writing with the Employers or, in the case of the Employers, at its main office, attention of the Chairman of the Board.
10. Return of Employer Property . The Employee will return to the Employers all records and files and all other Employer documentation and other property immediately upon termination of his employment.
11. Equitable Relief . It is agreed that the Employers remedy at law for any actual or threatened breach of this Agreement by the Employee would be inadequate and that the Employers will, in addition to whatever remedies they may have at law or in equity under this Agreement, be entitled to immediate injunctive relief from actual or threatened breach of this Agreement.
12. Entire Agreement . This Agreement constitutes the entire Agreement between the parties with respect to its subject matter and may not be changed except by a writing duly
executed and delivered by the Employers and the Employee in the same manner as this Agreement.
13. Binding Effect; Non-assignability . This Agreement shall be binding upon and inure to the benefit of the Employers and their successors and assigns. Neither this Agreement nor any rights arising hereunder may be subject in any way to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by the Employee or creditors of the Employee or any beneficiary. This Agreement shall inure to the benefit of and be enforceable by the Employees personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
14. Amendment . This Agreement may be amended or modified only by a written instrument signed by the Employee and the Chairman of the Board of Directors, upon concurrence of two-thirds (2/3 rds ) of all (except the Employee) of the members of each Board of Directors.
15. Enforceability . If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provisions in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.
16. Applicable Law . This Agreement shall be construed and enforced in all respects in accordance with the laws of the Commonwealth of Massachusetts and in accordance with any applicable federal laws to which the Bank may be subject as an FDIC insured institution.
17. No Mitigation . The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. No payment provided for in this Agreement shall be reduced by any compensation earned by the Employee as the result of employment by another employer, or the Employees receipt of income from any other sources, after termination of his employment with the Employers.
18. Dispute Resolution . If a dispute arises out of or relates to this Agreement, or the breach hereof, and if such dispute is not settled within a commercially reasonable time through negotiations, the parties shall attempt in good faith to settle the dispute by mediation under the Commercial Mediation Rules of the American Arbitration Association before resorting to arbitration, litigation or other dispute resolution procedures. No resolution or attempted resolution of any dispute or disagreement pursuant to this Section 18 shall be deemed to be a waiver of any term or provision of this Agreement or consent to any breach or default, unless such waiver or consent shall be in writing and signed by the party claimed to have waived or consented.
19. Compliance with Section 409A . The Employers and the Employee acknowledge and agree that the provisions for payments and benefits in Sections 4 and 5 of this Agreement may constitute a non-qualified deferred compensation plan subject to Section 409A of the Internal Revenue Code of 1986, as amended (the Code), and Treasury Regulations and other
guidance thereunder (Section 409A). The Employers and the Employee intend to administer such provisions in a manner that at all times is either exempt from or complies in form and operation with the applicable limitations and the standards of Section 409A. Accordingly, the following limitations are expressly imposed with respect to such provisions for payments.
(a) The Employees entitlement to receive or begin to receive payments pursuant to the provisions of Section 5 is conditioned upon the Employees separation from service. For this purpose, the Employee will be deemed to have separated from service only if his level of services to the Employers and their affiliated entities decreases and is expected to remain at a level equal to twenty percent (20%) or less of the average level of services performed by the Employee during the immediately preceding thirty-six (36) month period.
(b) If at the time of the Employees separation from service, the Employee is considered a specified employee (within the meaning of Section 409A) by the Bank, the payment of any amount payable to the Employee that constitutes non-qualified deferred compensation subject to Section 409A shall be delayed until six months and a day after the Employees separation from service.
(c) It is intended that each installment, if any, of the payments and benefits provided by the provisions of Section 5 shall be treated as a separate payment for purposes of Section 409A. Neither the Employers nor the Employee will have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A.
(d) All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A. All expenses or reimbursements paid pursuant to this Agreement that are taxable income to the Employee shall in no event be paid later than the end of the calendar year next following the calendar year in which the Employee incurs such expense or pays the related tax. With regard to any provision in the Agreement for the right to reimbursement or in-kind benefits, such right shall not be subject to liquidation or exchange for another benefit, the amount of expenses eligible for reimbursement or in-kind benefits provided during any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year, provided that the foregoing clause shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect, and such payments shall be made on or before the last day of the Employees taxable year following the taxable year in which the expense was incurred.
20. Additional Limitation .
(a) Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any compensation, payment or distribution by the Employers to or for the benefit of the Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the of the Code and the applicable regulations thereunder (the Aggregate Payments), would be
subject to the excise tax imposed by Section 4999 of the Code, then the Aggregate Payments shall be reduced (but not below zero) so that the sum of all of the Aggregate Payments shall be $1.00 less than the amount at which the Employee becomes subject to the excise tax imposed by Section 4999 of the Code; provided that such reduction shall only occur if it would result in the Employee receiving a higher After Tax Amount (as defined below) than the Employee would receive if the Aggregate Payments were not subject to such reduction. In such event, the Aggregate Payments shall be reduced in the following order, in each case, in reverse chronological order beginning with the Aggregate Payments that are to be paid the furthest in time from consummation of the transaction that is subject to Section 280G of the Code: (1) cash payments not subject to Section 409A; (2) cash payments subject to Section 409A; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits; provided that in the case of all the foregoing Aggregate Payments all amounts or payments that are not subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c) shall be reduced before any amounts that are subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c).
(b) For purposes of this Section 20, the After Tax Amount means the amount of the Aggregate Payments less all federal, state, and local income, excise and employment taxes imposed on the Employee as a result of the Employees receipt of the Aggregate Payments. For purposes of determining the After Tax Amount, the Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in each applicable state and locality, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(c) The determination as to whether a reduction in the Aggregate Payments shall be made pursuant to Section 20(a) shall be made by a nationally recognized accounting firm selected by the Employers (the Accounting Firm), which shall provide detailed supporting calculations both to the Employers and the Employee within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Employers or the Employee. Any determination by the Accounting Firm shall be binding upon the Employers and the Employee.
21. Allocation of Obligations Between Employers . The obligations of the Employers under this Agreement are intended to be the joint and several obligations of the Bank and the Company, and the Employers shall, as between themselves, allocate these obligations in a manner agreed upon by them.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Employers, by their duly authorized officers, and by the Employee, as of the date first above written.
EMPLOYEE: |
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HARBORONE BANCORP, INC.: |
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/s/ James W. Blake |
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/s/ Timothy R. Lynch |
James W. Blake |
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Timothy R. Lynch |
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Chairman of the Board |
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WITNESS: |
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ATTEST: |
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/s/ Elza Rebolo |
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/s/ Elza Rebolo |
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HARBORONE BANK: |
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/s/ Timothy R. Lynch |
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By: |
Timothy R. Lynch |
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Chairman of the Board |
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ATTEST: |
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/s/ Elza Rebolo |
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[Signature Page to Employment Agreement]
EXHIBIT A
to
EMPLOYMENT AGREEMENT
by and among
HarborOne Bancorp, Inc.
HarborOne Bank
and
James W. Blake
Dated March 1, 2016
1. Automobile . The Employee shall be entitled to the use of an Employer-owned automobile generally comparable to a BMW 750. The Employee shall be entitled to a new replacement automobile every three (3) years. In addition to the foregoing, the Employee shall be entitled to reimbursement for (or payment directly by the Employers of) all expenses of operating the automobile, including insurance, maintenance, repairs, licensing, fuel, taxes and other routine expenses.
2. Club Memberships . The Employers will pay on the Employees behalf the cost of a social membership (fees and dues) at a club selected by the Employee and determined by the Board in its reasonable discretion to be in the best interests of the Employers and consistent with Department of Treasury Regulations.
3. Conventions and Seminars . The Employee shall be entitled to attend with his spouse, at the Employers expense, the Massachusetts Bankers Association Annual Meeting and Convention, and vendor-related advisory board and client conferences.
4. Vacation . The Employee shall be entitled to five (5) weeks of paid vacation benefits in each calendar year, accrued monthly during the calendar year.
5. Insurance . The Employers shall maintain in effect for the Employee, at the Employers sole expense, life insurance equal to three (3) times the Employees Base Salary, subject to the terms of the insurance plan specific to him. If the Employees benefit limits exceed the amount available under the Employers group insurance plan, then the Employee will be entitled to Employer-paid coverage under a different plan, in addition to or in lieu of the group insurance plan, to accommodate the difference.
6. Technology Assistance . The Employers shall supply the Employee with full capability for remote access to Employer systems, as necessary, including a laptop computer, cell phone, personal digital assistant and wireless connection at his residence, all at the Employers sole expense for purchase, customary monthly charges, and upgrades, including new equipment on a periodic basis as technology improvements and communications needs dictate.
7. Medical Insurance in Retirement . The Employee will be entitled to coverage in a supplemental medical insurance plan for the Employee and his spouse, pending his eligibility as determined by the medical insurer, at the Employers sole expense, once he reaches age sixty-five (65) and is no longer covered by the Employers group medical insurance plan, to
supplement what is covered in his Medicare plan. This supplemental insurance plan, commonly referred to as a Medigap plan, is designed to cover medical and related costs that are not covered by the Employees Medicare plan. The supplemental insurance plan will include prescription medication coverage. Supplemental insurance will remain in effect during the entire term of the Employees and his wifes retirement.
Exhibit 10.5
2016 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This 2016 Supplemental Executive Retirement Plan (the Agreement), by and between HarborOne Bank (the Employer), and James W. Blake (the Executive), effective as of the 21st day of January 2016, formalizes the agreements and understanding between the Employer and the Executive.
WITNESSETH :
WHEREAS, the Executive is employed by the Employer;
WHEREAS, the Employer recognizes the valuable services the Executive has performed for the Employer and wishes to encourage the Executives continued employment and to provide the Executive with additional incentive to achieve corporate objectives;
WHEREAS, the Employer wishes to provide the terms and conditions upon which the Employer shall pay additional retirement benefits to the Executive;
WHEREAS, the Employer and the Executive intend this Agreement shall at all times be administered and interpreted in compliance with Code Section 409A; and
WHEREAS, the Employer intends this Agreement shall at all times be administered and interpreted in such a manner as to constitute an unfunded nonqualified deferred compensation arrangement, maintained primarily to provide supplemental retirement benefits for the Executive, a member of select group of management or highly compensated employee of the Employer.
NOW THEREFORE, in consideration of the premises and of the mutual promises herein contained, the Employer and the Executive agree as follows:
ARTICLE 1
DEFINITIONS
For the purpose of this Agreement, the following phrases or terms shall have the indicated meanings:
1.1 Actuarial Equivalent means an amount of equal value when computed on the basis of an interest rate of 3.0% compounded annually and the 1983A Mortality Table set back 10 years, and blended 50% male and 50% female.
1.2 Administrator means the Board or its designee.
1.3 Affiliate means any business entity with whom the Employer would be considered a single employer under Section 414(b) and 414(c) of the Code. Such term shall be interpreted in a manner consistent with the definition of service recipient contained in Code Section 409A.
1.4 Beneficiary means the person or persons designated in writing by the Executive to receive benefits hereunder in the event of the Executives death.
1.5 Board means the Board of Directors of the Employer.
1.6 Cause means any of the following acts or circumstances: gross negligence or gross neglect of duties to the Employer; conviction of a felony or of a gross misdemeanor involving moral turpitude in connection with the Executives employment with the Employer; or fraud, disloyalty, dishonesty or willful violation of any law or significant Employer policy committed in connection with the Executives employment and resulting in a material adverse effect on the Employer.
1.7 Change in Control means either a change in the ownership or effective control of the Employer, or in the ownership of a substantial portion of the assets of the Employer, as such change is defined in Code Section 409A and regulations thereunder.
1.8 Claimant means a person who believes that he or she is being denied a benefit to which he or she is entitled hereunder.
1.9 Code means the Internal Revenue Code of 1986, as amended.
1.10 Disability means a disability as defined in Treasury Regulation §1.409A-3(i)(4)
1.11 Effective Date means December 31, 2015.
1.12 ERISA means the Employee Retirement Income Security Act of 1974, as amended.
1.13 Final Average Compensation means one-third of the aggregate of the salary and bonus paid by the Employer on a pre-tax basis to the Executive for services rendered over the thirty-six (36)months of the Executives employment ending immediately prior to the Executives Separation from Service or death.
1.14 Offsets means the sum of (i) the Executives annual Primary Social Security benefits payable beginning at Separation from Service and (ii) the projected annual benefit payable beginning at Separation from Service in the form of an Actuarial Equivalent single life annuity of the employer provided portion of benefits (without regards to any earnings thereon) provided under the Employers 401(k) plan (and any successor plan).
1.15 Separation from Service means a termination of the Executives employment with the Employer and its Affiliates for reasons other than death, Disability or Termination for Cause. A Separation from Service may occur as of a specified date for purposes of the Agreement even if the Executive continues to provide some services for the Employer or its Affiliates after that date, provided that the facts and circumstances indicate that the Employer and the Executive reasonably anticipated at that date that either no further services would be performed after that date, or that the level of bona fide services
the Executive would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed over the immediately preceding thirty-six (36) month period (or the full period during which the Executive performed services for the Employer, if that is less than thirty-six (36) months).
1.16 Specified Employee means an individual that satisfies the definition of a key employee of the Employer as such term is defined in Code §416(i) (without regard to Code §416(i)(5)), provided that the stock of the Employer is publicly traded on an established securities market or otherwise, as defined in Code §1.897-1(m). If the Executive is a key employee at any time during the twelve (12) months ending on December 31, the Executive is a Specified Employee for the twelve (12) month period commencing on the first day of the following April.
1.17 2008 SERP Payment means the amount paid to the Executive by the Employer pursuant to the Supplemental Executive Retirement Plan Agreement between the Executive and the Employer dated May 28, 2008.
ARTICLE 2
PAYMENT OF BENEFITS
2.1 Normal Benefit. Upon Separation from Service or Disability, the Employer shall pay the Executive a lump sum benefit equal to the gross benefit, as defined below, less the 2008 SERP Payment with interest at a rate of 3% per year from the date of payment of such benefit to the date of Separation of Service. For purposes of this Section 2.1, the gross benefit shall equal the Actuarial Equivalent value of a stream of annual payments over the Executives remaining life expectancy in the amount of (i) sixty percent (60%) of Final Average Compensation less (ii) the Offsets. In no case will the lump sum benefit after application of the Offsets and the 2008 SERP Payment reduction be less than the amount determined as of prior calendar year-end. This lump sum benefit shall be paid to the Executive within thirty (30) days following Separation from Service, subject to Section 2.9.
2.2 Death Benefit . In the event the Executive dies prior to Separation from Service, the Employer shall pay the Beneficiary a lump sum amount equal to the gross benefit, as defined below, less the 2008 SERP Payment with interest at a rate of 3% per year from the date of payment of such benefit to the date of death. For purposes of this Section 2.2, the gross benefit shall equal the Actuarial Equivalent value of a stream of annual payments over the Executives remaining life expectancy (assuming the participant terminated on his date of death) in the amount of (i) sixty percent (60%) of Final Average Compensation less (ii) the Offsets. In no case will the lump sum benefit after application of the Offsets and the 2008 SERP Payment reduction be less than the amount determined as of prior calendar year-end. This lump sum benefit shall be paid to the Beneficiary within thirty (30) days following the Executives death.
2.3 Termination for Cause . If the Employer terminates the Executives employment for Cause, then the Executive shall not be entitled to any further benefits under the terms of this Agreement.
2.4 Acceleration of Payments . Except as specifically permitted herein, no acceleration of the time or schedule of any payment may be made hereunder. Notwithstanding the foregoing, payments may be accelerated, in accordance with the provisions of Treasury Regulation §1.409A-3(j)(4) in the following circumstances: (i) as a result of certain domestic relations orders; (ii) in compliance with ethics agreements with the federal government; (iii) in compliance with the ethics laws or conflicts of interest laws; (iv) in limited cashouts (but not in excess of the limit under Code §402(g)(1)(B)); (v) to pay employment-related taxes; or (vi) to pay any taxes that may become due at any time that the Agreement fails to meet the requirements of Code Section 409A.
2.5 Delays in Payment by Employer . A payment may be delayed to a date after the designated payment date under any of the circumstances described below, and the provision will not fail to meet the requirements of establishing a permissible payment event. The delay in the payment will not constitute a subsequent deferral election, so long as the Employer treats all payments to similarly situated Participants on a reasonably consistent basis.
(a) Payments subject to Code Section 162(m) . If the Employer reasonably anticipates that the Employers deduction with respect to any distribution under this Agreement would be limited or eliminated by application of Code Section 162(m), then to the extent deemed necessary by the Employer to ensure that the entire amount of any distribution from this Agreement is deductible, the Employer may delay payment of any amount that would otherwise be distributed under this Agreement. The delayed amounts shall be distributed to the Executive (or the Beneficiary in the event of the Executives death) at the earliest date the Employer reasonably anticipates that the deduction of the payment of the amount will not be limited or eliminated by application of Code Section 162(m).
(b) Payments that would violate Federal securities laws or other applicable law . A payment may be delayed where the Employer reasonably anticipates that the making of the payment will violate Federal securities laws or other applicable law provided that the payment is made at the earliest date at which the Employer reasonably anticipates that the making of the payment will not cause such violation. The making of a payment that would cause inclusion in gross income or the application of any penalty provision of the Internal Revenue Code is not treated as a violation of law.
(c) Solvency . Notwithstanding the above, a payment may be delayed where the payment would jeopardize the ability of the Employer to continue as a going concern.
2.6 Treatment of Payment as Made on Designated Payment Date . Solely for purposes of determining compliance with Code Section 409A, any payment under this Agreement made after the required payment date shall be deemed made on the required payment date provided that such payment is made by the latest of: (i) the end of the calendar year in which the payment is due; (ii) the 15 th day of the third calendar month following the payment due date; (iii) if Employer cannot calculate the payment amount on account of administrative impracticality which is beyond the Executives control, the end of the first calendar year which payment calculation is practicable; and (iv) if Employer does not have sufficient funds to make the payment without jeopardizing the Employers solvency, in the first calendar year in which the Employers funds are sufficient to make the payment.
2.7 Facility of Payment . If a distribution is to be made to a minor, or to a person who is otherwise incompetent, then the Administrator may make such distribution: (i) to the legal guardian, or if none, to a parent of a minor payee with whom the payee maintains his or her residence; or (ii) to the conservator or administrator or, if none, to the person having custody of an incompetent payee. Any such distribution shall fully discharge the Employer and the Administrator from further liability on account thereof.
2.8 Changes in Form or Timing of Benefit Payments . The Employer and the Executive may, subject to the terms hereof, amend this Agreement to delay the timing or change the form of payments provided such amendment complies with code Section 409A.
2.9 Restriction on Commencement of Distributions . Notwithstanding any provision of this Agreement to the contrary, if the Executive is considered a Specified Employee at the time of Separation from Service, the provisions of this Section shall govern all distributions hereunder. Distributions which would otherwise be made to the Executive due to Separation from Service shall not be made during the first six (6) months following Separation from Service. Rather, any distribution which would otherwise be paid to the Executive during such period shall be accumulated and paid to the Executive in a lump sum on the first day of the seventh month following Separation from Service, or if earlier, upon the Executives death. All subsequent distributions shall be paid as they would have had this Section not applied.
ARTICLE 3
BENEFICIARIES
3.1 Designation of Beneficiaries . The Executive may designate any person to receive any benefits payable under the Agreement upon the Executives death, and the designation may be changed from time to time by the Executive by filing a new designation. Each designation will revoke all prior designations by the Executive, shall be in the form prescribed by the Administrator, and shall be effective only when filed in writing with the Administrator during the Executives lifetime. If the Executive names someone other than the Executives spouse as a Beneficiary, the Administrator may, in its sole discretion, determine that spousal consent is required to be provided in a form designated by the Administrator, executed by the Executives spouse and returned to the Administrator. The
Executives beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as Beneficiary and the marriage is subsequently dissolved.
3.2 Absence of Beneficiary Designation . In the absence of a valid Beneficiary designation, or if, at the time any benefit payment is due to a Beneficiary, there is no living Beneficiary validly named by the Executive, the Employer shall pay the benefit payment to the Executives spouse. If the spouse is not living then the Employer shall pay the benefit payment to the Executives living descendants per stirpes , and if there are no living descendants, to the Executives estate. In determining the existence or identity of anyone entitled to a benefit payment, the Employer may rely conclusively upon information supplied by the Executives personal representative, executor, or administrator.
ARTICLE 4
ADMINISTRATION
4.1 Administrator Duties . The Administrator shall be responsible for the management, operation, and administration of the Agreement. When making a determination or calculation, the Administrator shall be entitled to rely on information furnished by the Employer, Executive or Beneficiary. No provision of this Agreement shall be construed as imposing on the Administrator any fiduciary duty under ERISA or other law, or any duty similar to any fiduciary duty under ERISA or other law.
4.2 Administrator Authority . The Administrator shall enforce this Agreement in accordance with its terms, shall be charged with the general administration of this Agreement, and shall have all powers necessary to accomplish its purposes.
4.3 Binding Effect of Decision . The decision or action of the Administrator with respect to any question arising out of or in connection with the administration, interpretation or application of this Agreement and the rules and regulations promulgated hereunder shall be final, conclusive and binding upon all persons having any interest in this Agreement.
4.4 Compensation, Expenses and Indemnity . The Administrator shall serve without compensation for services rendered hereunder. The Administrator is authorized at the expense of the Employer to employ such legal counsel and/or recordkeeper as it may deem advisable to assist in the performance of its duties hereunder. Expense and fees in connection with the administration of this Agreement shall be paid by the Employer.
4.5 Employer Information . The Employer shall supply full and timely information to the Administrator on all matters relating to the Executives compensation, death, and such other information as the Administrator reasonably requires.
4.6 Compliance with Code Section 409A . The Employer and the Executive intend that the Agreement comply with the provisions of Code Section 409A to prevent the inclusion in gross income of any amounts deferred hereunder in a taxable year prior to the year in which amounts are actually paid to the Executive or Beneficiary. This Agreement
shall be construed, administered and governed in a manner that affects such intent, and the Administrator shall not take any action that would be inconsistent therewith.
ARTICLE 5
CLAIMS AND REVIEW PROCEDURES
5.1 Claims Procedure . A Claimant who has not received benefits under this Agreement that he or she believes should be distributed shall make a claim for such benefits as follows.
(a) Initiation Written Claim . The Claimant initiates a claim by submitting to the Administrator a written claim for the benefits. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within sixty (60) days after such notice was received by the Claimant. All other claims must be made within one hundred eighty (180) days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.
(b) Timing of Administrator Response . The Administrator shall respond to such Claimant within ninety (90) days after receiving the claim. If the Administrator determines that special circumstances require additional time for processing the claim, the Administrator can extend the response period by an additional ninety (90) days by notifying the Claimant in writing, prior to the end of the initial ninety (90) day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Administrator expects to render its decision.
(c) Notice of Decision . If the Administrator denies part or all of the claim, the Administrator shall notify the Claimant in writing of such denial. The Administrator shall write the notification in a manner calculated to be understood by the Claimant. The notification shall set forth: (i) the specific reasons for the denial; (ii) a reference to the specific provisions of this Agreement on which the denial is based; (iii) a description of any additional information or material necessary for the Claimant to perfect the claim and an explanation of why it is needed; (iv) an explanation of this Agreements review procedures and the time limits applicable to such procedures; and (v) a statement of the Claimants right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.
5.2 Review Procedure . If the Administrator denies part or all of the claim, the Claimant shall have the opportunity for a full and fair review by the Administrator of the denial as follows.
(a) Initiation Written Request . To initiate the review, the Claimant, within sixty (60) days after receiving the Administrators notice of denial, must file with the Administrator a written request for review.
(b) Additional Submissions Information Access . The Claimant shall then have the opportunity to submit written comments, documents, records and other
information relating to the claim. The Administrator shall also provide the Claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimants claim for benefits.
(c) Considerations on Review . In considering the review, the Administrator shall take into account all materials and information the Claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.
(d) Timing of Administrator Response . The Administrator shall respond in writing to such Claimant within sixty (60) days after receiving the request for review. If the Administrator determines that special circumstances require additional time for processing the claim, the Administrator can extend the response period by an additional sixty (60) days by notifying the Claimant in writing, prior to the end of the initial sixty (60) day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Administrator expects to render its decision.
(e) Notice of Decision . The Administrator shall notify the Claimant in writing of its decision on review. The Administrator shall write the notification in a manner calculated to be understood by the Claimant. The notification shall set forth: (a) the specific reasons for the denial; (b) a reference to the specific provisions of this Agreement on which the denial is based; (c) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimants claim for benefits; and (d) a statement of the Claimants right to bring a civil action under ERISA Section 502(a).
ARTICLE 6
AMENDMENT AND TERMINATION
6.1 Agreement Amendment Generally . Except as provided in Section 6.2, this Agreement may be amended only by a written agreement signed by both the Employer and the Executive.
6.2 Amendment to Insure Proper Characterization of Agreement . Notwithstanding anything in this Agreement to the contrary, the Agreement may be amended by the Employer at any time, if found necessary in the opinion of the Employer, i) to ensure that the Agreement is characterized as plan of deferred compensation maintained for a select group of management or highly compensated employees as described under ERISA, ii) to conform the Agreement to the requirements of any applicable law or iii) to comply with the written instructions of the Employers auditors or banking regulators.
6.3 Agreement Termination . This Agreement may be terminated only by a written agreement signed by the Company and the Executive. Such termination shall not cause a distribution of benefits under this Agreement. Rather, upon such termination benefit distributions will be made at the earliest distribution event permitted under Article 2.
ARTICLE 7
MISCELLANEOUS
7.1 No Effect on Other Rights . This Agreement constitutes the entire agreement between the Employer and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein. Nothing contained herein will confer upon the Executive the right to be retained in the service of the Employer nor limit the right of the Employer to discharge or otherwise deal with the Executive without regard to the existence hereof.
7.2 State Law . To the extent not governed by ERISA, the provisions of this Agreement shall be construed and interpreted according to the internal law of the State of Massachusetts without regard to its conflicts of laws principles.
7.3 Validity . In case any provision of this Agreement shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Agreement shall be construed and enforced as if such illegal or invalid provision had never been inserted herein.
7.4 Nonassignability . Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.
7.5 Unsecured General Creditor Status . Payment to the Executive or any Beneficiary hereunder shall be made from assets which shall continue, for all purposes, to be part of the general, unrestricted assets of the Employer and no person shall have any interest in any such asset by virtue of any provision of this Agreement. The Employers obligation hereunder shall be an unfunded and unsecured promise to pay money in the future. In the event that the Employer purchases an insurance policy insuring the life of the Executive to recover the cost of providing benefits hereunder, neither the Executive nor the Beneficiary shall have any rights whatsoever in said policy or the proceeds therefrom.
7.6 Unclaimed Benefits . The Executive shall keep the Employer informed of the Executives current address and the current address of the Beneficiary. If the location of the Executive is not made known to the Employer within three years after the date upon which any payment of any benefits may first be made, the Employer shall delay payment of the Executives benefit payment(s) until the location of the Executive is made known to the Employer; however, the Employer shall only be obligated to hold such benefit payment(s) for the Executive until the expiration of three (3) years. Upon expiration of the three (3) year period, the Employer may discharge its obligation by payment to the Beneficiary. If the location of the Beneficiary is not made known to the Employer by the end of an additional two (2) month period following expiration of the three (3) year period, the Employer may discharge its obligation by payment to the Executives estate. If there is no estate in existence at such time or if such fact cannot be determined by the Employer, the Executive and Beneficiary shall thereupon forfeit all rights to any benefits provided under this Agreement.
7.7 Removal . Notwithstanding anything in this Agreement to the contrary, the Employer shall not distribute any benefit under this Agreement if the Executive is subject to a final removal or prohibition order issued pursuant to Section 8(e) of the Federal Deposit Insurance Act. Furthermore, any payments made to the Executive pursuant to this Agreement shall, if required, comply with 12 U.S.C. 1828, FDIC Regulation 12 CFR Part 359 and any other regulations or guidance promulgated thereunder.
7.8 Notice . Any notice, consent or demand required or permitted to be given to the Employer or Administrator under this Agreement shall be sufficient if in writing and hand-delivered or sent by registered or certified mail to the Employers principal business office. Any notice or filing required or permitted to be given to the Executive or Beneficiary under this Agreement shall be sufficient if in writing and hand-delivered or sent by mail to the last known address of the Executive or Beneficiary, as appropriate. Any notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for registration or certification.
7.9 Headings and Interpretation . Headings and sub-headings in this Agreement are inserted for reference and convenience only and shall not be deemed part of this Agreement. Wherever the fulfillment of the intent and purpose of this Agreement requires and the context will permit, the use of the masculine gender includes the feminine and use of the singular includes the plural.
7.10 Alternative Action . In the event it becomes impossible for the Employer or the Administrator to perform any act required by this Agreement due to regulatory or other constraints, the Employer or Administrator may perform such alternative act as most nearly carries out the intent and purpose of this Agreement and is in the best interests of the Employer, provided that such alternative act does not violate Code Section 409A.
7.11 Coordination with Other Benefits . The benefits provided for the Executive or the Beneficiary under this Agreement are in addition to any other benefits available to the Executive under any other plan or program for employees of the Employer. This Agreement shall supplement and shall not supersede, modify, or amend any other such plan or program except as may otherwise be expressly provided herein.
7.12 Inurement . This Agreement shall be binding upon and shall inure to the benefit of the Employer, its successor and assigns, and the Executive, the Executives successors, heirs, executors, administrators, and the Beneficiary.
7.13 Tax Withholding . The Employer may make such provisions and take such action as it deems necessary or appropriate for the withholding of any taxes which the Employer is required by any law or regulation to withhold in connection with any benefits under the Agreement. The Executive shall be responsible for the payment of all individual tax liabilities relating to any benefits paid hereunder.
7.14 Aggregation of Agreement . If the Employer offers other non-qualified deferred compensation plans, this Agreement and those plans shall be treated as a single plan to the extent required under Code Section 409A.
IN WITNESS WHEREOF, the Executive and a representative of the Employer have executed this Agreement document as indicated below:
Executive: |
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Employer: |
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/s/ James W. Blake |
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By: |
/s/ Timothy Lynch |
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Its: |
Chairman of the Board |
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Exhibit 10.6
HARBORONE BANK
ENDORSEMENT SPLIT DOLLAR
LIFE INSURANCE AGREEMENT
THIS ENDORSEMENT SPLIT DOLLAR LIFE INSURANCE AGREEMENT (the Agreement) is adopted this 13th day of November, 2015, by and between HARBORONE BANK, a state-chartered co-operative bank located in Brockton, Massachusetts (the Bank) and James Blake (the Employee).
The purpose of this Agreement is to retain and reward the Employee, by dividing the death proceeds of certain life insurance poli cies which are owned by the Bank on the life of the Employee with the designated beneficiary of the Employee. The Bank has paid the life insurance premiums from its general assets.
Article 1
Definitions
Whenever used in this Agreement, the following terms shall have the meanings specified:
1.1 Banks Interest means the benefit set forth in Section 2.1.
1.2 Base Salary means the Employees most recent base annual salary exclusive of any bonuses, options or incentives of any kind. In the event of retirement or other termination of employment, Base Salary shall be the last base salary annualized prior to retirement or such other termination of employment.
1.3 Beneficiary means each designated person, or the estate of the deceased Employee, entitled to benefits, if any, upon the death of the Employee.
1.4 Beneficiary Designation Form means the form established from time to time by the Plan Administrator that the Employee completes, signs and returns to the Plan Administrator to designate one or more Beneficiaries.
1.5 Board means the Board of Directors of the Bank as from time to time constituted.
1.6 Change in Control means a change in the ownership or effective control of the Bank, or in the ownership of a substantial portion of the assets of the Bank, as such change is defined in Code Section 409A and regulations thereunder.
1.7 Code means the Internal Revenue Code of 1986, as amended.
1.8 Disability or Disabled means the Employee is disabled and has been approved for Premium Waiver by the Banks Group Life Insurance Carrier, and the Premium Waiver period has not ended.
1.9 Effective Date means November 6, 2015.
1.10 Employees Interest means the benefit set forth in Section 2.2.
1.11 Insurer means the insurance company(ies) issuing the Policy on the life of the Employee.
1.12 Net Death Proceeds means the total death proceeds of the Policy or Policies minus the greater of (i) the cash surrender value or (ii) the aggregate premiums paid by the Bank.
1.13 Plan Administrator means the plan administrator described in Article 11.
1.14 Policy or Policies means the individual insurance policy or policies acquired by the Bank for purposes of insuring the Employees life under this Agreement.
1.15 Separation from Service means termination of employment for any reason other than death or disability. Whether a Separation from Service has occurred is determined in accordance with the requirements of Code Section 409A based on whether the facts and circumstances indicate that the Bank and Employee reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the Employee would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediate preceding thirty-six (36) month period (or the full period of services to the Bank if the Employee has been providing services to the Bank less than thirty-six (36) months).
Article 2
Policy Ownership/Interests
2.1 Banks Interest . The Bank shall own the Policies and the Bank shall have the right to exercise all incidents of ownership. The Bank, subject to Article 5, may terminate a Policy without the consent of the Employee. The Bank shall be the beneficiary of the remaining death proceeds of the Policies after the Employees Interest is determined according to Section 2.2 below.
2.2 Employees Interest . The Employee, or the Employees assignee, shall have the right to designate the Beneficiary of an amount of death proceeds as specified in this Section 2.2.
2.2.1 Death Prior to Separation from Service . If the Employee dies prior to Separation from Service, the Beneficiary shall be entitled to a benefit equal to One Million Four Hundred Thousand Dollars ($1,400,000) provided however, such benefit shall not exceed the Net Death Proceeds.
2.2.2 Death After Separation from Service . If the Employee dies after Separation from Service, the Beneficiary shall be entitled to a benefit equal to One Million Four Hundred Thousand Dollars ($1,400,000) provided however, such benefit shall not exceed the Net Death Proceeds.
Article 3
Comparable Coverage
3.1 Insurance Policies . The Bank may provide the Employees Interest through the Policies already held by the Bank with the Employee as the insured, or may provide comparable insurance coverage to the Employee through whatever means the Bank deems appropriate. If the Employee waives or forfeits his or her right to the Employees Interest, the Bank may choose to cancel the Policy or Policies on the Employee, or may continue such coverage and become the direct beneficiary of the entire death proceeds.
Article 4
Premiums and Imputed Income
4.1 Premium Payment . The Bank shall pay all premiums due on all Policies.
4.2 Economic Benefit . The Bank shall determine the economic benefit attributable to the Employee based on the life insurance premium factor for the Employees age multiplied by the aggregate death benefit payable to the Beneficiary. The life insurance premium factor is the minimum factor applicable under guidance published pursuant to Treasury Reg. § 1.61-22(d)(3)(ii) or any subsequent authority.
4.3 Imputed Income . The Bank shall impute the economic benefit to the Employee on an annual basis, by adding the economic benefit to the Employees W-2, or if applicable, Form 1099.
Article 5
General Limitations
5.1 Removal . Notwithstanding any provision of this Agreement to the contrary, the Employees rights in the Agreement shall terminate if the Employee is subject to a final removal or prohibition order issued by an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act (FDIA).
5.2 Misstatement . No benefits shall be payable if the insurance company denies coverage (i) for material misstatements of fact made by the Employee on any application for life insurance owned by the Bank, or (ii) for any other reason; provided, however that the Bank shall evaluate the reason for the denial, and upon advice of legal counsel and in its sole discretion, consider judicially challenging any denial.
5.3 Termination for Cause . No benefits shall be paid if Separation from Service is for Cause. Cause shall be defined as any of the following that result in an adverse effect on the Bank; (i) gross negligence or gross neglect; (ii) the commission of a felony or gross misdemeanor involving moral turpitude, fraud, or dishonesty; (iii) the willful violation of any law, rule, or regulation (other than a traffic violation or similar offense); (iv) an intentional failure to perform stated duties; or (v) a breach of fiduciary duty involving personal profit.
Article 6
Beneficiaries
6.1 Beneficiary . The Employee shall have the right, at any time, to designate a Beneficiary to receive any benefits payable under the Agreement upon the death of the Employee. The Beneficiary designated under this Agreement may be the same as or different from the beneficiary designated under any other Agreement of the Bank in which the Employee participates.
6.2 Beneficiary Designation; Change . The Employee shall designate a Beneficiary by completing and signing the Beneficiary Designation Form, and delivering it to the Bank or its designated agent. The Employees beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Employee or if the Employee names a spouse as Beneficiary and the marriage is subsequently dissolved. The Employee shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Banks rules and procedures, as in effect from time to time. Upon the acceptance by the Bank of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled. The Bank shall be entitled to rely on the last Beneficiary Designation Form filed by the Employee and accepted by the Bank prior to the Employees death.
6.3 Acknowledgment . No designation or change in designation of a Beneficiary shall be effective until received, accepted and acknowledged in writing by the Bank or its designated agent.
6.4 No Beneficiary Designation . If the Employee dies without a valid designation of beneficiary, or if all designated Beneficiaries predecease the Employee, then the Employees surviving spouse shall be the designated Beneficiary. If the Employee has no surviving spouse, the benefits shall be made payable to the personal representative of the Employees estate.
6.5 Facility of Payment . If the Bank determines in its discretion that a benefit is to be paid to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of that persons property, the Bank may direct payment of such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Bank may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Employee and the Employees Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Agreement for such payment amount.
Article 7
Assignment
The Employee may irrevocably assign without consideration all of the Employees Interest in this Agreement to any person, entity, or trust. In the event the Employee shall transfer all of the Employees Interest, then all of the Employees Interest in this Agreement shall be vested in the Employees transferee, who shall be substituted as a party hereunder, and the Employee shall have no further interest in this Agreement.
Article 8
Insurer
The Insurer shall be bound only by the terms of its given Policy. The Insurer shall not be bound by or deemed to have notice of the provisions of this Agreement. The Insurer shall have the right to rely on the Banks representations with regard to any definitions, interpretations or Policy interests as specified under this Agreement.
Article 9
Claims And Review Procedure
9.1 Claims Procedure . The Employee or Beneficiary (claimant) who has not received benefits under the Agreement that he or she believes should be paid shall make a claim for such benefits as follows:
9.1.1 Initiation Written Claim . The claimant initiates a claim by submitting to the Plan Administrator a written claim for the benefits. If such a claim relates to the contents of a notice received by the claimant, the claim must be made within sixty (60) days after such notice was received by the claimant. All other claims must be made within one hundred eighty (180) days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the claimant.
9.1.2 Timing of Bank Response . The Bank shall respond to such claimant within ninety (90) days after receiving the claim. If the Bank determines that special circumstances require additional time for processing the claim, the Bank can extend the response period by an additional ninety (90) days by notifying the claimant in writing, prior to the end of the initial ninety (90) day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Bank expects to render its decision.
9.1.3 Notice of Decision . If the Bank denies part or all of the claim, the Bank shall notify the claimant in writing of such denial. The Bank shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:
(a) The specific reasons for the denial;
(b) A reference to the specific provisions of the Agreement on which the
denial is based;
(c) A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed;
(d) An explanation of the Agreements review procedures and the time limits applicable to such procedures; and
(e) A statement of the claimants right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.
9.2 Review Procedure . If the Bank denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Bank of the denial, as follows:
9.2.1 Initiation Written Request . To initiate the review, the claimant, within sixty (60) days after receiving the Banks notice of denial, must file with the Bank a written request for review.
9.2.2 Additional Submissions Information Access . The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Bank shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimants claim for benefits.
9.2.3 Considerations on Review . In considering the review, the Bank shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.
9.2.4 Timing of Banks Response . The Bank shall respond in writing to such claimant within sixty (60) days after receiving the request for review. If the Bank determines that special circumstances require additional time for processing the claim, the Bank can extend the response period by an additional sixty (60) days by notifying the claimant in writing, prior to the end of the initial sixty (60) day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Bank expects to render its decision.
9.2.5 Notice of Decision . The Bank shall notify the claimant in writing of its decision on review. The Bank shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:
(a) The specific reasons for the denial;
(b) A reference to the specific provisions of the Agreement on which the denial is based;
(c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimants claim for benefits; and
(d) A statement of the claimants right to bring a civil action under ERISA Section 502(a).
Article 10
Amendments And Termination
The Bank may amend or terminate the Agreement at any time, or may amend or terminate the Employees rights under the Agreement at any time prior to the Employees death, by providing written notice of such to the Employee; provided, however, the Bank may amend or terminate the Agreement only if: (i) continuation of the Agreement would cause significant financial harm to the Bank, or (ii) the Employee agrees to such action, or (iii) the Banks banking regulator(s) issues a written directive to amend or terminate the Agreement. In the event that the Bank decides to maintain the Policy after termination of the Agreement, the Bank shall be the direct beneficiary of the entire death proceeds of the Policy.
Article 11
Administration
11.1 Plan Administrator Duties . This Agreement shall be administered by a Plan Administrator which shall consist of the Board of Trustees or its designee. The Plan Administrator shall also have the discretion and authority to (i) make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Agreement and (ii) decide or resolve any and all questions including interpretations of this Agreement, as may arise in connection with this Agreement.
11.2 Agents . In the administration of this Agreement, the Plan Administrator may employ agents and delegate to them such administrative duties as it sees fit, (including acting through a duly appointed representative), and may from time to time consult with counsel who may be counsel to the Bank.
11.3 Binding Effect of Decisions . The decision or action of the Plan Administrator with respect to any question arising out of or in connection with the administration, interpretation and application of this Agreement and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in this Agreement.
11.4 Indemnity of Plan Administrator . The Bank shall indemnify and hold harmless the members of the Plan Administrator against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Agreement, except in the case of willful misconduct by the Plan Administrator or any of its members.
11.5 Information . To enable the Plan Administrator to perform its functions, the Bank shall supply full and timely information to the Plan Administrator on all matters relating to the date and circumstances of the death or Separation from Service of the Employee, and such other pertinent information as the Plan Administrator may reasonably require.
Article 12
Miscellaneous
12.1 Binding Effect . This Agreement shall bind the Employee and the Bank, their beneficiaries, survivors, executors, administrators and transferees and any Beneficiary.
12.2 No Guarantee of Employment . This Agreement is not an employment policy or contract. It does not give the Employee the right to remain an Employee of the Bank, nor does it interfere with the Banks right to discharge the Employee. It also does not require the Employee to remain an Employee nor interfere with the Employees right to terminate employment at any time.
12.3 Applicable Law . The Agreement and all rights hereunder shall be governed by and construed according to the laws of the Commonwealth of Massachusetts except to the extent preempted by the laws of the United States of America.
12.4 Reorganization . The Bank shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm or person unless such succeeding or continuing company, firm or person agrees to assume and discharge the obligations of the Bank under this Agreement. Upon the occurrence of such event, the term Bank as used in this Agreement shall be deemed to refer to the successor or survivor company.
12.5 Notice . Any notice or filing required or permitted to be given to the Bank under this Agreement shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below:
HarborOne Bank |
Attn: Human Resource Officer |
770 Oak Street |
Brockton, MA 02301 |
Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or the receipt for registration or certification.
Any notice or filing required or permitted to be given to the Employee under this Agreement shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Employee.
12.6 Entire Agreement . This Agreement, along with the Employees Beneficiary Designation Form, constitutes the entire agreement between the Bank and the Employee as to the subject matter hereof. No rights are granted to the Employee under this Agreement other than those specifically set forth herein.
12.7 Severability and Interpretation . If a provision of this Agreement is held to be invalid or unforeseeable, the remaining provisions shall nonetheless be enforceable according to
their terms. Further, in the event that any provisions is held to be overbroad as written such provision shall be deemed amended to narrow its application to the extent necessary to make the provision enforceable according to law and enforced as amended.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date indicated above.
Employee: |
HarborOne Bank: |
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/s/ James Blake |
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By: |
/s/ Joseph Casey |
James Blake |
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Title: |
EVP/COO/CFO/Treasurer |
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Exhibit 10.7
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT made and entered into as of the 1st day of March, 2016, by and among HarborOne Bancorp, Inc., a Massachusetts stock holding company (the Company), HarborOne Bank, a Massachusetts-chartered co-operative bank with its principal place of business in Brockton, Massachusetts (the Bank) (the Bank and the Company shall be hereinafter collectively referred to as the Employers), and Joseph F. Casey, of Hingham, Massachusetts (the Employee).
WITNESSETH THAT:
WHEREAS, the Employee is currently, and has been for approximately twelve (12) years, employed by the Employers; and
WHEREAS , the Employees experience in the financial services industry and the Employees reputation and contacts in such industry are valuable to the Employers; and
WHEREAS, the Employers desire to continue to employ the Employee in an executive capacity in the conduct of its business; and
WHEREAS, the Employee desires to continue his employment with the Employers; and
WHEREAS , the Bank and the Employee have previously entered into an Employment Agreement dated July 31, 2013, which they wish to amend and restate in its entirety as set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Employers hereby agree to continue the employment of the Employee and the Employee hereby agrees to continue in the employ of the Employers on the terms and conditions hereinafter set forth.
2. Effective Date, Term. The effective date of this Agreement (the Effective Date) shall be the day first written above. The term of the Employees employment pursuant to this Agreement shall commence on the Effective Date and shall continue thereafter until terminated as provided in Section 5.
3. Capacity and Extent of Service .
(a) During the term of this Agreement, the Employers shall employ the Employee as their Executive Vice President, Chief Operating Officer and Chief Financial Officer, subject to his election by the Employers Boards of Directors (the Boards of Directors).
(b) The Employee shall be employed on a full-time basis, reporting to the President and Chief Executive Officer of the Employers, and shall be assigned only such duties and tasks as are appropriate for a person in the position of Executive Vice President, Chief Operating Officer and Chief Financial Officer.
(c) During his employment hereunder, the Employee shall devote his full business time and his best efforts, business judgment, skill and knowledge to the performance of his duties and responsibilities hereunder. The Employee shall not engage in any other business activity during the term of this Agreement except as may be approved by the Board of Directors.
(d) The Employers encourage participation by the Employee on community boards and committees and in activities generally considered to be in the public interest, but the Board of Directors shall have the right to approve or disapprove, in its sole discretion, the Employees participation on such boards and committees.
4. Compensation and Benefits .
(a) Base Salary . As compensation for services performed under and during the term of this Agreement, the Employee shall receive a minimum annual base salary (Base Salary) at a rate of Three Hundred Eighty-Five Thousand Four Hundred Fifty-Three Dollars ($385,453). The Employees minimum Base Salary may be increased (but not decreased, except for across-the-board salary reductions based on the Employers financial performance similarly affecting all executive officers of the Employers) from time to time during the term hereof by such amounts as the Compensation Committee of the Companys Board of Directors in its sole discretion may determine.
(b) Incentive and/or Bonus Compensation . In addition to the foregoing minimum Base Salary, the Employee shall be eligible during the term of this Agreement to receive incentive compensation determined and payable in accordance with any incentive compensation plans of the Employers in effect from time to time for members of executive management generally.
(c) Fringe Benefits . At all times during the term of this Agreement, the Employers shall provide the Employee with fringe benefits as set forth in Exhibit A to this Agreement, which Exhibit is incorporated herein by reference and the terms of which are thereby made a part hereof. The Employee shall also be entitled to participate in any employee benefit plans, including without limitation the Employers Section 401(k) Plan, from time to time in effect for executive officers of the Employers generally.
(d) Business Expenses . The Employers shall reimburse the Employee for all reasonable travel and other business expenses incurred by him in the performance of his duties and responsibilities, subject to such reasonable requirements with respect to substantiation and documentation as may be specified by the Employers, their auditors, the Internal Revenue Service or other regulatory authorities having jurisdiction over the Employers and their operations.
(e) SERP . The Bank and the Employee have entered into an amended and restated Supplemental Executive Retirement Plan Agreement (SERP) dated as of March 1,
2016, as amended and restated. The Bank and the Employee agree to fulfill their respective obligations under the SERP.
5. Termination and Termination Benefits .
Notwithstanding the provisions of Section 2, the Employees employment hereunder shall terminate under the following circumstances:
(a) Death . In the event of the Employees death during his employment under this Agreement, the Employees employment shall terminate on the date of his death; provided, however, that if the Employee is survived by his spouse, the Employers shall continue to pay to his spouse the Employees Base Salary in effect at the time of his death until the expiration of two (2) months following the Employees death.
(b) Disability . The Employers may terminate the Employees employment if he is disabled and unable to perform the essential functions of the Employees then existing position or positions under this Agreement with or without reasonable accommodation for a period of one hundred eighty (180) days (which need not be consecutive) in any twelve (12) month period. If any question shall arise as to whether during any period the Employee is disabled so as to be unable to perform the essential functions of the Employees then existing position or positions with or without reasonable accommodation, the Employee may, and at the request of the Employers shall, submit to the Employers a certification in reasonable detail by a physician mutually agreeable to the Employers and the Employee or the Employees guardian as to whether the Employee is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue. The Employee shall cooperate with any reasonable request of the physician in connection with such certification. If such question shall arise and the Employee through his own fault shall fail to submit such certification, the Employers determination of such issue shall be binding on the Employee. Nothing in this Section 5(b) shall be construed to waive the Employees rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. §2601 et seq . and the Americans with Disabilities Act, 42 U.S.C. §12101 et seq.
(c) Termination by the Employee Without Cause . Notwithstanding the provisions of Section 2, the Employee may resign from the Employers at any time upon sixty (60) days prior written notice to the Boards of Directors. In the event of resignation by the Employee under this Section 5(c), the Boards of Directors in their sole discretion may elect to waive the period of notice, or any portion thereof. From and after the effective date of such termination by the Employee of his employment hereunder, the Employers shall have no further liability to the Employee for salary or other compensation or benefits, except as provided pursuant to the terms of any employee benefit plan of the Employers in which the Employee is then a participant.
(d) Termination by the Employers Without Cause . The Employees employment under this Agreement may be terminated without cause by a vote of two-thirds (2/3 rds ) of all (except the Employee, if he is then serving on either Board of Directors) of the members of each Board of Directors and on written notice to the Employee. In the event of such termination, the Employee shall be entitled to the following benefits:
(i) For a period of twenty-four (24) months, the Employers shall continue to pay to the Employee, or to the Employees designated beneficiary (or to his estate if he fails to make such designation) the Employees salary at the rate of his Base Salary in effect as of the date of such termination;
(ii) For each year during the period specified in paragraph (i) of this Section 5(d), the Employee shall be entitled to receive incentive compensation equal to the average incentive compensation received by the Employee during the three (3) full fiscal years of the Employers immediately preceding such termination, with such amount to be paid when incentive compensation is otherwise paid to other executives of the Employers in the first seventy-five (75) days of the Employers fiscal year;
(iii) If the Employee was participating in the Employers group health plan immediately prior to the date of termination and elects COBRA health continuation, then the Employers shall pay to the Employee a monthly cash payment for eighteen (18) months or the Employees COBRA health continuation period, whichever ends earlier, in an amount equal to the monthly employer contribution that the Employers would have made to provide health insurance to the Employee if the Employee had remained employed by the Employers; and
(iv) The Employee shall be entitled to receive a payment equal to the amount the Employers would have contributed on his behalf to any qualified pension, profit sharing or 401(k) or similar plan had he remained in the employ of the Employers for an additional twenty-four (24) month period at the same Base Salary as in effect as of the date of the Employees termination. Such amount shall be paid in the twenty-fourth (24 th ) month following termination of employment.
Notwithstanding the above, in the event of a termination by the Employers without Cause that occurs within twenty-four (24) months after a Change in Control, the amounts payable under Section 5(d)(i) shall be increased to three (3) times the Employees Base Salary and be paid to the Employee in a single lump sum within ten (10) days following the termination of employment, and the Employee shall have no further obligations to the Employers except his obligations under Sections 6(a) and 6(b).
(e) Termination by the Employee For Good Reason . The Employee may terminate his employment hereunder for Good Reason. Only the following shall constitute Good Reason for such termination:
(i) Failure of the Employers to continue the Employee in the position of Executive Vice President, Chief Operating Officer and Chief Financial Officer during the term of this Agreement;
(ii) Material change by the Employers in the nature or scope of the Employees responsibilities, title, authorities, powers, functions or duties from the responsibilities, title, authorities, powers, functions or duties normally exercised
by an executive in the position of Executive Vice President, Chief Operating Officer and Chief Financial Officer, or any reassignment of the Employee to a place of business which is more than fifty (50) miles from Brockton, Massachusetts;
(iii) Material breach by the Employers of Section 4 hereof or of any other provision of this Agreement, which breach continues for more than thirty (30) days following written notice given by the Employee to the Employers, such written notice to set forth in reasonable detail the nature of such breach; or
In the event the Employee terminates his employment for Good Reason, the Employee shall be entitled to the termination benefits set forth in Section 5(d) above, provided, however, that, in the event of a termination for Good Reason that occurs within twenty-four (24) months after a Change in Control, the amounts payable under Section 5(d)(i) shall be increased to three (3) times the Employees Base Salary and be paid to the Employee in a single lump sum within ten (10) days following the termination of employment, and the Employee shall have no further obligations to the Employers except his obligations under Sections 6(a) and 6(b).
For purposes hereof, a Change in Control shall be deemed to occur upon the occurrence of any one of the following events:
(A) any Person, as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the Act) (other than HarborOne Bancorp or the Company), any of their subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all affiliates and associates (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the beneficial owner (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing forty percent (40%) or more of the combined voting power of the Companys then outstanding securities having the right to vote in an election of the Companys Board of Directors (Voting Securities) (in such case other than as a result of an acquisition of securities directly from the Company or in connection with a public offering); or
(B) persons who, as of the date hereof, constitute the Companys Board of Directors (the Incumbent Directors) cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Companys Board of Directors, provided that any person becoming a director of the Company subsequent to the date hereof shall be considered an Incumbent Director if such persons election was approved by or such person was nominated for election by either (1) a vote of at least a majority of the Incumbent Directors or (2) a vote of at least a majority of the Incumbent
Directors who are members of a nominating committee comprised, in the majority, of Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Companys Board of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Companys Board of Directors, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or
(C) the consummation of (1) any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate more than fifty percent (50%) of the voting shares of the Company issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), or (2) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or of the Bank.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred for purposes of the foregoing clause (A) solely as the result of an acquisition of securities by the Company that, by reducing the number of shares of Voting Securities outstanding, increases the proportionate number of shares of Voting Securities beneficially owned by any person to forty percent (40%) or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns forty percent (40%) or more of the combined voting power of all then outstanding Voting Securities, then a Change in Control shall be deemed to have occurred for purposes of the foregoing clause (A).
(f) Termination by the Employers For Cause . The Employees employment hereunder may be terminated for cause by the Employers, effective immediately, by a vote, at a meeting duly called for such purpose of the members of the Boards of Directors and on written notice to the Employee setting forth in reasonable detail the nature of such cause. The Boards of Directors shall vote separately on the issue of cause and on the issue of termination, but such separate votes may be taken at the same meeting. A determination that cause exists and a determination to terminate the Employee following an affirmative determination of cause shall require a two-thirds (2/3 rds ) vote of all (except the Employee, if he is then serving on either Board of Directors) of the members of Board of Directors. Only the following shall constitute cause for such termination:
(i) Conviction by a court of competition jurisdiction (or plea of nolo contendere) for felony criminal conduct or other criminal conduct involving dishonesty or moral turpitude;
(ii) Willful misconduct in the performance of the Employees duties hereunder;
(iii) Gross negligence in the performance of the Employees duties hereunder that results in a material detriment to the Employers or their affiliates;
(iv) Chronic substance abuse which interferes with Employees performance of his duties hereunder, as reasonably determined in good faith by Board; or
(v) Fraud, embezzlement, theft, intentional misrepresentation or other similar acts by the Employee with respect to the Employers or any of their affiliates.
In the event of the termination of the Employee under this Section 5(f), the Employers shall have no further obligation to the Employee, except as required pursuant to the terms of any employee benefit plan of the Employers in which the Employee is then a participant.
(g) Vote of Boards of Directors Pursuant to Sections 5(d) or 5(f) . In the event of a vote of the Boards of Directors pursuant to Sections 5(d) or 5(f) of this Agreement, including any vote to give written notice of cause pursuant to Sections 5(f), the Employee shall not be entitled to vote.
6. Non-Competition, Non-Solicitation and Confidential Information .
(a) Non-Competition and Non-Solicitation . During the term of the Employees employment under this Agreement and for twelve (12) months thereafter (or, in the event of a termination of the Employee without Cause or resignation of the Employee for Good Reason pursuant to Section 5(e), during such longer period as the Employers are making payments of severance compensation to the Employee in accordance with the provisions of Section 5(a)(i) hereof), the Employee (i) will not, directly or indirectly, whether as owner, partner, shareholder consultant, agent, employee, co-venturer or otherwise, engage, participate, assist or invest in any business conducted anywhere in any town in which the Employers have a branch or any town contiguous thereto or within a thirty-five (35) mile radius of the Employers headquarters that is competitive with any business that the Employers or any of their affiliates conduct or propose to conduct at any time during the employment of the Employee; (ii) will refrain from directly or indirectly employing, attempting to employ, recruiting or otherwise soliciting, inducing or influencing any person to leave employment with the Employers (other than terminations of employment of subordinate employees undertaken in the course of the Employees employment with the Employers); and (iii) will refrain from soliciting or encouraging any customer or supplier to terminate or otherwise modify adversely its business relationship with the Employers. Notwithstanding the foregoing, the Employee may own up to three percent (3%) of the outstanding stock of a publicly held corporation which constitutes or is affiliated with a Competing Business.
(b) Confidential Information . The Employee shall not at any time divulge, use, furnish, disclose or make accessible to anyone other than an employee or director of the Employers with a reasonable need to know, any knowledge or information with respect to confidential or secret data, procedures or techniques of the Employers; provided, however, that nothing in this Section 6(b) shall prevent the disclosure by the Employee of any such information which at any time comes into the public domain other than as a result of the violation of the terms of this Section 6(b) by the Employee or which is otherwise lawfully acquired by the Employee.
(c) The Employee understands that the restrictions set forth in this Section 6 are intended to protect the Employers interest in their Confidential Information and established employee, customer and supplier relationships and goodwill, and agrees that such restrictions are reasonable and appropriate for this purpose.
7. Withholding . All payments made by the Employers under this Agreement shall be subject to withholding of any tax or other amounts required to be withheld by the Employers under applicable law or benefit plans of the Employers in which the Employee is participating.
8. Indemnification . The Employers agree to indemnify the Employee in his capacity as an officer of the Employers and, to the extent he serves with the approval of the Employers as a representative, an officer or a Board member of any community organization or financial services industry association or similar entity, as set forth in the Charter or By-laws of each of the Employers, as amended from time to time; provided, however, that the terms of such indemnification shall be no less favorable to the Employee than those set forth in the Charter or By-laws of each of the Employers as of the date of this Agreement.
9. Notices . Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by registered or certified mail, postage paid, to the Employee at the last address the Employee has filed in writing with the Employers or, in the case of the Employers, at its main office, attention of the Chairman of the Board.
10. Return of Employer Property . The Employee will return to the Employers all records and files and all other Employer documentation and other property immediately upon termination of his employment.
11. Equitable Relief . It is agreed that the Employers remedy at law for any actual or threatened breach of this Agreement by the Employee would be inadequate and that the Employers will, in addition to whatever remedies they may have at law or in equity under this Agreement, be entitled to immediate injunctive relief from actual or threatened breach of this Agreement.
12. Entire Agreement . This Agreement constitutes the entire Agreement between the parties with respect to its subject matter and may not be changed except by a writing duly executed and delivered by the Employers and the Employee in the same manner as this Agreement.
13. Binding Effect; Non-assignability . This Agreement shall be binding upon and inure to the benefit of the Employers and their successors and assigns. Neither this Agreement nor any rights arising hereunder may be subject in any way to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by the Employee or creditors of the Employee or any beneficiary. This Agreement shall inure to the benefit of and be enforceable by the Employees personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
14. Amendment . This Agreement may be amended or modified only by a written instrument signed by the Employee and the Chairman of the Board of Directors, upon concurrence of two-thirds (2/3 rds ) of all (except the Employee, if he is then serving on either Board of Directors) of the members of each Board of Directors.
15. Enforceability . If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provisions in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.
16. Applicable Law . This Agreement shall be construed and enforced in all respects in accordance with the laws of the Commonwealth of Massachusetts and in accordance with any applicable federal laws to which the Bank may be subject as an FDIC insured institution.
17. No Mitigation . The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. No payment provided for in this Agreement shall be reduced by any compensation earned by the Employee as the result of employment by another employer, or the Employees receipt of income from any other sources, after termination of his employment with the Employers.
18. Dispute Resolution . If a dispute arises out of or relates to this Agreement, or the breach hereof, and if such dispute is not settled within a commercially reasonable time through negotiations, the parties shall attempt in good faith to settle the dispute by mediation under the Commercial Mediation Rules of the American Arbitration Association before resorting to arbitration, litigation or other dispute resolution procedures. No resolution or attempted resolution of any dispute or disagreement pursuant to this Section 18 shall be deemed to be a waiver of any term or provision of this Agreement or consent to any breach or default, unless such waiver or consent shall be in writing and signed by the party claimed to have waived or consented.
19. Compliance with Section 409A . The Employers and the Employee acknowledge and agree that the provisions for payments and benefits in Sections 4 and 5 of this Agreement may constitute a non-qualified deferred compensation plan subject to Section 409A of the Internal Revenue Code of 1986, as amended (the Code), and Treasury Regulations and other guidance thereunder (Section 409A). The Employers and the Employee intend to administer such provisions in a manner that at all times is either exempt from or complies in form and
operation with the applicable limitations and the standards of Section 409A. Accordingly, the following limitations are expressly imposed with respect to such provisions for payments.
(a) The Employees entitlement to receive or begin to receive payments pursuant to the provisions of Section 5 is conditioned upon the Employees separation from service. For this purpose, the Employee will be deemed to have separated from service only if his level of services to the Employers and their affiliated entities decreases and is expected to remain at a level equal to twenty percent (20%) or less of the average level of services performed by the Employee during the immediately preceding thirty-six (36) month period.
(b) If at the time of the Employees separation from service, the Employee is considered a specified employee (within the meaning of Section 409A) by the Bank, the payment of any amount payable to the Employee that constitutes non-qualified deferred compensation subject to Section 409A shall be delayed until six months and a day after the Employees separation from service.
(c) It is intended that each installment, if any, of the payments and benefits provided by the provisions of Section 5 shall be treated as a separate payment for purposes of Section 409A. Neither the Employers nor the Employee will have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A.
(d) All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A. All expenses or reimbursements paid pursuant to this Agreement that are taxable income to the Employee shall in no event be paid later than the end of the calendar year next following the calendar year in which the Employee incurs such expense or pays the related tax. With regard to any provision in the Agreement for the right to reimbursement or in-kind benefits, such right shall not be subject to liquidation or exchange for another benefit, the amount of expenses eligible for reimbursement or in-kind benefits provided during any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year, provided that the foregoing clause shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect, and such payments shall be made on or before the last day of the Employees taxable year following the taxable year in which the expense was incurred.
20. Additional Limitation .
(a) Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any compensation, payment or distribution by the Employers to or for the benefit of the Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the of the Code and the applicable regulations thereunder (the Aggregate Payments), would be subject to the excise tax imposed by Section 4999 of the Code, then the Aggregate Payments shall be reduced (but not below zero) so that the sum of all of the Aggregate Payments shall be
$1.00 less than the amount at which the Employee becomes subject to the excise tax imposed by Section 4999 of the Code; provided that such reduction shall only occur if it would result in the Employee receiving a higher After Tax Amount (as defined below) than the Employee would receive if the Aggregate Payments were not subject to such reduction. In such event, the Aggregate Payments shall be reduced in the following order, in each case, in reverse chronological order beginning with the Aggregate Payments that are to be paid the furthest in time from consummation of the transaction that is subject to Section 280G of the Code: (1) cash payments not subject to Section 409A; (2) cash payments subject to Section 409A; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits; provided that in the case of all the foregoing Aggregate Payments all amounts or payments that are not subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c) shall be reduced before any amounts that are subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c).
(b) For purposes of this Section 20, the After Tax Amount means the amount of the Aggregate Payments less all federal, state, and local income, excise and employment taxes imposed on the Employee as a result of the Employees receipt of the Aggregate Payments. For purposes of determining the After Tax Amount, the Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in each applicable state and locality, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(c) The determination as to whether a reduction in the Aggregate Payments shall be made pursuant to Section 20(a) shall be made by a nationally recognized accounting firm selected by the Employers (the Accounting Firm), which shall provide detailed supporting calculations both to the Employers and the Employee within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Employers or the Employee. Any determination by the Accounting Firm shall be binding upon the Employers and the Employee.
21. Allocation of Obligations Between Employers . The obligations of the Employers under this Agreement are intended to be the joint and several obligations of the Bank and the Company, and the Employers shall, as between themselves, allocate these obligations in a manner agreed upon by them.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Employers, by their duly authorized officers, and by the Employee, as of the date first above written.
EMPLOYEE: |
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HARBORONE BANCORP, INC.: |
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/s/ Joseph F. Casey |
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/s/ Timothy R. Lynch |
Joseph F. Casey |
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Timothy R. Lynch |
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Chairman of the Board |
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WITNESS: |
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ATTEST: |
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/s/ Elza Rebolo |
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/s/ Elza Rebolo |
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HARBORONE BANK: |
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/s/ Timothy R. Lynch |
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By: |
Timothy R. Lynch |
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Chairman of the Board |
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ATTEST: |
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/s/ Elza Rebolo |
[Signature Page to Employment Agreement]
EXHIBIT A
to
EMPLOYMENT AGREEMENT
by and among
HarborOne Bancorp, Inc.,
HarborOne Bank
and
Joseph F. Casey
Dated March 1, 2016
1. Automobile . The Employee shall be entitled to a monthly automobile allowance of $900 as compensation for all reasonable expenses related to maintaining and operating an automobile for the Employees personal and business use. Such allowance may be increased (but not decreased) by the Employers from time to time during the term hereof by such amounts as the Board of Directors in its sole discretion may determine.
2. Vacation . The Employee shall be entitled to four (4) weeks of paid vacation benefits in each calendar year, accrued monthly during the calendar year.
3. Insurance . The Employers shall maintain in effect for the Employee, at the Employers sole expense, life insurance equal to three (3) times the Employees Base Salary, subject to the terms of the insurance plan specific to him. If the Employees benefit limits exceed the amount available under the Employers group insurance plan, then the Employee will be entitled to Employer-paid coverage under a different plan, in addition to or in lieu of the group insurance plan, to accommodate the difference.
4. Technology Assistance . The Employers shall supply the Employee with full capability for remote access to Employer systems, as necessary, including a laptop computer, cell phone, personal digital assistant and wireless connection at his residence, all at the Employers sole expense for purchase, customary monthly charges, and upgrades, including new equipment on a periodic basis as technology improvements and communications needs dictate.
5. Medical Insurance in Retirement . The Employee will be entitled to coverage in a supplemental medical insurance plan for the Employee and his spouse, pending his eligibility as determined by the medical insurer, at the Employers sole expense, once he reaches age sixty-five (65) and is no longer covered by the Employers group medical insurance plan, to supplement what is covered in his Medicare plan. This supplemental insurance plan, commonly referred to as a Medigap plan, is designed to cover medical and related costs that are not covered by the Employees Medicare plan. The supplemental insurance plan will include prescription medication coverage. Supplemental insurance will remain in effect during the entire term of the Employees and his wifes retirement.
Exhibit 10.8
AMENDED AND RESTATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AGREEMENT
THIS AGREEMENT (Agreement) made and entered into effective as of the 1 st day of March, 2016, by and between HARBORONE BANK, a Massachusetts-chartered co-operative bank (HarborOne) and JOSEPH F. CASEY (the Executive).
WHEREAS, the Board and its Compensation Committee have determined that it is in HarborOnes best interest to establish a supplemental executive retirement arrangement (SERP) for the benefit of the Executive as set forth herein;
WHEREAS, HarborOne and the Executive have previously entered into a Supplemental Executive Retirement Plan Agreement dated May 28, 2008, as amended effective July 1, 2013, which they wish to amend and restate in its entirety as set forth in this Agreement;
NOW, THEREFORE, HarborOne and the Executive agree as follows:
1. Definitions . The following words and phrases, when used in this Agreement, unless the context requires otherwise, shall have the following respective meanings:
(a) Annuity . The annuity which HarborOne purchased in conjunction with the liability set forth in this Agreement, and any annuity contract acquired to replace said policy with the Executives consent, which shall not be unreasonably withheld.
(b) HarborOne . HarborOne Bank or any successor thereto.
(c) Beneficiary . The person, persons, or entity who may become entitled to a pre-retirement death benefit under this Agreement in the event of the Executives death.
(d) Board . HarborOnes Board of Directors and any successor thereto.
(e) Change in Control . The occurrence of any one of the following events, as described below.
(1) Any Person, as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the Act) (other than HarborOne Bancorp or the Company (as defined below), any of their subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all affiliates and associates (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the beneficial owner (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 40% or more of the combined voting power of the Companys then outstanding securities having the right to vote in an election of the Companys Board of Directors (Voting Securities) (in such case other than as a result of an acquisition of securities directly from the Company or in connection with a public offering); or
(2) Persons who, as of the date hereof, constitute the Companys Board of Directors (the Incumbent Directors) cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Companys Board of Directors, provided that any person becoming a director of the Company subsequent to the date hereof shall be considered an Incumbent Director if such persons election was approved by or such person was nominated for election by either (A) a vote of at least a majority of the Incumbent Directors or (B) a vote of at least a majority of the Incumbent Directors who are members of a nominating committee comprised, in the majority, of Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Companys Board of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Companys Board of
Directors, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or
(3) The consummation of (A) any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate more than 50% of the voting shares of the Company issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), or (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or HarborOne.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred for purposes of the foregoing clause (1) solely as the result of an acquisition of securities by the Company that, by reducing the number of shares of Voting Securities outstanding, increases the proportionate number of shares of Voting Securities beneficially owned by any person to 40% or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns 40% or more of the combined voting power of all then outstanding Voting Securities, then a Change in Control shall be deemed to have occurred for purposes of the foregoing clause (1).
(f) Code . The Internal Revenue Code of 1986, as amended, and any successor thereto.
(g) Committee . The Compensation Committee of the Board or any administrative committee appointed by the Board to administer this Agreement in accordance with the provisions of Paragraph 5.
(h) Company . HarborOne Bancorp, Inc., a Massachusetts stock holding company.
(i) Disabled . When the Executive is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of HarborOne.
(j) ERISA . The Employee Retirement Income Security Act of 1974, as amended.
(k) Executive Benefit . The amount calculated in accordance with Paragraph 2(b).
(l) Final Average Compensation . The aggregate of the salary and bonus paid by HarborOne on a pre-tax basis to the Executive for services rendered over the last thirty-six months of the Executives employment ending immediately prior to the determination date, divided by three (3).
(m) Separation from Service .
(1) The Executives complete and total retirement termination of service or termination of employment with HarborOne. No Separation from Service shall be
deemed to occur due to military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six months or, in excess of six months if the Executives right to reemployment is provided by law or contract. If the leave of absence exceeds six months and the Executives right to reemployment is not provided by law or by contract, then the Executive shall be deemed to have incurred a Separation from Service on the first date immediately following such six-month period.
(2) The Executive shall not be treated as having incurred a Separation from Service if the Executive provides more than insignificant services for HarborOne following the Executives actual or purported termination of or employment with HarborOne. Services shall be treated as not being insignificant if such services are performed at a level that is at least equal to 20% of the average level of services rendered by the Executive for HarborOne during the immediately preceding 36 full calendar years months of service or employment (or if employed less than 36 months, such shorter period of employment), and the annual base compensation for such services is at least equal to 20% of the average base compensation earned during the final three full calendar years of service or employment (or if employed less than three years, such shorter period of employment).
(3) Where the Executive continues to provide services to HarborOne, a Separation from Service will have been deemed not to have occurred if the Executive is providing services at the level that is 50% or more of the services rendered, on average, during the immediately preceding 36 full calendar years month of employment (or if employed less than 36 months, such lesser period) and the annual base compensation for such services is 50% or more of the annual base compensation earned during the final three full calendar years of employment (or if less, such lesser period).
(4) The provision of this section shall be applied consistent with the guidance issued under Code Section 409A(a)(2)(A)(i) and Treasury Regulation Section 1.409A-1(h).
(n) Termination for Cause . The Board may terminate the Executives employment under this Agreement for cause at any time. Cause for purposes of this Agreement shall mean:
(1) Executives conviction by a court of competent jurisdiction (or plea of nolo contendere) for felony criminal conduct or other criminal conduct involving dishonesty or moral turpitude,
(2) Executives willful misconduct or gross negligence in the performance of his duties hereunder that results in material detriment to HarborOne or its affiliates,
(3) chronic substance abuse which interferes with Executives performance of his duties hereunder, as reasonably determined in good faith by Board, or
(4) fraud, embezzlement, theft, intentional misrepresentation or other similar acts by thee Executive with respect to HarborOne or any of its affiliates.
(o) Payment Date . The date on which occurs the earliest of:
(1) the Executive attains age 65 while still employed by HarborOne;
(2) the voluntary termination of the Executives employment by HarborOne other than for Cause, provided that such termination results in a Separation from Service;
(3) the Executive becomes Disabled;
(4) the Executives death; or
(5) a Change in Control.
2. Lifetime Benefit to the Executive .
(a) The Executives benefit under this Agreement shall equal the Executive Benefit.
(b) For purposes of this Agreement, the Executive Benefit shall be the actuarial equivalent value of a hypothetical single life annuity equal to: (i) sixty percent (60%) of the Executives Final Average Compensation beginning upon the first day of the month immediately following the Executives attainment of sixty-five (65) years of age (Normal Retirement), reduced by (ii) the Executives projected annual Primary Social Security benefits payable beginning at Normal Retirement and (iii) the projected annual benefit payable beginning at Normal Retirement in the form of a single life annuity under HarborOnes 401(k) plan (and any successor plan) from funds attributable to employer contributions and earnings thereon.
(c) Actuarial equivalence under Paragraph 2(b) shall be determined using the guaranteed interest rate under the Annuity as the interest assumption and the mortality table used for the Annuity as the mortality assumption.
(d) The Executive has earned a fully vested right to the Executive Benefit described herein.
(e) HarborOne shall pay in a single lump sum cash payment the Executive Benefit determined as of the Payment Date to the Executive as soon as administratively practicable, but in no event later than 90 days after the Payment Date. Notwithstanding the foregoing, if the Executive is determined by the Bank to be a specified employee within the meaning of Code Section 409A(a)(2)(B)(i) and the Executive Benefit is payable on account of
the Executives Separation from Service, then HarborOne shall pay the Executive Benefit in a lump sum six months and a day after the Executives Separation from Service.
(f) Benefits payable hereunder shall be subject to federal and state income and employment tax upon the Payment Date. This Agreement shall be subject to legally required federal and state income and employment tax withholding.
(g) The Executive Benefit shall be calculated by an actuary hired by HarborOne with the Executives consent, which will not be unreasonably withheld.
3. Termination of the Annuity . HarborOne has no obligation to maintain the Annuity until the Payment Date. In the event that HarborOne terminates or otherwise disposes of the Annuity prior to the Payment Date, then this Agreement shall continue in full force and effect.
4. Pre-Retirement Death Benefit to Beneficiary . If the Executives employment terminates due to death prior to receiving a lump sum payment of his benefits hereunder, HarborOne shall pay to the Executives Beneficiary a single lump sum payment equal to the amount determined under Paragraph 2 above as soon as reasonably practicable, but in no event later than 90 days after the Executives death. The Executives Beneficiary shall be the person, persons or entity named in the last executed beneficiary designation received by HarborOne from the Executive prior to his death. If no such designation has been received by HarborOne from the Executive prior to his death or if there is no living or existing Beneficiary, then the Executives estate shall be his Beneficiary.
5. Administration .
(a) This Agreement shall be administered on behalf of HarborOne by a Committee which shall be one or more persons appointed by and shall serve at the pleasure of
the Board. The Committee shall be responsible for the general operation and administration of the Plan and for carrying out the provisions thereof. The Committee may delegate to others certain aspects of the management and operational responsibilities of the Agreement including the employment of advisors and the delegation of ministerial duties to qualified individuals, provided that such delegation is in writing.
(b) The Committee shall have all powers necessary or appropriate to enable it to carry out its administrative duties. Not in limitation, but in application of the foregoing, the Committee shall have discretionary authority to construe and interpret the Plan and determine all questions that may arise hereunder as to the status and rights of the Executive and his Beneficiaries. The Committee may exercise the powers hereby granted in its sole and absolute discretion. The Committee may promulgate such regulations as it deems appropriate for the operation and administration of the Agreement. No member of the Committee shall be personally liable for any actions taken by the Committee unless the members action involves willful misconduct.
6. Claims Procedure . The claims procedure with respect to benefits provided under this Agreement as set forth in Appendix A hereto.
7. No Employment Contract . This Agreement shall not constitute or be construed as a contract of employment. Subject to the rights of the parties under any employment agreement which exists, nothing in this Agreement shall restrict the right of HarborOne to discharge the Executive or the right of the Executive to resign from HarborOnes employ. Such termination shall, however, not affect the Executives rights to benefits which may be due to him.
8. No Trust Created . Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create, nor be construed to create, a trust of any kind or a
fiduciary relationship between HarborOne and the Executive, his Beneficiary, or any other person.
9. Benefits Payable Only from General Assets; Unsecured General Creditor Status of Executive . All benefits paid by HarborOne under this Agreement shall be made from the general, unrestricted assets of HarborOne, which include the Annuity. The Executive and his Beneficiaries shall have no right or interest in the Annuity or any other asset of HarborOne by virtue of the provisions of this Agreement or otherwise. HarborOnes obligation hereunder shall be an unfunded and unsecured promise to pay money. To the extent that the Executive or any person acquires a right to receive payments from HarborOne under the provisions hereof, such right shall be no greater than the right of any unsecured general creditor of HarborOne; and no such person shall have nor acquire any legal or equitable right, interest or claim in or to any property or assets of HarborOne. HarborOne shall be the sole owner and beneficiary of the Annuity. HarborOne shall have the sole right to decide how to use the Annuity, including but not limited to withdrawing its premium payments on or before the Payment Date and having the absolute right, in its sole discretion, to terminate or dispose of the Annuity in its sole discretion.
10. Top Hat Exemption . This Agreement is intended to be an unfunded pension plan maintained by HarborOne for a select group of management or highly compensated employees for purposes of ERISA and shall be interpreted in a manner consistent with complying with DOL Regulation Section 2520.104-23. The Executive specifically acknowledges that the benefits under this Agreement are unfunded and that the Executive bears the risk of nonpayment if HarborOne becomes insolvent or files for bankruptcy.
11. Non-Assignability of Benefits . Neither the Executive or his Beneficiary shall have any power or right to transfer, assign, anticipate, hypothecate or otherwise encumber any
part or all of the amounts payable hereunder, which are expressly declared to be unassignable and non-transferable. Any such attempted assignment or transfer shall be void and shall terminate this Agreement, and HarborOne shall thereupon have no further liability hereunder. No amount payable hereunder shall, prior to actual payment thereof, be subject to seizure by any creditor of the Executive or his Beneficiary for the payment of any debt, judgment or other obligation, by a proceeding at law or in equity, nor transferable by operation of law in the event of the bankruptcy, insolvency or death of the Executive or his Beneficiary.
12. Amendment . This Agreement may not be terminated, amended, altered or modified, except by a written instrument approved, in the case of HarborOne, by the Board or its designee, and signed by the parties hereto, or their respective successors. Notwithstanding the foregoing, a termination may occur only if the following conditions are met pursuant to Code Section 409A and the regulations promulgated thereunder.
(a) No distribution that is not otherwise pending may be made for the first 12 months following termination of this Agreement.
(b) All distributions hereunder must be made no later than 24 months after the passing of the resolution to terminate the Agreement.
(c) HarborOne must terminate all deferred compensation arrangements of the same type as described in Treasury Regulation Section 1.409A-1(c) for the Executive simultaneously.
(d) HarborOne shall not establish a new plan of the same type as described in Treasury Regulation Section 1.409A-1(c) prior to the fifth anniversary of the termination of this Agreement.
(e) The termination does not occur proximate to a downturn in the financial health of HarborOne.
13. Inurement . This Agreement shall be binding upon and inure to the benefit of HarborOne and its successors and assigns, and the Executive, his successors, heirs, personal representatives and Beneficiaries.
14. Notices . Any notice, consent or demand required or permitted to be given under the provisions of this Agreement shall be in writing, and shall be signed by the party giving or making the same. If such notice, consent or demand is mailed to a party hereto, it shall be sent by United States certified mail, postage prepaid, addressed to such partys last known address as shown on the records of HarborOne. The date of such mailing shall be deemed the date of notice, consent or demand.
15. Governing Law . This Agreement, and the rights of the parties hereunder, shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts to the extent not preempted by ERISA.
16. Entire Agreement . This Agreement and all documents referenced herein constitute the entire Agreement among the parties and contains all of the agreements among them with respect to HarborOnes obligation to provide supplemental retirement benefits to the Executive. It also supersedes any and all other Agreements or contracts, either oral or written, and discussions among the parties and their representatives with respect to the subject matter hereof.
17. No Guarantee of Tax Consequences . While HarborOne has established, and will maintain and administer, the Agreement, HarborOne makes no representation, warranty,
commitment, or guaranty concerning the income, employment, or other tax consequences of participation in the Agreement under federal, state, or local law.
THIS AGREEMENT is effective as of the date first above written.
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HARBORONE BANK |
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By: |
/s/ James Blake |
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Title: |
President & CEO |
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EXECUTIVE |
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/s/ Joseph F. Casey |
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Joseph F. Casey |
APPENDIX A
CLAIMS PROCEDURE
1. Claims . The Executive or his Beneficiary or other person who believes that he or she is being denied a benefit to which he or she is entitled (hereinafter referred to as Claimant), or his or her duly authorized representative, may file a written request for such benefit with the Committee setting forth his or her claim. The request must be addressed to the Committee at the Company at its then principal place of business.
2. Claim Decision . Upon receipt of a claim, the Committee shall advise the Claimant that a reply will be forthcoming within a reasonable period of time, but ordinarily not later than 90 days, and shall, in fact, deliver such reply within such period. However, the Committee may extend the reply period for an additional 90 days for reasonable cause. If the reply period will be extended, the Committee shall advise the Claimant in writing during the initial 90-day period indicating the special circumstances requiring an extension and the date by which the Committee expects to render the benefit determination.
If the claim is denied in whole or in part, the Committee will render a written opinion, using language calculated to be understood by the Claimant, setting forth: (a) the specific reason or reasons for the denial; (b) the specific references to pertinent provisions of the Agreement on which the denial is based, (c) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation as to why such material or such information is necessary; (d) appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review, including a statement of the Claimants right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on
review; and (e) the time limits for requesting a review of the denial under Paragraph 3 of Appendix A and for the actual review of the denial under Paragraph 4 of Appendix A.
3. Request for Review . Within 60 days after the receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Secretary of the Company (Secretary) review the Committees prior determination. Such request must be addressed to the Secretary at the Company at its then principal place of business. The Claimant or his or her duly authorized representative may submit written comments, documents, records or other information relating to the denied claim, which such information shall be considered in the review by the Secretary without regard to whether such information was submitted or considered in the initial benefit determination.
The Claimant or his or her duly authorized representative shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information which (a) was relied upon by the Committee in making its initial claims decision, (b) was submitted, considered or generated in the course of the Committee making its initial claims decision, without regard to whether such instrument was actually relied upon by the Committee in making its decision, or (c) demonstrates compliance by the Committee with its administrative processes and safeguards designed to ensure and to verify that benefit claims determinations are made in accordance with governing Plan documents and that, where appropriate, the Plan provisions have been applied consistently with respect to similarly situated claimants.
If the Claimant does not request a review of the Committees determination within such 60-day period, he or she shall be barred and estopped from challenging such determination.
4. Review of Decision . Within a reasonable period of time, ordinarily not later than 60 days, after the Secretarys receipt of a request for review, it will review the Committees prior
determination. If special circumstances require that the 60-day time period be extended, the Secretary will so notify the Claimant within the initial 60-day period indicating the special circumstances requiring an extension and the date by which the Secretary expects to render its decision on review, which shall be as soon as possible but not later than 120 days after receipt of the request for review. In the event that the Secretary extends the determination period on review due to a Claimants failure to submit information necessary to decide a claim, the period for making the benefit determination on review shall not take into account the period beginning on the date on which notification of extension is sent to the Claimant and ending on the date on which the Claimant responds to the request for additional information.
Benefits under the Plan will be paid only if the Secretary decides in its discretion that the Claimant is entitled to such benefits. The decision of the Secretary shall be final and non-reviewable, unless found to be arbitrary and capricious by a court of competent review. Such decision will be binding upon HarborOne and the Claimant.
If the Secretary makes an adverse benefit determination on review, the Secretary will render a written opinion, using language calculated to be understood by the Claimant, setting forth: (a) the specific reason or reasons for denial, (b) the specific references to pertinent Plan provisions on which the denial is based; (c) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information which (i) was relied upon by the Secretary in making its decision, (ii) was submitted, considered or generated in the course of the Secretary making its decision, without regard to whether such instrument was actually relied upon by the Secretary in making its decision or (iii) demonstrates compliance by the Secretary with its administrative processes and safeguards designed to ensure and to verify that benefit claims determinations are made in
accordance with governing Plan documents, and that, where appropriate, the Plan provisions have been applied consistently with respect to similarly situated claimants; and (d) a statement of the Claimants right to bring a civil action under Section 502(a) of ERISA following the adverse benefit determination on such review.
5. Discretionary Authority . The Committee and Secretary shall both have discretionary authority to determine a Claimants entitlement to benefits upon his claim or his request for review of a denied claim, respectively.
Exhibit 10.9
CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement (Agreement) is made as of the day of , 2016 by and among HarborOne Bancorp, Inc. a Massachusetts stock holding company (the Company), and it subsidiary, HarborOne Bank, a Massachusetts stock co-operative bank with its main office in Brockton, Massachusetts (the Bank) (the Bank and the Company shall be hereinafter collectively referred to as the Employers), and David B. Reilly (the Employee).
1. Purpose . The Employers consider it essential to the best interests of its stockholders to promote and preserve the continuous employment of key management personnel. The Board of Directors of each of the Employers (collectively, the Board) recognizes that, as is the case with many corporations, the possibility of a Change in Control (as defined in Section 2 hereof) exists and that such possibility, and the uncertainty and questions that it may raise among management, may result in the departure or distraction of key management personnel to the detriment of the Employers and their stockholders. Therefore, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Employers key management, including the Employee, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control. Nothing in this Agreement shall be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Employee and the Employers, the Employee shall not have any right to be retained in the employ of the Employers.
2. Change in Control . A Change in Control shall be deemed to have occurred upon the occurrence of any one of the following events:
(a) any Person, as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the Act) (other than HarborOne Bancorp or the Company, any of their subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all affiliates and associates (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the beneficial owner (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 40 percent or more of the combined voting power of the Companys then outstanding securities having the right to vote in an election of the Companys Board (Voting Securities) (in such case other than as a result of an acquisition of securities directly from the Company or in connection with a public offering); or
(b) persons who, as of the date hereof, constitute the Companys Board (the Incumbent Directors) cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Companys Board, provided that any person becoming a director of the Company subsequent to the date hereof shall be considered an Incumbent Director if such persons election was approved by or such person was nominated for election by either (i) a vote of at least a majority of the Incumbent Directors or (ii) a vote of at least a majority of the Incumbent Directors who are
members of a nominating committee comprised, in the majority, of Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Companys Board or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Companys Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or
(c) the consummation of (i) any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate more than 50 percent of the voting shares of the Company issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or of the Bank.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred for purposes of the foregoing clause (a) solely as the result of an acquisition of securities by the Company that, by reducing the number of shares of Voting Securities outstanding, increases the proportionate number of shares of Voting Securities beneficially owned by any person to 40 percent or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns 40 percent or more of the combined voting power of all then outstanding Voting Securities, then a Change in Control shall be deemed to have occurred for purposes of the foregoing clause (a).
3. Terminating Event .
A Terminating Event shall mean any of the events provided in this Section 3:
(a) Termination by the Employers . Termination by the Employers of the employment of the Employee with the Employers for any reason other than for Cause, death or Disability. For purposes of this Agreement, Cause shall mean, as determined by the Companys Board in its good faith:
(i) conduct by the Employee constituting a material act of misconduct in connection with the performance of his duties, including, without limitation, misappropriation of funds or property of the Employers other than the occasional, customary and de minimis use of Employers property for personal purposes; or
(ii) the commission by the Employee of any felony or a misdemeanor involving moral turpitude, deceit, dishonesty or fraud, or any conduct by the Employee that would reasonably be expected to result in material injury or reputational harm to the Employers if he were retained in his position; or
(iii) continued non-performance by the Employee of his duties to the Employers (other than by reason of the Employees physical or mental illness, incapacity or disability) which has continued for more than 30 days following written notice of such non-performance from the Companys Board; or
(iv) a material violation by the Employee of the Employers written employment policies; or
(v) failure to cooperate with a bona fide internal investigation or an investigation by regulatory or law enforcement authorities, after being instructed by the Employers to cooperate, or the willful destruction or failure to preserve documents or other materials known to be relevant to such investigation or the willful inducement of others to fail to cooperate or to produce documents or other materials in connection with such investigation.
A Terminating Event shall not be deemed to have occurred pursuant to this Section 3(a) solely as a result of the Employee being an employee of any direct or indirect successor to the business or assets of the Employers, rather than continuing as an employee of the Employers following a Change in Control. For purposes hereof, the Employee will be considered Disabled if, as a result of the Employees incapacity due to physical or mental illness, the Employee shall have been absent from his duties to the Employers on a full-time basis for 180 calendar days in the aggregate in any 12-month period.
(b) Termination by the Employee for Good Reason . Termination by the Employee of the Employees employment with the Employers for Good Reason. For purposes of this Agreement, Good Reason shall mean that the Employee has complied with the Good Reason Process (hereinafter defined) following, the occurrence of any of the following events:
(i) a material diminution in the Employees responsibilities, authority or duties;
(ii) a material diminution in the Employees base salary except for across-the-board salary reductions based on the Employers financial performance similarly affecting all or substantially all senior management employees of the Employers;
(iii) a material change in the geographic location at which the Employee provides services to the Employers; or
(iv) the material breach of this Agreement by the Employers.
Good Reason Process shall mean that (i) the Employee reasonably determines in good faith that a Good Reason condition has occurred; (ii) the Employee notifies the Employers in writing of the first occurrence of the Good Reason condition within 60 days of the first occurrence of such condition; (iii) the Employee cooperates in good faith with the Employers efforts, for a period not less than 30 days following such notice (the Cure Period), to remedy the condition; (iv) notwithstanding such efforts, the Good Reason condition continues to exist; and (v) the Employee terminates his employment within 60 days after the end of the Cure Period.
If the Employers cure the Good Reason condition during the Cure Period, Good Reason shall be deemed not to have occurred.
4. Change in Control Payment . In the event a Terminating Event occurs within 12 months after a Change in Control, the following shall occur:
(a) the Employers shall pay to the Employee an amount equal to the sum of (i) the Employees annual base salary in effect immediately prior to the Terminating Event (or the Employees annual base salary in effect immediately prior to the Change in Control, if higher) and (ii) the Employees average annual bonus over the three fiscal years immediately prior to the Change in Control, payable in one lump-sum payment within ten days following the Date of Termination; and
(b) if the Employee was participating in the Employers group health and dental plans immediately prior to the Date of Termination and elects COBRA health continuation, then the Employers shall pay to the Employee a monthly cash payment for 18 months or the Employees COBRA health continuation period, whichever ends earlier, in an amount equal to the monthly employer contribution that the Employers would have made to provide health and dental insurance to the Employee if the Employee had remained employed by the Employers.
5. Additional Limitation .
(a) Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any compensation, payment or distribution by the Employers to or for the benefit of the Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the Code and the applicable regulations thereunder (the Aggregate Payments), would be subject to the excise tax imposed by Section 4999 of the Code, then the Aggregate Payments shall be reduced (but not below zero) so that the sum of all of the Aggregate Payments shall be $1.00 less than the amount at which the Employee becomes subject to the excise tax imposed by Section 4999 of the Code; provided that such reduction shall only occur if it would result in the Employee receiving a higher After Tax Amount (as defined below) than the Employee would receive if the Aggregate Payments were not subject to such reduction. In such event, the Aggregate Payments shall be reduced in the following order, in each case, in reverse chronological order beginning with the Aggregate Payments that are to be paid the furthest in time from consummation of the transaction that is subject to Section 280G of the Code: (1) cash payments not subject to Section 409A of the Code; (2) cash payments subject to Section 409A of the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits; provided that in the case of all the foregoing Aggregate Payments all amounts or payments that are not subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c) shall be reduced before any amounts that are subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c).
(b) For purposes of this Section 5, the After Tax Amount means the amount of the Aggregate Payments less all federal, state, and local income, excise and employment taxes imposed on the Employee as a result of the Employees receipt of the Aggregate Payments. For
purposes of determining the After Tax Amount, the Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in each applicable state and locality, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(c) The determination as to whether a reduction in the Aggregate Payments shall be made pursuant to Section 5(a) shall be made by a nationally recognized accounting firm selected by the Employers (the Accounting Firm), which shall provide detailed supporting calculations both to the Employers and the Employee within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Employers or the Employee. Any determination by the Accounting Firm shall be binding upon the Employers and the Employee.
6. Section 409A .
(a) Anything in this Agreement to the contrary notwithstanding, if at the time of the Employees separation from service within the meaning of Section 409A of the Code, the Employers determine that the Employee is a specified employee within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that the Employee becomes entitled to under this Agreement on account of the Employees separation from service would be considered deferred compensation subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six months and one day after the Employees separation from service, or (B) the Employees death.
(b) The parties intend that this Agreement will be administered in accordance with Section 409A of the Code. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.
(c) All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall be provided by the Employers or incurred by the Employee during the time periods set forth in this Agreement. All reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred. The amount of in-kind benefits provided or reimbursable expenses incurred in one taxable year shall not affect the in-kind benefits to be provided or the expenses eligible for reimbursement in any other taxable year. Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
(d) To the extent that any payment or benefit described in this Agreement constitutes non-qualified deferred compensation under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the Employees termination of employment, then such payments or benefits shall be payable only upon the Employees separation from service. The determination of whether and when a separation from service has occurred shall be made in accordance with the presumptions set forth in Treasury Regulation Section 1.409A-1(h).
(e) The Employers make no representation or warranty and shall have no liability to the Employee or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.
7. Term . This Agreement shall take effect on the date first set forth above and shall terminate upon the earlier of (a) the termination of the Employees employment for any reason prior to a Change in Control, (b) the termination of the Employees employment with the Employers after a Change in Control for any reason other than the occurrence of a Terminating Event, or (c) the date which is 12 months after a Change in Control if the Employee is still employed by the Employers.
8. Withholding . All payments made by the Employers to the Employee under this Agreement shall be net of any tax or other amounts required to be withheld by the Employers under applicable law.
9. Notice and Date of Termination .
(a) Notice of Termination . After a Change in Control and during the term of this Agreement, any purported termination of the Employees employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with this Section 9. For purposes of this Agreement, a Notice of Termination shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon.
(b) Date of Termination . Date of Termination shall mean: (i) if the Employees employment is terminated by his death, the date of his death; (ii) if the Employees employment is terminated on account of Employees Disability or by the Employers with or without Cause, the date on which Notice of Termination is given; (iii) if the Employees employment is terminated by the Employee without Good Reason, 30 days after the date on which a Notice of Termination is given, and (iv) if the Employees employment is terminated by the Employee with Good Reason, the date on which a Notice of Termination is given after the end of the Cure Period. Notwithstanding the foregoing, in the event that the Employee gives a Notice of Termination to the Employers, the Employers may unilaterally accelerate the Date of Termination and such acceleration shall not result in a termination by the Employers for purposes of this Agreement.
10. No Mitigation . The Employers agree that, if the Employees employment by the Employers is terminated during the term of this Agreement, the Employee is not required to seek
other employment or to attempt in any way to reduce any amounts payable to the Employee by the Employers pursuant to Section 4 hereof. Further, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Employee to the Employers or otherwise.
11. Arbitration of Disputes . Any controversy or claim arising out of or relating to this Agreement or the breach thereof or otherwise arising out of the Employees employment or the termination of that employment (including, without limitation, any claims of unlawful employment discrimination whether based on age or otherwise) shall, to the fullest extent permitted by law, be settled by arbitration in any forum and form agreed upon by the parties or, in the absence of such an agreement, under the auspices of the American Arbitration Association (AAA) in Boston, Massachusetts in accordance with the Employment Dispute Resolution Rules of the AAA, including, but not limited to, the rules and procedures applicable to the selection of arbitrators. In the event that any person or entity other than the Employee or the Employers may be a party with regard to any such controversy or claim, such controversy or claim shall be submitted to arbitration subject to such other person or entitys agreement. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. This Section 11 shall be specifically enforceable. Notwithstanding the foregoing, this Section 11 shall not preclude either party from pursuing a court action for the sole purpose of obtaining a temporary restraining order or a preliminary injunction in circumstances in which such relief is appropriate; provided that any other relief shall be pursued through an arbitration proceeding pursuant to this Section 11.
12. Consent to Jurisdiction . To the extent that any court action is permitted consistent with or to enforce Section 11 of this Agreement, the parties hereby consent to the jurisdiction of the Superior Court of the Commonwealth of Massachusetts and the United States District Court for the District of Massachusetts. Accordingly, with respect to any such court action, the Employee (a) submits to the personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process.
13. Integration . This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes in all respects all prior agreements between the parties concerning such subject matter.
14. Successor to the Employee . This Agreement shall inure to the benefit of and be enforceable by the Employees personal representatives, executors, administrators, heirs, distributees, devisees and legatees. In the event of the Employees death after a Terminating Event but prior to the completion by the Employers of all payments due him under this Agreement, the Employers shall continue such payments to the Employees beneficiary designated in writing to the Employers prior to his death (or to his estate, if the Employee fails to make such designation).
15. Enforceability . If any portion or provision of this Agreement (including, without limitation, any portion or provision of any Section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this
Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.
16. Waiver . No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.
17. Notices . Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight currier service of by registered or certified mail, postage prepaid, return receipt requested, to the Employee at the last address the Employee has filed in writing with the Employers, or to the Employers at its main office, attention of the Board of Directors.
18. Amendment . This Agreement may be amended or modified only by a written instrument signed by the Employee and by duly authorized representatives of the Employers.
19. Effect on Other Plans . An election by the Employee to resign after a Change in Control under the provisions of this Agreement shall not be deemed a voluntary termination of employment by the Employee for the purpose of interpreting the provisions of any of the Employers benefit plans, programs or policies. Nothing in this Agreement shall be construed to limit the rights of the Employee under the Employers benefit plans, programs or policies except as otherwise provided in Section 5 hereof, and except that the Employee shall have no rights to any severance benefits under any Company or Bank severance pay plan. In the event that the Employee is party to an employment agreement with the Employers providing for change in control payments or benefits, the Employee may receive payment under this Agreement only and not both. The Employee shall make such an election in the event of a Change in Control.
20. Governing Law . This is a Massachusetts contract and shall be construed under and be governed in all respects by the laws of the Commonwealth of Massachusetts, without giving effect to the conflict of laws principles of such Commonwealth. With respect to any disputes concerning federal law, such disputes shall be determined in accordance with the law as it would be interpreted and applied by the United States Court of Appeals for the First Circuit.
21. Successors to Employers . The Employers shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Employers expressly to assume and agree to perform this Agreement to the same extent that the Employers would be required to perform it if no succession had taken place. Failure of the Employers to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a material breach of this Agreement.
22. Gender Neutral . Wherever used herein, a pronoun in the masculine gender shall be considered as including the feminine gender unless the context clearly indicates otherwise.
23. Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same document.
24. Allocation of Obligations Between Employers . The obligations of the Employers under this Agreement are intended to be the joint and several obligations of the Bank and the Company, and the Employers shall, as between themselves, allocate these obligations in a manner agreed upon by them.
[Signature Page to Follow]
IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date and year first above written.
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HARBORONE BANCORP, INC. |
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HARBORONE BANK |
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EMPLOYEE |
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Name: |
[Change in Control Agreement Signature Page]
Exhibit 10.10
HARBORONE BANK
DIRECTOR RETIREMENT PLAN
1. PURPOSE .
The purpose of the HarborOne Bank Director Retirement Plan (the Plan) is to recognize and provide specified benefits to directors of HarborOne Bank (the Bank) for services and contributions to the Bank that contribute materially to the continued growth, development and future business success of the Bank. Subject to the terms of the Plan, Participants or their beneficiaries may receive a benefit from the Bank upon retirement, death or disability.
This Plan shall be unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974 (ERISA), as amended from time to time.
2. EFFECTIVE DATE . The Plan is effective as of November 1, 2014 (the Effective Date).
3. DEFINITIONS .
As used in the Plan:
(a) Actuarial Equivalent means the present value of the annual benefit payable under Paragraph 4(a) computed using the applicable interest rate determined under Section 417(e)(3)(C) of the Internal Revenue Code of 1986, as amended (the Code) for the month of December preceding the payment date of the benefit.
(b) Bank means HarborOne Bank, organized and existing under the laws of the Commonwealth of Massachusetts, and any present or future parents, subsidiaries or affiliates.
(c) Beneficiary means the person(s) or trust(s) designated in writing by a Participant to receive benefits pursuant to the Plan in the event of such Participants death. The Participant may change a Beneficiary designation at any time by submitting a new form to the Secretary of the Board (or, in the case of the Secretary submitting an election as a Participant, to the Chair of the Board). Any such change shall follow the same rules as for the original Beneficiary designation and shall supersede automatically the existing Beneficiary form on file with the Board. If no Beneficiary is designated, the Beneficiary shall be the Participants surviving spouse, if living, and otherwise the Participants estate. If the Beneficiary is a minor or is under guardianship or conservatorship, the Board may direct that distribution of a benefit be made to the Beneficiarys guardian, conservator or legal representative.
(d) Board means the board of directors of the Bank.
(e) Cause means a Directors deliberate dishonesty with respect to the Bank or any subsidiary or affiliate of the Bank; conviction of a crime involving moral turpitude; or gross and willful failure to perform (other than on account of a medically determinable Disability that
renders the Director incapable of performing such services) a substantial portion of the Directors duties and responsibilities as a Director of the Bank.
(f) Director means a person who is duly elected as a member of the Board; provided, however, that a person duly elected as a director of the Board who is also compensated as an employee of the Bank shall be deemed to be serving as a Director within the meaning of the Plan only from and after the effective date of such persons termination of service as an employee of the Bank. For purposes of the preceding sentence, a person shall be deemed to be duly elected as a director of the Bank commencing as of effective date of such election and terminating as of the expiration of such persons term of office as a director or, if earlier, the date of such persons death, Disability, Separation from Service as a director, or resignation or removal as a director.
(g) Disability means any medically determinable physical or mental illness, impairment or condition affecting a Participant that can be expected to result in death and/or to last for a continuous period of not less than twelve (12) months and that causes a Separation from Service.
(h) Normal Retirement Age means the age as set forth in each Participants Participation Agreement.
(i) Participant means (i) each Director as of the Effective Date who has been provided with and executed a Participation Agreement and has not waived his or her right to participate in the Plan, and (ii) each person who becomes a Director after the Effective Date who is provided with and executes a Participation Agreement and has not waived his or her right to participate in the Plan, provided that in each case such Director also has executed a non- competition, non-solicitation, and confidentiality agreement in a form reasonably requested by the Bank. A Participation Agreement must be executed within thirty (30) days (or such longer period as the Board determines reasonable and appropriate based on the facts and circumstances consistent with the requirements of Section 409A of the Code and Treasury Regulations issued thereunder (Treas. Reg.) including, without limitation, Treas. Reg. Section 1.409A-2(a)(7)) after an individual becomes a Director and is offered a participation Agreement or, in the case of the Plan Year ending 2014, within thirty (30) days after the adoption of the Plan. Any person participating in the Plan who has a Separation from Service as a Director for reasons other than death or Disability prior to the completion of at least six (6) Years of Service shall cease to be a Participant as of the effective date of such Separation from Service. In no event shall a person be eligible to be a Participant after the payment of any benefits to which such individual is entitled under Paragraph 4 is completed.
(j) Participation Agreement means a written instrument in the form or substantially in the form appended to the Plan as Appendix A, as amended from time to time.
(k) Plan Year means the calendar year.
(l) Retirement means Separation from Service as a Director for any reason other than death, Disability or Cause.
(m) Separation from Service means a Directors separation from service with the Bank within the meaning of Code Section 409A and the regulations promulgated thereunder. Without limiting the foregoing, a Director will be presumed to have separated from service as of the effective date of a reduction in his or her work schedule (other than in connection with an authorized leave of absence for reasons other than Disability) where the level of bona fide services performed after such effective date continues at a level that is more than twenty percent (20%) but less than fifty percent (50%) of the average level of service performed by the Director during the thirty-six (36) month period immediately preceding such effective date.
(n) Year of Service means, for a Director, each twelve (12) month period ending December 31 during which the Director serves continuously as a duly elected director of the Bank, or any predecessor of the Bank; provided, however, that the calendar year in which a director is first elected to the Board shall be deemed a complete calendar year.
(o) Final Director Fees means the total director fees paid to the Director in the final full calendar year preceding the Participants Retirement. The director fees paid to the Director shall be the total compensation amount shown on a Directors 1099 (or its equivalent) as issued by the Bank to the Director.
4. PLAN BENEFITS .
(a) Normal Retirement .
Upon a Participants Retirement after attainment of Normal Retirement Age as a Director on or after the Participants completion of six (6) or more Years of Service, the Participant shall be entitled to receive an annual benefit, payable each year in the amount and for the number of years determined in accordance with the following schedule:
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Annual Benefit |
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Number of Annual
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Less than 6 Years of Service |
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None |
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Not Applicable |
At least 6, but less than 11 Years of Service |
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30% of Final Director Fees |
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5 |
At least 11, but less than 21 Years of Service |
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45% of Final Director Fees |
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10 |
At least 21 Years of Service |
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60% of Final Director Fees |
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10 |
Such amount shall be paid annually commencing within sixty (60) days after the Participants Retirement provided that the Participants Retirement occurred upon or after Normal Retirement Age. Annual Installment Payments made after the first installment will be made in January of each following Plan Year until the total number of Annual Installments has been paid, not to exceed the Number of Annual Installments listed above that corresponds with the applicable Years of Service. Notwithstanding the forgoing, if in the Participants
Participation Agreement the Participant elects to receive the Normal Retirement benefit in a lump sum in lieu of annual installments, then the Bank shall pay the Participant the Actuarial Equivalent of the benefit described above. If so elected, this lump sum payment shall be made within sixty (60) days after the Participants Retirement.
Death . If a Participant dies while serving as a Director and after the completion of six (6) or more Years of Service, the Participants Beneficiary shall be entitled to a benefit, payable in a single lump sum within sixty (60) days after the Participants death, in an amount equal to the Actuarial Equivalent of the benefit that would have been payable to the Participant under Paragraph 4(a) if the Participant had attained Normal Retirement Age with the Participants actual Years of Service as of the date of the Participants death and experienced a Retirement as of the date of the Participants death. If a retired Participant dies before receiving the full benefit payable to such Participant, the Actuarial Equivalent of any remaining benefit shall be paid to the Participants Beneficiary in a single lump sum within sixty (60) days after the Participants death. Notwithstanding the forgoing, if in the Participants Participation Agreement the Participant elects to receive the Death benefit in annual installments in lieu of a lump sum, then the Bank shall pay the Participant the benefit that would have been payable to the Participant under Paragraph 4(a) if the Participant had attained Normal Retirement Age with the Participants actual Years of Service as of the date of the Participants death and experienced a Retirement as of the date of the Participants death (or the Actuarial equivalent thereof if the Participant has not yet achieved eleven (11) Years of Service). If so elected, the first Annual Installment Payment shall be made within sixty (60) days after the Participants death and the remaining annual payments shall be made in January of each following Plan Year until ten (10) total installments have been paid.
(b) Disability . If a Participant suffers a Disability while serving as a Director and after the completion of six (6) or more Years of Service, but prior to Normal Retirement Age, the Participant shall be entitled to a benefit, payable in a single lump sum within sixty (60) days after the Participants Disability, in an amount equal to the Actuarial Equivalent of the benefit that would have been payable to the Participant under Paragraph 4(a) if the Participant had attained Normal Retirement Age with the Participants actual Years of Service as of the date of the Participants Disability and experienced a Retirement as of the date of the Participants Disability. Notwithstanding the forgoing, if in the Participants Participation Agreement the Participant elects to receive the Disability benefit in annual installments in lieu of a lump sum, then the Bank shall pay the Participant the benefit that would have been payable to the Participant under Paragraph 4(a) if the Participant had attained Normal Retirement Age with the Participants actual Years of Service as of the date of the Participants Disability and experienced a Retirement as of the date of the Participants Disability (or the Actuarial Equivalent thereof if the Participant has not yet achieved eleven (11) Years of Service). If so elected, the first Annual Installment Payment shall be made within sixty (60) days after the Participants Disability and the remaining payments shall be made in January of each following Plan Year until ten (10) total installments have been paid.
(c) Termination for Cause . In the event a Participants service as a Director is terminated at any time for Cause, the Participant shall not be entitled to any benefit under the Plan.
5. MISCELLANEOUS .
(a) Change of Control . A Change in Control will be deemed to have occurred if:
(i) During any 12-month period, individuals who are Continuing Directors (as hereinafter defined) cease for any reason to constitute at least a majority of the Board of Directors of the Bank. For this purpose, a Continuing Director means (x) an individual who was a Director of the Bank at the beginning of such period or (y) any new Director (other than a director designated by a person who has entered into, or made a bona-fide offer to enter into, any agreement with the Bank to effect an acquisition, merger or consolidation of the Bank) whose election by (he Board or nomination for election to the Board of the Bank was approved by a vote of a majority of the Directors of the Bank then still in office who either were Directors at the beginning of such period or whose election or nomination for election was previously so approved; or
(ii) The Directors of the Bank approve a merger or consolidation of the Bank with any other bank or corporation in which individuals who are Directors of the Bank immediately prior to the transaction will cease, by reason of the transaction, to represent more than fifty percent of the Directors of the institution resulting from the merger or consolidation, provided that the effective date of such Change in Control shall be the date of the transaction; or
(iii) The Bank issues shares to the public (through a partial offering or a full conversion to stock form) and a person (or persons acting as a group, as defined in Treas. Reg. Section 1.409A-3(i)(5)(v)(B)), acquires ownership of a number of shares of such stock constituting at least 50% percent of the total fair market value, or total voting power, of the Banks stock;
provided that such event also constitutes a change in ownership or effective control of the Bank or a change in the ownership of a substantial portion of the assets of the Bank, in each case as defined in Treas. Reg. Section 1.409A-3(i)(5).
Any Participant whose service as a Director is terminated other than for Cause within one (1) year after a Change in Control shall be deemed to have experienced a Retirement at Normal Retirement Age with an aggregate number of Years of Service equal to the Participants actual Years of Service plus ten (10). Such Participant shall be entitled to a benefit, payable in a single lump sum within sixty (60) days following the Participants Separation from Service, in an amount equal to the Actuarial Equivalent of the benefit determined as set forth in Paragraph 4(a) above based upon such aggregate Years of Service.
(b) Plan Continuation . The Bank shall not merge or consolidate into or with another organization, or reorganize, or sell substantially all of its assets to another organization, firm or person unless and until such succeeding or continuing organization, firm or person agrees to assume and discharge the obligations of the Bank under the Plan. Upon the occurrence of such event, the term Bank as used in the Plan shall be deemed to refer to such successor or survivor organization.
(c) Plan Amendment or Termination . The Plan may be amended or terminated by a two-thirds vote of the full Board, but any such amendment or termination shall not affect or change rights accrued or obligations incurred up to the time of such amendment or termination, including specifically, but without limitation, those rights contained in Paragraph 4.
(d) Compliance with Code Section 409A . It is the intent of the Bank that the Plan and all amounts payable to the Participants under the Plan meet the requirements of Section 409A of the Code to the extent applicable to the Plan and such payments.
(e) Unfunded Stat us. The Plan is intended to be unfunded for purposes of the Employee Retirement Income Security Act of 1974, as amended (ERISA). The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under the Plan. The Participants, Directors, Beneficiaries, and any successor(s) in interest shall be and remain simply general creditors of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation. The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by the Plan or to refrain from funding the same and to determine the extent, nature and method of such funding. Should the Bank elect to fund the Plan, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall any Participant, Director, or Beneficiary be deemed to have any lien, right, title or interest arising out of or relating to the Plan in any specific funding investment or assets of the Bank. None of the Participants, Directors or Beneficiaries shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder, nor shall any of such benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant, Director or Beneficiary, or be transferable by operation of law in the event of bankruptcy, insolvency or otherwise.
(f) Taxes . The Participants, Directors and Beneficiaries, as applicable, shall bear sole liability with respect to liability for taxes arising out of or associated with the benefits earned, payable or paid under the Plan.
(g) Accounting . The Bank shall account for the benefits provided under the Plan using the regulatory accounting principles of the Banks primary federal regulator, including, to the extent applicable, the establishment and maintenance of an accrued liability retirement account for the Participants into which appropriate reserves may be accrued.
(h) Governing Law . The Plan shall be governed and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to choice of law or conflicts of laws and provisions thereof, and with any federal laws to which the Bank may be subject as an FDIC insured institution.
IN WITNESS THEREOF, the Bank has caused this instrument to be executed by its duly authorized officer effective as of the day and year first written above.
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HARBORONE BANK |
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/s/ James Blake |
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Its: |
President and CEO |
Exhibit 21.1
Subsidiaries of the Registrant
(a) Upon completion of the reorganization described in the Plan of Reorganization and Minority Stock Issuance filed with this Registration Statement as Exhibit 2.1, the subsidiaries of the registrant will be as follows:
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State of Incorporation or Organization |
HarborOne Bank |
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Massachusetts |
(b) Upon completion of the reorganization described in the Plan of Reorganization and Minority Stock Issuance filed with this Registration Statement as Exhibit 2.1, the subsidiaries of HarborOne Bank will be as follows:
Subsidiary Name |
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State of Incorporation or Organization |
Merrimack Mortgage Company, LLC |
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Massachusetts |
HarborOne Security Corporation, LLC |
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Massachusetts |
Oak Street Security Corporation, LLC |
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Massachusetts |
Exhibit 23.2
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RP ® FINANCIAL, LC. |
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Advisory | Planning | Valuation |
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March 4, 2016
Board of Directors
HarborOne Mutual Bancshares
HarborOne Bancorp, Inc.
HarborOne Bank
770 Oak Street
Brockton, Massachusetts 02301
Members of the Board of Directors:
We hereby consent to the use of our firms name in the Registration Statement on Form S-1, and any amendments thereto, to be filed with the Securities and Exchange Commission. We also hereby consent to the inclusion of, summary of and references to our Valuation Appraisal Report and any Valuation Appraisal Report Updates and our statement concerning subscription rights and liquidation rights in such filings including the prospectus of HarborOne Bancorp, Inc. We also consent to the reference to our firm under the heading Experts in the prospectus.
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Sincerely, |
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RP ® FINANCIAL, LC. |
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Washington Headquarters |
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Three Ballston Plaza |
Telephone: (703) 528-1700 |
1100 North Glebe Road, Suite 600 |
Fax No.: (703) 528-1788 |
Arlington, VA 22201 |
Toll-Free No.: (866) 723-0594 |
www.rpfinancial.com |
E-Mail: mail@rpfinancial.com |
Exhibit 23.3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Prospectus and Registration Statement on Form S-1 of our report dated February 29, 2016 on the consolidated financial statements of HarborOne Bank and Subsidiaries as of December 31, 2015 and 2014, and for the years then ended, appearing in the Prospectus, which is a part of this Registration Statement on Form S-1. We further consent to the use of our name and the reference to us appearing under the heading Experts in this Prospectus and Registration Statement.
/s/ Wolf & Company, P.C. |
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Boston, Massachusetts |
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March 4, 2016 |
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Exhibit 99.1
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October 8, 2015 |
Mr. Joseph F. Casey
Executive Vice President and Chief Financial Officer
HarborOne Bank
770 Oak Street
Brockton, MA 02303
Dear Mr. Casey:
This letter sets forth the agreement between HarborOne Bank, Brockton, Massachusetts (the Bank), and RP ® Financial, LC. (RP Financial), whereby RP Financial will provide the independent appraisal services in conjunction with the minority stock offering concurrent with the mutual holding company (the MHC) reorganization and formation of a mid-tier holding company (the Company). The scope, timing and fee structure for these appraisal services are described below.
These appraisal services will be directed by the undersigned, with the assistance of a Director, and as many as two Associates.
Description of Appraisal Services
In conjunction with these appraisal services, RP Financial will conduct a financial due diligence, including on-site interviews of senior management and reviews of historical and pro forma financial information and other documents and records, to gain insight into the operations, financial condition, profitability, market area, risks and various internal and external factors of the Bank, all of which will be considered in estimating the pro forma market value of the Company in accordance with the applicable regulatory appraisal guidelines. RP Financial will prepare a detailed written valuation report that will be fully consistent with applicable regulatory appraisal guidelines and standard pro forma valuation practices, taking into consideration the intended minority stock offering. The appraisal report will include an analysis of the Banks financial condition and operating results, as well as an assessment of the interest rate risk, credit risk and liquidity risk. The appraisal report will incorporate an evaluation of the Banks business strategies, market area, prospects for the future and the intended use of proceeds. A peer group analysis relative to certain relatively comparable publicly-traded banking companies will be conducted for the purpose of determining appropriate valuation adjustments for the Company relative to the peer groups pricing ratios.
We will review pertinent sections of the prospectus and conduct discussions with Bank representatives to obtain key information for the appraisal report, including key deal elements such as dividend policy and related regulatory requirements, use of proceeds, reinvestment rate, tax rate, offering expenses, stock plans characteristics, and charitable foundation contribution.
The original appraisal report will establish a midpoint pro forma market value in accordance with the applicable regulatory requirements. The appraisal report will provide the valuation basis for the Board to determine the size of the minority stock offering. The appraisal report may be periodically updated throughout the conversion process, and, in accordance with the conversion regulations, there will be at least one updated appraisal prepared at the closing of the minority stock offering to determine the number of shares to be issued. In the event of a syndicated community offering, it may be necessary to file an update in conjunction with the close of the subscription offering and prior to the pricing phase in the syndicated community offering.
RP Financial agrees to deliver the original appraisal report and subsequent updates, in writing, to the Bank at the above address, in conjunction with the filing of the regulatory conversion applications and amendments thereto. Subsequent updates will be filed promptly as certain events occur which would warrant the preparation and filing of such appraisal updates pursuant to regulatory guidelines. Further, RP Financial agrees to perform such other services as are necessary or required in connection with the regulatory review of the appraisal and respond to the regulatory comments, if any, regarding the valuation original appraisal and subsequent updates.
In the event of a syndicated community offering phase, RP Financial will participate in the various all hands calls regarding the offering results, pricing discussions and timing.
RP Financial expects to formally present the appraisal report, including the appraisal methodology, peer group selection and assumptions, to the Board of Directors for review and consideration. If appropriate, RP Financial will present subsequent updates to the Board. It is understood that this appraisal may be presented either in person or telephonically.
Fee Structure and Payment Schedule
The Bank agrees to pay RP Financial fees for preparation and delivery of the original appraisal report and subsequent appraisal updates as shown in the detail below, plus reimbursable expenses. Payment of these fees shall be made according to the following schedule:
· $10,000 upon execution of this letter of agreement engaging RP Financials appraisal services;
· $100,000 upon delivery of the completed original appraisal report; and
· $10,000 upon delivery of each subsequent appraisal update report required in conjunction with the regulatory application and stock offering. It is anticipated that there will be at least one appraisal update report, specifically the update to be prepared in conjunction with the completion of the stock offering.
The Bank will reimburse RP Financial for reasonable out-of-pocket expenses incurred in preparation of the original appraisal and subsequent updates. Such out-of-pocket expenses will likely include travel, printing, telephone, facsimile, shipping, reasonable counsel fees, computer and data services, and will not exceed $7,500 in the aggregate, without the Banks authorization to exceed this level.
In the event the Bank shall, for any reason, discontinue the proposed transaction prior to delivery of the completed original appraisal report or subsequent updates and payment of the corresponding fees, the Bank agrees to compensate RP Financial according to RP Financials standard billing rates for consulting services based on accumulated and verifiable time expenses, not to exceed the respective fee caps noted above, after applying full credit to the initial retainer fee towards such payment, together with reasonable out-of-pocket expenses, subject to the cap on such expenses as set forth above. RP Financials standard billing rates range from $75 per hour for Associates to $450 per hour for Managing Directors.
If during the course of the proposed transaction, unforeseen events occur so as to materially change the nature or the work content of the services described in this contract, the terms of said contract shall be subject to renegotiation by the Bank and RP Financial. Such unforeseen events shall include, but not be limited to, material changes to the structure of the transaction such as inclusion of a simultaneous business combination transaction, material changes in the conversion regulations, appraisal guidelines or processing procedures as they relate to conversion appraisals, material changes in management or procedures, operating policies or philosophies, and excessive delays or suspension of processing of conversion applications by the regulators such that completion of the conversion transaction requires the preparation by RP Financial of a new appraisal.
Covenants, Representations and Warranties
The Bank and RP Financial agree to the following:
1. The Company agrees to make available or to supply to RP Financial such information with respect to its business and financial condition as RP Financial may reasonably request in order to provide the aforesaid valuation. Such information heretofore or hereafter supplied or made available to RP Financial shall include: annual financial statements, periodic regulatory filings and material agreements, debt instruments, off balance sheet assets or liabilities, commitments and contingencies, unrealized gains or losses and corporate books and records. All information provided by the Bank to RP Financial shall remain strictly confidential (unless such information is otherwise made available to the public), and if the conversion is not consummated or the services of RP Financial are terminated hereunder, RP Financial shall promptly return to the Bank the original and any copies of such information.
2. RP Financial represents that it will comply with any and all federal, state and local laws, regulations and ordinances governing or relating to the privacy, security, confidentiality or integrity of personal information, data, and confidential information (Privacy Laws). RP Financial shall implement such physical, administrative and technical safeguards as shall be necessary to ensure the security and confidentiality of any personal information, data, and confidential information it receives, including maintaining written policies and procedures detailing its compliance with any applicable Privacy Laws. Such written policies and procedures shall be made available to the Bank for review upon request. The Bank represents and warrants to RP Financial that any information provided to RP Financial does not and will not, to the best of the Banks knowledge, at the times it is provided to RP Financial, contain any untrue statement of a material fact or in response to informational requests by RP Financial fail to state a material fact necessary to make the statements therein not false or misleading in light of the circumstances under which they were made.
3. (a) The Bank agrees that it will indemnify and hold harmless RP Financial, any affiliates of RP Financial, the respective members, officers, agents and employees of RP Financial or their successors and assigns who act for or on behalf of RP Financial in connection with the services called for under this agreement (hereinafter referred to as RP Financial), from and against any and all losses, claims, damages and liabilities (including, but not limited to, reasonable attorneys fees, and all losses and expenses in connection with claims under the federal securities laws) attributable to (i) any untrue statement of a material fact contained in the financial statements or other information furnished or otherwise provided by the Bank to RP Financial, either orally or in writing; (ii) the omission of a material fact from the financial statements or other information furnished or otherwise made available by the Bank to RP Financial; or (iii) any action or omission to act by the Bank, or the Banks respective officers, directors, employees or agents, which action or omission is undertaken in bad faith or is negligent. The Bank will be under no obligation to indemnify RP Financial hereunder if a court determines that RP Financial was negligent or acted in bad faith with respect to any actions or omissions of RP Financial related to a matter for which indemnification is sought hereunder. Reasonable time devoted by RP Financial to situations for which RP Financial is deemed entitled to indemnification hereunder, shall be an indemnifiable cost payable by the Bank at the normal hourly professional rate chargeable by such employee.
Notwithstanding anything in this agreement to the contrary, RP Financial shall notify the Bank immediately via telephone, to be followed up in writing, of any actual, suspected or threatened security incident involving confidential information, and shall cooperate fully in investigating and responding to each successful or attempted security breach. RP Financial will defend, indemnify and hold the Bank harmless from and against all third party claims, losses, damages and liabilities arising out of a security breach and shall pay for all costs associated with responding to such breach, including without limitation, all legal, forensic, public relations, consultancy and other expert fees incurred by Bank, the costs of any and all notifications that Bank sends to individuals whose information was affected by any incident, and the cost of an annual credit monitoring services subscription for all such individuals.
(b) RP Financial shall give written notice to the Bank of such claim or facts within thirty days of the assertion of any claim or discovery of material facts upon which RP Financial intends to base a claim for indemnification hereunder, including the name of counsel that RP Financial intends to engage in connection with any indemnification related matter. In the event the Bank elects, within seven days of the receipt of the original notice thereof, to contest such claim by written notice to RP Financial, the Bank shall not be obligated to make payments under Section 3(c), but RP Financial will be entitled to be paid any amounts payable by the Bank hereunder within five days after the final non-appealable determination of such contest either by written acknowledgement of the Bank or a decision of a court of competent jurisdiction or alternative adjudication forum, unless it is determined in accordance with Section 3(c) hereof that RP Financial is not entitled to indemnity hereunder. If the Bank does not so elect to contest a claim for indemnification by RP Financial hereunder, RP Financial shall (subject to the Banks receipt of the written statement and undertaking under Section 3(c) hereof) be paid promptly and in any event within thirty days after receipt by the Bank of detailed billing statements or invoices for which RP Financial is entitled to reimbursement under Section 3(c) hereof.
(c) Subject to the Banks right to contest under Section 3(b) hereof, the Bank shall pay for or reimburse the reasonable expenses, including reasonable attorneys fees, incurred by RP Financial in advance of the final disposition of any proceeding within thirty days of the receipt of such request if RP Financial furnishes the Bank: (1) a written statement of RP Financials good faith belief that it is entitled to indemnification hereunder; (2) a written
undertaking to repay the advance if it ultimately is determined in a final, non-appealable adjudication of such proceeding that it or he is not entitled to such indemnification; and (3) a detailed invoice of the expenses for which reimbursement is sought.
(d) In the event the Bank does not pay any indemnified loss or make advance reimbursements of expenses in accordance with the terms of this agreement, RP Financial shall have all remedies available at law or in equity to enforce such obligation.
This agreement constitutes the entire understanding of the Bank and RP Financial concerning the subject matter addressed herein, and such contract shall be governed and construed in accordance with the Commonwealth of Massachusetts. This agreement may not be modified, supplemented or amended except by written agreement executed by both parties.
The Bank and RP Financial are not affiliated, and neither the Bank nor RP Financial has an economic interest in, or is held in common with, the other and has not derived a significant portion of its gross revenues, receipts or net income for any period from transactions with the other. RP Financial represents and warrants that it is not aware of any fact or circumstance that would cause it not to be independent within the meaning of the conversion regulations of the federal banking agencies or otherwise prohibit or restrict in anyway RP Financial from serving in the role of independent appraiser for the Company.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as indicated below and returning to RP Financial a signed copy of this letter, together with the engagement fee of $10,000.
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Sincerely, |
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Ronald S. Riggins |
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President and Managing Director |
Agreed To and Accepted By: |
Joseph F. Casey |
/s/ Joseph F. Casey |
|
Executive Vice President and Chief Financial Officer & COO |
Upon Authorization by the Board of Directors For: |
HarborOne Bank |
|
|
|
Brockton, Massachusetts |
Date Executed: |
10/14/15 |
|
Exhibit 99.2
|
RP ® FINANCIAL, LC. |
|
Advisory | Planning | Valuation |
|
February 26, 2016
Board of Directors
HarborOne Mutual Bancshares
HarborOne Bancorp, Inc.
HarborOne Bank
770 Oak Street
Brockton, Massachusetts 02301
Re: Plan of Reorganization and Minority Stock Issuance
HarborOne Mutual Bancshares
HarborOne Bancorp, Inc.
HarborOne Bank
Members of the Board of Directors:
All capitalized terms not otherwise defined in this letter have the meanings given such terms in the Plan of Reorganization and Minority Stock Issuance (the Plan) adopted by the Board of Directors of HarborOne Bank, a Massachusetts cooperative bank in mutual form (the Bank). The Plan provides for the reorganization of the Bank into a mutual holding company form of organization with a mid-tier holding company, HarborOne Bancorp, Inc., a Massachusetts corporation (the Company), and the offer for sale a minority of the Companys common stock. Pursuant to the Plan, when the stock offering is completed purchasers in the stock and shares contributed to the Foundation will own up to 49.9% of the common stock and HarborOne Mutual Bancshares will own the remaining majority of the Companys outstanding shares of common stock.
We understand that in accordance with the Plan, subscription rights to purchase shares of common stock in the Company are to be issued to: (1) Eligible Account Holders; (2) Tax-Qualified Plans including the Banks employee stock ownership plan (the ESOP); and (3) Employees, Officers and Directors. Based solely upon our observation that the subscription rights will be available to such parties without cost, will be legally non-transferable and of short duration, and will afford such parties the right only to purchase shares of common stock at the same price as will be paid by members of the general public in the community, syndicated community of firm commitment underwritten offerings but without undertaking any independent investigation of state or federal law or the position of the Internal Revenue Service with respect to this issue, we are of the belief that, as an ascertainable factual matter:
(1) the subscription rights will have no market value; and,
(2) the price at which the subscription rights are exercisable will not be more or less than the pro forma market value of the shares upon issuance.
Changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially impact the value of thrift stocks as a whole or the Companys value alone. Accordingly, no assurance can be given that persons who subscribe to shares of common stock in the subscription offering will thereafter be able to buy or sell such shares at the same price paid in the subscription offering.
Sincerely,
RP Financial, LC.
Washington Headquarters |
|
Three Ballston Plaza |
Telephone: (703) 528-1700 |
1100 North Glebe Road, Suite 600 |
Fax No.: (703) 528-1788 |
Arlington, VA 22201 |
Toll-Free No.: (866) 723-0594 |
www.rpfinancial.com |
E-Mail: mail@rpfinancial.com |
Exhibit 99.3
February 5, 2016
Board of Directors
HarborOne Mutual Bancshares
HarborOne Bancorp, Inc.
HarborOne Bank
770 Oak Street
Brockton, Massachusetts 02301
Members of the Board of Directors:
At your request, we have completed and hereby provide an independent appraisal (Appraisal) of the estimated pro forma market value of the common stock which is to be issued in connection with the stock issuance transaction described below.
This Appraisal is furnished pursuant to the requirements stipulated in the Code of Federal Regulations and has been prepared in accordance with the Guidelines for Appraisal Reports for the Valuation of Savings and Loan Associations Converting from Mutual to Stock Form of Organization (the Valuation Guidelines) of the Office of Thrift Supervision (OTS) and accepted by the Federal Reserve Board (FRB), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Massachusetts Commissioner of Banks (the Commissioner), and applicable regulatory interpretations thereof.
Description of Plan of Reorganization and Minority Stock Issuance
On January 27, 2016, the Board of Directors of HarborOne Bank adopted the Plan of Reorganization and Minority Stock Issuance (the Reorganization). Pursuant to the Reorganization, HarborOne Bank will be a co-operative bank in stock form and its capital stock will be owned by HarborOne Bancorp, Inc. (HarborOne Bancorp or the Company), a Massachusetts corporation formed in 2016 as part of the Reorganization. HarborOne Bancorp will issue a majority of its common stock to HarborOne Mutual Bancshares (the MHC), a Massachusetts mutual holding company formed in 2016 as part of the Reorganization, and sell a minority of its common stock to the public. Concurrent with the completion of the public stock offering, the Bank will receive at least 50.0% of the net stock proceeds and the balance will be retained by HarborOne Bancorp. The MHC will own a controlling interest in the Company of at least 51%, and the Company will be the sole subsidiary of the MHC.
HarborOne Bancorp will offer its common stock in a subscription offering to Eligible Account Holders, Tax-Qualified Plans including HarborOne Banks employee stock ownership plan (the ESOP), and Employees, Officers and Directors of the Bank, as such terms are defined in the Banks Reorganization for purposes of applicable federal regulatory
Washington Headquarters |
|
Three Ballston Plaza |
Telephone: (703) 528-1700 |
1100 North Glebe Road, Suite 600 |
Fax No.: (703) 528-1788 |
Arlington, VA 22201 |
Toll-Free No.: (866) 723-0594 |
www.rpfinancial.com |
E-Mail: mail@rpfinancial.com |
guidelines governing stock offerings by mutual institutions. To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, the shares may be offered for sale to members of the general public in a community offering and a syndicated community offering or a firm commitment underwritten offering. A portion of the net proceeds received from the sale of the common stock will be used to purchase all of the then to be issued and outstanding capital stock of HarborOne Bank and the balance of the net proceeds will be retained by the Company.
At this time, no other activities are contemplated for the Company other than the ownership of HarborOne Bank, a loan to the newly-formed ESOP and reinvestment of the proceeds that are retained by the Company. In the future, HarborOne Bancorp may acquire or organize other operating subsidiaries, diversify into other banking-related activities, pay dividends or repurchase its stock, although there are no specific plans to undertake such activities at the present time.
The Reorganization provides for the establishment of a new charitable foundation (the Foundation). The Foundation contribution will be funded with 1.2% of the number of shares of common stock issued in the stock issuance and cash equal to 0.3% of the Companys pro forma market value. The purpose of the Foundation is to provide financial support to charitable organizations in the communities in which HarborOne Bank operates and to enable those communities to share in the Banks long-term growth. The Foundation will be dedicated completely to community activities and the promotion of charitable causes.
RP ® Financial, LC.
RP ® Financial, LC. (RP Financial) is a financial consulting firm serving the financial services industry nationwide that, among other things, specializes in financial valuations and analyses of business enterprises and securities, including the pro forma valuation for savings institutions converting from mutual-to-stock form. The background and experience of RP Financial is detailed in Exhibit V-1. We believe that, except for the fee we will receive for the Appraisal, we are independent of the Company, the Bank, the MHC and the other parties engaged by the Bank, the Company or the MHC to assist in the stock conversion process.
Valuation Methodology
In preparing our Appraisal, we have reviewed the regulatory applications of the Company, the Bank and the MHC, including the prospectus as filed with the FDIC, the Commissioner and the Securities and Exchange Commission (SEC). We have conducted a financial analysis of the Company, the Bank and the MHC that has included a review of audited financial information for the years ended December 31, 2011 through December 31, 2015, a review of various unaudited information and internal financial reports through December 31, 2015, and due diligence related discussions with the Banks management; Wolf & Company, P.C., the Companys independent auditor; Goodwin Procter LLP, the Banks counsel for the Reorganization and Sandler ONeill & Partners, L.P., the Banks marketing advisor in connection with the stock offering. All assumptions and conclusions set forth in the Appraisal were reached independently from such discussions. In addition, where appropriate, we have considered information based on other available published sources that we believe are reliable. While we
believe the information and data gathered from all these sources are reliable, we cannot guarantee the accuracy and completeness of such information.
We have investigated the competitive environment within which HarborOne Bank operates and have assessed HarborOne Banks relative strengths and weaknesses. We have kept abreast of the changing regulatory and legislative environment for financial institutions and analyzed the potential impact on HarborOne Bank and the industry as a whole. We have analyzed the potential effects of the stock offering on HarborOne Banks operating characteristics and financial performance as they relate to the pro forma market value of HarborOne Bancorp. We have reviewed the economic and demographic characteristics of the Banks primary market area. We have compared HarborOne Banks financial performance and condition with selected publicly-traded thrifts in accordance with the Valuation Guidelines, as well as all publicly-traded thrifts and thrift holding companies. We have reviewed the current conditions in the securities markets in general and the market for thrift stocks in particular, including the market for existing thrift issues and initial public offerings by thrifts and thrift holding companies. We have excluded from such analyses thrifts subject to announced or rumored acquisition, and/or institutions that exhibit other unusual characteristics.
The Appraisal is based on HarborOne Banks representation that the information contained in the regulatory applications and additional information furnished to us by HarborOne Bank and its independent auditor, legal counsel and other authorized agents are truthful, accurate and complete. We did not independently verify the financial statements and other information provided by HarborOne Bank, or its independent auditor, legal counsel and other authorized agents nor did we independently value the assets or liabilities of HarborOne Bank. The valuation considers HarborOne Bank only as a going concern and should not be considered as an indication of HarborOne Banks liquidation value.
Our appraised value is predicated on a continuation of the current operating environment for HarborOne Bank and for all thrifts and their holding companies. Changes in the local, state and national economy, the legislative and regulatory environment for financial institutions and mutual holding companies, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially impact the value of thrift stocks as a whole or the value of HarborOne Banks stock alone. It is our understanding that there are no current plans for selling control of HarborOne Bank following completion of the stock offering. To the extent that such factors can be foreseen, they have been factored into our analysis.
The estimated pro forma market value is defined as the price at which HarborOne Bancorps common stock, immediately upon completion of the stock offering, would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.
Valuation Conclusion
It is our opinion that, as of February 5, 2016, the estimated aggregate pro forma market value of the shares to be issued immediately following the offering, both shares issued publicly as well as to the MHC, was $227,700,000 at the midpoint, equal to 22,700,000 shares issued at a per share value of $10.00. Pursuant to conversion guidelines, the 15% offering range
indicates a minimum value of $193,545,000 and a maximum value of $261,855,000. Based on the $10.00 per share offering price determined by the Board, this valuation range equates to total shares outstanding of 19,354,500 shares at the minimum of the valuation range and 26,185,500 total shares outstanding at the maximum of the valuation range. In the event that the appraised value is subject to an increase, the aggregate pro forma market value may be increased up to a super maximum value of $301,133,250 without a resolicitation. Based on the $10.00 per share offering price, the super maximum value would result in total shares outstanding of 30,113,325. The Board of Directors has established a public offering range such that the public ownership of the Company will constitute a 45.0% ownership interest of the Company prior to the issuance of the shares to the Foundation. Accordingly, the offering range to the public of the minority stock will be $87,095,250 at the minimum, $102,465,000 at the midpoint, $117,834,750 at the maximum and $135,509,960 at the super maximum. Based on the public offering range, and inclusive of the shares issued to the Foundation, the public ownership of the shares will represent 46.2% of the shares issued, with the MHC owning the majority of the shares.
Limiting Factors and Considerations
The valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing shares of the common stock. Moreover, because such valuation is determined in accordance with applicable regulatory guidelines and is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of common stock in the stock offering will thereafter be able to buy or sell such shares at prices related to the foregoing valuation of the estimated pro forma market value thereof. The appraisal reflects only a valuation range as of this date for the pro forma market value of HarborOne Bancorp immediately upon issuance of the stock and does not take into account any trading activity with respect to the purchase and sale of common stock in the secondary market on the date of issuance of such securities or at anytime thereafter following the completion of the stock offering.
RP Financials valuation was based on the financial condition and operations of HarborOne Bank as of December 31, 2015, the date of the financial data included in the prospectus.
RP Financial is not a seller of securities within the meaning of any federal and state securities laws and any report prepared by RP Financial shall not be used as an offer or solicitation with respect to the purchase or sale of any securities. RP Financial maintains a policy which prohibits RP Financial, its principals or employees from purchasing stock of its client institutions.
This valuation will be updated as provided for in the conversion regulations and guidelines. These updates will consider, among other things, any developments or changes in the financial performance and condition of HarborOne Bank, management policies, and current conditions in the equity markets for thrift shares, both existing issues and new issues. These updates may also consider changes in other external factors which impact value including, but not limited to: various changes in the legislative and regulatory environment for financial institutions, the stock market and the market for thrift stocks, and interest rates. Should any
such new developments or changes be material, in our opinion, to the valuation of the shares, appropriate adjustments to the estimated pro forma market value will be made. The reasons for any such adjustments will be explained in the update at the date of the release of the update. The valuation will also be updated at the completion of HarborOne Bancorps stock offering.
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Respectfully submitted, |
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RP ® FINANCIAL, LC. |
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/s/ Ronald S. Riggins |
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Ronald S. Riggins |
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Managing Director |
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/s/ Gregory E. Dunn |
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Gregory E. Dunn |
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Director |
RP ® Financial, LC.
TABLE OF CONTENTS
HARBORONE BANCORP, INC.
HARBORONE BANK
Brockton, Massachusetts
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PAGE |
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DESCRIPTION |
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NUMBER |
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CHAPTER ONE |
OVERVIEW AND FINANCIAL ANALYSIS |
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Introduction |
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I.1 |
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Plan of Reorganization and Minority Stock Issuance |
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I.1 |
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Strategic Overview |
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I.2 |
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Balance Sheet Trends |
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I.5 |
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Income and Expense Trends |
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I.8 |
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Interest Rate Risk Management |
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I.11 |
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Lending Activities and Strategy |
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I.12 |
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Asset Quality |
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I.15 |
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Funding Composition and Strategy |
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I.16 |
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Subsidiary Activities |
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1.17 |
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Legal Proceedings |
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I.17 |
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CHAPTER TWO |
MARKET AREA |
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Introduction |
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II.1 |
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National Economic Factors |
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II.1 |
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Market Area Demographics |
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II.5 |
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Regional Economy |
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II.7 |
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Unemployment Trends |
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II.8 |
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Market Area Deposit Characteristics and Competition |
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II.9 |
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CHAPTER THREE |
PEER GROUP ANALYSIS |
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Peer Group Selection |
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III.1 |
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Financial Condition |
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III.5 |
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Income and Expense Components |
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III.8 |
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Loan Composition |
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III.11 |
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Interest Rate Risk |
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III.11 |
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Credit Risk |
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III.14 |
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Summary |
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III.14 |
TABLE OF CONTENTS
HARBORONE BANCORP, INC.
HARBORONE BANK
Brockton, Massachusetts
(continued)
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PAGE |
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DESCRIPTION |
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NUMBER |
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CHAPTER FOUR |
VALUATION ANALYSIS |
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Introduction |
IV.1 |
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Appraisal Guidelines |
IV.1 |
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RP Financial Approach to the Valuation |
IV.1 |
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Valuation Analysis |
IV.2 |
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1. |
Financial Condition |
IV.3 |
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2. |
Profitability, Growth and Viability of Earnings |
IV.4 |
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3. |
Asset Growth |
IV.6 |
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4. |
Primary Market Area |
IV.6 |
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5. |
Dividends |
IV.8 |
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6. |
Liquidity of the Shares |
IV.8 |
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7. |
Marketing of the Issue |
IV.9 |
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A. |
The Public Market |
IV.9 |
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B. |
The New Issue Market |
IV.13 |
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C. |
The Acquisition Market |
IV.14 |
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8. |
Management |
IV.17 |
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9. |
Effect of Government Regulation and Regulatory Reform |
IV.18 |
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Summary of Adjustments |
IV.18 |
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Valuation Approaches: Fully-Converted Basis |
IV.18 |
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Basis of Valuation- Fully-Converted Pricing Ratios |
IV.20 |
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1. |
Price-to-Earnings (P/E) |
IV.20 |
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2. |
Price-to-Book (P/B) |
IV.22 |
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3. |
Price-to-Assets (P/A) |
IV.24 |
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Comparison to Publicly-Traded MHCs |
IV.25 |
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Comparison to Recent Offerings and Publicly-Traded Mortgage Banking Companies |
IV.29 |
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Valuation Conclusion |
IV.29 |
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LIST OF TABLES
HARBORONE BANCORP, INC.
HARBORONE BANK
Brockton, Massachusetts
TABLE |
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NUMBER |
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DESCRIPTION |
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PAGE |
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1.1 |
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Historical Balance Sheet Data |
I.6 |
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1.2 |
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Historical Income Statements |
I.9 |
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2.1 |
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Summary Demographic Data |
II.6 |
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2.2 |
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Primary Market Area Employment Sectors |
II.7 |
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2.3 |
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Boston Market Area Largest Employers |
II.8 |
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2.4 |
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Unemployment Trends |
II.9 |
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2.5 |
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Deposit Summary |
II.10 |
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2.6 |
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Market Area Deposit Competitors |
II.11 |
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||
3.1 |
|
Peer Group of Publicly-Traded Thrifts |
III.3 |
||
3.2 |
|
Balance Sheet Composition and Growth Rates |
III.6 |
||
3.3 |
|
Income as a Pct. of Avg. Assets and Yields, Costs, Spreads |
III.9 |
||
3.4 |
|
Loan Portfolio Composition and Related Information |
III.12 |
||
3.5 |
|
Interest Rate Risk Measures and Net Interest Income Volatility |
III.13 |
||
3.6
|
|
Credit Risk Measures and Related Information |
III.15
|
||
4.1 |
|
Market Area Unemployment Rates |
IV.7 |
||
4.2 |
|
Pricing Characteristics and After-Market Trends |
IV.15 |
||
4.3 |
|
Market Pricing Comparatives |
IV.16 |
||
4.4 |
|
Fully-Converted Market Pricing Versus Peer Group |
IV.21 |
||
4.5 |
|
MHC Market Pricing Versus Peer Group |
IV.23 |
||
4.6 |
|
Calculation of Implied Per Share Data- Incorporating MHC Second Step Conversion |
IV.26 |
||
4.7 |
|
MHC Institutions Implied Pricing Ratios, Full Conversion Basis |
IV.28 |
||
I. OVERVIEW AND FINANCIAL ANALYSIS
Introduction
HarborOne Bank or the Bank is a Massachusetts chartered co-operative bank headquartered in Brockton, Massachusetts. The Bank was established in 1917 as Brockton Credit Union and converted to a Massachusetts co-operative bank in 2013. HarborOne Bank serves the Boston metropolitan area through 14 full service branch offices, two limited service branches and 13 free standing ATMs. The Bank also maintains an ATM at every full service branch and a commercial loan office in Providence, Rhode Island. Additionally, through its wholly-owned subsidiary Merrimack Mortgage Company, Inc. or Merrimack Mortgage, the Bank conducts mortgage banking operations through 34 offices in Massachusetts, New Hampshire, Connecticut and Maine. Harbor One Bank acquired Merrimack Mortgage on July 1, 2015. A map of HarborOne Banks full serve branch office locations is provided in Exhibit I-1. HarborOne Bank is a member of the Federal Home Loan Bank (FHLB) system and its deposits are insured up to the maximum allowable amount by the Federal Deposit Insurance Corporation (FDIC). As of December 31, 2015, HarborOne Bank had total assets of $2.2 billion, total deposits of $1.7 billion and total equity of $190.7 million equal to 8.82% of total assets. The Banks audited financial statements are included by reference as Exhibit I-2.
Plan of Reorganization and Minority Stock Issuance
On January 27, 2016, the Board of Directors of HarborOne Bank adopted the Plan of Reorganization and Minority Stock Issuance (the Reorganization). Pursuant to the Reorganization, HarborOne Bank will be a co-operative bank in stock form and its capital stock will be owned by HarborOne Bancorp, Inc. (HarborOne Bancorp or the Company), a Massachusetts corporation formed in 2016 as part of the Reorganization. HarborOne Bancorp will issue a majority of its common stock to HarborOne Mutual Bancshares (the MHC), a Massachusetts mutual holding company formed in 2016 as part of the Reorganization, and sell a minority of its common stock to the public. Concurrent with the completion of the public stock offering, the Bank will receive at least 50% of the net stock proceeds and the balance will be retained by HarborOne Bancorp. The MHC will own a controlling interest in the Company of at least 51%, and the Company will be the sole subsidiary of the MHC.
HarborOne Bancorp will offer its common stock in a subscription offering to Eligible Account Holders, Tax-Qualified Plans including HarborOne Banks employee stock ownership plan (the ESOP), and Employees, Officers and Directors of the Bank, as such terms are defined in the Banks Reorganization for purposes of applicable federal regulatory guidelines governing stock offerings by mutual institutions. To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, the shares may be offered for sale to members of the general public in a community offering and a syndicated community offering or a firm commitment underwritten offering. A portion of the net proceeds received from the sale of the common stock will be used to purchase all of the then to be issued and outstanding capital stock of HarborOne Bank and the balance of the net proceeds will be retained by the Company.
At this time, no other activities are contemplated for the Company other than the ownership of the Bank, funding a loan to the newly-formed ESOP and reinvestment of the proceeds that are retained by the Company. In the future, HarborOne Bancorp may acquire or organize other operating subsidiaries, diversify into other banking-related activities, pay dividends or repurchase its stock, although there are no specific plans to undertake such activities at the present time.
The Reorganization provides for the establishment of a new charitable foundation (the Foundation). The Foundation contribution will be funded with 1.2% of the number of shares of common stock issued in the stock issuance and cash equal to 0.3% of the Companys pro forma market value at the close of the offering. The purpose of the Foundation is to provide financial support to charitable organizations in the communities in which HarborOne Bank operates and to enable those communities to share in the Banks long-term growth. The Foundation will be dedicated completely to community activities and the promotion of charitable causes.
Strategic Overview
HarborOne Bank maintains a local community banking emphasis, with a primary strategic objective of meeting the borrowing and savings needs of its local customer base. Historically, as a credit union, the Banks lending activities were concentrated in origination of 1-4 family permanent mortgage loans and consumer loans that emphasized the origination of indirect auto loans and leases. Pursuant to HarborOne Banks conversion to co-operative bank, the Bank embarked on a new strategic direction designed to build a full service community banking franchise. In connection with the implementation of a full service community banking
strategy, the Bank invested in infrastructure and personnel to manage and facilitate growth strategies. Most notably, in support of implementation of a diversified lending strategy, the Bank has been building a team of commercial lenders experienced in developing full service commercial banking relationships in the local market. In 2014 and 2015, the Bank has started to realize some leveraging of its strategic investments, as evidenced by an acceleration of commercial loan growth. The Banks objective is to fund asset growth primarily through deposit growth, emphasizing growth of lower cost core deposits. Core deposit growth is expected to be in part facilitated by growth of commercial lending relationships, pursuant to which the Bank is seeking to establish a full service banking relationship with its commercial loan customers through offering a full range of commercial loan products that can be packaged with lower cost commercial deposit products.
In July 2015, the Bank acquired Merrimack Mortgage, an independent residential mortgage company headquartered in Manchester, New Hampshire. While the acquisition of Merrimack Mortgage had a relatively small impact on the Banks balance sheet, it has had a significant impact on the Banks earnings with respect to increasing non-interest operating revenues and operating expenses. Total non-interest income increased from $15.6 million during 2014 to $35.4 million during 2015 and operating expenses increased from $54.3 million during 2014 to $78.0 million during 2015, in which 2015 earnings includes only six months of Merrimack Mortgages revenues and operating expenses.
Investments serve as a supplement to the Banks lending activities and the investment portfolio is considered to be indicative of a low risk investment philosophy. Mortgage-backed securities guaranteed by government sponsored enterprises (GSEs) constitute the largest portion of the Banks investment portfolio, with other investments consisting of municipal bonds, U.S. Government and GSE obligations and Small Business Administration (SBA) asset-backed securities.
Deposits have consistently served as the primary funding source for the Bank, with supplemental funding provided by utilization of borrowings as an alternative funding source for purposes of managing funding costs and interest rate risk. Borrowings currently held by the Bank consist of FHLB advances.
HarborOne Banks earnings base is largely dependent upon net interest income and operating expense levels. The Bank experienced some net interest margin compression from 2011 through 2013, which was the result of a more significant decline in interest-earning assets
yields relative to interest-bearing funding costs. Comparatively, the Banks net interest margin has increased during the past two years, as commercial loan growth has facilitated a higher yield on interest-earning assets and the Banks funding costs have continued to trend lower.
Pursuant to the Banks acquisition of Merrimack Mortgage, non-interest operating income and operating expenses have become more significant earnings factors and, in light of the largely offbalance sheet operations of Merrimack Mortgage, non-interest operating income and operating expenses have increased significantly as a percent of average assets.
The post-offering business plan of the Bank is expected to continue to focus on implementing strategic initiatives to develop and grow a full service community banking franchise. Accordingly, HarborOne Bank will continue to be an independent full service community bank, with a commitment to meeting the retail and commercial banking needs of individuals and businesses in the Boston metropolitan area and nearby regional markets that are served by the Banks commercial loan office in Providence, Rhode Island and the offices maintained by Merrimack Mortgage in the states of Massachusetts, New Hampshire, Connecticut and Maine.
The Banks Board of Directors has elected to complete a public stock offering to sustain growth strategies and facilitate implementation of its strategic plan. The capital realized from the stock offering will increase the Banks operating flexibility and allow for additional growth of the balance sheet. The additional funds realized from the stock offering will provide an alternative funding source to deposits and borrowings in meeting the Banks future funding needs, which may facilitate a reduction in HarborOne Banks funding costs. Additionally, HarborOne Banks higher equity-to-assets ratio will enable the Bank to pursue expansion opportunities. Such expansion would most likely occur through the establishment of additional branches and opening additional offices maintained by Merrimack Mortgage. The Bank will also be in a better position to pursue growth through acquisition of other financial service providers following the stock offering, given its strengthened capital position. At this time, the Bank has no specific plans for expansion. The projected uses of proceeds are highlighted below.
· The Company. The Company is expected to retain up to 50% of the net offering proceeds. At present, funds at the Company level, net of the loan to the ESOP and the cash contribution to the Foundation, are expected to be primarily invested initially into liquid funds held as a deposit at the Bank. Over time, the funds may be utilized for various corporate purposes, possibly including acquisitions, infusing additional equity into the Bank, repurchases of common stock and the payment of cash dividends.
· The Bank. Approximately 50% of the net conversion proceeds will be infused into the Bank. Cash proceeds (i.e., net proceeds less deposits withdrawn to fund stock purchases) infused into the Bank are anticipated to become part of general operating funds and are expected to be primarily utilized to fund loan growth over time.
Overall, it is the Banks objective to pursue controlled growth that will serve to increase returns, while continuing to emphasize management of the overall risk associated with HarborOne Banks operations.
Balance Sheet Trends
Table 1.1 shows the Banks historical balance sheet data for the past five years. From yearend 2011 through yearend 2015, HarborOne Banks assets increased at a 3.71% annual rate. Asset growth was largely driven by loan growth and supplemented with growth of investment securities. Asset growth was funded by deposit growth, which funded a reduction in borrowings as well. A summary of HarborOne Banks key operating ratios for the past five years is presented in Exhibit I-3.
HarborOne Banks loans receivable portfolio increased at a 3.10% annual rate from yearend 2011 through yearend 2015, in which the loans receivable balance declined during 2012 and then trended higher through 2015. The most significant loan growth was realized during the past two years, which was primarily attributable to growth of commercial real estate loans and commercial business loans. The Banks slightly lower loan growth rate compared to its asset growth rate provided for a slight decrease in the loans-to-assets ratio from 81.86% at yearend 2011 to 79.95% at yearend 2015.
HarborOne Banks emphasis on growing commercial loans is evidenced by recent trends in its loan portfolio composition. Trends in the Banks loan portfolio composition since yearend 2011 show that the concentration of 1-4 family mortgage loans comprising total loans decreased from 50.59% of total loans receivable at yearend 2011 to 41.07% of total loans receivable at yearend 2015. Similarly, consumer loans decreased from 37.76% of total loans receivable at yearend 2011 to 31.71% of total loans receivable at yearend 2015. Comparatively, from yearend 2011 through yearend 2015, commercial real estate loans (including multi-family loans) increased from 1.73% of total loans receivable to 15.34% of total loans receivable and commercial business loans increased from 1.01% of total loans receivable to 4.07% of total loans receivable. Over the same time period, the relative concentrations of construction increased from 0.90% of total loans receivable to 2.07% of total loans and home
Table 1.1
HarborOne Bank
Historical Balance Sheet Data
|
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12/31/11- |
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12/31/15 |
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At December 31, |
|
Annual. |
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|||||||||||||||||||||||
|
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2011 |
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
Growth Rate |
|
|||||||||||||||
Total Amount of: |
|
Amount |
|
Pct(1) |
|
Amount |
|
Pct(1) |
|
Amount |
|
Pct(1) |
|
Amount |
|
Pct(1) |
|
Amount |
|
Pct(1) |
|
Pct |
|
|||||
|
|
($000) |
|
(%) |
|
($000) |
|
(%) |
|
($000) |
|
(%) |
|
($000) |
|
(%) |
|
($000) |
|
(%) |
|
(%) |
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|||||
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Assets |
|
$ |
1,869,920 |
|
100.00 |
% |
$ |
1,871,335 |
|
100.00 |
% |
$ |
1,957,671 |
|
100.00 |
% |
$ |
2,041,879 |
|
100.00 |
% |
$ |
2,163,142 |
|
100.00 |
% |
3.71 |
% |
Cash and cash equivalents |
|
76,296 |
|
4.08 |
% |
108,196 |
|
5.78 |
% |
75,342 |
|
3.85 |
% |
52,983 |
|
2.59 |
% |
40,652 |
|
1.88 |
% |
-14.56 |
% |
|||||
Investment securities |
|
155,328 |
|
8.31 |
% |
130,754 |
|
6.99 |
% |
192,695 |
|
9.84 |
% |
206,399 |
|
10.11 |
% |
192,120 |
|
8.88 |
% |
5.46 |
% |
|||||
Loans held for sale |
|
2,930 |
|
0.16 |
% |
11,497 |
|
0.61 |
% |
2,061 |
|
0.11 |
% |
3,525 |
|
0.17 |
% |
63,797 |
|
2.95 |
% |
116.01 |
% |
|||||
Loans receivable, net |
|
1,530,668 |
|
81.86 |
% |
1,518,021 |
|
81.12 |
% |
1,591,814 |
|
81.31 |
% |
1,651,894 |
|
80.90 |
% |
1,729,388 |
|
79.95 |
% |
3.10 |
% |
|||||
FHLB stock |
|
23,419 |
|
1.25 |
% |
22,904 |
|
1.22 |
% |
22,129 |
|
1.13 |
% |
18,631 |
|
0.91 |
% |
18,735 |
|
0.87 |
% |
-5.43 |
% |
|||||
Bank-owned life insurance |
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
35,378 |
|
1.73 |
% |
38,333 |
|
1.77 |
% |
NM |
|
|||||
Goodwill and other intangible assets |
|
3,879 |
|
0.21 |
% |
3,694 |
|
0.20 |
% |
3,509 |
|
0.18 |
% |
3,324 |
|
0.16 |
% |
13,674 |
|
0.63 |
% |
37.02 |
% |
|||||
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|
|
|
|
|
|||||
Deposits |
|
$ |
1,330,516 |
|
71.15 |
% |
$ |
1,328,720 |
|
71.00 |
% |
$ |
1,414,960 |
|
72.28 |
% |
$ |
1,500,115 |
|
73.47 |
% |
$ |
1,691,212 |
|
78.18 |
% |
6.18 |
% |
Borrowings |
|
351,112 |
|
18.78 |
% |
344,609 |
|
18.42 |
% |
339,606 |
|
17.35 |
% |
329,602 |
|
16.14 |
% |
249,598 |
|
11.54 |
% |
-8.18 |
% |
|||||
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|
|||||
Equity |
|
$ |
167,751 |
|
8.97 |
% |
$ |
175,896 |
|
9.40 |
% |
$ |
180,803 |
|
9.24 |
% |
$ |
183,458 |
|
8.98 |
% |
$ |
190,688 |
|
8.82 |
% |
3.26 |
% |
Tangible equity |
|
163,872 |
|
8.76 |
% |
172,202 |
|
9.20 |
% |
177,294 |
|
9.06 |
% |
180,134 |
|
8.82 |
% |
177,014 |
|
8.18 |
% |
1.95 |
% |
|||||
|
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|
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|
|
|
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|
|||||
Loans/Deposits |
|
|
|
115.04 |
% |
|
|
114.25 |
% |
|
|
112.50 |
% |
|
|
110.12 |
% |
|
|
102.26 |
% |
|
|
(1) Ratios are as a percent of ending assets.
Sources: HarborOne Banks prospectus, audited and unaudited financial statements, SNL Financial and RP Financial calculations.
equity loans and lines of credit decreased from 8.01% of total loans receivable to 5.74% of total loans receivable. Additionally, loans held for sale, which currently consist of Merrimack Mortgages loan production, fluctuated from a low of $2.1 million or 0.11% of assets at yearend 2013 to a high of $63.8 million or 2.95% of assets at yearend 2015.
The intent of the Banks investment policy is to provide adequate liquidity and to generate a favorable return within the context of supporting HarborOne Banks overall credit and interest rate risk objectives. It is anticipated that proceeds retained at the holding company level will be invested into liquid funds held as a deposit at the Bank. Since yearend 2011, the Banks level of cash and investment securities (inclusive of FHLB stock) ranged from a low of 11.63% of assets at yearend 2015 to a high of 14.82% of assets at yearend 2013. The decrease in the balance of cash and investments since yearend 2013 was largely related to redeployment of those funds for purposes of funding loan growth. Mortgage-backed securities totaling $120.7 million comprised the most significant component of the Banks investment portfolio at December 31, 2015. Other investments held by the Bank at December 31, 2015 consisted of municipal bonds ($26.0 million), SBA asset-backed securities ($30.5 million) and U.S. Government and GSE obligations ($14.9 million). As of December 31, 2015, investments maintained as held to maturity totaled $63.6 million and investments maintained as available-for sale totaled $128.5 million. As of December 31, 2015, the available for sale investment portfolioand had a net unrealized gain of $212,000. Exhibit I-4 provides historical detail of the Banks investment portfolio. As of December 31, 2015, the Bank also held $40.7 million of cash and cash equivalents and $18.7 million of FHLB stock.
The Bank also maintains an investment in bank-owned life insurance (BOLI) policies, which cover the lives of certain officers of the Bank. The purpose of the investment is to provide funding for employee benefit plans. The life insurance policies earn tax-exempt income through cash value accumulation and death proceeds. As of December 31, 2015, the cash surrender value of the Banks BOLI equaled $38.3 million.
Since yearend 20 11, HarborOne Banks funding needs have been addressed through a combination of deposits, borrowings and internal cash flows. From yearend 2011 through yearend 2015, the Banks deposits increased at a 6.18% annual rate. Following a slight decline in deposits during 2012, deposit growth was sustained through yearend 2015. Deposit growth trends in recent years reflect that deposit growth primarily consisted of transaction and savings
account deposits. Transaction and savings account deposits comprised 69.57%% of average total deposits during 2015, versus 60.54% of average total deposits during 2013.
Borrowings serve as an alternative funding source for the Bank to address funding needs for growth and to support management of deposit costs and interest rate risk. From yearend 2011 through yearend 2015, borrowings decreased from $351.1 million or 18.78% of assets to $249.6 million or 11.54% of assets. Borrowing utilized by the Bank have generally been limited to FHLB advances.
The Banks equity increased at a 3.25% annual rate from yearend 2011 through yearend 2015, which was largely related to retention of earnings. A slightly stronger rate of asset growth relative to equity growth since yearend 2011 provided for a slight decline in the Banks equity-to-assets ratio from 8.97% at yearend 2011 to 8.82% at yearend 2015. Similarly, the Banks tangible equity-to-assets ratio decreased from 8.76% at yearend 2011 to 8.18% at yearend 2015. Goodwill and other intangibles totaled $13.9 million or 0.64% of assets at December 31, 2015. The Bank maintained capital surpluses relative to all of its regulatory capital requirements at December 31, 2015. The addition of stock proceeds will serve to strengthen the Banks capital position, as well as support growth opportunities. At the same time, the increase in HarborOne Banks pro forma capital position will initially depress its ROE.
Income and Expense Trends
Table 1.2 shows the Banks historical income statements for the past five years. The Banks reported earnings ranged from a low of $2.6 million or 0.13% of average assets during 2014 to a high of $8.7 million or 0.46% of average assets during 2012. The higher earnings reported by the Bank during 2011 and 2012 was in part attributable to that as a credit union the Bank did not pay federal and state income taxes. For 2015, the Bank reported net income of $5.8 million or 0.27% of average assets. Net interest income and operating expenses represent the primary components of the Banks recurring earnings, while non-operating income has become a more significant factor in the Banks earnings largely due to revenues generated by Merrimack Mortgage. Loan loss provisions have had a varied impact on the Banks earnings over the past five years, while non-operating gains have been a limited contributor to the Banks earnings over the past five years.
During the period covered in Table 1.2, the Banks net interest income to average assets ratio ranged from a low of 2.28% during 2014 to a high of 2.56% during 2011. For 2015, the
Table 1.2
HarborOne Bank
Historical Income Statements
|
|
For the Year Ended December 31, |
|
|||||||||||||||||||||||
|
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
|||||||||||||||
|
|
Amount |
|
Pct(1) |
|
Amount |
|
Pct(1) |
|
Amount |
|
Pct(1) |
|
Amount |
|
Pct(1) |
|
Amount |
|
Pct(1) |
|
|||||
|
|
($000) |
|
(%) |
|
($000) |
|
(%) |
|
($000) |
|
(%) |
|
($000) |
|
(%) |
|
($000) |
|
(%) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest income |
|
$ |
71,545 |
|
3.88 |
% |
$ |
66,702 |
|
3.52 |
% |
$ |
59,973 |
|
3.19 |
% |
$ |
61,079 |
|
3.08 |
% |
$ |
66,800 |
|
3.15 |
% |
Interest expense |
|
(24,273 |
) |
-1.32 |
% |
(20,311 |
) |
-1.07 |
% |
(16,381 |
) |
-0.87 |
% |
(15,878 |
) |
-0.80 |
% |
(14,575 |
) |
-0.69 |
% |
|||||
Net interest income |
|
$ |
47,272 |
|
2.56 |
% |
$ |
46,391 |
|
2.45 |
% |
$ |
43,592 |
|
2.32 |
% |
$ |
45,201 |
|
2.28 |
% |
$ |
52,225 |
|
2.46 |
% |
Provision for loan losses |
|
(4,024 |
) |
-0.22 |
% |
(3,839 |
) |
-0.20 |
% |
(2,235 |
) |
-0.12 |
% |
(2,589 |
) |
-0.13 |
% |
(1,257 |
) |
-0.06 |
% |
|||||
Net interest income after provisions |
|
$ |
43,248 |
|
2.34 |
% |
$ |
42,552 |
|
2.25 |
% |
$ |
41,357 |
|
2.20 |
% |
$ |
42,612 |
|
2.15 |
% |
$ |
50,968 |
|
2.40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Mortgage banking income/Gain on sale of loans |
|
$ |
1,296 |
|
0.07 |
% |
$ |
7,844 |
|
0.41 |
% |
$ |
1,617 |
|
0.09 |
% |
$ |
1,912 |
|
0.10 |
% |
$ |
20,228 |
|
0.95 |
% |
Other non-interest operating income |
|
13,540 |
|
0.73 |
% |
13,017 |
|
0.69 |
% |
13,837 |
|
0.74 |
% |
13,215 |
|
0.67 |
% |
14,850 |
|
0.70 |
% |
|||||
Operating expense |
|
(51,433 |
) |
-2.79 |
% |
(54,900 |
) |
-2.90 |
% |
(53,370 |
) |
-2.83 |
% |
(54,302 |
) |
-2.73 |
% |
(78,014 |
) |
-3.68 |
% |
|||||
Net operating income |
|
$ |
6,651 |
|
0.36 |
% |
$ |
8,513 |
|
0.45 |
% |
$ |
3,441 |
|
0.18 |
% |
$ |
3,437 |
|
0.17 |
% |
$ |
8,032 |
|
0.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Non-Operating Income/(Losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gain (loss) on sale and call of securities, net |
|
$ |
360 |
|
0.02 |
% |
$ |
204 |
|
0.01 |
% |
$ |
794 |
|
0.04 |
% |
$ |
483 |
|
0.02 |
% |
$ |
295 |
|
0.01 |
% |
Net non-operating income(loss) |
|
$ |
360 |
|
0.02 |
% |
$ |
204 |
|
0.01 |
% |
$ |
794 |
|
0.04 |
% |
$ |
483 |
|
0.02 |
% |
$ |
295 |
|
0.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income before tax |
|
$ |
7,011 |
|
0.38 |
% |
$ |
8,717 |
|
0.46 |
% |
$ |
4,235 |
|
0.22 |
% |
$ |
3,920 |
|
0.20 |
% |
$ |
8,327 |
|
0.39 |
% |
Income tax provision |
|
0 |
|
0.00 |
% |
|
|
0.00 |
% |
2,909 |
|
0.15 |
% |
(1,350 |
) |
-0.07 |
% |
(2,559 |
) |
-0.12 |
% |
|||||
Net income (loss) |
|
$ |
7,011 |
|
0.38 |
% |
$ |
8,717 |
|
0.46 |
% |
$ |
7,144 |
|
0.38 |
% |
$ |
2,570 |
|
0.13 |
% |
$ |
5,768 |
|
0.27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Adjusted Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income |
|
$ |
7,011 |
|
0.38 |
% |
$ |
8,717 |
|
0.46 |
% |
$ |
7,144 |
|
0.38 |
% |
$ |
2,570 |
|
0.13 |
% |
$ |
5,768 |
|
0.27 |
% |
Add(Deduct): Non-operating income |
|
(360 |
) |
-0.02 |
% |
(204 |
) |
-0.01 |
% |
(794 |
) |
-0.04 |
% |
(483 |
) |
-0.02 |
% |
(295 |
) |
-0.01 |
% |
|||||
Tax effect (2) |
|
144 |
|
0.01 |
% |
82 |
|
0.00 |
% |
318 |
|
0.02 |
% |
193 |
|
0.01 |
% |
118 |
|
0.01 |
% |
|||||
Adjusted earnings |
|
$ |
6,795 |
|
0.37 |
% |
$ |
8,595 |
|
0.45 |
% |
$ |
6,668 |
|
0.35 |
% |
$ |
2,280 |
|
0.11 |
% |
$ |
5,591 |
|
0.26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Expense Coverage Ratio (3) |
|
0.92 |
x |
|
|
0.84 |
x |
|
|
0.82 |
x |
|
|
0.84 |
x |
|
|
0.67 |
x |
|
|
|||||
Efficiency Ratio (4) |
|
83.04 |
% |
|
|
81.69 |
% |
|
|
89.84 |
% |
|
|
89.51 |
% |
|
|
89.54 |
% |
|
|
(1) Ratios are as a percent of average assets.
(2) Assumes a 40.0% effective tax rate.
(3) Expense coverage ratio calculated as net interest income before provisions for loan losses divided by operating expenses.
(4) Efficiency ratio calculated as operating expenses divided by the sum of net interest income before provisions for loan losses plus non-interest operating income.
Sources: HarborOne Banks prospectus, audited & unaudited financial statements, SNL Financial and RP Financial calculations.
Bank s net interest income to average assets ratio equaled 2.46%. The decline in the Banks net interest income ratio since 2011 has been largely attributable to interest rate spread compression that has resulted from a more significant decrease in the yield earned on interest-earnings assets relative to the cost of interest-bearing liabilities. As the result of the prolonged low interest rate environment, the decline in yield earned on less rate sensitive interest-earning assets became more significant relative to the decline in rate paid on more rate sensitive liabilities which had more significant downward repricing earlier in the prevailing interest rate environment. The increase in the Banks net interest income ratio during 2015 was facilitated by a wider yield-cost spread, as commercial loan growth served to increase the overall yield on interest-earning assets and funding costs for the Banks deposits and borrowings continued to trend lower. Overall, during the past five years, the Banks interest rate spread ranged from a low of 2.23% during 2013 to a high of 2.50% during 2015. The Banks net interest rate spreads and yields and costs for the past five years are set forth in Exhibit I-3 and Exhibit I-5.
With the acquisition of Merrimack Mortgage in 2015, non-interest operating income has become a significantly larger contributor to the Banks earnings. Most notably, mortgage banking income increased from $1.4 million during 2014 to $20.1 million during 2015. In addition to mortgage banking income, the Bank has also recorded modest gains on the sale of some its auto loan originations. Beyond mortgage banking income and gains on the sales of auto loans, deposit account fees constitute the major portion of the Banks non-interest operating income. Throughout the period shown in Table 1.2, non-interest operating income ranged from a low of $14.8 million or 0.80% of average assets during 2011 to a high of $35.1 million or 1.65% of average assets during 2015. Mortgage banking income and gains on sale of auto loans accounted for 57.7% of the Banks non-interest operating income during 2015.
Operating expenses represent the other major component of the Banks earnings, ranging from a low of $51.4 million or 2.79% of average assets during fiscal 2011 to a high of $78.0 million or 3.68% of average assets during 2015. Consistent with the sharp increase in the Banks non-interest operating revenues during 2015, the large increase in the Banks operating expenses during 2015 was mostly related to the operations of Merrimack Mortgage. To a lesser extent, the recent increase in operating expenses reflects additional resources devoted to building the Banks commercial lending platform.
Overall, during the past f ive years, the Banks expense coverage ratios (net interest income divided by operating expenses) ranged from a low of 0.67x during 2015 to a high of
0.92x during 2011. Comparatively, the Banks efficiency ratio (operating expenses as a percent of the sum of net interest income and other operating income) ranged from a high of 89.84% during 2013 to a low of 81.69% during 2012 and equaled 89.54% during 2015.
During the period covered in Table 1.2, the amount of loan loss provisions established ranged from high of $4.0 million or 0.22% of average assets during 2011 to a low of $1.3 million or 0.06% of average assets during 2015. The reduction in loan loss provisions established was facilitated by improving credit quality trends, including decreases in the amount of net charge-offs recorded. As of December 31, 2015 the Bank maintained loan loss allowances of $13.7 million, equal to 0.79% of total loans receivable and 46.56% of non-accruing loans. Exhibit I-6 sets forth the Banks loan loss allowance activity for the past five years.
Non-operating gains from the sale of investment securities have had a limited impact on the Banks earnings during the period covered in Table 1.2, ranging from a low of $204,000 or 0.01% of average assets during 2012 to a high $794,000 or 0.04% of average assets during 2013. For 2015, the Bank reported gains on the sale of investment securities equal to $295,000 or 0.01% of average assets.
As a former credit union, the Bank did not pay state and federal income taxes during 2011 and 2012. With its conversion to a state-charted co-operative bank, t he Banks effective tax rate ranged from a low of 30.73% during 2015 to a high of 68.69% during 2013. As set forth in the prospectus, the Banks effective marginal tax rate is 40.0%.
Interest Rate Risk Management
The Banks balance sheet is liability-sensitive in the short-term (less than one year) and, thus, Economic Value of Equity (EVE) would decrease more significantly during periods of rising and higher interest rates. As of December 31, 2015, an analysis of the Banks EVE indicated that in the event of an instantaneous parallel 100 basis point decrease in interest rates EVE would decrease 3.7%. Comparatively, in the event of an instantaneous parallel 300 basis point increase in interest rates, the Bank would experience a 19.8% decrease in EVE (see Exhibit I-7).
The Bank pursues a number of strategies to manage interest rate risk, particularly with respect to seeking to limit the repricing mismatch between interest rate sensitive assets and liabilities. The Bank manages interest rate risk from the asset side of the balance sheet through investing in investment securities with adjustable interest rates, emphasizing origination of
adjustable rate and shorter term fixed rate loans for retention in the Banks loan portfolio and selling origination of longer term fixed rate 1-4 family permanent mortgage loans in the secondary market. The Bank also hedges a portion of its fixed rate commercial business loan portfolio with interest rate swap contracts. As of December 31, 2015, ARM loans comprised 21.18%% of total loans receivable (see Exhibit I-8). On the liability side of the balance sheet, management of interest rate risk has been pursued through emphasizing growth of lower costing and less interest rate sensitive transaction and savings accounts and utilizing fixed rate FHLB advances to fund commercial real estate loan growth. Transaction and savings accounts comprised 72.65% of the Banks total deposits at December 31, 2015.
The infusion of stock proceeds will serve to further limit the Banks interest rate risk exposure, as most of the net proceeds will be redeployed into interest-earning assets and the increase in the Banks capital position will lessen the proportion of interest rate sensitive liabilities funding assets.
Lending Activities and Strategy
Historically, HarborOne Banks lending activities have been concentrated in 1-4 family permanent mortgage loans and indirect auto loans and leases and those loan types continue to comprise the largest components of the Banks loan portfolio composition. Pursuant to the Banks strategic plan, the Bank is pursuing a diversified lending strategy emphasizing commercial real estate loans and commercial business loans as the primary areas of targeted loan growth. Other areas of lending diversification for the Bank include construction loans, home equity loans and lines of credit and other consumer loans. The origination of 1-4 family permanent mortgage loans is expected to remain a highly active area of lending for the Bank, particularly with respect to loan production generated through Merrimack Mortgage. However, growth of the 1-4 family loan portfolio will be constrained by the sale of loans originated by Merrimack Mortgage, as well as by the sale of most originations of longer term, fixed rate 1-4 family permanent mortgage loans that are originated by the Bank. Exhibit I-9 provides historical detail of HarborOne Banks loan portfolio composition for the past five years and Exhibit I-10 provides the contractual maturity of the Banks loan portfolio by loan type as of December 31, 2015.
1-4 Family Residential Loans. HarborOne Bank offers both fixed rate and adjustable rate 1-4 family permanent mortgage loans. Loans are underwritten to secondary market guidelines, as the Banks current philosophy has been to generally sell originations of
conforming 1-4 family fixed rate loans with terms of 15 years or more. Loans are generally sold on a servicing retained basis. ARM loans offered by the Bank have initial repricing terms of one to seven years and then reprice annually for the balance of the loan term. ARM loans are indexed to the 1-year Treasury rate or LIBOR. As of December 31, 2015, the Banks outstanding balance of 1-4 family loans equaled $711.0 million or 41.07% of total loans receivable.
Home Equity Loans and Lines of Credit. The Banks 1-4 family lending activities include home equity loans and lines of credit. Home equity loans are originated as fixed rate loans with amortization terms up 20 years. Home equity lines of credit are tied to the prime rate as published in The Wall Street Journal and are offered for terms of up to a ten year draw period followed by a 5, 10 or 15 year repayment period. The Bank will originate home equity loans and lines of credit up to a maximum loan-to value (LTV) ratio of 80.0%, inclusive of other liens on the property. As of December 31, 2015, the Banks outstanding balance of home equity loans and lines of credit totaled $99.4 million or 5.74% of total loans receivable.
Construction Loans. Construction loans originated by the Bank consist of loans to finance the construction of 1-4 family residences and commercial/multi-family properties. The Banks 1-4 family construction lending activities consist of originations to professional developers, contractors and builders, and, to a lesser extent, to individuals. Construction loans for commercial development include industrial buildings and retail and office buildings. Construction loans are generally offered as fixed rate interest only loans during the construction period, which is usually 12-24 months. Construction loans are generally offered up to a maximum LTV ratio of 80.0% of the appraised value of the completed property. As of December 31, 2015, the Banks outstanding balance of construction loans equaled $35.8 million or 2.07% of total loans receivable.
Commercial Real Estate Loans. The balance of the mortgage loan portfolio consists of commercial real estate loans, which are collateralized by properties in the Banks regional lending area. HarborOne Bank originates commercial real estate loans up to a maximum LTV ratio of 80.0% and requires a minimum debt-coverage ratio of 1.25 times. The Bank supplements originations of commercial real estate loans with purchases of loan participations, which are secured by properties in the Banks regional lending area and are subject to the Banks underwriting standards for commercial real estate loans. Commercial real estate loans are originated as either fixed rate or adjustable rate loans with for terms of up to 25 years.
Fixed rate loans are generally offered with a shorter term balloon provision. Most of the Banks adjustable rate commercial estate loans adjust every five years and are indexed to the 5-year FHLB Classic Advance borrowing rate. Properties securing the commercial real estate loan portfolio include office buildings, retail development properties, manufacturing facilities, warehouse distribution facilities, hotels and apartments. The Banks four largest commercial real estate loan relationship at December 31, 2015 ranged from $8.9 million to $16.0 million and all of those loans were performing in accordance with their original terms at December 31, 2015. As of December 31, 2015, the Banks outstanding balance of commercial real estate loans totaled $265.5 million equal to 15.34% of total loans receivable.
Consumer Loans. The Banks consumer lending activities have been concentrated in indirect auto loans and leases, which are originated through a network of approximately 250 auto dealers located in Massachusetts and Rhode Island. Auto loans and leases are underwritten by the Bank, which primarily takes into consideration the borrowers ability to repay the loan or lease and the value of the underlying collateral. For purposes of managing the size of the auto loan and lease portfolio, the Bank will sell auto loans and leases in the secondary market with servicing retained by the Bank. The balance of the consumer loan portfolio consists of small balances of loans secured by deposit, personal lines of credit and miscellaneous installment loans. As of December 31, 2015, the consumer loan portfolio totaled $548.9 million or 31.71% of total loans receivable and consisted of $532.1 million of auto loans and leases and $16.9 million of other consumer loans.
Commercial Business Loans. The commercial business loan portfolio is generated through extending loans to businesses operating in the local market area. Expansion of commercial business lending activities is a desired area of loan growth for the Bank, pursuant to which the Bank is seeking to become a full service community bank to its commercial loan customers through offering a full range of commercial loan products that can be packaged with lower cost commercial deposit products. Commercial business loans offered by the Bank consist of floating lines of credit indexed to LIBOR or The Wall Street Journal prime rate and fixed rate term loans based on a corresponding FHLB rate, plus a margin. The commercial business loan portfolio consists substantially of loans secured by business assets such as accounts receivable, inventory, equipment and real estate. To supplement originations of commercial business loans, the Bank also purchases commercial business loan participations. Loan participations purchased by the Bank consist of loans acquired through the Banks membership in BancAlliance, a co-operative network of lending institutions that serves as a
conduit for institutional investors to participate in large commercial credits. As of December 31, 2015, the Banks outstanding balance of commercial business loans equaled $70.5 million or 4.07% of total loans receivable.
Exhibit I-11 provides a summary of the Banks lending activities over the past three. Total loans originated ranged from a low of $547.7 million during 2014 to a high of $1.2 billion during 2015. The significant increase in loans originated during 2015 was primarily due to increased originations of 1-4 family permanent mortgage loans resulting from the acquisition of Merrimack Mortgage. Originations of 1-4 family permanent mortgage loans increased from $105.3 million during 2014 to $704.2 million during 2015. Similarly, loan sales of 1-4 family permanent mortgage loans increased from $57.8 million during 2014 to $671.5 million during 2015. Originations of commercial real estate loans, commercial business loans and home equity loans and lines of credit increased as well during 2015, while originations of construction loans and consumer loans were lower in 2015. Loans purchased by the Bank increased from $30.1 million in 2014 to $127.4 million in 2015. Loans purchased by the Bank in 2015 consisted of $81.4 million of 1-4 family permanent mortgage loans, $33.0 million of commercial real estate loans and $13.0 million of commercial business loans. Total loans sold ranged from a low of $57.8 million during 2014 to a high of $707.8 million during 2015. Total principal repayments ranged from a low of $382.4 million during 2014 to a high of $428.5 million during 2013. Net loan growth was recorded during each of the past three years. Overall, net loans receivable increased from $1.5 billion at yearend 2012 to $1.7 billion at yearend 2015.
Asset Quality
Historically, the Banks lending emphasis on lending in local and familiar markets generally supported maintenance of relatively favorable credit quality measures. However, following the national recession and bursting of the housing bubble in 2008, the Bank experienced elevated levels of problems assets. Over the past five fiscal years, HarborOne Banks balance of non-performing assets ranged from a high of $46.0 million or 2.46% of assets at yearend 2011 to a low of $31.8 million or 1.47% of assets at fiscal yearend 2015. As shown in Exhibit I-12, non-performing assets at December 31, 2015 consisted of $29.4 million of non-accruing loans and $2.3 million of other real estate owned and other repossessed assets. Non-accruing loans held by the Bank at December 31, 2105 were concentrated in 1-4 family permanent mortgage loans ($25.8 million). The Bank also held $25.0 million of performing troubled debt restructurings at December 31, 2015.
To track the Banks asset quality and the adequacy of valuation allowances, HarborOne Bank has established detailed asset classification policies and procedures which are consistent with regulatory guidelines. Classified assets are reviewed monthly by senior management and the Board. The loan portfolio is also reviewed by an independent third party. Pursuant to these procedures, when needed, the Bank establishes additional valuation allowances to cover anticipated losses in classified or non-classified assets. As of December 31 2015, the Bank maintained loan loss allowances of $13.7 million, equal to 0.79% of total loans receivable and 46.56% of non-accruing loans.
Funding Composition and Strategy
Deposits have consistently served as the Banks primary funding source and at December 31, 2015 deposits accounted for 87.14% of HarborOne Banks combined balance of deposits and borrowings. Exhibit I-13 sets forth the Banks deposit composition for the past three years. Transaction and savings account deposits comprised 69.57% of average total deposits during 2015, as compared to 60.54% of average total deposits during 2013 The increase in the concentration of core deposits comprising total deposits since 2013 was due to growth of transaction and savings account deposits and a decline in certificates of deposit (CDs). Money market deposits comprised the largest concentration of the Banks core deposits during 2015, averaging $559.7 million or 49.84% of average core deposits during 2015.
The balance of the Banks deposits consists of CDs, which equaled 30.43% of average total deposits during 2015 compared to 39.46% of average total deposits during 2013. Jumbo CDs (CDs with balances of $100,000 or more) totaled $214.7 million or 46.40% of total CDs at December 31, 2015. Exhibit I-14 sets forth the maturity schedule of the Banks CDs, which shows that 50.0% of the Banks CDs at December 31, 2015 were scheduled to mature in less than one year.
Borrowings serve as an alternative funding source for the Bank to facilitate management of funding costs and interest rate risk Borrowings totaled $249.6 million at December 31, 2015 and consisted entirely of FHLB advances. At December 31, 2015, the FHLB advances had a weighted average interest rate of 2.08% with laddered maturities out to seven years. Exhibit I-15 provides further detail of the Banks borrowings activities during the past three years.
Subsidiary Activities
In addition to Merrimack Mortgage, HarborOne Bank has two wholly-owned subsidiaries, HarborOne Security Corporation, LLC and Oak Street Security Corporation, LLC, each a Massachusetts limited liability company, which are engaged in buying, selling, dealing in and holding securities.
Legal Proceedings
The Bank is not currently party to any pending legal proceedings that the Banks management believes would have a material adverse effect on the Banks financial condition, results of operations or cash flows.
II. MARKET AREA
Introduction
HarborOne Bank is headquartered in Brockton, Massachusetts and currently serves the Boston metropolitan area through 14 full-service banking offices and two limited service offices. The branches are located in the Massachusetts counties of Plymouth (eleven offices including the main office), Bristol (five offices) and Norfolk (two offices). The Bank also maintains a commercial loan office in Providence, Rhode Island. Details regarding the Companys office properties are set forth in Exhibit II-1.
With operations in a major metropolitan area, the Banks competitive environment includes a significant number of thrifts, commercial banks and other financial services companies, some of which have a regional or national presence and are larger than the Bank in terms of deposits, loans, scope of operations, and number of branches. These institutions also have greater resources at their disposal than the Bank. The Boston MSA has a highly developed economy, with a relatively high concentration of skilled workers who are employed in a number of different industry clusters including healthcare, financial services and technology.
Future growth opportunities for HarborOne Bank depend on the future growth and stability of the local and regional economy, demographic growth trends and the nature and intensity of the competitive environment. These factors have been briefly examined to help determine the growth potential that exists for the Bank, the relative economic health of the Banks market area, and the resultant impact on value.
National Economic Factors
The future success of the Banks operations is partially dependent upon various national and local economic trends. In assessing national economic trends over the past few quarters, July 2015 manufacturing activity expanded at a slower rate, with an index reading of 52.7 compared to 53.5 for June. Comparatively, service sector activity for July accelerated to an index reading of 60.3, versus a June index reading of 56.0. The July employment report showed 215,000 jobs were added and the unemployment rate remained at 5.3%. Retail sales jumped 0.6% in July, providing an indication that the U.S. economy was gaining some traction. Housing data for July also reflected improving market conditions, as July housing starts reached their highest level since October 2007. July existing home sales were up 2.0%, which was the
strongest pace since February 2007, and July new home sales were up 5.4%. A 2.0% increase in July durable-goods orders also suggested that the U.S. remained healthy. Comparatively, August data reflected a less robust U.S. economy, as the slowing Chinese economy impacted the U.S. economy. August manufacturing activity grew at its slowest pace in more than two years, while August service sector activity expanded at a slightly lower rate compared to July. Employers slowed their pace of hiring in August, with a total of 173,000 jobs added and the August unemployment rate remained at 5.1%. Housing starts for August dropped 3.0% and August existing home sales fell 4.8%, but sales of new homes increased 5.7% in August. Durable-goods orders for August were down 2.0% compared to July. Job growth continued to slow in September, as employers added a modest 142,000 jobs in September and jobs gains for July and August were revised down. The September unemployment rate remained at 5.1%. Both manufacturing activity and service sector activity expanded at slower rates in September. September retail sales also pointed towards a slowing U.S. economy, as September retail sales showed a modest 0.1% increase compared to August. Housing data for September was mixed, as housing starts rose 6.5% in September and September existing home sales were up 4.7%. Comparatively, sales of new single-family homes dropped 16.5% compared to the prior month. September orders for durable goods declined 1.2%, as slow global growth restricted U.S. factories. Third quarter GDP increased at a 2.1% annual rate.
Manufacturing activity expanded at its slowest pace in more than two years in October 2015, which was attributable to economic weakness overseas and a strong dollar. Employers added 271,000 jobs in October and the October unemployment rate fell to 5.0%, while retail sales for October rose a meager 0.1%. Existing single-family home sales dropped 3.9% in October, as higher prices and low inventory challenged home buyers. Comparatively, October new single-family home sales rose 10.7% and pending home sales for October increased 0.2%. Manufacturing activity in November contracted for the first time since November 2012 with a reading of 48.6, while November service sector activity showed continued expansion with a reading of 55.9. Employers added 211,000 jobs in November and the November unemployment rate held steady at 5.0%. November retail sales showed a modest increase of 0.2%. Existing home sales plunged 10.5% in November, which was the sharpest drop in five years, while new home sales for November were up 4.3%. Manufacturing activity for December contracted with an index reading of 48.2, which was the lowest reading in more than six years. Service sector activity for December expanded at a slightly slower pace, with an index reading of 55.3. However, job growth surged in December as employers added 292,000 jobs and the December unemployment rate remained at a seven and one-half year low of 5.0%. December
retail sales and housing starts showed respective decreases of 0.1% and 2.5% compared to the November data. Comparatively, sales of existing homes in December climbed 14.7%, concluding a year that produced the highest annual sales of existing homes since 2006. Fourth quarter GDP increased at a relatively weak annual rate of 0.7%. Manufacturing activity for January 2016 shrank for a fourth straight month, with an index reading of 48.2. U.S. employers added 151,000 jobs in January, which was the weakest job growth since September 2015. However, the January employment rate fell to 4.9%.
In terms of interest rates trends over the past few quarters, Treasury bonds rallied in early-July 2015 as job growth slowed in June and investors moved into safe haven investments after Greeks voted to reject its creditors for further financial aid. The 10-year Treasury yield stabilized around 2.35% in mid-July, as the Federal Reserve signaled that recent turbulence in Greece and China was not threatening the U.S. economy enough to divert the central bank from plans to raise short-term interest rates later in 2015. Long-term Treasury yields eased lower heading into late-July, as investors reacted to a sell-off in Chinas stock market. Comparatively, short-term Treasury yields edged higher in late-July, reflecting expectations that the Federal Reserve would increase its target interest rate as early as September. Long-term Treasury yields stabilized through the first half of August, as investors took into consideration mixed economic reports on the U.S. economy and Chinas unexpected devaluation of its currency. Treasury bonds rallied heading into the second half of August, as investors moved into safe haven investments amid a sell-off in the stock market. A round of economic reports indicating a healthy U.S. economy pushed long-term Treasury yields slightly higher at the end of August. Long-term Treasury yields stabilized during the first half of September, as investors awaited the outcome of the Federal Reserves mid-September policy meeting. The Federal Reserve concluded its mid-September meeting leaving short-term interest rates unchanged, which took into consideration weak economic growth abroad. Volatility in the stock market and worries that weak economies abroad could be spilling over into a cooling U.S. economy contributed to long-term Treasury yields declining in late-September.
The 10-year Treasury yield hovered around 2.0% during the first half of October 2015, as lackluster readings for the U.S. economy diminished expectations that the Federal Reserve would raise interest rates in 2015. Interest rates edged higher at the conclusion of the Federal Reserves late-October policy meeting, as Federal Reserve officials stated they might raise short-term interest rates in December. The upward trend in interest rates continued in early-November, as the strong jobs report for October increased expectations that the Federal
Reserve would increase its target rate in December. Interest rates remained stable through mid-November, as minutes from the Federal Reserves October meeting sent new signals that the Federal Reserve would raise rates in December as long as job growth and inflation trends did not take a turn for the worse. Some soft readings for the U.S. economy provided a slight decline in long term Treasury yields during the second half of November, which was followed by an uptick in rates in early-December on the sturdy job growth numbers for November. A disappointing retail sales report for November contributed to interest rates edging lower ahead of the Federal Reserves mid-December meeting, which was followed by a spike up in interest rates as the Federal Reserve raised its target rate 25 basis points as expected. Following the rate hike by the Federal Reserve, long-term Treasury yields stabilized through the second half of December.
Long-term Treasury yields trended lower through the first three weeks of January 2016, with the yield on the 10-Treasury note approaching 2.0%. Data showing a slowing U.S. economy, falling commodity prices and investors moving into safe haven investment amid stock market volatility were factors contributing to long-term Treasury yields declining. The Federal Reserve held interest rates steady at its late-January meeting, expressing concerns about financial market turmoil and slow economic growth abroad. The decline in long-term Treasury yields accelerated in early-February, as investors moved into safe haven investments amid a sell-off in global stock markets. As of February 5, 2016, the bond equivalent yields for U.S. Treasury bonds with terms of one and ten years equaled 0.55% and 1.86%, respectively, versus comparable year ago yields of 0.20% and 1.83%. Exhibit II-2 provides historical interest rate trends.
Based on the consensus outlook of economists surveyed by The Wall Street Journal in January 2016, GDP growth was projected to increase to 2.5% in 2016. The unemployment rate was forecasted to decline to 4.8% in June 2016 and to 4.7% in December 2016. An average of 195,000 jobs were projected to be added per month during 2016. On average, the economists forecasted an increase in federal funds rate to 0.73% in June 2016 and to 1.14% in December 2016. On average, the economists forecasted that the 10-year Treasury yield would increase to 2.54% in June 2016 and increase to 2.79% by the end of 2016. The surveyed economists also forecasted home prices would rise 4.5% in 2016 and housing starts were forecasted to continue to trend slightly higher in 2016.
The January 2016 mortgage finance forecast from the Mortgage Bankers Association (the MBA) was for 2016 existing home sales to increase by 5.1% from 2015 sales and new
home sales were forecasted to increase by 17.5% in 2016 from sales in 2015. The MBA forecast showed slight increases in the median sale prices for new and existing homes in 2016. Total mortgage production is forecasted to decline in 2016 to $1.380 trillion, compared to $1.486 trillion in 2015. The forecasted decrease in 2016 originations was based on a 12.8% increase in purchase volume and a 31.7% decrease in refinancing volume. Purchase mortgage originations are forecasted to total $926 billion in 2016, versus refinancing volume totaling $454 billion. Housing starts for 2016 were projected to increase by 11.3% to total $1.230 billion.
Market Area Demographics
Demographic and economic growth trends, measured by changes in population, number of households, age distribution and median household income, provide key insight into the health of the market area served by HarborOne Bank. Demographic data for Bristol, Norfolk and Plymouth Counties, as well as for Massachusetts, and the U.S., is provided in Table 2.1.
Population and household data indicate that the market area served by the Companys branches is a mix of urban and suburban markets. Bristol County, where the city of Taunton is located, and the adjacent Plymouth County, are two of the three original counties created in the Plymouth Colony, each with populations of approximately 0.5 million. Norfolk County is the most populous county in the Banks market area, with a total population of 0.7 million. Norfolk County, which is the wealthiest county in Massachusetts, experienced relatively strong population growth from 2010 to 2015 at 0.7% annually, which exceeded the comparable growth rates for Bristol and Plymouth Counties equal to 0.3% and 0.4%, respectively, as well as the Massachusetts growth rate equal to 0.6%.
Household growth rates for the primary market area counties paralleled population growth trends, with Norfolk County displaying the highest household growth rate and Bristol County exhibiting the lowest household growth rate during the 2010 to 2015 period. Over the next five years, population and household growth rates for Bristol County and Plymouth County are projected to increase and remain the same for Norfolk County.
Income measures show that Norfolk County is a relatively affluent market, with household and per capita income measures well above the comparable Massachusetts and U.S. measures. Comparatively, household and per capita income measures for Plymouth County exceeded the U.S. measures and were fairly consistent with the state measures, while Bristol County reported household and per capita income measures that were more in line with the U.S. measures. Over the next five years, all three market area counties are projected to
Table 2.1
HarborOne Bank
Summary Demographic Data
|
|
Year |
|
Growth Rate |
|
||||||
|
|
2010 |
|
2015 |
|
2021 |
|
2010-2015 |
|
2015-2021 |
|
|
|
|
|
|
|
|
|
(%) |
|
(%) |
|
Population (000) |
|
|
|
|
|
|
|
|
|
|
|
USA |
|
308,746 |
|
319,460 |
|
334,342 |
|
0.7 |
% |
0.8 |
% |
Massachusetts |
|
6,548 |
|
6,759 |
|
7,045 |
|
0.6 |
% |
0.7 |
% |
Bristol, MA |
|
548 |
|
555 |
|
569 |
|
0.3 |
% |
0.4 |
% |
Norfolk, MA |
|
671 |
|
696 |
|
724 |
|
0.7 |
% |
0.7 |
% |
Plymouth, MA |
|
495 |
|
506 |
|
529 |
|
0.4 |
% |
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Households (000) |
|
|
|
|
|
|
|
|
|
|
|
USA |
|
116,716 |
|
121,099 |
|
127,049 |
|
0.7 |
% |
0.8 |
% |
Massachusetts |
|
2,547 |
|
2,639 |
|
2,763 |
|
0.7 |
% |
0.8 |
% |
Bristol, MA |
|
213 |
|
216 |
|
223 |
|
0.3 |
% |
0.5 |
% |
Norfolk, MA |
|
258 |
|
268 |
|
279 |
|
0.7 |
% |
0.7 |
% |
Plymouth, MA |
|
181 |
|
187 |
|
197 |
|
0.6 |
% |
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Median Household Income ($) |
|
|
|
|
|
|
|
|
|
|
|
USA |
|
NA |
|
53,706 |
|
59,865 |
|
NA |
|
1.8 |
% |
Massachusetts |
|
NA |
|
67,928 |
|
74,828 |
|
NA |
|
1.6 |
% |
Bristol, MA |
|
NA |
|
57,590 |
|
62,000 |
|
NA |
|
1.2 |
% |
Norfolk, MA |
|
NA |
|
85,104 |
|
96,220 |
|
NA |
|
2.1 |
% |
Plymouth, MA |
|
NA |
|
74,950 |
|
86,322 |
|
NA |
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Per Capita Income ($) |
|
|
|
|
|
|
|
|
|
|
|
USA |
|
NA |
|
28,840 |
|
32,569 |
|
NA |
|
2.0 |
% |
Massachusetts |
|
NA |
|
37,604 |
|
42,186 |
|
NA |
|
1.9 |
% |
Bristol, MA |
|
NA |
|
30,137 |
|
33,748 |
|
NA |
|
1.9 |
% |
Norfolk, MA |
|
NA |
|
45,771 |
|
51,601 |
|
NA |
|
2.0 |
% |
Plymouth, MA |
|
NA |
|
36,479 |
|
42,415 |
|
NA |
|
2.5 |
% |
|
|
Less Than |
|
$25,000 to |
|
$50,000 to |
|
|
|
|
|
|
|
25,000 |
|
50,000 |
|
100,000 |
|
$100,000+ |
|
|
|
2015 HH Income Dist. (%) |
|
|
|
|
|
|
|
|
|
|
|
USA |
|
23.5 |
|
23.9 |
|
29.8 |
|
22.8 |
|
|
|
Massachusetts |
|
20.3 |
|
18.3 |
|
28.4 |
|
33.0 |
|
|
|
Bristol, MA |
|
24.2 |
|
20.6 |
|
29.6 |
|
25.6 |
|
|
|
Norfolk, MA |
|
14.9 |
|
15.4 |
|
26.9 |
|
42.7 |
|
|
|
Plymouth, MA |
|
15.5 |
|
17.8 |
|
30.9 |
|
35.9 |
|
|
|
Source: SNL Financial, LC.
sustain moderate growth in income levels that are generally in line with the comparable projected growth rates for Massachusetts and the U.S.
A comparison of household income distribution measures provides another indication of the relative affluence of the primary market area counties. Bristol County maintained a higher percentage of households with incomes below $50,000, relative to the other two primary market area counties. Comparatively, Norfolk County maintained the highest percentage of households with incomes above $100,000. Age distribution measures for the primary market area counties were fairly similar to the comparable U.S. and Massachusetts measures.
Regional Economy
Comparative employment data shown in Table 2.2 shows that employment in services followed by wholesale/retail employment were the largest and second largest employment sectors in Bristol, Norfolk and Plymouth Counties, as well as Massachusetts. Norfolk County maintained a comparatively higher level of employment in the finance/insurance/real estate sector, while construction jobs accounted for a relatively high concentration of employment in all three counties. Overall, the distribution of employment exhibited in the primary market area is indicative of a diverse economic environment.
Table 2.2
HarborOne Bank
Primary Market Area Employment Sectors
(Percent of Labor Force)
|
|
|
|
Bristol |
|
Norfolk |
|
Plymouth |
|
Employment Sector |
|
Massachusetts |
|
County |
|
County |
|
County |
|
|
|
|
|
|
|
|
|
|
|
Services |
|
35.4 |
% |
33.3 |
% |
35.1 |
% |
33.0 |
% |
Wholesale/Retail Trade |
|
25.7 |
% |
29.3 |
% |
25.1 |
% |
26.6 |
% |
Finance/Insurance/Real Estate |
|
10.6 |
% |
9.5 |
% |
11.6 |
% |
10.4 |
% |
Construction |
|
8.1 |
% |
8.4 |
% |
8.6 |
% |
9.7 |
% |
Healthcare |
|
4.8 |
% |
4.7 |
% |
5.5 |
% |
4.3 |
% |
Manufacturing |
|
3.6 |
% |
4.1 |
% |
3.3 |
% |
3.5 |
% |
Government |
|
3.4 |
% |
3.7 |
% |
2.4 |
% |
3.9 |
% |
Transportation/Utility |
|
3.0 |
% |
3.0 |
% |
2.7 |
% |
3.1 |
% |
Agriculture |
|
2.2 |
% |
2.2 |
% |
2.3 |
% |
2.8 |
% |
Communications |
|
0.8 |
% |
0.7 |
% |
0.9 |
% |
0.7 |
% |
Other |
|
2.4 |
% |
1.2 |
% |
2.6 |
% |
2.0 |
% |
|
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
Source: SNL Financial, LC. |
|
|
|
|
|
|
|
|
|
The market area served by the Company, characterized primarily as the Boston MSA, has a highly developed and diverse economy, with the regions many colleges and universities serving to attract industries in need of a highly skilled and educated workforce. Healthcare, high-tech and financial services companies constitute major sources of employment in the Companys regional market area, as well as the colleges and universities that populate the Boston MSA. Tourism also is a prominent component of market areas economy, as Boston annually ranks as one of the nations top tourist destinations. Table 2.3 lists in detail the major employers in the Companys market area.
Table 2.3
HarborOne Bank
Boston Market Area Largest Employers
Company/Institution |
|
Industry |
|
Employees |
|
|
|
|
|
|
|
Massachusetts General Hospital |
|
Health Care |
|
14,752 |
|
Brigham and Womens Hospital |
|
Health Care |
|
11,229 |
|
Boston University |
|
Higher Education |
|
9,783 |
|
Childrens Hospital, Boston |
|
Health Care |
|
7,903 |
|
State Street Bank & Trust Co |
|
Finance and Insurance |
|
7,800 |
|
Beth Israel Deaconess Med. Center |
|
Health Care |
|
6,695 |
|
Fidelity |
|
Finance and Insurance |
|
5,500 |
|
Harvard University |
|
Higher Education |
|
5,132 |
|
Northeastern University |
|
Higher Education |
|
4,484 |
|
Boston Medical Center |
|
Health Care |
|
4,217 |
|
Boston College |
|
Higher Education |
|
4,122 |
|
Tufts Medical Center |
|
Health Care |
|
3,692 |
|
Dana-Farber Cancer Institute |
|
Health Care |
|
3,607 |
|
John Hancock |
|
Finance and Insurance |
|
3,430 |
|
|
|
|
|
|
|
Source: Boston Redevelopment Authority, 2013. |
|
|
|
Unemployment Trends
Comparative unemployment rates for Bristol, Norfolk and Plymouth Counties, as well as for the U.S. and Massachusetts, are shown in Table 2.4. November 2015 unemployment rates for primary market area counties ranged from a low of 4.0% for Norfolk County to a high of 5.5% for Bristol County. Comparative unemployment rates for the U.S. and Massachusetts were 4.8% and 4.5%, respectively. Consistent with national and statewide trends, Bristol, Norfolk and
Plymouth Counties reported lower unemployment rates for November 2015 compared to a year ago.
Table 2.4
HarborOne Bank
Unemployment Trends
|
|
November 2014 |
|
November 2015 |
|
Region |
|
Unemployment |
|
Unemployment |
|
USA |
|
5.5 |
% |
4.8 |
% |
Massachusetts |
|
5.0 |
% |
4.5 |
% |
Bristol, MA |
|
6.1 |
% |
5.5 |
% |
Norfolk, MA |
|
4.4 |
% |
4.0 |
% |
Plymouth, MA |
|
5.2 |
% |
4.7 |
% |
|
|
|
|
|
|
Source: SNL Financial, LC. |
|
|
|
|
|
Market Area Deposit Characteristics and Competition
The Banks deposit base is closely tied to the economic fortunes of Bristol, Norfolk and Plymouth Counties and, in particular, the areas that are nearby to one of HarborOne Banks branches. Table 2.5 displays deposit market trends from June 30, 2010 through June 30, 2015 for all commercial bank and savings institution branches located in the market area counties and the state of Massachusetts. Consistent with the state of Massachusetts, commercial banks maintained a larger market share of deposits than savings institutions in all three counties. Overall, from June 30, 2010 to June 30, 2015, bank and thrift deposits increased across all market area counties, ranging from an annual growth rate of 2.5% in Bristol County to 7.4% in Plymouth County.
The Bank maintains its largest balance of deposits in Plymouth County, where the Bank maintains its main office and largest branch presence. Based June 30, 2015 deposit data, HarborOnes $1.2 billion of deposits provided for an 11.3% market share of bank and thrift deposits in Plymouth County. The Company also held $268.9 million of deposits in Bristol County with a 2.9% market share, and $239.2 million of deposits in Norfolk County with a 1.0% market share. HarborOne Bank converted from a credit union to a bank in July 2013 and, therefore, FDIC deposit data for the Bank was not available as of June 30, 2010.
Table 2.5
HarborOne Bank
Deposit Summary
|
|
As of June 30, |
|
|
|
||||||||||||
|
|
2010 |
|
2015 |
|
Deposit |
|
||||||||||
|
|
|
|
Market |
|
No. of |
|
|
|
Market |
|
No. of |
|
Growth Rate |
|
||
|
|
Deposits |
|
Share |
|
Branches |
|
Deposits |
|
Share |
|
Branches |
|
2010-2015 |
|
||
|
|
(Dollars in Thousands) |
|
(%) |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Massachusetts |
|
$ |
205,201,264 |
|
100.0 |
% |
2,217 |
|
$ |
371,438,781 |
|
100.0 |
% |
2,191 |
|
12.6 |
% |
Commercial Banks |
|
128,910,606 |
|
62.8 |
% |
1,005 |
|
311,660,304 |
|
83.9 |
% |
1,439 |
|
19.3 |
% |
||
Savings Institutions |
|
76,290,658 |
|
37.2 |
% |
1,212 |
|
59,778,477 |
|
16.1 |
% |
752 |
|
-4.8 |
% |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Bristol County |
|
$ |
8,089,693 |
|
100.0 |
% |
157 |
|
$ |
9,167,961 |
|
100.0 |
% |
156 |
|
2.5 |
% |
Commercial Banks |
|
5,662,599 |
|
70.0 |
% |
114 |
|
6,502,477 |
|
70.9 |
% |
112 |
|
2.8 |
% |
||
Savings Institutions |
|
2,427,094 |
|
30.0 |
% |
43 |
|
2,665,484 |
|
29.1 |
% |
44 |
|
1.9 |
% |
||
HarborOne Bank (1) |
|
|
|
|
|
|
|
268,923 |
|
2.9 |
% |
5 |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Norfolk County |
|
$ |
17,794,472 |
|
100.0 |
% |
244 |
|
$ |
23,347,761 |
|
100.0 |
% |
245 |
|
5.6 |
% |
Commercial Banks |
|
12,865,902 |
|
72.3 |
% |
169 |
|
17,526,581 |
|
75.1 |
% |
170 |
|
6.4 |
% |
||
Savings Institutions |
|
4,928,570 |
|
27.7 |
% |
75 |
|
5,821,180 |
|
24.9 |
% |
75 |
|
3.4 |
% |
||
HarborOne Bank (1) |
|
|
|
|
|
|
|
239,182 |
|
1.0 |
% |
2 |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Plymouth County |
|
$ |
7,155,524 |
|
100.0 |
% |
160 |
|
$ |
10,231,123 |
|
100.0 |
% |
157 |
|
7.4 |
% |
Commercial Banks |
|
4,367,586 |
|
61.0 |
% |
93 |
|
7,044,151 |
|
68.9 |
% |
111 |
|
10.0 |
% |
||
Savings Institutions |
|
2,787,938 |
|
39.0 |
% |
67 |
|
3,186,972 |
|
31.1 |
% |
46 |
|
2.7 |
% |
||
HarborOne Bank (1) |
|
|
|
|
|
|
|
1,158,645 |
|
11.3 |
% |
7 |
|
|
|
(1) HarborOne Bank was a credit union in 2010.
Source: FDIC.
C ompetition among financial institutions in the Banks market area is significant. Among the Banks competitors are much larger and more diversified institutions, which have greater resources than maintained by HarborOne Bank. Financial institution competitors in the Banks primary market area include other locally based thrifts and banks, as well as regional, super regional and money center banks. From a competitive standpoint, HarborOne has sought to emphasize its community orientation in the markets served by its branches. Table 2.6 lists the Banks largest competitors in the market area counties, based on deposit market share as noted parenthetically.
Table 2.6
HarborOne Bank
Market Area Deposit Competitors
Location |
|
Name |
|
Market Share |
|
Rank |
|
Bristol County, MA |
|
Bank of America Corp. (NC) |
|
16.20 |
% |
|
|
|
|
Banco Santander |
|
12.87 |
% |
|
|
|
|
Beacon Bancorp (MA) |
|
12.82 |
% |
|
|
|
|
Narragansett Financial Corp. (MA) |
|
9.08 |
% |
|
|
|
|
Citizens Financial Group Inc. (RI) |
|
8.42 |
% |
|
|
|
|
BankFive MHC (MA) |
|
7.56 |
% |
|
|
|
|
Independent Bank Corp. (MA) |
|
7.56 |
% |
|
|
|
|
Webster Financial Corp. (CT) |
|
6.80 |
% |
|
|
|
|
North Easton Savings Bank (MA) |
|
4.96 |
% |
|
|
|
|
HarborOne Bank (MA) |
|
2.93 |
% |
12 out of 16 |
|
|
|
|
|
|
|
|
|
Norfolk County, MA |
|
Bank of America Corp. (NC) |
|
21.05 |
% |
|
|
|
|
Citizens Financial Group Inc. (RI) |
|
16.01 |
% |
|
|
|
|
Banco Santander |
|
5.86 |
% |
|
|
|
|
Needham Bank (MA) |
|
5.31 |
% |
|
|
|
|
Brookline Bancorp Inc. (MA) |
|
5.31 |
% |
|
|
|
|
Independent Bank Corp. (MA) |
|
5.02 |
% |
|
|
|
|
Dedham Institution for Savings (MA) |
|
4.26 |
% |
|
|
|
|
Toronto-Dominion Bank |
|
3.24 |
% |
|
|
|
|
Eastern Bank Corp. (MA) |
|
2.98 |
% |
|
|
|
|
HarborOne Bank (MA) |
|
1.01 |
% |
20 out of 46 |
|
|
|
|
|
|
|
|
|
Plymouth County, MA |
|
Independent Bank Corp. (MA) |
|
24.60 |
% |
|
|
|
|
Citizens Financial Group Inc. (RI) |
|
12.21 |
% |
|
|
|
|
HarborOne Bank (MA) |
|
11.39 |
% |
3 out of 22 |
|
|
|
Eastern Bank Corp. (MA) |
|
9.52 |
% |
|
|
|
|
Hingham Instit. For Savings (MA) |
|
8.19 |
% |
|
|
|
|
Banco Santander |
|
7.64 |
% |
|
|
|
|
Bank of America Corp. (NC) |
|
7.33 |
% |
|
|
|
|
Bridgewater Financial MHC (MA) |
|
3.28 |
% |
|
|
|
|
Mutual Bank (MA) |
|
3.01 |
% |
|
|
|
|
South Shore MHC (MA) |
|
2.76 |
% |
|
|
|
|
|
|
|
|
|
|
Source: SNL Financial LC. |
|
|
|
|
|
|
|
III. PEER GROUP ANALYSIS
This chapter presents an analysis of HarborOne Banks operations versus a group of comparable savings institutions (the Peer Group) selected from the universe of all publicly-traded savings institutions in a manner consistent with the regulatory valuation guidelines. The basis of the pro forma market valuation of HarborOne Bank is derived from the pricing ratios of the Peer Group institutions, incorporating valuation adjustments for key differences in relation to the Peer Group. Since no Peer Group can be exactly comparable to HarborOne Bank, key areas examined for differences are: financial condition; profitability, growth and viability of earnings; asset growth; primary market area; dividends; liquidity of the shares; marketing of the issue; management; and effect of government regulations and regulatory reform.
Peer Group Selection
The Peer Group selection process is governed by the general parameters set forth in the regulatory valuation guidelines. Accordingly, the Peer Group is comprised of only those publicly-traded savings institutions whose common stock is either listed on the NYSE or NASDAQ, since their stock trading activity is regularly reported and generally more frequent than non-publicly traded and closely-held institutions. Institutions that are not listed on the NYSE or NASDAQ are inappropriate, since the trading activity for thinly-traded or closely-held stocks are typically highly irregular in terms of frequency and price and thus may not be a reliable indicator of market value. We have also excluded from the Peer Group those companies under acquisition or subject to rumored acquisition and recent conversions, since their pricing ratios are subject to unusual distortion and/or have limited trading history. A recent listing of the universe of all publicly-traded savings institutions is included as Exhibit III-1.
Ideally, the Peer Group, which must have at least 10 members to comply with the regulatory valuation guidelines, should be comprised of publicly-traded MHCs with comparable resources, strategies and financial characteristics as HarborOne Bank. However, there are currently only seven publicly-traded MHCs. Accordingly, in deriving a Peer Group comprised of institutions with relatively comparable characteristics as HarborOne Bank, the companies selected for HarborOne Banks Peer Group are all fully-converted companies. The valuation adjustments applied in the Chapter IV analysis will take into consideration differences between the Banks MHC form of ownership relative to the fully-converted Peer Group companies. Also
included in Chapter IV is a pricing analysis of the publicly-traded MHCs on a fully-converted basis.
From the universe of publicly-traded thrifts, we selected ten institutions with characteristics similar to those of HarborOne Bank. In the selection process, we applied two screens to the universe of all public companies that were eligible for consideration:
· Screen #1 Northeast institutions with assets between $1 billion and $5 billion, tangible equity-to-assets ratios of greater than 8.0% and positive core earnings. Six companies met the criteria for Screen #1 and all six were included in the Peer Group: Blue Hills Bancorp, Inc. of Massachusetts, BSB Bancorp, Inc. of Massachusetts, First Connecticut Bancorp, Inc. of Connecticut, Meridian Bancorp, Inc. of Massachusetts, SI Financial Group, Inc. of Connecticut and Westfield Financial Inc. of Massachusetts. Exhibit III-2 provides financial and public market pricing characteristics of all publicly-traded Northeast thrifts.
· Screen #2 Mid-Atlantic institutions with assets between $1 billion and $3 billion, tangible equity-to-assets ratios of greater than 8.0% and positive core earnings. Six companies met the criteria for Screen #2 and four were included in the Peer Group: Clifton Bancorp Inc. of New Jersey, ESSA Bancorp, Inc. of Pennsylvania, OceanFirst Financial Corp. of New Jersey and Ocean Shore Holding Co. of New Jersey. Cape Bancorp, Inc. of New Jersey and Fox Chase Bancorp, Inc. of Pennsylvania were excluded from consideration for the Peer Group as the result of being the targets of announced acquisitions. Exhibit III-3 provides financial and public market pricing characteristics of all publicly-traded Mid-Atlantic thrifts.
Table 3.1 shows the general characteristics of each of the ten Peer Group companies and Exhibit III-4 provides summary demographic and deposit market share data for the primary market areas served by each of the Peer Group companies. While there are expectedly some differences between the Peer Group companies and HarborOne Bank, we believe that the Peer Group companies, on average, provide a good basis for valuation subject to valuation adjustments. The following sections present a comparison of HarborOne Banks financial condition, income and expense trends, loan composition, interest rate risk and credit risk versus the Peer Group as of the most recent publicly available date. Comparative data for all publicly-traded thrifts, publicly-traded Massachusetts thrifts and Provident Bancorp, Inc. of Massachusetts, which was the most recent MHC offering completed by a publicly-traded institution, have been included in the Chapter III tables as well.
In addition to the selection criteria used to identify the Peer Group companies, a summary description of the key comparable characteristics of each of the Peer Group companies relative to HarborOne Banks characteristics is detailed below.
Table 3.1
Peer Group of Publicly-Traded Thrifts
As of September 30, 2015 or the Most Recent Date Available
|
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|
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As of |
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||
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|
|
|
|
|
|
|
|
February 5, 2016 |
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||
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|
|
|
|
|
|
|
|
|
Total |
|
|
|
Fiscal |
|
Conv. |
|
Stock |
|
Market |
|
Ticker |
|
Financial Institution |
|
Exchange |
|
City |
|
State |
|
Assets |
|
Offices |
|
Year End |
|
Date |
|
Price |
|
Value |
|
|
|
|
|
|
|
|
|
|
|
($Mil) |
|
|
|
|
|
|
|
($) |
|
($Mil) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLMT |
|
BSB Bancorp, Inc. |
|
NASDAQ |
|
Belmont |
|
MA |
|
1,692 |
|
7 |
|
Dec |
|
10/5/2011 |
|
21.38 |
|
194.30 |
|
BHBK |
|
Blue Hills Bancorp, Inc. |
|
NASDAQ |
|
Norwood |
|
MA |
|
1,934 |
|
11 |
|
Dec |
|
7/22/2014 |
|
13.82 |
|
404.60 |
|
CSBK |
|
Clifton Bancorp Inc. |
|
NASDAQ |
|
Clifton |
|
NJ |
|
1,154 |
|
11 |
|
Mar |
|
4/2/2014 |
|
13.88 |
|
352.47 |
|
EBSB |
|
Meridian Bancorp, Inc. |
|
NASDAQ |
|
Peabody |
|
MA |
|
3,376 |
|
30 |
|
Dec |
|
7/29/2014 |
|
13.72 |
|
752.89 |
|
ESSA |
|
ESSA Bancorp, Inc. |
|
NASDAQ |
|
Stroudsburg |
|
PA |
|
1,607 |
|
31 |
|
Sep |
|
4/4/2007 |
|
13.34 |
|
151.15 |
|
FBNK |
|
First Connecticut Bancorp, Inc. |
|
NASDAQ |
|
Farmington |
|
CT |
|
2,708 |
|
26 |
|
Dec |
|
6/30/2011 |
|
16.21 |
|
257.44 |
|
OCFC |
|
OceanFirst Financial Corp. |
|
NASDAQ |
|
Toms River |
|
NJ |
|
2,558 |
|
27 |
|
Dec |
|
7/3/1996 |
|
16.30 |
|
281.77 |
|
OSHC |
|
Ocean Shore Holding Co. |
|
NASDAQ |
|
Ocean City |
|
NJ |
|
1,067 |
|
11 |
|
Dec |
|
12/21/2009 |
|
17.75 |
|
113.65 |
|
SIFI |
|
SI Financial Group, Inc. |
|
NASDAQ |
|
Willimantic |
|
CT |
|
1,454 |
|
25 |
|
Dec |
|
1/13/2011 |
|
13.91 |
|
169.96 |
|
WFD |
|
Westfield Financial, Inc. |
|
NASDAQ |
|
Westfield |
|
MA |
|
1,357 |
|
14 |
|
Dec |
|
1/4/2007 |
|
7.84 |
|
143.30 |
|
Source: SNL Financial, LC.
· BSB Bancorp, Inc. of Massachusetts. Comparable due to Boston market area, similar asset size, similar interest-earning asset composition, similar net interest income to average assets ratio and similar impact of loan loss provisions on earnings.
· Blue Hills Bancorp, Inc. of Massachusetts. Comparable due to Boston market area, similar asset size and similar combined concentration of mortgage-backed securities and 1-4 family permanent loans as a percent of assets.
· Clifton Bancorp Inc. of New Jersey. Comparable due to similar concentration of borrowings funding assets and similar impact of loan loss provisions on earnings.
· ESSA Bancorp, Inc. of Pennsylvania. Comparable due to similar asset size.
· First Connecticut Bancorp, Inc. of Connecticut. Comparable due to similar asset size, similar interest-earning asset composition, similar interest-bearing funding composition, similar impact of loan loss provisions on earnings and similar combined concentration of mortgage-backed securities and 1-4 family permanent mortgage loans as a percent of assets.
· Meridian Bancorp, Inc. of Massachusetts. Comparable due to Boston market area, similar interest-earning asset composition and similar concentration of deposits funding assets.
· OceanFirst Financial Corp. of New Jersey. Comparable due to similar asset size, similar interest-bearing funding composition and similar credit quality measures.
· Ocean Shore Holding Co. of New Jersey. Comparable due to similar interest-bearing funding composition and similar impact of loan loss provisions on earnings.
· SI Financial Group, Inc. of Connecticut. Comparable due to similar interest-earning asset composition, similar interest-bearing funding composition, similar return on average assets and similar combined concentration of mortgage-backed securities and 1-4 family permanent mortgage loans as a percent of assets.
· Westfield Financial Inc. of Massachusetts. Comparable due to same size of branch network, similar net interest income to average assets ratio and similar impact of loan loss provisions on earnings.
In aggregate, the Peer Group companies maintained a slightly higher level of tangible equity than the industry average (13.26% of assets versus 12.83% for all public companies), generated lower earnings as a percent of average assets (0.55% core ROAA versus 0.77% for all public companies), and earned a lower ROE (4.46% core ROE versus 6.24% for all public companies). Overall, the Peer Groups average P/TB ratio and average core P/E multiple were approximately the same and above the respective averages for all publicly-traded thrifts.
|
|
All |
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|
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||
|
|
Publicly-Traded |
|
Peer Group |
|
||
|
|
|
|
|
|
||
Financial Characteristics (Averages) |
|
|
|
|
|
||
Assets ($Mil) |
|
$ |
3,109 |
|
$ |
1,891 |
|
Market capitalization ($Mil) |
|
$ |
436 |
|
$ |
280 |
|
Tangible equity/assets (%) |
|
12.83 |
% |
13.26 |
% |
||
Core return on average assets (%) |
|
0.77 |
|
0.55 |
|
||
Core return on average equity (%) |
|
6.24 |
|
4.46 |
|
||
|
|
|
|
|
|
||
Pricing Ratios (Averages) (1) |
|
|
|
|
|
||
Core price/earnings (x) |
|
18.53 |
x |
21.03 |
x |
||
Price/tangible book (%) |
|
113.19 |
% |
113.20 |
% |
||
Price/assets (%) |
|
13.38 |
|
14.39 |
|
(1) Based on market prices as of February 5, 2016.
Ideally, the Peer Group companies would be comparable to HarborOne Bank in terms of all of the selection criteria, but the universe of publicly-traded thrifts does not provide for an appropriate number of such companies. However, in general, the companies selected for the Peer Group were fairly comparable to HarborOne Bank, as will be highlighted in the following comparative analysis. Comparative data for all publicly-traded thrifts, publicly-traded Massachusetts thrifts and Provident Bancorp, Inc., which is the most recently MHC offering completed by a publicly-traded institution, have been included in the Chapter III tables as well.
Financial Condition
Table 3.2 shows comparative balance sheet measures for HarborOne Bank and the Peer Group, reflecting the expected similarities and some differences given the selection procedures outlined above. The Banks and the Peer Groups ratios reflect balances as of December 31, 2015 and September 30, 2015, respectively. HarborOne Banks equity-to-assets ratio of 8.82% was lower than the Peer Groups average net worth ratio of 13.62%. With the infusion of the net proceeds, the Banks pro forma equity-to-assets ratio will be more comparable to the Peer Groups equity-to-assets ratio. Tangible equity-to-assets ratios for the Bank and the Peer Group equaled 8.18% and 13.26%, respectively. The increase in HarborOne Banks pro forma capital position will be favorable from a risk perspective and in terms of future earnings potential that could be realized through leverage and lower funding costs. At the same time, the Banks higher pro forma capitalization will initially depress return on equity. Both HarborOne Banks and the Peer Groups capital ratios reflected capital surpluses with respect to the regulatory capital requirements. The interest-earning asset
Table 3.2
Balance Sheet Composition and Growth Rates
Comparable Institution Analysis
As of September 30, 2015 or the Most Recent Date Available
|
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|
|
Balance Sheet as a Percent of Assets |
|
Balance Sheet Annual Growth Rates |
|
Regulatory Capital |
|
|||||||||||||||||||||||||||||||||||
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|
|
Cash & |
|
MBS & |
|
|
|
Net |
|
|
|
Borrowed |
|
Sub. |
|
Total |
|
Goodwill |
|
Tangible |
|
|
|
MBS, Cash & |
|
|
|
|
|
Borrows. |
|
Total |
|
Tangible |
|
Tier 1 |
|
Tier 1 |
|
Risk-Based |
|
|
|
|
|
|
Equivalents |
|
Invest |
|
BOLI |
|
Loans (1) |
|
Deposits |
|
Funds |
|
Debt |
|
Equity |
|
& Intang |
|
Equity |
|
Assets |
|
Investments |
|
Loans |
|
Deposits |
|
&Subdebt |
|
Equity |
|
Equity |
|
Leverage |
|
Risk-Based |
|
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HarborOne Bank |
|
MA |
|
1.88 |
% |
9.75 |
% |
1.77 |
% |
82.90 |
% |
78.18 |
% |
11.54 |
% |
0.00 |
% |
8.82 |
% |
0.63 |
% |
8.18 |
% |
5.94 |
% |
-9.53 |
% |
8.32 |
% |
12.74 |
% |
-24.27 |
% |
3.94 |
% |
-1.73 |
% |
8.30 |
% |
10.84 |
% |
11.68 |
% |
|
December 31, 2015 |
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Public Companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages |
|
|
|
4.85 |
% |
17.86 |
% |
1.92 |
% |
71.55 |
% |
73.03 |
% |
11.81 |
% |
0.35 |
% |
13.63 |
% |
0.73 |
% |
12.83 |
% |
10.05 |
% |
4.56 |
% |
15.24 |
% |
9.48 |
% |
17.98 |
% |
12.46 |
% |
11.15 |
% |
12.86 |
% |
19.26 |
% |
20.29 |
% |
|
Medians |
|
|
|
3.29 |
% |
16.34 |
% |
1.91 |
% |
71.88 |
% |
74.37 |
% |
10.94 |
% |
0.00 |
% |
12.38 |
% |
0.04 |
% |
11.92 |
% |
6.52 |
% |
-2.20 |
% |
9.69 |
% |
4.78 |
% |
8.28 |
% |
3.56 |
% |
3.65 |
% |
11.65 |
% |
17.44 |
% |
18.63 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State of MA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages |
|
|
|
5.04 |
% |
13.56 |
% |
1.78 |
% |
77.58 |
% |
73.34 |
% |
12.40 |
% |
0.00 |
% |
13.47 |
% |
0.10 |
% |
13.37 |
% |
11.46 |
% |
-0.66 |
% |
15.39 |
% |
11.41 |
% |
15.92 |
% |
19.62 |
% |
19.67 |
% |
12.56 |
% |
15.82 |
% |
16.79 |
% |
|
Medians |
|
|
|
3.24 |
% |
9.84 |
% |
1.68 |
% |
81.14 |
% |
72.93 |
% |
13.39 |
% |
0.00 |
% |
11.85 |
% |
0.00 |
% |
11.85 |
% |
11.12 |
% |
-0.33 |
% |
13.54 |
% |
10.01 |
% |
20.59 |
% |
5.21 |
% |
5.21 |
% |
10.97 |
% |
15.40 |
% |
16.40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Recent MHC Offerings(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provident Bancorp, Inc. |
|
MA |
|
1.45 |
% |
19.01 |
% |
1.84 |
% |
75.03 |
% |
81.53 |
% |
5.96 |
% |
0.00 |
% |
11.51 |
% |
0.00 |
% |
11.51 |
% |
5.43 |
% |
-13.07 |
% |
12.39 |
% |
5.64 |
% |
-4.27 |
% |
8.54 |
% |
8.54 |
% |
11.31 |
% |
13.87 |
% |
15.37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages |
|
|
|
3.08 |
% |
17.88 |
% |
2.28 |
% |
74.12 |
% |
71.24 |
% |
13.76 |
% |
0.16 |
% |
13.62 |
% |
0.36 |
% |
13.26 |
% |
8.37 |
% |
-6.75 |
% |
14.04 |
% |
8.76 |
% |
13.89 |
% |
1.68 |
% |
1.75 |
% |
13.56 |
% |
20.75 |
% |
21.44 |
% |
|
Medians |
|
|
|
1.86 |
% |
15.23 |
% |
1.89 |
% |
74.74 |
% |
71.59 |
% |
13.80 |
% |
0.00 |
% |
10.48 |
% |
0.24 |
% |
9.90 |
% |
7.50 |
% |
-3.06 |
% |
13.19 |
% |
9.57 |
% |
12.87 |
% |
2.24 |
% |
2.57 |
% |
10.26 |
% |
16.14 |
% |
17.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLMT |
BSB Bancorp, Inc. |
|
MA |
|
2.52 |
% |
10.29 |
% |
1.74 |
% |
84.36 |
% |
71.41 |
% |
19.09 |
% |
0.00 |
% |
8.48 |
% |
0.00 |
% |
8.48 |
% |
26.70 |
% |
7.01 |
% |
30.54 |
% |
29.59 |
% |
27.35 |
% |
6.25 |
% |
6.25 |
% |
8.94 |
% |
10.94 |
% |
11.74 |
% |
BHBK |
Blue Hills Bancorp, Inc. |
|
MA |
|
1.08 |
% |
22.80 |
% |
1.62 |
% |
71.00 |
% |
69.53 |
% |
8.27 |
% |
0.00 |
% |
21.07 |
% |
0.63 |
% |
20.44 |
% |
14.69 |
% |
-4.29 |
% |
23.16 |
% |
16.70 |
% |
45.45 |
% |
-0.60 |
% |
-0.19 |
% |
21.25 |
% |
25.90 |
% |
26.89 |
% |
CSBK |
Clifton Bancorp Inc. |
|
NJ |
|
1.55 |
% |
33.49 |
% |
4.86 |
% |
58.70 |
% |
58.81 |
% |
10.75 |
% |
0.00 |
% |
29.32 |
% |
0.00 |
% |
29.32 |
% |
-4.76 |
% |
-24.55 |
% |
9.77 |
% |
-7.17 |
% |
10.22 |
% |
-5.43 |
% |
-5.43 |
% |
29.17 |
% |
60.97 |
% |
61.63 |
% |
EBSB |
Meridian Bancorp, Inc. |
|
MA |
|
5.72 |
% |
4.85 |
% |
1.16 |
% |
85.73 |
% |
77.93 |
% |
4.15 |
% |
0.00 |
% |
17.27 |
% |
0.41 |
% |
16.87 |
% |
6.54 |
% |
-37.31 |
% |
16.53 |
% |
9.46 |
% |
-18.92 |
% |
2.11 |
% |
2.16 |
% |
16.93 |
% |
17.44 |
% |
18.44 |
% |
ESSA |
ESSA Bancorp, Inc. |
|
PA |
|
1.28 |
% |
24.48 |
% |
1.91 |
% |
68.60 |
% |
68.27 |
% |
19.95 |
% |
0.00 |
% |
10.66 |
% |
0.75 |
% |
9.91 |
% |
2.01 |
% |
-1.82 |
% |
4.14 |
% |
-3.28 |
% |
23.57 |
% |
2.37 |
% |
2.98 |
% |
10.28 |
% |
15.85 |
% |
16.72 |
% |
FBNK |
First Connecticut Bancorp, Inc. |
|
CT |
|
1.75 |
% |
8.12 |
% |
1.87 |
% |
85.90 |
% |
72.86 |
% |
16.33 |
% |
0.00 |
% |
8.98 |
% |
0.00 |
% |
8.98 |
% |
13.06 |
% |
-0.53 |
% |
14.20 |
% |
14.20 |
% |
10.67 |
% |
4.09 |
% |
4.09 |
% |
9.24 |
% |
11.76 |
% |
12.72 |
% |
OCFC |
OceanFirst Financial Corp. |
|
NJ |
|
1.98 |
% |
17.22 |
% |
2.24 |
% |
75.89 |
% |
76.93 |
% |
12.16 |
% |
1.08 |
% |
9.18 |
% |
0.08 |
% |
9.09 |
% |
10.79 |
% |
-10.86 |
% |
18.72 |
% |
10.47 |
% |
15.08 |
% |
7.34 |
% |
6.37 |
% |
8.91 |
% |
13.60 |
% |
12.67 |
% |
OSHC |
Ocean Shore Holding Co. |
|
NJ |
|
10.82 |
% |
10.70 |
% |
2.28 |
% |
73.59 |
% |
77.94 |
% |
10.30 |
% |
0.00 |
% |
10.37 |
% |
0.48 |
% |
9.89 |
% |
2.64 |
% |
7.32 |
% |
1.52 |
% |
3.41 |
% |
-6.16 |
% |
5.28 |
% |
5.66 |
% |
10.24 |
% |
19.21 |
% |
19.77 |
% |
SIFI |
SI Financial Group, Inc. |
|
CT |
|
2.52 |
% |
13.24 |
% |
1.50 |
% |
78.64 |
% |
71.76 |
% |
15.44 |
% |
0.57 |
% |
10.59 |
% |
1.26 |
% |
9.34 |
% |
8.47 |
% |
6.54 |
% |
9.69 |
% |
4.54 |
% |
43.30 |
% |
-1.36 |
% |
-1.11 |
% |
9.68 |
% |
15.40 |
% |
16.48 |
% |
WFD |
Westfield Financial, Inc. |
|
MA |
|
1.62 |
% |
33.59 |
% |
3.67 |
% |
58.84 |
% |
66.98 |
% |
21.19 |
% |
0.00 |
% |
10.29 |
% |
0.00 |
% |
10.29 |
% |
3.51 |
% |
-9.02 |
% |
12.17 |
% |
9.68 |
% |
-11.63 |
% |
-3.26 |
% |
-3.26 |
% |
10.97 |
% |
16.42 |
% |
17.34 |
% |
(1) Includes loans held for sale.
(2) Ratios are based on the date of the most recent financial statements disclosed in the offering prospectus.
Source: SNL Financial, LC. and RP ® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2016 by RP ® Financial, LC.
compositions for the Bank and the Peer Group were somewhat similar, with loans constituting the bulk of interest-earning assets for both HarborOne Bank and the Peer Group. The Banks loans-to-assets ratio of 82.90% was higher than the comparable Peer Group ratio of 74.12%. Comparatively, the Banks cash and investments-to-assets ratio of 11.63% was lower than the comparable Peer Group ratio of 20.96%. Overall, HarborOne Banks interest-earning assets amounted to 94.53% of assets, which was slightly lower than the comparable Peer Group ratio of 95.08%. The Banks non-interest earning assets included bank-owned life insurance (BOLI) equal to 1.77% of assets and goodwill/intangibles equal to 0.64% of assets, while the Peer Groups non-interest assets included BOLI equal to 2.28% of assets and goodwill/intangibles equal to 0.36% of assets.
HarborOne Banks funding liabilities reflected a funding strategy that was somewhat similar to that of the Peer Groups funding composition. The Banks deposits equaled 78.18% of assets, which was above the Peer Groups ratio of 71.24%. Comparatively, the Bank and the Peer Group maintained similar levels of borrowings to fund assets, as indicated by borrowings-to-assets ratios of 11.54% and 13.92% for HarborOne Bank and the Peer Group, respectively. Total interest-bearing liabilities maintained by the Bank and the Peer Group, as a percent of assets, equaled 89.72% and 85.16%, respectively.
A key measure of balance sheet strength for a thrift institution is its interest-earnings assets/interest-bearing liabilities (IEA/IBL) ratio. Presently, the Banks IEA/IBL ratio is lower than the Peer Groups ratio, based on IEA/IBL ratios of 105.36% and 111.65%, respectively. The additional capital realized from stock proceeds should serve to provide HarborOne Bank with an IEA/IBL ratio that is more comparable to the Peer Groups ratio, as the increase in capital provided by the infusion of stock proceeds will serve to lower the level of interest-bearing liabilities funding assets and will be primarily deployed into interest-earning assets.
The growth rate section of Table 3.2 shows annual growth rates for key balance sheet items. HarborOne Banks and the Peer Groups growth rates are based on annual growth for the twelve months ended December 31, 2015 and September 30, 2015, respectively. HarborOne Bank recorded a 5.94% increase in assets, versus asset growth of 8.37% recorded by the Peer Group. Asset growth for HarborOne Bank was driven by an 8.32% increase in loans, which was in part funded by a 9.53% reduction in cash and investments. Similarly, asset growth for the Peer Group was driven by a 14.04% increase in loans, which was in part funded by a 6.75% reduction in cash and investments.
Asset growth for HarborOne Bank was funded by a 12.74% increase in deposits, which also funded a 24.27% decrease in borrowings. Asset growth for the Peer Group was funded through deposit growth of 8.76% and a 13.89% increase in borrowings as well. The Banks tangible capital decreased 1.88%, as retention of earnings was offset by the goodwill and intangibles created by the acquisition of Merrimack Mortgage. Comparatively, the Peer Groups tangible capital increased 1.75%, as retention of earnings for the Peer Group was somewhat offset by capital management strategies such as dividend payments and stock repurchases. The Banks post-conversion capital growth rate will initially be constrained by maintenance of a higher pro forma capital position. Additionally, implementation of any stock repurchases and dividend payments, pursuant to regulatory limitations and guidelines, could also slow the Banks capital growth rate in the longer term following the stock offering.
Income and Expense Components
Table 3.3 displays statements of operations for the Bank and the Peer Group. The Banks and the Peer Groups ratios are based on earnings for the twelve months ended December 31, 2015 and September 30, 2015, respectively. HarborOne Bank and the Peer Group reported net income to average assets ratios of 0.27% and 0.57%, respectively. The Peer Groups higher return was realized through higher ratios for net interest income and non-operating gains and a lower operating expense ratio, which were partially offset by the Banks higher ratio for non-interest operating income and lower ratio for loan loss provisions.
The Peer Groups higher net interest income to average assets ratio was realized through both a higher interest income ratio and a lower interest expense ratio. The Peer Groups higher interest income ratio was supported by maintaining a higher overall yield earned on interest-earning assets (3.52% versus 3.34% for the Bank). Likewise, the Peer Groups lower interest expense ratio was supported by a lower cost of funds (0.78% versus 0.84% for the Bank), as well as maintaining a lower ratio of interest-bearing liabilities funding assets. Overall, HarborOne Bank and the Peer Group reported net interest income to average assets ratios of 2.46% and 2.67%, respectively.
In another key area of core earnings strength, the Bank maintained a significantly higher level of operating expenses than the Peer Group. For the period covered in Table 3.3, the Bank and the Peer Group reported operating expense to average assets ratios of 3.68% and 2.20%, respectively. The Banks higher operating expense ratio was consistent with the comparatively higher number of employees maintained relative to its asset size, which is largely attributable to
Table 3.3
Income as Percent of Average Assets and Yields, Costs, Spreads
Comparable Institution Analysis
For the 12 Months Ended September 30 , 2015 or the Most Recent Date Available
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Net Interest Income |
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Non-Interest Income |
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Non-Op. Items |
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Yields, Costs, and Spreads |
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Loss |
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NII |
|
Gain |
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Other |
|
Total |
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Provision |
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MEMO: |
|
MEMO: |
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Net |
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Provis. |
|
After |
|
on Sale of |
|
Non-Int |
|
Non-Int |
|
Net Gains/ |
|
Extrao. |
|
for |
|
Yield |
|
Cost |
|
Yld-Cost |
|
Assets/ |
|
Effective |
|
||
|
|
|
|
Income |
|
Income |
|
Expense |
|
NII |
|
on IEA |
|
Provis. |
|
Loans |
|
Income |
|
Expense |
|
Losses (1) |
|
Items |
|
Taxes |
|
On IEA |
|
Of IBL |
|
Spread |
|
FTE Emp. |
|
Tax Rate |
|
||
|
|
|
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
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|
(%) |
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||
HarborOne Bank |
|
MA |
|
|
|
|
|
|
|
|
|
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|
|
|
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||
December 31, 2015 |
|
|
|
0.27 |
% |
3.15 |
% |
0.69 |
% |
2.46 |
% |
0.06 |
% |
2.40 |
% |
0.95 |
% |
0.70 |
% |
3.68 |
% |
0.01 |
% |
0.00 |
% |
0.12 |
% |
3.34 |
% |
0.84 |
% |
2.50 |
% |
$ |
3,749 |
|
30.73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
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||
All Public Companies |
|
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|
|
|
|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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||
Averages |
|
|
|
0.80 |
% |
3.55 |
% |
0.59 |
% |
2.96 |
% |
0.04 |
% |
2.93 |
% |
0.32 |
% |
0.52 |
% |
2.83 |
% |
0.00 |
% |
0.00 |
% |
0.13 |
% |
3.80 |
% |
0.77 |
% |
3.04 |
% |
$ |
6,511 |
|
16.42 |
% |
|
Medians |
|
|
|
0.70 |
% |
3.51 |
% |
0.58 |
% |
2.99 |
% |
0.07 |
% |
2.88 |
% |
0.04 |
% |
0.41 |
% |
2.68 |
% |
0.00 |
% |
0.00 |
% |
0.24 |
% |
3.80 |
% |
0.77 |
% |
3.09 |
% |
$ |
5,794 |
|
31.45 |
% |
|
|
|
|
|
|
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|
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||
State of MA |
|
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||
Averages |
|
|
|
0.49 |
% |
3.48 |
% |
0.62 |
% |
2.86 |
% |
0.10 |
% |
2.76 |
% |
0.02 |
% |
0.24 |
% |
2.29 |
% |
0.03 |
% |
0.00 |
% |
0.27 |
% |
3.65 |
% |
0.79 |
% |
2.83 |
% |
$ |
8,940 |
|
33.69 |
% |
|
Medians |
|
|
|
0.42 |
% |
3.63 |
% |
0.62 |
% |
3.01 |
% |
0.09 |
% |
2.77 |
% |
0.02 |
% |
0.23 |
% |
2.23 |
% |
0.00 |
% |
0.00 |
% |
0.24 |
% |
3.87 |
% |
0.81 |
% |
3.09 |
% |
$ |
8,045 |
|
34.59 |
% |
|
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||
Comparable Recent MHC Offerings(2) |
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||
Provident Bancorp, Inc. |
|
MA |
|
0.71 |
% |
3.65 |
% |
0.36 |
% |
3.29 |
% |
0.23 |
% |
3.06 |
% |
0.00 |
% |
0.54 |
% |
2.72 |
% |
0.07 |
% |
0.00 |
% |
0.23 |
% |
3.84 |
% |
0.52 |
% |
3.32 |
% |
$ |
6,098 |
|
24.16 |
% |
|
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||
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||
Comparable Group |
|
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|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
||
Averages |
|
|
|
0.57 |
% |
3.28 |
% |
0.60 |
% |
2.67 |
% |
0.11 |
% |
2.56 |
% |
0.02 |
% |
0.37 |
% |
2.20 |
% |
0.08 |
% |
0.00 |
% |
0.26 |
% |
3.52 |
% |
0.78 |
% |
2.75 |
% |
$ |
8,174 |
|
30.91 |
% |
|
Medians |
|
|
|
0.57 |
% |
3.26 |
% |
0.63 |
% |
2.69 |
% |
0.11 |
% |
2.59 |
% |
0.02 |
% |
0.33 |
% |
2.23 |
% |
0.06 |
% |
0.00 |
% |
0.23 |
% |
3.49 |
% |
0.79 |
% |
2.83 |
% |
$ |
7,494 |
|
31.73 |
% |
|
|
|
|
|
|
|
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|
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|
||
Comparable Group |
|
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|
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|
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|
|
|
|
|
||
BLMT |
BSB Bancorp, Inc. |
|
MA |
|
0.42 |
% |
3.07 |
% |
0.63 |
% |
2.44 |
% |
0.13 |
% |
2.30 |
% |
0.04 |
% |
0.19 |
% |
1.84 |
% |
NA |
|
0.00 |
% |
0.26 |
% |
3.17 |
% |
0.85 |
% |
2.32 |
% |
$ |
13,222 |
|
38.65 |
% |
BHBK |
Blue Hills Bancorp, Inc. |
|
MA |
|
0.42 |
% |
3.13 |
% |
0.46 |
% |
2.67 |
% |
0.14 |
% |
2.53 |
% |
0.03 |
% |
0.32 |
% |
2.41 |
% |
0.14 |
% |
0.00 |
% |
0.19 |
% |
3.32 |
% |
0.68 |
% |
2.64 |
% |
$ |
9,485 |
|
30.73 |
% |
CSBK |
Clifton Bancorp Inc. |
|
NJ |
|
0.73 |
% |
2.97 |
% |
0.74 |
% |
2.23 |
% |
0.04 |
% |
2.19 |
% |
0.00 |
% |
0.15 |
% |
1.49 |
% |
0.23 |
% |
0.00 |
% |
0.35 |
% |
3.19 |
% |
1.09 |
% |
2.10 |
% |
$ |
11,541 |
|
32.07 |
% |
EBSB |
Meridian Bancorp, Inc. |
|
MA |
|
0.72 |
% |
3.63 |
% |
0.62 |
% |
3.01 |
% |
0.24 |
% |
2.77 |
% |
0.02 |
% |
0.30 |
% |
2.14 |
% |
0.13 |
% |
0.00 |
% |
0.35 |
% |
3.89 |
% |
0.78 |
% |
3.11 |
% |
$ |
7,691 |
|
32.84 |
% |
ESSA |
ESSA Bancorp, Inc. |
|
PA |
|
0.62 |
% |
3.43 |
% |
0.66 |
% |
2.77 |
% |
0.13 |
% |
2.64 |
% |
0.00 |
% |
0.45 |
% |
2.31 |
% |
0.03 |
% |
0.00 |
% |
0.19 |
% |
3.69 |
% |
0.80 |
% |
2.89 |
% |
$ |
5,842 |
|
23.18 |
% |
FBNK |
First Connecticut Bancorp, Inc. |
|
CT |
|
0.52 |
% |
3.14 |
% |
0.50 |
% |
2.64 |
% |
0.09 |
% |
2.55 |
% |
0.09 |
% |
0.34 |
% |
2.34 |
% |
0.06 |
% |
0.00 |
% |
0.18 |
% |
3.34 |
% |
0.57 |
% |
2.77 |
% |
$ |
8,038 |
|
25.26 |
% |
OCFC |
OceanFirst Financial Corp. |
|
NJ |
|
0.83 |
% |
3.45 |
% |
0.36 |
% |
3.09 |
% |
0.07 |
% |
3.01 |
% |
0.04 |
% |
0.65 |
% |
2.40 |
% |
-0.03 |
% |
0.00 |
% |
0.44 |
% |
3.60 |
% |
0.41 |
% |
3.19 |
% |
$ |
6,872 |
|
34.60 |
% |
OSHC |
Ocean Shore Holding Co. |
|
NJ |
|
0.64 |
% |
3.37 |
% |
0.67 |
% |
2.71 |
% |
0.07 |
% |
2.64 |
% |
0.00 |
% |
0.42 |
% |
2.07 |
% |
0.00 |
% |
0.00 |
% |
0.33 |
% |
3.95 |
% |
0.92 |
% |
3.03 |
% |
$ |
6,392 |
|
34.19 |
% |
SIFI |
SI Financial Group, Inc. |
|
CT |
|
0.31 |
% |
3.43 |
% |
0.62 |
% |
2.81 |
% |
0.15 |
% |
2.67 |
% |
0.02 |
% |
0.70 |
% |
2.95 |
% |
0.01 |
% |
0.00 |
% |
0.14 |
% |
3.68 |
% |
0.72 |
% |
2.96 |
% |
$ |
5,363 |
|
31.38 |
% |
WFD |
Westfield Financial, Inc. |
|
MA |
|
0.45 |
% |
3.15 |
% |
0.80 |
% |
2.35 |
% |
0.08 |
% |
2.27 |
% |
0.00 |
% |
0.23 |
% |
2.01 |
% |
0.13 |
% |
0.00 |
% |
0.16 |
% |
3.38 |
% |
0.93 |
% |
2.45 |
% |
$ |
7,297 |
|
26.17 |
% |
(1) Net gains/losses includes gain/loss on sale of securities and nonrecurring income and expense.
(2) Ratios are based on the date of the most recent financial statements disclosed in the offering prospectus.
Source: SNL Financial, LC. and RP ® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2016 by RP ® Financial, LC.
the significance of the Banks mortgage banking operations relative to its asset size. Assets per full time equivalent employee equaled $3.749 million for the Bank, versus $8.174 million for the Peer Group.
When viewed together, net interest income and operating expenses provide considerable insight into a thrifts earnings strength, since those sources of income and expenses are typically the most prominent components of earnings and are generally more predictable than losses and gains realized from the sale of assets or other non-recurring activities. In this regard, as measured by their expense coverage ratios (net interest income divided by operating expenses), the Banks earnings were less favorable than the Peer Groups. Expense coverage ratios for HarborOne Bank and the Peer Group equaled 0.67x and 1.21x, respectively.
The Banks mortgage banking activities also contributed to a higher level of non-interest operating income compared to the Peer Group, with such income amounting to 1.65% and 0.39% of HarborOne Banks and the Peer Groups average assets, respectively. Taking non-interest operating income into account in comparing the Banks and the Peer Groups earnings, HarborOne Banks efficiency ratio (operating expenses, as a percent of the sum of non-interest operating income and net interest income) of 89.54% was less favorable than the Peer Groups efficiency ratio of 71.90%.
Loan loss provisions had a slightly larger impact on the Peer Groups earnings, with loan loss provisions established by the Bank and the Peer Group equaling 0.06% and 0.011% of average assets, respectively.
Net non-operating gains equaled 0.01% of average assets for the Bank, versus net non-operating gains equal to 0.08% of average assets for the Peer Group. Typically, gains and losses generated from the sale of assets and other non-operating activities are viewed as earnings with a relatively high degree of volatility, particularly to the extent that such gains and losses result from the sale of investments or other assets that are not considered to be part of an institutions core operations. Extraordinary items were not a factor in either the Banks or the Peer Groups earnings.
Taxes had a similar impact on the Banks and the Peer Groups earnings, as the Bank and the Peer Group posted effective tax rates of 30.73% and 30.91%, respectively. As indicated in the prospectus, the Banks effective marginal tax rate is equal to 40.0%.
Loan Composition
Table 3.4 presents data related to the Banks and the Peer Groups loan portfolio compositions (including the investment in mortgage-backed securities). The Banks loan portfolio composition reflected a lower concentration of 1-4 family permanent mortgage loans and mortgage-backed securities combined in comparison to the Peer Group (38.45% of assets versus 49.48% for the Peer Group), as the Peer Group maintained higher concentrations of both mortgage-backed securities and 1-4 family permanent mortgage loans. Loans serviced for others equaled 57.54% and 5.89% of the Banks and the Peer Groups assets, respectively, thereby indicating that loan servicing income and expenses were a significantly larger factor in the Banks earnings. Likewise, loan servicing intangibles constituted a more significant balance sheet item for the Bank, with loan servicing intangibles equal to 0.60% of the Banks assets compared to 0.04% of the Peer Groups assets.
Overall, d iversification into higher risk and higher yielding types of lending was more significant for the Bank, which was attributable to the Banks higher concentration of consumer loans (29.97% of assets versus 1.96% for the Peer Group). Commercial real estate loans constituted the most significant type of lending diversification for the Peer Group (18.89% of assets versus 11.54% for the Bank). The Peer Group also maintained higher concentrations of construction/land loans, multi-family loans and commercial business loans relative to the comparable ratios for HarborOne Bank. In total, construction/land, commercial real estate, multi-family, commercial business and consumer loans comprised 47.16% and 35.55% of the Banks and the Peer Groups assets, respectively. Overall, the Banks asset composition provided for a higher risk weighted assets-to-assets ratio of 75.77%, versus a comparable Peer Group ratio of 71.44%.
Interest Rate Risk
Table 3.5 reflects various key ratios highlighting the relative interest rate risk exposure of the Bank versus the Peer Group. In terms of balance sheet composition, HarborOne Banks interest rate risk characteristics were considered to be less favorable relative to the comparable measures for the Peer Group. Most notably, the Banks tangible equity-to-assets ratio and IEA/IBL ratio were below the comparable Peer Group ratios. Additionally, the Peer Group maintained an advantage with respect to its slightly lower ratio of non-interest earning assets as a percent of assets. On a pro forma basis, the infusion of stock proceeds should serve to provide the Bank with more comparable balance sheet interest rate risk characteristics as
Table 3.4
Loan Portfolio Composition and Related Information
Comparable Institution Analysis
As of September 30, 2015 or the Most Recent Date Available
|
|
Portfolio Composition as a Percent of Assets |
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
1-4 |
|
Constr. |
|
Multi- |
|
|
|
Commerc. |
|
|
|
RWA/ |
|
Serviced |
|
Servicing |
|
|||
|
|
|
|
MBS |
|
Family |
|
& Land |
|
Family |
|
Comm RE |
|
Business |
|
Consumer |
|
Assets |
|
For Others |
|
Assets |
|
|||
|
|
|
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
($000) |
|
($000) |
|
|||
HarborOne Bank |
|
MA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
December 31, 2015 |
|
|
|
5.58 |
% |
32.87 |
% |
1.66 |
% |
0.73 |
% |
11.54 |
% |
3.26 |
% |
29.97 |
% |
75.77 |
% |
$ |
1,244,856 |
|
$ |
12,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
All Public Companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Averages |
|
|
|
10.18 |
% |
33.91 |
% |
3.55 |
% |
8.66 |
% |
18.18 |
% |
6.29 |
% |
1.45 |
% |
68.19 |
% |
$ |
1,813,237 |
|
$ |
12,929 |
|
|
Medians |
|
|
|
8.79 |
% |
32.97 |
% |
2.61 |
% |
3.90 |
% |
17.42 |
% |
4.78 |
% |
0.32 |
% |
67.69 |
% |
$ |
56,320 |
|
$ |
391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
State of MA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Averages |
|
|
|
5.62 |
% |
36.58 |
% |
6.46 |
% |
5.82 |
% |
21.60 |
% |
6.84 |
% |
1.03 |
% |
74.42 |
% |
$ |
43,551 |
|
$ |
183 |
|
|
Medians |
|
|
|
4.49 |
% |
36.41 |
% |
6.13 |
% |
5.08 |
% |
19.50 |
% |
7.89 |
% |
0.20 |
% |
77.54 |
% |
$ |
22,138 |
|
$ |
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Comparable Recent MHC Offerings(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Provident Bancorp, Inc. |
|
MA |
|
8.33 |
% |
12.28 |
% |
7.15 |
% |
3.98 |
% |
33.93 |
% |
14.82 |
% |
4.03 |
% |
80.21 |
% |
$ |
10,207 |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Comparable Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Averages |
|
|
|
10.26 |
% |
39.22 |
% |
2.85 |
% |
4.28 |
% |
18.89 |
% |
7.57 |
% |
1.96 |
% |
71.44 |
% |
$ |
111,414 |
|
$ |
697 |
|
|
Medians |
|
|
|
8.14 |
% |
39.70 |
% |
2.05 |
% |
3.96 |
% |
19.50 |
% |
7.80 |
% |
0.19 |
% |
72.51 |
% |
$ |
63,430 |
|
$ |
345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Comparable Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
BLMT |
BSB Bancorp, Inc. |
|
MA |
|
6.96 |
% |
48.53 |
% |
3.72 |
% |
5.99 |
% |
19.36 |
% |
0.32 |
% |
7.05 |
% |
77.54 |
% |
$ |
67,606 |
|
$ |
480 |
|
BHBK |
Blue Hills Bancorp, Inc. |
|
MA |
|
8.56 |
% |
33.06 |
% |
2.64 |
% |
5.33 |
% |
19.63 |
% |
9.24 |
% |
1.90 |
% |
78.77 |
% |
$ |
40,740 |
|
$ |
167 |
|
CSBK |
Clifton Bancorp Inc. |
|
NJ |
|
23.33 |
% |
52.37 |
% |
0.03 |
% |
3.31 |
% |
3.25 |
% |
0.01 |
% |
0.06 |
% |
48.15 |
% |
$ |
0 |
|
$ |
0 |
|
EBSB |
Meridian Bancorp, Inc. |
|
MA |
|
0.27 |
% |
15.01 |
% |
11.39 |
% |
11.44 |
% |
39.02 |
% |
9.56 |
% |
0.29 |
% |
96.73 |
% |
$ |
135,749 |
|
$ |
386 |
|
ESSA |
ESSA Bancorp, Inc. |
|
PA |
|
14.60 |
% |
41.88 |
% |
1.05 |
% |
1.56 |
% |
8.57 |
% |
6.36 |
% |
9.73 |
% |
63.89 |
% |
$ |
59,254 |
|
$ |
303 |
|
FBNK |
First Connecticut Bancorp, Inc. |
|
CT |
|
0.52 |
% |
38.48 |
% |
1.11 |
% |
6.45 |
% |
25.37 |
% |
15.17 |
% |
0.07 |
% |
78.52 |
% |
$ |
436,902 |
|
$ |
4,231 |
|
OCFC |
OceanFirst Financial Corp. |
|
NJ |
|
11.06 |
% |
40.93 |
% |
3.02 |
% |
1.73 |
% |
27.18 |
% |
3.68 |
% |
0.04 |
% |
88.80 |
% |
$ |
164,488 |
|
$ |
433 |
|
OSHC |
Ocean Shore Holding Co. |
|
NJ |
|
7.73 |
% |
62.24 |
% |
2.72 |
% |
0.28 |
% |
7.79 |
% |
0.81 |
% |
0.04 |
% |
52.18 |
% |
$ |
0 |
|
$ |
1 |
|
SIFI |
SI Financial Group, Inc. |
|
CT |
|
4.82 |
% |
34.44 |
% |
1.46 |
% |
4.60 |
% |
20.51 |
% |
18.00 |
% |
0.27 |
% |
62.36 |
% |
$ |
208,366 |
|
$ |
966 |
|
WFD |
Westfield Financial, Inc. |
|
MA |
|
24.78 |
% |
25.21 |
% |
1.31 |
% |
2.07 |
% |
18.25 |
% |
12.51 |
% |
0.11 |
% |
67.49 |
% |
$ |
1,034 |
|
$ |
0 |
|
(1) Ratios are based on the date of the most recent financial statements disclosed in the offering prospectus.
Source: SNL Financial LC. and RP ® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2016 by RP ® Financial, LC.
Table 3.5
Interest Rate Risk Measures and Net Interest Income Volatility
Comparable Institution Analysis
As of September 30, 2015 or the Most Recent Date Available
|
|
|
|
Balance Sheet Measures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
Tangible |
|
|
|
Non-Earn. |
|
|
||||||||||||
|
|
|
|
Equity/ |
|
IEA/ |
|
Assets/ |
|
|
||||||||||||
|
|
|
|
Assets |
|
IBL |
|
Assets |
|
9/30/2015 |
|
6/30/2015 |
|
3/31/2015 |
|
12/31/2014 |
|
9/30/2014 |
|
6/30/2014 |
|
|
|
|
|
|
(%) |
|
(%) |
|
(%) |
|
(change in net interest income is annualized in basis points) |
|
|||||||||||
HarborOne Bank |
|
MA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015 |
|
|
|
8.2 |
% |
105.4 |
% |
5.5 |
% |
16 |
|
4 |
|
1 |
|
-4 |
|
12 |
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Public Companies |
|
|
|
12.9 |
% |
109.5 |
% |
6.5 |
% |
2 |
|
1 |
|
-6 |
|
2 |
|
0 |
|
2 |
|
|
State of MA |
|
|
|
13.4 |
% |
130.3 |
% |
5.4 |
% |
5 |
|
3 |
|
-9 |
|
-1 |
|
1 |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Recent MHC Offerings(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provident Bancorp, Inc. |
|
MA |
|
11.5 |
% |
109.1 |
% |
0.0 |
% |
12 |
|
6 |
|
7 |
|
-7 |
|
4 |
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
13.3 |
% |
112.3 |
% |
4.9 |
% |
3 |
|
2 |
|
-9 |
|
4 |
|
-1 |
|
0 |
|
|
Median |
|
|
|
10.0 |
% |
107.5 |
% |
5.0 |
% |
2 |
|
0 |
|
-6 |
|
3 |
|
0 |
|
-1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLMT |
BSB Bancorp, Inc. |
|
MA |
|
8.5 |
% |
107.4 |
% |
2.8 |
% |
4 |
|
-2 |
|
-4 |
|
-10 |
|
0 |
|
-10 |
|
BHBK |
Blue Hills Bancorp, Inc. |
|
MA |
|
20.6 |
% |
122.0 |
% |
5.1 |
% |
34 |
|
5 |
|
-47 |
|
23 |
|
17 |
|
14 |
|
CSBK |
Clifton Bancorp Inc. |
|
NJ |
|
29.3 |
% |
134.8 |
% |
6.3 |
% |
2 |
|
10 |
|
-9 |
|
10 |
|
9 |
|
-15 |
|
EBSB |
Meridian Bancorp, Inc. |
|
MA |
|
16.9 |
% |
117.3 |
% |
3.7 |
% |
7 |
|
9 |
|
4 |
|
4 |
|
-13 |
|
0 |
|
ESSA |
ESSA Bancorp, Inc. |
|
PA |
|
10.0 |
% |
107.0 |
% |
5.6 |
% |
-8 |
|
-3 |
|
-1 |
|
8 |
|
-14 |
|
23 |
|
FBNK |
First Connecticut Bancorp, Inc. |
|
CT |
|
9.0 |
% |
107.4 |
% |
4.2 |
% |
-3 |
|
5 |
|
-7 |
|
-7 |
|
-7 |
|
6 |
|
OCFC |
OceanFirst Financial Corp. |
|
NJ |
|
9.1 |
% |
105.5 |
% |
4.9 |
% |
3 |
|
0 |
|
0 |
|
-2 |
|
-8 |
|
-1 |
|
OSHC |
Ocean Shore Holding Co. |
|
NJ |
|
9.9 |
% |
107.8 |
% |
4.9 |
% |
-8 |
|
0 |
|
2 |
|
3 |
|
0 |
|
-3 |
|
SIFI |
SI Financial Group, Inc. |
|
CT |
|
9.5 |
% |
107.6 |
% |
5.6 |
% |
-3 |
|
-1 |
|
-19 |
|
10 |
|
5 |
|
-12 |
|
WFD |
Westfield Financial, Inc. |
|
MA |
|
10.3 |
% |
106.7 |
% |
6.0 |
% |
7 |
|
0 |
|
-10 |
|
-2 |
|
0 |
|
1 |
|
(1) Ratios are based on the date of the most recent financial statements disclosed in the offering prospectus.
Source: SNL Financial LC. and RP ® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2016 by RP ® Financial, LC.
maintained by the Peer Group, with respect to the increases that will be realized in Banks equity-to-assets and IEA/IBL ratios.
To analyze interest rate risk associated with the net interest margin, we reviewed quarterly changes in net interest income as a percent of average assets for HarborOne Bank and the Peer Group. In general, the comparative fluctuations in the Banks and the Peer Groups net interest income ratios implied that the interest rate risk associated with their respective net interest margins was fairly similar, based on the interest rate environment that prevailed during the period covered in Table 3.5. The stability of the Banks net interest margin should be enhanced by the infusion of stock proceeds, as interest rate sensitive liabilities will be funding a lower portion of HarborOne Banks assets and the proceeds will be substantially deployed into interest-earning assets.
Credit Risk
Overall, based on a comparison of credit risk measures, the Banks implied credit risk exposure was viewed to be greater relative to the Peer Groups credit risk exposure. As shown in Table 3.6, the Banks ratios for non-performing/assets and non-performing loans/loans equaled 2.62% and 3.14%, respectively, versus comparable measures of 1.02% and 1.25% for the Peer Group. It should be noted that the measures for non-performing assets and non-performing loans in Table 3.6 include accruing loans that are classified as troubled debt restructurings. The Banks and Peer Groups loss reserves as a percent of non-performing loans equaled 25.19% and 90.88%, respectively. Loss reserves maintained as percent of loans receivable equaled 0.79% for the Bank, versus 0.82% for the Peer Group. Net loan charge-offs were a slightly larger factor for the Bank, as net loan charge-offs for the Bank and the Peer Group equaled 0.09% and 0.07% of loans, respectively.
Summary
Based on the above analysis, RP Financial concluded that the Peer Group forms a reasonable basis for determining the pro forma market value of the Bank. Such general characteristics as asset size, capital position, interest-earning asset composition, funding composition, core earnings measures, loan composition, credit quality and exposure to interest rate risk all tend to support the reasonability of the Peer Group from a financial standpoint.
Table 3.6
Credit Risk Measures and Related Information
Comparable Institution Analysis
As of September 30, 2015 or the Most Recent Date Available
|
|
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|
|
NPAs & |
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|
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|
|
Rsrves/ |
|
|
|
|
|
|||
|
|
|
|
REO/ |
|
90+Del/ |
|
NPLs/ |
|
Rsrves/ |
|
Rsrves/ |
|
NPAs & |
|
Net Loan |
|
NLCs/ |
|
|||
|
|
|
|
Assets |
|
Assets (1) |
|
Loans (1) |
|
Loans HFI |
|
NPLs (1) |
|
90+Del (1) |
|
Chargeoffs (2) |
|
Loans |
|
|||
|
|
|
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
($000) |
|
(%) |
|
|||
HarborOne Bank |
|
MA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
December 31, 2015 |
|
|
|
0.11 |
% |
2.62 |
% |
3.14 |
% |
0.79 |
% |
25.19 |
% |
24.15 |
% |
$ |
1,491 |
|
0.09 |
% |
||
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|||
All Public Companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Averages |
|
|
|
0.22 |
% |
1.53 |
% |
1.81 |
% |
1.10 |
% |
93.61 |
% |
93.11 |
% |
$ |
2,077 |
|
0.09 |
% |
||
Medians |
|
|
|
0.11 |
% |
1.11 |
% |
1.31 |
% |
0.96 |
% |
70.82 |
% |
66.05 |
% |
$ |
346 |
|
0.06 |
% |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
State of MA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Averages |
|
|
|
0.03 |
% |
0.66 |
% |
0.78 |
% |
0.94 |
% |
142.19 |
% |
139.12 |
% |
$ |
294 |
|
0.02 |
% |
||
Medians |
|
|
|
0.00 |
% |
0.57 |
% |
0.67 |
% |
0.96 |
% |
127.38 |
% |
108.46 |
% |
$ |
63 |
|
0.01 |
% |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Comparable Recent MHC Offerings(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Provident Bancorp, Inc. |
|
MA |
|
0.00 |
% |
0.86 |
% |
1.13 |
% |
1.44 |
% |
127.75 |
% |
127.75 |
% |
$ |
305 |
|
0.06 |
% |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Comparable Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Averages |
|
|
|
0.07 |
% |
1.02 |
% |
1.25 |
% |
0.82 |
% |
90.88 |
% |
86.72 |
% |
$ |
869 |
|
0.07 |
% |
||
Medians |
|
|
|
0.05 |
% |
0.95 |
% |
1.07 |
% |
0.83 |
% |
68.71 |
% |
68.31 |
% |
$ |
635 |
|
0.05 |
% |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Comparable Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
BLMT |
|
BSB Bancorp, Inc. |
|
MA |
|
0.09 |
% |
0.58 |
% |
0.58 |
% |
0.72 |
% |
124.66 |
% |
105.50 |
% |
$ |
(77 |
) |
-0.01 |
% |
BHBK |
|
Blue Hills Bancorp, Inc. |
|
MA |
|
0.00 |
% |
0.27 |
% |
0.38 |
% |
1.10 |
% |
288.04 |
% |
288.04 |
% |
$ |
50 |
|
0.00 |
% |
CSBK |
|
Clifton Bancorp Inc. |
|
NJ |
|
0.00 |
% |
0.44 |
% |
0.75 |
% |
0.53 |
% |
71.02 |
% |
71.02 |
% |
$ |
76 |
|
0.01 |
% |
EBSB |
|
Meridian Bancorp, Inc. |
|
MA |
|
0.02 |
% |
1.47 |
% |
1.68 |
% |
1.11 |
% |
66.40 |
% |
65.60 |
% |
$ |
2,106 |
|
0.08 |
% |
ESSA |
|
ESSA Bancorp, Inc. |
|
PA |
|
0.16 |
% |
1.53 |
% |
1.99 |
% |
0.80 |
% |
40.35 |
% |
36.18 |
% |
$ |
1,790 |
|
0.17 |
% |
FBNK |
|
First Connecticut Bancorp, Inc. |
|
CT |
|
0.01 |
% |
1.26 |
% |
1.44 |
% |
0.86 |
% |
59.41 |
% |
58.82 |
% |
$ |
842 |
|
0.04 |
% |
OCFC |
|
OceanFirst Financial Corp. |
|
NJ |
|
0.13 |
% |
2.13 |
% |
2.62 |
% |
0.85 |
% |
32.41 |
% |
30.48 |
% |
$ |
1,472 |
|
0.08 |
% |
OSHC |
|
Ocean Shore Holding Co. |
|
NJ |
|
0.18 |
% |
1.05 |
% |
1.18 |
% |
0.40 |
% |
33.52 |
% |
27.82 |
% |
$ |
1,608 |
|
0.21 |
% |
SIFI |
|
SI Financial Group, Inc. |
|
CT |
|
0.09 |
% |
0.85 |
% |
0.95 |
% |
0.80 |
% |
84.49 |
% |
75.27 |
% |
$ |
428 |
|
0.04 |
% |
WFD |
|
Westfield Financial, Inc. |
|
MA |
|
0.00 |
% |
0.57 |
% |
0.96 |
% |
1.04 |
% |
108.46 |
% |
108.46 |
% |
$ |
398 |
|
0.05 |
% |
(1) Includes TDRs for the Company and the Peer Group.
(2) Net loan chargeoffs are shown on a last twelve month basis.
(3) Ratios are based on the date of the most recent financial statements disclosed in the offering prospectus.
Source: SNL Financial, LC and RP ® Financial, LC. calculations. The information provided in this table has been obrained from sources we believe are reliable,but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2016 by RP ® Financial, LC.
Those areas where differences exist will be addressed in the form of valuation adjustments to the extent necessary.
IV. VALUATION ANALYSIS
Introduction
This chapter presents the valuation analysis and methodology prepared pursuant to the regulatory guidelines, and valuation adjustments and assumptions used to determine the estimated pro forma market value of the common stock to be issued in conjunction with the Banks minority stock offering.
Appraisal Guidelines
The federal regulatory appraisal guidelines required by the FRB, the FDIC and state banking agencies specify the pro forma market value methodology for estimating the pro forma market value of an institution. Pursuant to this methodology: (1) a peer group of comparable publicly-traded institutions is selected; (2) a financial and operational comparison of the subject company to the peer group is conducted to discern key differences; and (3) a valuation analysis in which the pro forma market value of the subject company is determined based on the market pricing of the peer group as of the date of valuation, incorporating valuation adjustments for key differences. In addition, the pricing characteristics of recent conversions, both at conversion and in the aftermarket, must be considered. Given the unique differences in the pricing characteristics of publicly-traded MHCs relative to fully-converted thrift stocks, we have also reviewed the pricing characteristics of publicly-traded MHCs on a fully-converted basis.
RP Financial Approach to the Valuation
The valuation analysis herein complies with such regulatory approval guidelines. Accordingly, the valuation incorporates a detailed analysis based on the Peer Group, discussed in Chapter III, which constitutes fundamental analysis techniques. Additionally, the valuation incorporates a technical analysis of recently completed conversions, including closing pricing and aftermarket trading of such offerings. It should be noted that these valuation analyses cannot possibly fully account for all the market forces which impact trading activity and pricing characteristics of a stock on a given day.
The pro forma market value determined herein is a preliminary value for the Companys to-be-issued stock. Throughout the stock issuance process, RP Financial will: (1) review
changes in the Banks operations and financial condition; (2) monitor the Banks operations and financial condition relative to the Peer Group to identify any fundamental changes; (3) monitor the external factors affecting value including, but not limited to, local and national economic conditions, interest rates, and the stock market environment, including the market for thrift stocks; and (4) monitor pending conversion offerings, both regionally and nationally. If material changes should occur prior to the close of the offering, RP Financial will evaluate if updated valuation reports should be prepared reflecting such changes and their related impact on value, if any. RP Financial will also prepare a final valuation update at the closing of the offering to determine if the prepared valuation analysis and resulting range of value continues to be appropriate.
The appraised value determined herein is based on the current market and operating environment for the Bank and for all thrifts. Subsequent changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or major world events), which may occur from time to time (often with great unpredictability) may materially impact the market value of all thrift stocks, including HarborOne Banks value, the market value of the stocks of public MHC institutions, or HarborOne Banks value alone. To the extent a change in factors impacting the Banks value can be reasonably anticipated and/or quantified, RP Financial has incorporated the estimated impact into its analysis.
Valuation Analysis
A fundamental analysis discussing similarities and differences relative to the Peer Group was presented in Chapter III. The following sections summarize the key differences between the Bank and the Peer Group and how those differences affect the pro forma valuation. Emphasis is placed on the specific strengths and weaknesses of the Bank relative to the Peer Group in such key areas as financial condition, profitability, growth and viability of earnings, asset growth, primary market area, dividends, liquidity of the shares, marketing of the issue, management, and the effect of government regulations and/or regulatory reform. We have also considered the market for thrift stocks, in particular new issues, to assess the impact on value of HarborOne Bank coming to market at this time.
1. Financial Condition
The financial condition of an institution is an important determinant in pro forma market value because investors typically look to such factors as liquidity, capital, asset composition and quality, and funding sources in assessing investment attractiveness. The similarities and differences in the Banks and the Peer Groups financial strengths are noted as follows:
· Overall A/L Composition . Loans funded by retail deposits were the primary components of both HarborOne Banks and the Peer Groups balance sheets. The Banks interest-earning asset composition exhibited a higher concentration of loans and a greater degree of diversification into higher risk types of loans. Overall, the Banks asset composition provided for a lower yield earned on interest-earning assets and a higher risk weighted assets-to-assets ratio in comparison to the Peer Groups ratios. HarborOne Banks funding composition reflected a higher level of deposits and a slightly lower level of borrowings in comparison to the Peer Groups ratios, which provided the Bank with a slightly higher cost of funds than maintained by the Peer Group. Overall, as a percent of assets, the Bank maintained slightly lower level of interest-earning assets and a higher level of interest-bearing liabilities relative to the comparable ratios for the Peer Group, which translated into a lower IEA/IBL ratio for the Bank. After factoring in the impact of the net stock proceeds, the Banks IEA/IBL ratio will be more comparable to or exceed the Peer Groups ratio. On balance, RP Financial concluded that asset/liability composition was a neutral factor in our adjustment for financial condition.
· Credit Quality. The Banks ratios for non-performing assets as a percent of assets and non-performing loans as a percent of loans were higher than the comparable ratios for the Peer Group. In comparison to the Peer Group, the Bank maintained lower loss reserves as a percent of non-performing loans and similar reserves as a percent of loans. Net loan charge-offs as a percent of loans were similar for the Bank and the Peer Group. The Banks risk weighted assets-to-assets ratio was higher than the Peer Groups ratio. Overall, RP Financial concluded that credit quality was a slightly negative factor in our adjustment for financial condition.
· Balance Sheet Liquidity . The Peer Group operated with a higher level of cash and investment securities relative to the Bank (20.96% of assets versus 11.63% for the Bank). Following the infusion of stock proceeds, the Banks cash and investments ratio is expected to increase as a portion of the proceeds retained at the holding company level will initially be held in short-term liquid funds. The Banks future borrowing capacity was considered to be similar to the Peer Groups borrowing capacity, given the fairly comparable borrowings-to-assets ratios currently maintained by the Bank and the Peer Group. Overall, RP Financial concluded that balance sheet liquidity was a neutral factor in our adjustment for financial condition.
· Funding Liabilities . The Banks interest-bearing funding composition reflected a higher concentration of deposits and a slightly lower level of borrowings relative to the comparable Peer Group ratios, which translated into a slightly higher cost
of funds for the Bank. The Banks ratio of total interest-bearing liabilities as a percent of assets was above the Peer Groups ratio. Following the stock offering, the increase in the Banks capital position will reduce the level of interest-bearing liabilities funding the Banks assets to a level that is more comparable to the Peer Groups ratio of interest-bearing liabilities as a percent of assets. Overall, RP Financial concluded that funding liabilities were a neutral factor in our adjustment for financial condition.
· Capital . The Peer Group currently operates with a higher equity-to-assets ratio than the Bank. Following the stock offering, HarborOne Banks pro forma capital position will be more comparable to the Peer Groups equity-to-assets ratio. On balance, RP Financial concluded that capital strength was a neutral factor in our adjustment for financial condition.
On balance, HarborOne Banks balance sheet strength was considered to be less favorable than the Peer Groups balance sheet strength and, thus, a slight downward adjustment was applied for the Banks financial condition.
2. Profitability, Growth and Viability of Earnings
Earnings are a key factor in determining pro forma market value, as the level and risk characteristics of an institutions earnings stream and prospects to generate future earnings heavily influence the multiple that the investment community will pay for earnings. The major factors considered in the valuation are described below.
· Reported Earnings . The Banks reported earnings were lower than the Peer Groups on a ROAA basis (0.27% of average assets versus 0.57% for the Peer Group). The Peer Group maintained more favorable ratios for net interest income, operating expenses and net gains, which were partially offset by the Banks more favorable ratios for loan loss provisions and non-interest operating income. Notably, the Banks earnings advantage with respect to non-interest operating income was primarily attributable to revenues derived from its mortgage banking operations, which tend to subject to greater volatility relative to revenues derived from other sources of non-interest operating income such as customer service charges and fees. Reinvestment of stock proceeds into interest-earning assets will serve to increase the Banks earnings, with the benefit of reinvesting proceeds expected to be somewhat offset by higher operating expenses associated with operating as a publicly-traded company and the implementation of stock benefit plans. Overall, the Banks reported earnings were considered to be less favorable than the Peer Groups reported earnings and, thus, RP Financial concluded that this was a moderately negative factor in our adjustment for profitability, growth and viability of earnings.
· Core Earnings . Net interest income, operating expenses, non-interest operating income and loan loss provisions were reviewed in assessing the relative strengths and weaknesses of the Banks and the Peer Groups core earnings. In these measures, the Bank operated with a lower net interest income ratio, a higher operating expense ratio and a higher level of non-interest operating
income. The Banks lower net interest income ratio and higher operating expense ratio translated into a lower expense coverage ratio in comparison to the Peer Groups ratio (equal to 0.67x versus 1.21x for the Peer Group). Similarly, the Banks efficiency ratio of 89.53% was less favorable than the Peer Groups efficiency ratio of 71.90%. Loan loss provisions had a slightly larger impact on the Peer Groups earnings. Overall, these measures, as well as the expected earnings benefits the Bank should realize from the redeployment of stock proceeds into interest-earning assets and leveraging of post-conversion capital, which will be somewhat negated by expenses associated with the stock benefit plans and operating as a publicly-traded company, indicate that the Banks pro forma core earnings will remain less favorable than the Peer Groups core earnings. Therefore, RP Financial concluded that this was a moderately negative factor in our adjustment for profitability, growth and viability of earnings.
· Interest Rate Risk . Quarterly changes in the Banks and the Peer Groups net interest income to average assets ratios indicated that a similar degree of volatility was associated with their respective net interest margins. Other measures of interest rate risk, such as capital levels, IEA/IBL ratios and levels of non-interest earning assets were more favorable for the Peer Group. On a pro forma basis, the infusion of stock proceeds can be expected to provide the Bank with equity-to-assets and IEA/ILB ratios that are comparable to the Peer Group ratios, as well as enhance the stability of the Banks net interest margin. Accordingly, on balance, this was a neutral factor in our adjustment for profitability, growth and viability of earnings.
· Credit Risk . Loan loss provisions were a slightly larger factor in the Peer Groups earnings (0.11% of average assets versus 0.06% of average assets for the Bank). In terms of future exposure to credit quality related losses, the Bank maintained a higher concentration of assets in loans and greater diversification into higher risk types of loans. Recent loan growth by the Banks was largely sustained by originations of commercial real estate loans, which significantly increased the concentration of commercial real estate loans held in the Banks loan portfolio. Accordingly, the relatively high concentration of unseasoned commercial real estate loans held in the Banks loan portfolio represented an additional area of credit risk exposure for the Bank. The Banks credit quality measures generally implied a higher degree of credit risk exposure relative to the comparable credit quality measures indicated for the Peer Group. Overall, RP Financial concluded that credit risk was a slightly negative factor in our adjustment for profitability, growth and viability of earnings.
· Earnings Growth Potential . Several factors were considered in assessing earnings growth potential. First, the Peer Group currently maintains a higher interest rate spread than the Bank, which would tend to facilitate a continuation of a higher net interest margin for the Peer Group goring forward. Second, the infusion of stock proceeds will provide the Bank with similar growth potential through leverage as currently maintained by the Peer Group. Third, the Banks higher ratios of non-interest operating income and operating expenses were viewed as a respective advantage and disadvantage to sustain earnings growth during periods when net interest margins come under pressure as the result of adverse changes in interest rates. Overall, earnings growth potential was
considered to be a neutral factor in our adjustment for profitability, growth and viability of earnings.
· Return on Equity . Currently, the Banks core ROE is lower than the Peer Groups core ROE. As the result of the increase in capital that will be realized from the infusion of net stock proceeds into the Banks equity, the Banks pro forma return equity on a core earnings basis will remain lower than the Peer Groups core ROE. Accordingly, this was a moderately negative factor in the adjustment for profitability, growth and viability of earnings.
On balance, HarborOne Banks pro forma earnings strength was considered to be less favorable than the Peer Groups and, thus, a moderate downward adjustment was applied for profitability, growth and viability of earnings.
3. Asset Growth
Comparative asset growth rates for the Bank and the Peer Group showed a 5.94% increase in the Banks assets, versus an 8.37% increase in the Peer Groups assets. Asset growth for the Bank was sustained by an 8.32% increase in loans, which was partially funded with cash and investments. Similarly, the Peer Groups asset growth was sustained by a 14.04% increase in loans, which was partially funded with cash and investments. Overall, the Banks recent asset growth trends would tend to be viewed fairly comparable to the Peer Groups asset growth trends in terms of supporting future earnings growth. On a pro forma basis, the Banks tangible equity-to-assets ratio will be comparable to the Peer Groups tangible equity-to-assets ratio, providing the Bank with similar leverage capacity as maintained by the Peer Group. On balance, no adjustment was applied for asset growth.
4. Primary Market Area
The general condition of an institutions market area has an impact on value, as future success is in part dependent upon opportunities for profitable activities in the local market served. HarborOne Bank serves the Boston metropolitan area through 14 full service branch offices. Operating in a densely populated market area provides the Bank with growth opportunities, but such growth must be achieved in a highly competitive market environment. The Bank competes against significantly larger institutions that provide a larger array of services and have significantly larger branch networks than maintained by HarborOne Bank.
The Peer Group companies generally operate in markets with similarly sized population as Plymouth County. Population growth for the primary market area counties served by the
Peer Group companies reflected a range of growth rates, but, overall, population growth rates in the markets served by the Peer Group companies were less than Plymouth Countys recent historical and projected population growth rates. Plymouth County has a higher per capita income compared to the Peer Groups average per capita income and, on average, the Peer Groups primary market area counties were slightly less affluent markets within their respective states compared to Plymouth Countys per capita income as a percent of Massachusetts per capita income (89.6% for the Peer Group versus 97.0% for Plymouth County). The average and median deposit market shares maintained by the Peer Group companies were lower than the Banks market share of deposits in Plymouth County. Overall, the degree of competition faced by the Peer Group companies was viewed as similar to the Banks competitive environment in Plymouth County, while the growth potential in the markets served by the Peer Group companies was for the most part viewed to be slightly less favorable than provided by the Banks primary market area. Summary demographic and deposit market share data for the Bank and the Peer Group companies is provided in Exhibit III-4. As shown in Table 4.1, the average unemployment rate for the primary market area counties served by the Peer Group companies was above the unemployment rate reflected for Plymouth County. On balance, we concluded that a slight upward adjustment was appropriate for the Banks market area.
Table 4.1
Market Area Unemployment Rates
HarborOne Bank and the Peer Group Companies (1)
|
|
|
|
November 2015 |
|
|
|
County |
|
Unemployment |
|
|
|
|
|
|
|
HarborOne Bank - MA |
|
Plymouth |
|
4.7 |
% |
|
|
|
|
|
|
Peer Group Average |
|
|
|
5.8 |
|
|
|
|
|
|
|
The Peer Group |
|
|
|
|
|
|
|
|
|
|
|
BSB Bancorp, Inc. MA |
|
Middlesex |
|
3.8 |
|
Blue Hills Bancorp, Inc. - MA |
|
Suffolk |
|
4.3 |
|
Clifton Bancorp, Inc. - NJ |
|
Passaic |
|
6.0 |
|
ESSA Bancorp, Inc. PA |
|
Monroe |
|
5.4 |
|
First Connecticut Bancorp, Inc. CT |
|
Hartford |
|
5.0 |
|
Meridian Bancorp, Inc. - MA |
|
Essex |
|
4.8 |
|
OceanFirst Financial Corp. NJ |
|
Ocean |
|
5.4 |
|
Ocean Shore Holding Co. NJ |
|
Cape May |
|
12.5 |
|
SI Financial Group, Inc. CT |
|
Windham |
|
5.2 |
|
Westfield Financial Inc. MA |
|
Hampden |
|
6.0 |
|
(1) Unemployment rates are not seasonally adjusted.
Source: SNL Financial, LC; Department of Labor.
5. Dividends
At this time the Bank has not established a dividend policy. Future declarations of dividends by the Board of Directors will depend upon a number of factors, including investment opportunities, growth objectives, financial condition, profitability, tax considerations, minimum capital requirements, regulatory limitations, stock market characteristics and general economic conditions.
Nine out of the ten Peer Group companies pay regular cash dividends, with implied dividend yields ranging from 0.58% to 3.19%. The average dividend yield on the stocks of the Peer Group institutions equaled 1.46% as of February 5, 2016. Comparatively, as of February 5, 2016, the average dividend yield on the stocks of all fully-converted publicly-traded thrifts equaled 1.79%.
Our valuation adjustment for dividends for HarborOne Bank also considered the regulatory policy with regard to payment of dividends to the MHC. Under current FRB policy, any dividends declared by HarborOne Bancorp would be required to be paid to all shareholders. Accordingly, dividends paid by HarborOne Bancorp would increase the amount of assets held by the MHC, after adjusting for applicable income taxes, and, thereby, increase the implied dilution incurred by the minority shareholders in a second-step conversion pursuant to the calculation to account for net assets held by the MHC in a second-step offering.
Overall, while the Bank has not established a definitive dividend policy prior to its stock offering, the Bank will have the capacity to pay a dividend comparable to the Peer Groups average dividend yield based on pro forma earnings and capitalization. At the same time, dividend payments retained by the MHC would increase the implied dilution to minority shareholders in a second-step offering. On balance, we concluded that a slight downward adjustment was warranted for purposes of the Banks dividend policy.
6. Liquidity of the Shares
The Peer Group is by definition composed of companies that are traded in the public markets. All ten of the Peer Group members trade on the NASDAQ system. Typically, the number of shares outstanding and market capitalization provides an indication of how much liquidity there will be in a particular stock. The market capitalization of the Peer Group companies ranged from $113.7 million to $393.8 million as of February 5, 2016, with average
and median market values of $280.3 million and $225.9 million, respectively. The shares issued and outstanding of the Peer Group companies ranged from 6.4 million to 54.9 million, with average and median shares outstanding of 19.9 million and 16.6 million, respectively. The Banks stock offering is expected to have a pro forma public market value and shares outstanding of public shareholders that will be in the lower end of the ranges of market values and shares outstanding indicated for the Peer Group companies. Like all of the Peer Group companies, the Banks stock will be quoted on the NASDAQ following the stock offering. Overall, we anticipate that the Banks public stock will have a comparable trading market as the Peer Group companies on average and, therefore, concluded no adjustment was necessary for this factor.
7. Marketing of the Issue
Three separate markets exist for thrift stocks: (1) the after-market for public companies, both fully-converted stock companies and MHCs, in which trading activity is regular and investment decisions are made based upon financial condition, earnings, capital, ROE, dividends and future prospects; (2) the new issue market in which converting thrifts are evaluated on the basis of the same factors but on a pro forma basis without the benefit of prior operations as a publicly-held company and stock trading history; and (3) the thrift acquisition market. All three of these markets were considered in the valuation of the Banks to-be-issued stock.
A. The Public Market
The value of publicly-traded thrift stocks is easily measurable, and is tracked by most investment houses and related organizations. Exhibit IV-1 provides pricing and financial data on all publicly-traded thrifts. In general, thrift stock values react to market stimuli such as interest rates, inflation, perceived industry health, projected rates of economic growth, regulatory issues and stock market conditions in general. Exhibit IV-2 displays historical stock market trends for various indices and includes historical stock price index values for thrifts and commercial banks. Exhibit IV-3 displays various stock price indices as of February 5, 2016.
In terms of assessing general stock market conditions, the performance of the overall stock market has been mixed in recent quarters. A more favorable outlook on Greeces
financial crisis helped stocks to advance at the start of the third quarter of 2015, which was followed by the Dow Jones Industrial Average (DJIA) declining to a five-month low in the second week of July as the sell-off in Chinas stock market rippled through markets globally. News of a bailout deal secured by Greece supported a stock market rally in mid-July, while some favorable second quarter earnings reports coming out of the technology sector lifted the NASDAQ to three consecutive record high closes heading into the second half of July. Comparatively, the DJIA approached a six-month low in late-July, as disappointing earnings by some of the Dow components and a continued sell-off in Chinas stock market weighed on the broader stock market. A measured Federal Reserve policy statement that reaffirmed it would move cautiously on raising interest rates and an easing of the sell-off in Chinas stock market boosted stocks at the end of July. The DJIA recorded seven consecutive losses through the first week of trading in August, which was driven by weak earnings reports posted by some media and oil stocks. A rebound in beaten down energy shares and 2015s largest merger announcement fueled stock market gains heading into mid-August, which was followed by a sharp sell-off as Chinas surprising decision to devalue its currency rattled global markets. Stocks closed out the second week of August on a slight upswing. Volatility prevailed in the stock market during the second half of August 2015 and for most of September 2015. Worries about the pace of global growth jolted stock markets worldwide in the second half of August, with the DJIA plunging over 1,800 points during six consecutive trading sessions. Renewed optimism about the strength of the U.S. economy and comments from a Federal Reserve official stating the case for a September rate increase had become less compelling snapped the six-day losing streak, as the DJIA rebounded 988 points in consecutive trading sessions during late-August. Overall, the DJIA declined 6.6% in August, its largest one month percentage decline since May 2010. Volatility continued to prevail in the broader stock market in early-September, as investors considered fresh evidence that Chinas economic slowdown was hurting the global economy, the possibility of Chinas central bank would take more steps to stabilize its economy and disappointing job growth reflected in the August employment report. Stocks rallied ahead of the Federal Reserves mid-September meeting, which was followed by a downturn in the broader stock market after the Federal Reserve concluded to hold short-term interest rates steady. Declines in the auto, biotech and energy sectors led the market lower heading into late-September, which was followed by a rebound as the Federal Reserve Chairwoman added clarity that she expected interest rates would go up in 2015. Biotech and healthcare shares led the market lower in late-September, which was followed by a two day rebound in the stock market to close out the third quarter. For the third quarter overall, all three major U.S. stock indexes posted their biggest quarterly losses in four years.
The broader stock market soared higher at the start of the fourth quarter of 2015, with the DJIA trading up for seven consecutive sessions for a total gain of 860 points between October 2 nd and October 12 th . Factors contributing to the rally included a rebound in energy shares supported by an increase in oil prices, raised expectations that the Federal Reserve would not raise interest rates in the near term following the weak employment report for September and a rebound in oversold healthcare stocks. A gloomy earnings forecast by Wal-Mart pulled stocks lower in mid-October, which was followed by a broader stock market rebound heading into the second half of October. Lackluster U.S. economic data reducing expectations of a near term rate increase by the Federal Reserve, indications from the European Central Bank that is was prepared to do more to stimulate growth and a rate cut by Chinas central bank were factors contributing to gains in the broader stock market. Stocks continued to surge higher in late-October, after the Federal Reserve concluded its two-day meeting leaving interest rates unchanged and toned down its concerns about global financial markets. The DJIA closed up 8.5% for the month of October, which was the biggest monthly percentage gain in four years. Led by a rally in energy stocks, the DJIA moved back into positive territory for 2015 in early-November. Concerns about the health of the global economy and lower oil prices weighed on stocks going into mid-November. Indications from the Federal Reserve that the U.S. economy was strong enough for a rate increase and a rebound in energy, healthcare and technology stocks helped stocks to rally during the second half of November. A strong jobs report for November added to stock market gains in the first week of December. A sell-off in energy shares led the market lower going into mid-December, as oil prices fell to their lowest level in seven years. Stocks rallied on the Federal Reserves mid-December rate hike, as investors responded to the Federal Reserves upbeat message on the U.S. economy. Grim news from the energy and mining sectors, along with worries about slowing economies overseas, sent the DJIA to its lowest close in two months heading into the final two weeks of 2015. A rebound in energy stocks contributed to stock market gains in late-December, which was followed by a mild pullback in the final trading week of 2015. Overall, 2015 was the worst year for U.S. stocks since 2008.
The DJIA tumbled more than 1,000 points or 6.2% during the first week of trading 2016, as fresh concerns about Chinas economy and a steep decline in oil prices rattled stock markets worldwide. Investor anxiety over the global economy and further declines in oil prices continued to weigh on stocks through most of January, although stocks rebounded at the end of January with higher oil prices and the Bank of Japans surprise decision to shift to negative
interest rates contributing to gains in the broader stock market. Overall, the DJIA was down 5.5% for the month of January. Stocks closed lower during the first week of February, as investors reacted to oil falling below $30 a barrel and January employment data showing a slowdown in job growth. On February 5, 2016, the DJIA closed at 16204.97, a decrease of 9.1% from one year ago and a decrease of 7.0% year-to-date, and the NASDAQ closed at 4363.14, a decrease of 8.0% from one year ago and a decrease of 12.9% year-to-date. The Standard & Poors 500 Index closed at 1880.05 on February 5, 2016, a decrease of 8.5% from one year ago and a decrease of 8.0% year-to-date.
The market for thrift stocks has also experienced varied trends in recent quarters, but, in general, thrift stocks outperformed the broader stock market. Thrift shares paralleled trends in the broader stock market during the first half of July 2015, as investors focused on Greeces debt problems and the sell-off in Chinas stock market. Second quarter earnings reports for the financial sector were generally in line with expectations, which translated into a relatively flat market for thrift stocks during the second half of July. The Federal Reserves cautious outlook on raising interest rates and a favorable employment report for July contributed to thrift shares trading higher at the close of July, with the positive trend continuing through the first half of August. Lower interest rates and oil prices weighed on financial shares during the second half of August 2015, although generally favorable housing data somewhat negated the downturn in thrift stocks. For the entire month of August, the SNL Index for all publicly-traded thrifts showed a comparatively modest decline of 2.8%. A sell-off in the broader stock market and a disappointing reading for manufacturing activity pressured thrift stocks lower at the start of September. Following the one-day sell-off, thrift shares generally trended higher into mid-September in advance of the Federal Reserves policy meeting. Financial shares led the market lower after the Federal Reserve elected to hold short-term interest rates steady at the conclusion of its mid-September meeting. Worries about slower economic growth provided for a slight pull back in thrift shares during the second half of September.
Thrift stocks traded higher in early-October 2015, as investors bet that low interest rates would stay around for longer following the weaker-than-expected job growth reflected in the September employment report. Third quarter earnings reports posted by the thrift sector translated into a narrow trading range for thrift stocks during the second half of October, as the majority of thrifts reported third quarter earnings that were in line with analyst estimates and continued to reflect additional net interest margin compression. Thrift stocks
participated in the broader stock market rally at the conclusion of the Federal Reserves policy meeting in late-October, but reversed course at the end of October as shares of New York Community Bancorp and Astoria Financial Corp. declined following the announcement of their $2.0 billion strategic merger. Thrift stocks recovered in early-November, as financial shares led the market higher on the strong jobs report for October. A disappointing report for October retail sales pressured thrift shares lower in mid-November, while merger activity in the thrift sector helped thrift stocks outperform the broader stock market during the second half of November. Thrift stocks rallied on the sturdy job growth reflected in the November employment data and then declined going into mid-December, as concerns about the global economy translated into a sell-off in the broader stock market. Thrift stocks participated in the broader stock market rally following the Federal Reserves mid-December rate hike and then settled into a narrow trading during the closing weeks of 2015.
Thrift shares participated in the broader stock market sell-off during the first week of 2016. A weak retail sales report for December and other signs of a slowing U.S. economy furthered the downward trend in thrift prices into the second half of January. The sell-off in financial shares tended to more significant among institutions with lending exposure to the energy sector and international markets. Thrift stocks rebounded with the broader stock market at the close of January, which was followed by a pullback during first week of February amid disappointing economic reports for January manufacturing activity and January job growth. On February 5, 2016, the SNL Index for all publicly-traded thrifts closed at 738.0, an increase of 1.5% from one year ago and a decrease of 8.8% year-to-date.
B. The New Issue Market
In addition to thrift stock market conditions in general, the new issue market for converting thrifts is also an important consideration in determining the Banks pro forma market value. The new issue market is separate and distinct from the market for seasoned thrift stocks in that the pricing ratios for converting issues are computed on a pro forma basis, specifically: (1) the numerator and denominator are both impacted by the conversion offering amount, unlike existing stock issues in which price change affects only the numerator; and (2) the pro forma pricing ratio incorporates assumptions regarding source and use of proceeds, effective tax rates, stock plan purchases, etc. which impact pro forma financials, whereas pricing for existing issues are based on reported financials. The distinction between pricing of converting and existing issues is perhaps no clearer than in the case of the price/book (P/B) ratio in that the
P/B ratio of a converting thrift will typically result in a discount to book value whereas in the current market for existing thrifts the P/B ratio often reflects a premium to book value. Therefore, it is appropriate to also consider the market for new issues, both at the time of the conversion and in the aftermarket.
As shown in Table 4.2, one standard conversion offering and one second-step conversion were completed during the past three months. No first-step MHC offerings were completed during the past three months. The most recent first-step MHC offering was completed Cincinnati Bancorp of Ohio, which completed its mutual holding company offering on October 15, 2015. Cincinnati Bancorps offering was closed at the top of its offering range equal to gross proceeds of $7.7 million and a pro forma fully-converted price/tangible book ratio of 66.7%. After the first week of trading, Cincinnati Bancorps stock price was down 5.0% from its IPO price. As of February 5, 2016, Cincinnati Bancorps stock price was down 9.8% from its IPO price.
Shown in Table 4.3 is the current pricing ratios for PB Bancorp, Inc., which was the only fully-converted offering completed during the past three months that trades on NASDAQ. PB Bancorps current P/TB ratio is 88.58%, based on its closing stock price as of February 5, 2016.
C. The Acquisition Market
Also considered in the valuation was the potential impact on HarborOne Banks stock price of recently completed and pending acquisitions of other savings institutions operating in Massachusetts. As shown in Exhibit IV-4, there were fifteen Massachusetts thrift acquisitions completed from the beginning of 2011 through year-to-date 2016, and there are currently two acquisition pending for a Massachusetts savings institution. To the extent that speculation of a re-mutualization may impact the Banks valuation, we have largely taken this into account in selecting companies for the Peer Group which operate in markets that have experienced a comparable level of acquisition activity as the Banks market and, thus, are subject to the same type of acquisition speculation that may influence HarborOne Bancorps stock. However, since converting thrifts are subject to a three-year regulatory moratorium from being acquired, acquisition speculation in HarborOne Bancorps stock would tend to be less compared to the
Table 4.2 |
Pricing Characteristics and After-Market Trends |
Conversions Completed in the Last Three Months |
Institutional Information
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|
Pre-Conversion Data |
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|
|
Contribution to |
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|||||||||||||||||
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Financial Info. |
|
Asset Quality |
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Offering Information |
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Char. Found. |
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|||||||||||||||
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Excluding Foundation |
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% Of |
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|||||||||
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|
|
|
|
|
|
|
Equity/ |
|
NPAs/ |
|
Res. |
|
Gross |
|
% |
|
% of |
|
Exp./ |
|
|
|
Public Off. |
|
|||
|
|
Conversion |
|
Ticker |
|
Assets |
|
Assets |
|
Assets |
|
Cov. |
|
Proc. |
|
Offer |
|
Mid. |
|
Proc. |
|
|
|
Inc. Fdn. |
|
|||
Institution |
|
Date |
|
(%) |
|
($Mil) |
|
(%) |
|
(%) |
|
(%) |
|
($Mil.) |
|
(%) |
|
(%) |
|
(%) |
|
Form |
|
(%) |
|
|||
Standard Conversions |
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|
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|
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|
|||
Central Federal Bancshares, Inc. - MO |
|
1/13/16 |
|
MFDB-OTC Pink |
|
$ |
62 |
|
22.08 |
% |
1.50 |
% |
89 |
% |
$ |
17.2 |
|
96 |
% |
132 |
% |
7.0 |
% |
C/S |
|
$ |
100K/3.85% |
|
|
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|
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|
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|
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|
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|
|||
Averages - Second Step Conversions: |
|
|
|
|
|
$ |
62 |
|
22.08 |
% |
1.50 |
% |
89 |
% |
$ |
17.2 |
|
96 |
% |
132 |
% |
7.0 |
% |
N.A. |
|
N.A. |
|
|
Medians - Second Step Conversions: |
|
|
|
|
|
$ |
62 |
|
22.08 |
% |
1.50 |
% |
89 |
% |
$ |
17.2 |
|
96 |
% |
132 |
% |
7.0 |
% |
N.A. |
|
N.A. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|||
Second-Step Conversions |
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|
|
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|
|
|
|||
PB Bancorp, Inc. - CT* |
|
1/8/16 |
|
PBBI-NASDAQ |
|
$ |
469 |
|
11.23 |
% |
1.63 |
% |
38 |
% |
$ |
36.3 |
|
100 |
% |
132 |
% |
3.8 |
% |
N.A. |
|
N.A. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|||
Averages - MHC Conversions: |
|
|
|
|
|
$ |
469 |
|
11.23 |
% |
1.63 |
% |
38 |
% |
$ |
36.3 |
|
100 |
% |
132 |
% |
3.8 |
% |
N.A. |
|
N.A. |
|
|
Medians - MHC Conversions: |
|
|
|
|
|
$ |
469 |
|
11.23 |
% |
1.63 |
% |
38 |
% |
$ |
36.3 |
|
100 |
% |
132 |
% |
3.8 |
% |
N.A. |
|
N.A. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Averages - All Conversions: |
|
|
|
|
|
$ |
266 |
|
16.66 |
% |
1.57 |
% |
63 |
% |
$ |
26.7 |
|
98 |
% |
132 |
% |
5.4 |
% |
N.A. |
|
N.A. |
|
|
Medians - All Conversions: |
|
|
|
|
|
$ |
266 |
|
16.66 |
% |
1.57 |
% |
63 |
% |
$ |
26.7 |
|
98 |
% |
132 |
% |
5.4 |
% |
N.A. |
|
N.A. |
|
|
|
|
Insider Purchases |
|
|
|
Pro Forma Data |
|
|
|
Post-IPO Pricing Trends |
|
|||||||||||||||||||||||||||||||||||
|
|
% Off Incl. Fdn.+Merger Shares |
|
|
|
Pricing Ratios(2)(5) |
|
Financial Charac. |
|
|
|
Closing Price: |
|
|||||||||||||||||||||||||||||||||
|
|
Benefit Plans |
|
|
|
Initial |
|
|
|
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|
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|
|
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|
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First |
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After |
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After |
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|
|||||||||
|
|
|
|
Recog. |
|
Stk |
|
Mgmt.& |
|
Div. |
|
|
|
Core |
|
|
|
Core |
|
|
|
Core |
|
IPO |
|
Trading |
|
% |
|
First |
|
% |
|
First |
|
% |
|
Thru |
|
% |
|
|||||
|
|
ESOP |
|
Plans |
|
Option |
|
Dirs. |
|
Yield |
|
P/TB |
|
P/E |
|
P/A |
|
ROA |
|
TE/A |
|
ROE |
|
Price |
|
Day |
|
Chge |
|
Week(3) |
|
Chge |
|
Month(4) |
|
Chge |
|
2/5/2016 |
|
Chge |
|
|||||
Institution |
|
(%) |
|
(%) |
|
(%) |
|
(%)(1) |
|
(%) |
|
(%) |
|
(x) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
($) |
|
($) |
|
(%) |
|
($) |
|
(%) |
|
($) |
|
(%) |
|
($) |
|
(%) |
|
|||||
Standard Conversions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|||||
Central Federal Bancshares, Inc. - MO |
|
8.0 |
% |
4.0 |
% |
10.0 |
% |
0.8 |
% |
0.00 |
% |
64.6 |
% |
NM |
|
23.6 |
% |
-0.1 |
% |
36.5 |
% |
-0.2 |
% |
$ |
10.00 |
|
$ |
10.45 |
|
4.5 |
% |
$ |
10.54 |
|
5.4 |
% |
$ |
10.71 |
|
16.0 |
% |
$ |
10.71 |
|
25.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Averages - Second Step Conversions: |
|
8.0 |
% |
4.0 |
% |
10.0 |
% |
0.8 |
% |
0.00 |
% |
64.6 |
% |
NM |
|
23.6 |
% |
-0.1 |
% |
36.5 |
% |
-0.2 |
% |
$ |
10.00 |
|
$ |
10.45 |
|
4.5 |
% |
$ |
10.54 |
|
5.4 |
% |
$ |
10.71 |
|
16.0 |
% |
$ |
10.71 |
|
25.6 |
% |
Medians - Second Step Conversions: |
|
8.0 |
% |
4.0 |
% |
10.0 |
% |
0.8 |
% |
0.00 |
% |
64.6 |
% |
NM |
|
23.6 |
% |
-0.1 |
% |
36.5 |
% |
-0.2 |
% |
$ |
10.00 |
|
$ |
10.45 |
|
4.5 |
% |
$ |
10.54 |
|
5.4 |
% |
$ |
10.71 |
|
16.0 |
% |
$ |
10.71 |
|
25.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Second-Step Conversions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
PB Bancorp, Inc. - CT* |
|
7.0 |
% |
4.0 |
% |
10.0 |
% |
1.9 |
% |
0.00 |
% |
75.4 |
% |
94.5x |
|
12.6 |
% |
0.1 |
% |
15.5 |
% |
0.8 |
% |
$ |
8.00 |
|
$ |
9.00 |
|
12.5 |
% |
$ |
8.77 |
|
9.6 |
% |
$ |
8.62 |
|
7.7 |
% |
$ |
8.62 |
|
7.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Averages - MHC Conversions: |
|
7.0 |
% |
4.0 |
% |
10.0 |
% |
1.9 |
% |
0.00 |
% |
75.4 |
% |
94.5x |
|
12.6 |
% |
0.1 |
% |
15.5 |
% |
0.8 |
% |
$ |
8.00 |
|
$ |
9.00 |
|
12.5 |
% |
$ |
8.77 |
|
9.6 |
% |
$ |
8.62 |
|
7.7 |
% |
$ |
8.62 |
|
7.7 |
% |
Medians - MHC Conversions: |
|
7.0 |
% |
4.0 |
% |
10.0 |
% |
1.9 |
% |
0.00 |
% |
75.4 |
% |
94.5x |
|
12.6 |
% |
0.1 |
% |
15.5 |
% |
0.8 |
% |
$ |
8.00 |
|
$ |
9.00 |
|
12.5 |
% |
$ |
8.77 |
|
9.6 |
% |
$ |
8.62 |
|
7.7 |
% |
$ |
8.62 |
|
7.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Averages - All Conversions: |
|
7.5 |
% |
4.0 |
% |
10.0 |
% |
1.4 |
% |
0.00 |
% |
70.0 |
% |
94.5x |
|
18.1 |
% |
0.0 |
% |
26.0 |
% |
0.3 |
% |
$ |
9.00 |
|
$ |
9.73 |
|
8.5 |
% |
$ |
9.66 |
|
7.5 |
% |
$ |
9.67 |
|
11.9 |
% |
$ |
9.67 |
|
16.7 |
% |
Medians - All Conversions: |
|
7.5 |
% |
4.0 |
% |
10.0 |
% |
1.4 |
% |
0.00 |
% |
70.0 |
% |
94.5x |
|
18.1 |
% |
0.0 |
% |
26.0 |
% |
0.3 |
% |
$ |
9.00 |
|
$ |
9.73 |
|
8.5 |
% |
$ |
9.66 |
|
7.5 |
% |
$ |
9.67 |
|
11.9 |
% |
$ |
9.67 |
|
16.7 |
% |
Note: * - Appraisal performed by RP Financial; BOLD = RP Fin. Did the business plan, NT - Not Traded; NA - Not Applicable, Not Available; C/S-Cash/Stock.
(1) As a percent of MHC offering for MHC transactions. |
|
|
(2) Does not take into account the adoption of SOP 93-6. |
|
|
(3) Latest price if offering is less than one week old. |
|
|
(4) Latest price if offering is more than one week but less than one month old. |
|
|
(5) Mutual holding company pro forma data on full conversion basis. |
|
|
(6) Simultaneously completed acquisition of another financial institution. |
|
|
(7) Simultaneously converted to a commercial bank charter. |
|
|
(8) Former credit union. |
|
|
2/5/2016
Table 4.3
Market Pricing Comparatives
Prices As of February 5, 2016
|
|
|
|
Market |
|
Per Share Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
Capitalization |
|
Core |
|
Book |
|
|
|
|
|
|
|
|
|
|
|
Dividends(3) |
|
Financial Characteristics(5) |
|
||||||||||||||||||||||||||
|
|
|
|
Price/ |
|
Market |
|
12 Month |
|
Value/ |
|
Pricing Ratios(2) |
|
Amount/ |
|
|
|
Payout |
|
Total |
|
Equity/ |
|
Tang Eq/ |
|
NPAs/ |
|
Reported |
|
Core |
|
||||||||||||||||||
Financial Institution |
|
|
|
Share |
|
Value |
|
EPS(1) |
|
Share |
|
P/E |
|
P/B |
|
P/A |
|
P/TB |
|
P/Core |
|
Share |
|
Yield |
|
Ratio(4) |
|
Assets |
|
Assets |
|
Assets |
|
Assets |
|
ROA |
|
ROE |
|
ROA |
|
ROE |
|
||||||
|
|
|
|
($) |
|
($Mil) |
|
($) |
|
($) |
|
(x) |
|
(%) |
|
(%) |
|
(%) |
|
(x) |
|
($) |
|
(%) |
|
(%) |
|
($Mil) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
All Non-MHC Public Companies |
|
|
|
$ |
16.39 |
|
$ |
435.84 |
|
$ |
1.06 |
|
$ |
15.16 |
|
17.93x |
|
104.85 |
% |
13.38 |
% |
113.19 |
% |
18.53x |
|
$ |
0.29 |
|
1.79 |
% |
44.94 |
% |
$ |
3,109 |
|
13.51 |
% |
12.79 |
% |
1.46 |
% |
0.74 |
% |
6.05 |
% |
0.77 |
% |
6.24 |
% |
Converted Last 3 Months (no MHC) |
|
|
|
$ |
8.62 |
|
$ |
67.93 |
|
$ |
0.08 |
|
$ |
10.61 |
|
NM |
|
81.24 |
% |
13.58 |
% |
88.58 |
% |
NM |
|
$ |
0.10 |
|
1.16 |
% |
NM |
|
$ |
500 |
|
16.71 |
% |
15.33 |
% |
NA |
|
0.12 |
% |
0.73 |
% |
0.13 |
% |
0.80 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Converted Last 3 Months (no MHC) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
PBBI PB Bancorp, Inc. |
|
CT |
|
$ |
8.62 |
|
$ |
67.93 |
|
$ |
0.08 |
|
$ |
10.61 |
|
NM |
|
81.24 |
% |
13.58 |
% |
88.58 |
% |
NM |
|
$ |
0.10 |
|
1.16 |
% |
139.77 |
% |
$ |
500 |
|
16.71 |
% |
15.33 |
% |
1.70 |
% |
0.12 |
% |
0.73 |
% |
0.13 |
% |
0.80 |
% |
(1) Core income, on a diluted per-share basis. Core income is net income after taxes and before extraordinary items, less net income attributable to noncontrolling interest, gain on the sale of securities, amortization of intangibles, goodwill and nonrecurring items.
Assumed tax rate is 35%.
(2) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/Core = Price to core earnings. P/E and P/Core =NM if the ratio is negative or above 35x.
(3) Indicated 12 month dividend, based on last quarterly dividend declared.
(4) Indicated 12 month dividend as a percent of trailing 12 month earnings.
(5) ROAA (return on average assets) and ROAE (return on average equity) are indicated ratios based on trailing 12 month earnings and average equity and assets balances.
(6) Excludes from averages and medians those companies the subject of actual or rumored acquisition activities or unusual operating characteristics.
Source: SNL Financial, LC. and RP ® Financial, LC. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2016 by RP ® Financial, LC.
stocks of the Peer Group companies. Furthermore, in comparison to the stocks of the fully-converted Peer Group companies, the degree of acquisition speculation in HarborOne Bancorps stock is also viewed to be relatively more limited since there will be fewer potential acquirers for the Companys stock as a re-mutualization transaction can only be completed by a mutual institution or an institution in the MHC form of ownership. Additionally, there tends to be less acquisition speculation in the stocks of publicly-traded MHCs in general, given the majority of the shares are held by the MHC rather than public shareholders which own 100% of the stocks of the fully-converted Peer Group companies. Accordingly, the Peer Group companies are considered to be subject to a greater degree of acquisition speculation relative to the acquisition speculation that may influence HarborOne Bancorps trading price.
* * * * * * * * * * *
In determining our valuation adjustment for marketing of the issue, we considered trends in both the overall thrift market, the new issue market including the new issue market for MHC shares and the local acquisition market for thrift stocks. Taking these factors and trends into account, RP Financial concluded that a slight downward adjustment was appropriate in the valuation analysis for purposes of marketing of the issue.
8. Management
HarborOne Banks management team appears to have experience and expertise in all of the key areas of the Banks operations. Exhibit IV-5 provides summary resumes of HarborOne Banks Board of Directors and senior management. The financial characteristics of the Bank suggest that the Board and senior management have been effective in implementing an operating strategy that can be well managed by the Banks present organizational structure. The Bank currently does not have any senior management positions that are vacant.
Similarly, the returns, capital positions and other operating measures of the Peer Group companies are indicative of well-managed financial institutions, which have Boards and management teams that have been effective in implementing competitive operating strategies. Therefore, on balance, we concluded no valuation adjustment relative to the Peer Group was appropriate for this factor.
9. Effect of Government Regulation and Regulatory Reform
In summary, as a federally-insured savings institution operating in the MHC form of ownership, HarborOne Bank will be operating in substantially the same regulatory environment as the Peer Group members all of whom are adequately capitalized institutions and the substantial majority are operating with no apparent restrictions. Exhibit IV-6 reflects the Banks pro forma regulatory capital ratios. Accordingly, no adjustment has been applied for the effect of government regulation and regulatory reform.
Summary of Adjustments
Overall, based on the factors discussed above, we concluded that the Banks pro forma market value should reflect the following valuation adjustments relative to the Peer Group:
Key Valuation Parameters: |
|
Valuation Adjustment |
|
|
|
Financial Condition |
|
Slight Downward |
Profitability, Growth and Viability of Earnings |
|
Moderate Downward |
Asset Growth |
|
No Adjustment |
Primary Market Area |
|
Slight Upward |
Dividends |
|
Slight Downward |
Liquidity of the Shares |
|
No Adjustment |
Marketing of the Issue |
|
Slight Downward |
Management |
|
No Adjustment |
Effect of Government Regulations and Regulatory Reform |
|
No Adjustment |
Valuation Approaches: Fully-Converted Basis
In applying the accepted valuation methodology promulgated by the FDIC, FRB and the Commissioner, i.e., the pro forma market value approach, we considered the three key pricing ratios in valuing HarborOne Bancorps to-be-issued stock price/earnings (P/E), price/book (P/B), and price/assets (P/A) approaches all performed on a pro forma basis including the effects of the stock proceeds. In computing the pro forma impact of the conversion and the related pricing ratios, we have incorporated the valuation parameters disclosed in HarborOne Bancorps prospectus for reinvestment rate, effective tax rate, stock benefit plan assumptions, the Foundation and offering expenses (summarized in Exhibits IV-9 and IV-10). The assumptions utilized in the pro forma analysis in calculating the Banks full conversion value
were consistent with the assumptions utilized for the minority stock offering, except expenses were assumed to equal 3.0% of gross proceeds (summarized in Exhibits IV-7 and IV-8).
In our estimate of value, we assessed the relationship of the pro forma pricing ratios relative to the Peer Group, recent conversions and publicly-traded MHCs on a fully-converted basis.
RP Financials valuation placed an emphasis on the following:
· P/E Approach . The P/E approach is generally the best indicator of long-term value for a stock. At the same time, recognizing that (1) the earnings multiples will be evaluated on a pro forma fully-converted basis for the Bank; and (2) the Peer Group on average has had the opportunity to realize the benefit of reinvesting net conversion proceeds, we also gave weight to the other valuation approaches.
· P/B Approach . P/B ratios have generally served as a useful benchmark in the valuation of thrift stocks, particularly in the context of an initial public offering, as the earnings approach involves assumptions regarding the use of proceeds. RP Financial considered the P/B approach to be a valuable indicator of pro forma value taking into account the pricing ratios under the P/E and P/A approaches. We have also modified the P/B approach to exclude the impact of intangible assets (i.e., price/tangible book value or P/TB), in that the investment community frequently makes this adjustment in its evaluation of this pricing approach.
· P/A Approach . P/A ratios are generally a less reliable indicator of market value, as investors typically assign less weight to assets and attribute greater weight to book value and earnings. Furthermore, this approach as set forth in the regulatory valuation guidelines does not take into account the amount of stock purchases funded by deposit withdrawals, thus understating the pro forma P/A ratio. At the same time, the P/A ratio is an indicator of franchise value, and, in the case of highly capitalized institutions, high P/A ratios may limit the investment communitys willingness to pay market multiples for earnings or book value when ROE is expected to be low.
The Bank will adopt Employers Accounting for Employee Stock Ownership Plans (ASC 718-40), which will cause earnings per share computations to be based on shares issued and outstanding excluding unreleased ESOP shares. For purposes of preparing the pro forma pricing analyses, we have reflected all shares issued in the offering, including all ESOP shares, to capture the full dilutive impact, particularly since the ESOP shares are economically dilutive, receive dividends and can be voted. However, we did consider the impact of ASC 718-40 in the valuation.
Based on the application of the three valuation approaches, taking into consideration the valuation adjustments discussed above and the dilutive impact of the stock contribution to the Foundation, RP Financial concluded that as of February 5, 2016, the pro forma market value of HarborOne Banks full conversion offering equaled $227,700,000 at the midpoint, equal to 22,770,000 shares at $10.00 per share.
Basis of Valuation - Fully-Converted Pricing Ratios
1. Price-to-Earnings (P/E) . The application of the P/E valuation method requires calculating the Banks pro forma market value by applying a valuation P/E multiple (fully-converted basis) to the pro forma earnings base. In applying this technique, we considered both reported earnings and a recurring earnings base, that is, earnings adjusted to exclude any one-time non-operating items, plus the estimated after-tax earnings benefit of the reinvestment of the net proceeds. The Banks reported earnings equaled $5.768 million for the twelve months ended December 31, 2015. In deriving HarborOne Banks core earnings, the only adjustment made to reported earnings was to eliminate the gain on sale of securities equal to $295,000. As shown below, on a tax effected basis, assuming an effective marginal tax rate of 40.0% for the adjustment, the Banks core earnings were determined to equal $5.591 million for the twelve months ended December 31, 2015.
|
|
Amount |
|
|
|
|
($000) |
|
|
Net income |
|
$ |
5,768 |
|
Less: Gain on sale of securities(1) |
|
(177 |
) |
|
Core earnings estimate |
|
$ |
5,591 |
|
(1) Tax effected at 40.0%.
Based on HarborOne Banks reported and estimated core earnings and incorporating the impact of the pro forma assumptions discussed previously, the Banks pro forma reported and core P/E multiples (fully-converted basis) at the $227.7 million midpoint value equaled 45.63 times and 47.31 times, respectively, which provided for premiums of 115.94% and 124.96% relative to the Peer Groups average reported and core P/E multiples of 21.13 times and 21.03 times, respectively (see Table 4.4). In comparison to the Peer Groups median reported and core earnings multiples which equaled 19.53 times and 18.76 times, respectively, the Banks pro forma reported and core P/E multiples (fully-converted basis) at the midpoint
Table 4.4
Fully-Converted Market Pricing Versus Peer Group
HarborOne Bank
As of Febraury 5, 2016
|
|
|
|
|
|
Market |
|
Per Share Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
Capitalization |
|
Core |
|
Book |
|
|
|
|
|
|
|
|
|
|
|
Dividends(3) |
|
Financial Characteristics(5) |
|
|
|
||||||||||||||||||||||||||||
|
|
|
|
|
|
Price/ |
|
Market |
|
12 Month |
|
Value/ |
|
Pricing Ratios(2) |
|
Amount/ |
|
|
|
Payout |
|
Total |
|
Comm Eq./ |
|
Comm T. Eq./ |
|
NPAs/ |
|
Reported |
|
Core |
|
Offering |
|
||||||||||||||||||||
|
|
|
|
|
|
Share |
|
Value |
|
EPS(1) |
|
Share |
|
P/E |
|
P/B |
|
P/A |
|
P/TB |
|
P/Core |
|
Share |
|
Yield |
|
Ratio(4) |
|
Assets |
|
Assets |
|
Assets |
|
Assets |
|
ROAA |
|
ROAE |
|
ROAA |
|
ROAE |
|
Range |
|
||||||||
|
|
|
|
|
|
($) |
|
($Mil) |
|
($) |
|
($) |
|
(x) |
|
(%) |
|
(%) |
|
(%) |
|
(x) |
|
($) |
|
(%) |
|
(%) |
|
($Mil) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
($Mil) |
|
||||||||
HarborOne Bank |
|
|
|
MA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Supermaximum |
|
|
|
|
|
$ |
10.00 |
|
$ |
301.13 |
|
$ |
0.15 |
|
$ |
14.75 |
|
63.54 |
x |
67.80 |
% |
12.46 |
% |
69.98 |
% |
66.01 |
x |
$ |
0.00 |
|
0.00 |
% |
0.00 |
% |
$ |
2,417 |
|
18.38 |
% |
17.81 |
% |
2.35 |
% |
0.20 |
% |
1.07 |
% |
0.19 |
% |
1.03 |
% |
$ |
297.60 |
|
|
Maximum |
|
|
|
|
|
$ |
10.00 |
|
$ |
261.86 |
|
$ |
0.18 |
|
$ |
15.70 |
|
53.73 |
x |
63.69 |
% |
10.99 |
% |
65.92 |
% |
55.76 |
x |
$ |
0.00 |
|
0.00 |
% |
0.00 |
% |
$ |
2,383 |
|
17.24 |
% |
16.67 |
% |
2.38 |
% |
0.20 |
% |
1.19 |
% |
0.20 |
% |
1.14 |
% |
$ |
258.80 |
|
|
Midpoint |
|
|
|
|
|
$ |
10.00 |
|
$ |
227.70 |
|
$ |
0.21 |
|
$ |
16.79 |
|
45.63 |
x |
59.56 |
% |
9.67 |
% |
61.77 |
% |
47.31 |
x |
$ |
0.00 |
|
0.00 |
% |
0.00 |
% |
$ |
2,355 |
|
16.23 |
% |
15.65 |
% |
2.41 |
% |
0.21 |
% |
1.31 |
% |
0.20 |
% |
1.26 |
% |
$ |
225.00 |
|
|
Minimum |
|
|
|
|
|
$ |
10.00 |
|
$ |
193.55 |
|
$ |
0.25 |
|
$ |
18.27 |
|
37.90 |
x |
54.73 |
% |
8.32 |
% |
56.95 |
% |
39.26 |
x |
$ |
0.00 |
|
0.00 |
% |
0.00 |
% |
$ |
2,326 |
|
15.20 |
% |
14.61 |
% |
2.44 |
% |
0.22 |
% |
1.44 |
% |
0.21 |
% |
1.39 |
% |
$ |
191.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
All Non-MHC Public Companies(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Averages |
|
|
|
|
|
$ |
16.39 |
|
$ |
435.84 |
|
$ |
1.06 |
|
$ |
15.16 |
|
17.93 |
x |
104.85 |
% |
13.38 |
% |
113.19 |
% |
18.53 |
x |
$ |
0.29 |
|
1.79 |
% |
44.94 |
% |
$ |
3,109 |
|
13.51 |
% |
12.79 |
% |
1.46 |
% |
0.74 |
% |
6.05 |
% |
0.77 |
% |
6.24 |
% |
|
|
||
Median |
|
|
|
|
|
$ |
14.01 |
|
$ |
122.65 |
|
$ |
0.74 |
|
$ |
14.38 |
|
16.55 |
x |
102.61 |
% |
12.65 |
% |
107.14 |
% |
17.41 |
x |
$ |
0.24 |
|
1.53 |
% |
41.38 |
% |
$ |
984 |
|
12.29 |
% |
11.79 |
% |
1.10 |
% |
0.70 |
% |
5.40 |
% |
0.68 |
% |
5.22 |
% |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
All Non-MHC State of MA(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Averages |
|
|
|
|
|
$ |
29.22 |
|
$ |
195.37 |
|
$ |
1.93 |
|
$ |
21.05 |
|
23.67 |
x |
118.34 |
% |
13.76 |
% |
118.72 |
% |
25.38 |
x |
$ |
0.35 |
|
1.17 |
% |
25.18 |
% |
$ |
1,239 |
|
12.11 |
% |
12.07 |
% |
0.72 |
% |
0.50 |
% |
4.86 |
% |
0.49 |
% |
4.80 |
% |
|
|
||
Medians |
|
|
|
|
|
$ |
18.20 |
|
$ |
118.50 |
|
$ |
0.65 |
|
$ |
16.60 |
|
23.76 |
x |
108.07 |
% |
12.89 |
% |
108.07 |
% |
29.19 |
x |
$ |
0.16 |
|
0.99 |
% |
19.14 |
% |
$ |
1,026 |
|
10.63 |
% |
10.63 |
% |
0.58 |
% |
0.43 |
% |
4.31 |
% |
0.40 |
% |
3.59 |
% |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
State of MA(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
BLMT |
BSB Bancorp, Inc. |
|
|
|
MA |
|
$ |
21.38 |
|
$ |
194.30 |
|
NA |
|
$ |
15.80 |
|
30.11 |
x |
135.31 |
% |
11.48 |
% |
135.31 |
% |
NM |
|
NA |
|
NA |
|
NM |
|
$ |
1,692 |
|
8.48 |
% |
8.48 |
% |
0.58 |
% |
0.42 |
% |
4.45 |
% |
NA |
|
NA |
|
|
|
|||
CBNK |
Chicopee Bancorp, Inc. |
|
|
|
MA |
|
$ |
17.98 |
|
$ |
93.69 |
|
$ |
0.46 |
|
$ |
16.98 |
|
29.97 |
x |
104.95 |
% |
13.81 |
% |
104.95 |
% |
29.97 |
x |
$ |
0.36 |
|
2.00 |
% |
53.33 |
% |
$ |
695 |
|
12.73 |
% |
12.73 |
% |
1.18 |
% |
0.36 |
% |
2.61 |
% |
0.36 |
% |
2.61 |
% |
|
|
|
GTWN |
Georgetown Bancorp, Inc. |
|
|
|
MA |
|
$ |
19.40 |
|
$ |
35.47 |
|
$ |
0.84 |
|
$ |
17.24 |
|
22.56 |
x |
111.19 |
% |
11.98 |
% |
111.19 |
% |
22.56 |
x |
$ |
0.19 |
|
0.98 |
% |
22.09 |
% |
$ |
287 |
|
10.97 |
% |
10.97 |
% |
NA |
|
0.54 |
% |
4.88 |
% |
0.54 |
% |
4.88 |
% |
|
|
|
HIFS |
Hingham Institution for Savings |
|
|
|
MA |
|
$ |
120.02 |
|
$ |
255.49 |
|
$ |
8.69 |
|
$ |
62.94 |
|
13.31 |
x |
185.12 |
% |
14.45 |
% |
185.12 |
% |
13.32 |
x |
$ |
1.20 |
|
1.00 |
% |
16.19 |
% |
$ |
1,691 |
|
7.92 |
% |
7.92 |
% |
0.40 |
% |
1.17 |
% |
14.72 |
% |
1.17 |
% |
14.71 |
% |
|
|
|
MELR |
Melrose Bancorp, Inc. |
|
|
|
MA |
|
$ |
15.00 |
|
$ |
42.44 |
|
NA |
|
$ |
16.23 |
|
NM |
|
92.45 |
% |
18.98 |
% |
92.45 |
% |
NM |
|
NA |
|
NA |
|
NM |
|
$ |
224 |
|
20.53 |
% |
20.53 |
% |
0.13 |
% |
-0.09 |
% |
-0.44 |
% |
0.00 |
% |
-0.02 |
% |
|
|
|||
EBSB |
Meridian Bancorp, Inc. |
|
|
|
MA |
|
$ |
13.72 |
|
$ |
752.89 |
|
$ |
0.40 |
|
$ |
10.71 |
|
29.83 |
x |
128.01 |
% |
21.36 |
% |
131.06 |
% |
31.87 |
x |
$ |
0.12 |
|
0.87 |
% |
13.04 |
% |
$ |
3,376 |
|
17.27 |
% |
16.94 |
% |
1.47 |
% |
0.72 |
% |
4.07 |
% |
0.64 |
% |
3.59 |
% |
|
|
|
WEBK |
Wellesley Bancorp, Inc. |
|
|
|
MA |
|
$ |
18.42 |
|
$ |
45.36 |
|
$ |
0.93 |
|
$ |
20.90 |
|
16.16 |
x |
86.93 |
% |
7.30 |
% |
86.93 |
% |
NM |
|
$ |
0.12 |
|
0.65 |
% |
10.09 |
% |
$ |
590 |
|
8.72 |
% |
8.72 |
% |
NA |
|
0.40 |
% |
4.37 |
% |
0.40 |
% |
4.33 |
% |
|
|
|
WFD |
Westfield Financial, Inc. |
|
|
|
MA |
|
$ |
7.84 |
|
$ |
143.30 |
|
$ |
0.28 |
|
$ |
7.59 |
|
23.76 |
x |
102.75 |
% |
10.69 |
% |
102.75 |
% |
29.19 |
x |
$ |
0.12 |
|
1.53 |
% |
36.36 |
% |
$ |
1,357 |
|
10.29 |
% |
10.29 |
% |
0.57 |
% |
0.45 |
% |
4.25 |
% |
0.36 |
% |
3.47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Comparable Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Averages |
|
|
|
|
|
$ |
14.82 |
|
$ |
280.30 |
|
$ |
0.63 |
|
$ |
13.56 |
|
21.13 |
x |
109.43 |
% |
14.39 |
% |
113.20 |
% |
21.03 |
x |
$ |
0.21 |
|
1.46 |
% |
32.05 |
% |
$ |
1,891 |
|
13.62 |
% |
13.31 |
% |
1.02 |
% |
0.57 |
% |
4.63 |
% |
0.55 |
% |
4.46 |
% |
|
|
||
Medians |
|
|
|
|
|
$ |
13.90 |
|
$ |
225.87 |
|
$ |
0.40 |
|
$ |
14.03 |
|
19.53 |
x |
105.16 |
% |
11.19 |
% |
106.58 |
% |
18.76 |
x |
$ |
0.20 |
|
1.42 |
% |
31.43 |
% |
$ |
1,649 |
|
10.48 |
% |
9.96 |
% |
0.95 |
% |
0.57 |
% |
4.35 |
% |
0.58 |
% |
3.59 |
% |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Comparable Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
BLMT |
BSB Bancorp, Inc. |
|
|
|
MA |
|
$ |
21.38 |
|
$ |
194.30 |
|
NA |
|
$ |
15.80 |
|
30.11 |
x |
135.31 |
% |
11.48 |
% |
135.31 |
% |
NM |
|
$ |
0.00 |
|
0.00 |
% |
0.00 |
% |
$ |
1,692 |
|
8.48 |
% |
8.48 |
% |
0.58 |
% |
0.42 |
% |
4.45 |
% |
NA |
|
NA |
|
|
|
||
BHBK |
Blue Hills Bancorp, Inc. |
|
|
|
MA |
|
$ |
13.82 |
|
$ |
393.77 |
|
$ |
0.26 |
|
$ |
14.48 |
|
NM |
|
98.73 |
% |
18.62 |
% |
101.74 |
% |
NM |
|
$ |
0.08 |
|
0.58 |
% |
14.29 |
% |
$ |
1,934 |
|
21.07 |
% |
20.57 |
% |
0.27 |
% |
0.42 |
% |
1.83 |
% |
0.40 |
% |
1.71 |
% |
|
|
|
CSBK |
Clifton Bancorp Inc. |
|
|
|
NJ |
|
$ |
13.88 |
|
$ |
344.76 |
|
$ |
0.27 |
|
$ |
13.14 |
|
NM |
|
105.54 |
% |
30.18 |
% |
105.54 |
% |
NM |
|
$ |
0.24 |
|
1.73 |
% |
77.42 |
% |
$ |
1,154 |
|
29.32 |
% |
29.32 |
% |
0.44 |
% |
0.73 |
% |
2.42 |
% |
0.58 |
% |
1.92 |
% |
|
|
|
EBSB |
Meridian Bancorp, Inc. |
|
|
|
MA |
|
$ |
13.72 |
|
$ |
752.89 |
|
$ |
0.40 |
|
$ |
10.71 |
|
29.83 |
x |
128.01 |
% |
21.36 |
% |
131.06 |
% |
31.87 |
x |
$ |
0.12 |
|
0.87 |
% |
13.04 |
% |
$ |
3,376 |
|
17.27 |
% |
16.94 |
% |
1.47 |
% |
0.72 |
% |
4.07 |
% |
0.64 |
% |
3.59 |
% |
|
|
|
ESSA |
ESSA Bancorp, Inc. |
|
|
|
PA |
|
$ |
13.34 |
|
$ |
151.15 |
|
$ |
0.94 |
|
$ |
15.09 |
|
15.33 |
x |
88.90 |
% |
8.57 |
% |
98.69 |
% |
14.92 |
x |
$ |
0.36 |
|
2.70 |
% |
41.38 |
% |
$ |
1,607 |
|
10.66 |
% |
9.99 |
% |
1.53 |
% |
0.62 |
% |
5.68 |
% |
0.62 |
% |
5.73 |
% |
|
|
|
FBNK |
First Connecticut Bancorp, Inc. |
|
|
|
CT |
|
$ |
16.21 |
|
$ |
257.44 |
|
$ |
0.82 |
|
$ |
15.30 |
|
19.53 |
x |
104.77 |
% |
9.50 |
% |
104.77 |
% |
21.66 |
x |
$ |
0.24 |
|
1.48 |
% |
26.51 |
% |
$ |
2,708 |
|
8.98 |
% |
8.98 |
% |
1.26 |
% |
0.52 |
% |
5.57 |
% |
0.48 |
% |
5.16 |
% |
|
|
|
OCFC |
OceanFirst Financial Corp. |
|
|
|
NJ |
|
$ |
16.30 |
|
$ |
281.77 |
|
$ |
1.24 |
|
$ |
13.58 |
|
13.47 |
x |
118.17 |
% |
10.87 |
% |
119.21 |
% |
12.70 |
x |
$ |
0.52 |
|
3.19 |
% |
42.98 |
% |
$ |
2,558 |
|
9.18 |
% |
9.10 |
% |
2.13 |
% |
0.83 |
% |
8.97 |
% |
0.86 |
% |
9.22 |
% |
|
|
|
OSHC |
Ocean Shore Holding Co. |
|
|
|
NJ |
|
$ |
17.75 |
|
$ |
113.65 |
|
$ |
1.12 |
|
$ |
17.29 |
|
15.85 |
x |
101.67 |
% |
10.89 |
% |
107.62 |
% |
15.85 |
x |
$ |
0.24 |
|
1.35 |
% |
21.43 |
% |
$ |
1,067 |
|
10.37 |
% |
9.94 |
% |
1.05 |
% |
0.64 |
% |
6.28 |
% |
0.65 |
% |
6.36 |
% |
|
|
|
SIFI |
SI Financial Group, Inc. |
|
|
|
CT |
|
$ |
13.91 |
|
$ |
169.96 |
|
$ |
0.36 |
|
$ |
12.60 |
|
NM |
|
110.43 |
% |
11.70 |
% |
125.27 |
% |
NM |
|
$ |
0.16 |
|
1.15 |
% |
47.06 |
% |
$ |
1,454 |
|
10.59 |
% |
9.46 |
% |
0.85 |
% |
0.31 |
% |
2.75 |
% |
0.33 |
% |
2.94 |
% |
|
|
|
WFD |
Westfield Financial, Inc. |
|
|
|
MA |
|
$ |
7.84 |
|
$ |
143.30 |
|
$ |
0.28 |
|
$ |
7.59 |
|
23.76 |
x |
102.75 |
% |
10.69 |
% |
102.75 |
% |
29.19 |
x |
$ |
0.12 |
|
1.53 |
% |
36.36 |
% |
$ |
1,357 |
|
10.29 |
% |
10.29 |
% |
0.57 |
% |
0.45 |
% |
4.25 |
% |
0.36 |
% |
3.47 |
% |
|
|
(1) Core income, on a diluted per-share basis. Core income is net income after taxes and before extraordinary items, less net income attributable to noncontrolling interest, gain on the sale of securities, amortization of intangibles, goodwill and nonrecurring items. Assumed tax rate is 35%.
(2) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/Core = Price to core earnings. P/E and P/Core =NM if the ratio is negative or above 35x.
(3) Indicated 12 month dividend, based on last quarterly dividend declared.
(4) Indicated 12 month dividend as a percent of trailing 12 month earnings.
(5) Equity and tangible equity equal common equity and tangible common equity, respectively. ROAA (return on average assets) and ROAE (return on average equity) are indicated ratios based on trailing 12 month earnings and average equity and assets balances.
(6) Excludes from averages and medians those companies the subject of actual or rumored acquisition activities or unusual operating characteristics.
Source: SNL Financial, LC. and RP Financial, LC. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2016 by RP® Financial, LC.
value indicated premiums of 133.64% and 152.19%, respectively. The Banks pro forma reported P/E ratios (fully-converted basis) at the minimum and the super maximum equaled 37.90 times and 63.54 times, respectively. The Banks pro forma core P/E ratios (fully-converted basis) at the minimum and the super maximum equaled 39.26 times and 66.01 times, respectively.
On an MHC reported basis, the Banks reported and core P/E multiples at the midpoint value of $227.7 million equaled 42.34 times and 43.78 times, respectively (see Table 4.5). The Banks reported and core P/E multiples provided for premiums of 100.38% and 108.18% relative to the Peer Groups average reported and core P/E multiples of 21.13 times and 21.03 times, respectively. In comparison to the Peer Groups median reported and core earnings multiples which equaled 19.53 times and 18.76 times, respectively, the Banks pro forma reported and core P/E multiples (MHC basis) at the midpoint value indicated premiums of 116.79% and 133.37%, respectively. The Banks pro forma reported P/E ratios (MHC basis) at the minimum and the super maximum equaled 35.63 times and 57.24 times, respectively. The Banks pro forma core P/E ratios (MHC basis) at the minimum and the super maximum equaled 36.83 times and 59.23 times, respectively.
2. Price-to-Book (P/B) . The application of the P/B valuation method requires calculating the Banks pro forma market value by applying a valuation P/B ratio, as derived from the Peer Groups P/B ratio, to HarborOne Banks pro forma book value (fully-converted basis). Based on the $227.7 million midpoint valuation, HarborOne Banks pro forma P/B and P/TB ratios (fully-converted basis) equaled 59.56% and 61.77%, respectively. In comparison to the average P/B and P/TB ratios for the Peer Group of 109.43% and 113.20%, respectively, the Banks ratios reflected a discount of 45.57% on a P/B basis and a discount of 45.43% on a P/TB basis. In comparison to the Peer Groups median P/B and P/TB ratios of 105.16% and 106.58%, respectively, the Banks pro forma P/B and P/TB ratios (fully-converted basis) at the midpoint value reflected discounts of 43.36% and 42.04%, respectively. At the top of the super range, the Banks P/B and P/TB ratios (fully-converted basis) equaled 67.80% and 69.98%, respectively. In comparison to the Peer Groups average P/B and P/TB ratios, the Banks P/B and P/TB ratios at the top of the super range reflected discounts of 38.04% and 38.18%, respectively. In comparison to the Peer Groups median P/B and P/TB ratios, the Banks P/B and P/TB ratios at the top of the super range reflected discounts of 35.53% and 34.34%, respectively. RP Financial considered the discounts under the P/B approach to be reasonable,
Table 4.5
MHC Market Pricing Versus Peer Group
HarborOne Bank
As of Febraury 5, 2016
|
|
|
|
|
Market |
|
Per Share Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
Capitalization |
|
Core |
|
Book |
|
|
|
|
|
|
|
|
|
|
|
Dividends(3) |
|
Financial Characteristics(5) |
|
|
|
||||||||||||||||||||||||||||
|
|
|
|
|
Price/ |
|
Market |
|
12 Month |
|
Value/ |
|
Pricing Ratios(2) |
|
Amount/ |
|
|
|
Payout |
|
Total |
|
Comm Eq./ |
|
Comm T. Eq./ |
|
NPAs/ |
|
Reported |
|
Core |
|
Offering |
|
||||||||||||||||||||
|
|
|
|
|
Share |
|
Value |
|
EPS(1) |
|
Share |
|
P/E |
|
P/B |
|
P/A |
|
P/TB |
|
P/Core |
|
Share |
|
Yield |
|
Ratio(4) |
|
Assets |
|
Assets |
|
Assets |
|
Assets |
|
ROAA |
|
ROAE |
|
ROAA |
|
ROAE |
|
Range |
|
||||||||
|
|
|
|
|
($) |
|
($Mil) |
|
($) |
|
($) |
|
(x) |
|
(%) |
|
(%) |
|
(%) |
|
(x) |
|
($) |
|
(%) |
|
(%) |
|
($Mil) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
($Mil) |
|
||||||||
HarborOne Bank |
|
|
MA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Supermaximum |
|
|
|
|
$ |
10.00 |
|
$ |
301.13 |
|
$ |
0.17 |
|
$ |
10.18 |
|
57.24 |
x |
98.23 |
% |
13.21 |
% |
102.77 |
% |
59.23 |
x |
$ |
0.00 |
|
0.00 |
% |
0.00 |
% |
$ |
2,279 |
|
13.45 |
% |
12.85 |
% |
2.49 |
% |
0.23 |
% |
1.72 |
% |
0.22 |
% |
1.66 |
% |
$ |
135.50 |
|
|
Maximum |
|
|
|
|
$ |
10.00 |
|
$ |
261.86 |
|
$ |
0.20 |
|
$ |
11.11 |
|
49.19 |
x |
90.01 |
% |
11.57 |
% |
94.43 |
% |
50.88 |
x |
$ |
0.00 |
|
0.00 |
% |
0.00 |
% |
$ |
2,264 |
|
12.86 |
% |
12.25 |
% |
2.51 |
% |
0.24 |
% |
1.83 |
% |
0.23 |
% |
1.77 |
% |
$ |
117.80 |
|
|
Midpoint |
|
|
|
|
$ |
10.00 |
|
$ |
227.70 |
|
$ |
0.23 |
|
$ |
12.19 |
|
42.34 |
x |
82.03 |
% |
10.12 |
% |
86.28 |
% |
43.78 |
x |
$ |
0.00 |
|
0.00 |
% |
0.00 |
% |
$ |
2,250 |
|
12.33 |
% |
11.73 |
% |
2.52 |
% |
0.24 |
% |
1.94 |
% |
0.23 |
% |
1.87 |
% |
$ |
102.50 |
|
|
Minimum |
|
|
|
|
$ |
10.00 |
|
$ |
193.55 |
|
$ |
0.27 |
|
$ |
13.64 |
|
35.63 |
x |
73.31 |
% |
8.65 |
% |
77.28 |
% |
36.83 |
x |
$ |
0.00 |
|
0.00 |
% |
0.00 |
% |
$ |
2,237 |
|
11.81 |
% |
11.20 |
% |
2.54 |
% |
0.24 |
% |
2.06 |
% |
0.23 |
% |
1.99 |
% |
$ |
87.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
All Non-MHC Public Companies(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Averages |
|
|
|
|
$ |
16.39 |
|
$ |
435.84 |
|
$ |
1.06 |
|
$ |
15.16 |
|
17.93 |
x |
104.85 |
% |
13.38 |
% |
113.19 |
% |
18.53 |
x |
$ |
0.29 |
|
1.79 |
% |
44.94 |
% |
$ |
3,109 |
|
13.51 |
% |
12.79 |
% |
1.46 |
% |
0.74 |
% |
6.05 |
% |
0.77 |
% |
6.24 |
% |
|
|
||
Median |
|
|
|
|
$ |
14.01 |
|
$ |
122.65 |
|
$ |
0.74 |
|
$ |
14.38 |
|
16.55 |
x |
102.61 |
% |
12.65 |
% |
107.14 |
% |
17.41 |
x |
$ |
0.24 |
|
1.53 |
% |
41.38 |
% |
$ |
984 |
|
12.29 |
% |
11.79 |
% |
1.10 |
% |
0.70 |
% |
5.40 |
% |
0.68 |
% |
5.22 |
% |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
All Non-MHC State of MA(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Averages |
|
|
|
|
$ |
29.22 |
|
$ |
195.37 |
|
$ |
1.93 |
|
$ |
21.05 |
|
23.67 |
x |
118.34 |
% |
13.76 |
% |
118.72 |
% |
25.38 |
x |
$ |
0.35 |
|
1.17 |
% |
25.18 |
% |
$ |
1,239 |
|
12.11 |
% |
12.07 |
% |
0.72 |
% |
0.50 |
% |
4.86 |
% |
0.49 |
% |
4.80 |
% |
|
|
||
Medians |
|
|
|
|
$ |
18.20 |
|
$ |
118.50 |
|
$ |
0.65 |
|
$ |
16.60 |
|
23.76 |
x |
108.07 |
% |
12.89 |
% |
108.07 |
% |
29.19 |
x |
$ |
0.16 |
|
0.99 |
% |
19.14 |
% |
$ |
1,026 |
|
10.63 |
% |
10.63 |
% |
0.58 |
% |
0.43 |
% |
4.31 |
% |
0.40 |
% |
3.59 |
% |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
State of MA(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
BLMT |
BSB Bancorp, Inc. |
|
|
MA |
|
$ |
21.38 |
|
$ |
194.30 |
|
NA |
|
$ |
15.80 |
|
30.11 |
x |
135.31 |
% |
11.48 |
% |
135.31 |
% |
NM |
|
NA |
|
NA |
|
NM |
|
$ |
1,692 |
|
8.48 |
% |
8.48 |
% |
0.58 |
% |
0.42 |
% |
4.45 |
% |
NA |
|
NA |
|
|
|
|||
CBNK |
Chicopee Bancorp, Inc. |
|
|
MA |
|
$ |
17.98 |
|
$ |
93.69 |
|
$ |
0.46 |
|
$ |
16.98 |
|
29.97 |
x |
104.95 |
% |
13.81 |
% |
104.95 |
% |
29.97 |
x |
$ |
0.36 |
|
2.00 |
% |
53.33 |
% |
$ |
695 |
|
12.73 |
% |
12.73 |
% |
1.18 |
% |
0.36 |
% |
2.61 |
% |
0.36 |
% |
2.61 |
% |
|
|
|
GTWN |
Georgetown Bancorp, Inc. |
|
|
MA |
|
$ |
19.40 |
|
$ |
35.47 |
|
$ |
0.84 |
|
$ |
17.24 |
|
22.56 |
x |
111.19 |
% |
11.98 |
% |
111.19 |
% |
22.56 |
x |
$ |
0.19 |
|
0.98 |
% |
22.09 |
% |
$ |
287 |
|
10.97 |
% |
10.97 |
% |
NA |
|
0.54 |
% |
4.88 |
% |
0.54 |
% |
4.88 |
% |
|
|
|
HIFS |
Hingham Institution for Savings |
|
|
MA |
|
$ |
120.02 |
|
$ |
255.49 |
|
$ |
8.69 |
|
$ |
62.94 |
|
13.31 |
x |
185.12 |
% |
14.45 |
% |
185.12 |
% |
13.32 |
x |
$ |
1.20 |
|
1.00 |
% |
16.19 |
% |
$ |
1,691 |
|
7.92 |
% |
7.92 |
% |
0.40 |
% |
1.17 |
% |
14.72 |
% |
1.17 |
% |
14.71 |
% |
|
|
|
MELR |
Melrose Bancorp, Inc. |
|
|
MA |
|
$ |
15.00 |
|
$ |
42.44 |
|
NA |
|
$ |
16.23 |
|
NM |
|
92.45 |
% |
18.98 |
% |
92.45 |
% |
NM |
|
NA |
|
NA |
|
NM |
|
$ |
224 |
|
20.53 |
% |
20.53 |
% |
0.13 |
% |
-0.09 |
% |
-0.44 |
% |
0.00 |
% |
-0.02 |
% |
|
|
|||
EBSB |
Meridian Bancorp, Inc. |
|
|
MA |
|
$ |
13.72 |
|
$ |
752.89 |
|
$ |
0.40 |
|
$ |
10.71 |
|
29.83 |
x |
128.01 |
% |
21.36 |
% |
131.06 |
% |
31.87 |
x |
$ |
0.12 |
|
0.87 |
% |
13.04 |
% |
$ |
3,376 |
|
17.27 |
% |
16.94 |
% |
1.47 |
% |
0.72 |
% |
4.07 |
% |
0.64 |
% |
3.59 |
% |
|
|
|
WEBK |
Wellesley Bancorp, Inc. |
|
|
MA |
|
$ |
18.42 |
|
$ |
45.36 |
|
$ |
0.93 |
|
$ |
20.90 |
|
16.16 |
x |
86.93 |
% |
7.30 |
% |
86.93 |
% |
NM |
|
$ |
0.12 |
|
0.65 |
% |
10.09 |
% |
$ |
590 |
|
8.72 |
% |
8.72 |
% |
NA |
|
0.40 |
% |
4.37 |
% |
0.40 |
% |
4.33 |
% |
|
|
|
WFD |
Westfield Financial, Inc. |
|
|
MA |
|
$ |
7.84 |
|
$ |
143.30 |
|
$ |
0.28 |
|
$ |
7.59 |
|
23.76 |
x |
102.75 |
% |
10.69 |
% |
102.75 |
% |
29.19 |
x |
$ |
0.12 |
|
1.53 |
% |
36.36 |
% |
$ |
1,357 |
|
10.29 |
% |
10.29 |
% |
0.57 |
% |
0.45 |
% |
4.25 |
% |
0.36 |
% |
3.47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Comparable Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Averages |
|
|
|
|
$ |
14.82 |
|
$ |
280.30 |
|
$ |
0.63 |
|
$ |
13.56 |
|
21.13 |
x |
109.43 |
% |
14.39 |
% |
113.20 |
% |
21.03 |
x |
$ |
0.21 |
|
1.46 |
% |
32.05 |
% |
$ |
1,891 |
|
13.62 |
% |
13.31 |
% |
1.02 |
% |
0.57 |
% |
4.63 |
% |
0.55 |
% |
4.46 |
% |
|
|
||
Medians |
|
|
|
|
$ |
13.90 |
|
$ |
225.87 |
|
$ |
0.40 |
|
$ |
14.03 |
|
19.53 |
x |
105.16 |
% |
11.19 |
% |
106.58 |
% |
18.76 |
x |
$ |
0.20 |
|
1.42 |
% |
31.43 |
% |
$ |
1,649 |
|
10.48 |
% |
9.96 |
% |
0.95 |
% |
0.57 |
% |
4.35 |
% |
0.58 |
% |
3.59 |
% |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Comparable Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
BLMT |
BSB Bancorp, Inc. |
|
|
MA |
|
$ |
21.38 |
|
$ |
194.30 |
|
NA |
|
$ |
15.80 |
|
30.11 |
x |
135.31 |
% |
11.48 |
% |
135.31 |
% |
NM |
|
$ |
0.00 |
|
0.00 |
% |
0.00 |
% |
$ |
1,692 |
|
8.48 |
% |
8.48 |
% |
0.58 |
% |
0.42 |
% |
4.45 |
% |
NA |
|
NA |
|
|
|
||
BHBK |
Blue Hills Bancorp, Inc. |
|
|
MA |
|
$ |
13.82 |
|
$ |
393.77 |
|
$ |
0.26 |
|
$ |
14.48 |
|
NM |
|
98.73 |
% |
18.62 |
% |
101.74 |
% |
NM |
|
$ |
0.08 |
|
0.58 |
% |
14.29 |
% |
$ |
1,934 |
|
21.07 |
% |
20.57 |
% |
0.27 |
% |
0.42 |
% |
1.83 |
% |
0.40 |
% |
1.71 |
% |
|
|
|
CSBK |
Clifton Bancorp Inc. |
|
|
NJ |
|
$ |
13.88 |
|
$ |
344.76 |
|
$ |
0.27 |
|
$ |
13.14 |
|
NM |
|
105.54 |
% |
30.18 |
% |
105.54 |
% |
NM |
|
$ |
0.24 |
|
1.73 |
% |
77.42 |
% |
$ |
1,154 |
|
29.32 |
% |
29.32 |
% |
0.44 |
% |
0.73 |
% |
2.42 |
% |
0.58 |
% |
1.92 |
% |
|
|
|
EBSB |
Meridian Bancorp, Inc. |
|
|
MA |
|
$ |
13.72 |
|
$ |
752.89 |
|
$ |
0.40 |
|
$ |
10.71 |
|
29.83 |
x |
128.01 |
% |
21.36 |
% |
131.06 |
% |
31.87 |
x |
$ |
0.12 |
|
0.87 |
% |
13.04 |
% |
$ |
3,376 |
|
17.27 |
% |
16.94 |
% |
1.47 |
% |
0.72 |
% |
4.07 |
% |
0.64 |
% |
3.59 |
% |
|
|
|
ESSA |
ESSA Bancorp, Inc. |
|
|
PA |
|
$ |
13.34 |
|
$ |
151.15 |
|
$ |
0.94 |
|
$ |
15.09 |
|
15.33 |
x |
88.90 |
% |
8.57 |
% |
98.69 |
% |
14.92 |
x |
$ |
0.36 |
|
2.70 |
% |
41.38 |
% |
$ |
1,607 |
|
10.66 |
% |
9.99 |
% |
1.53 |
% |
0.62 |
% |
5.68 |
% |
0.62 |
% |
5.73 |
% |
|
|
|
FBNK |
First Connecticut Bancorp, Inc. |
|
|
CT |
|
$ |
16.21 |
|
$ |
257.44 |
|
$ |
0.82 |
|
$ |
15.30 |
|
19.53 |
x |
104.77 |
% |
9.50 |
% |
104.77 |
% |
21.66 |
x |
$ |
0.24 |
|
1.48 |
% |
26.51 |
% |
$ |
2,708 |
|
8.98 |
% |
8.98 |
% |
1.26 |
% |
0.52 |
% |
5.57 |
% |
0.48 |
% |
5.16 |
% |
|
|
|
OCFC |
OceanFirst Financial Corp. |
|
|
NJ |
|
$ |
16.30 |
|
$ |
281.77 |
|
$ |
1.24 |
|
$ |
13.58 |
|
13.47 |
x |
118.17 |
% |
10.87 |
% |
119.21 |
% |
12.70 |
x |
$ |
0.52 |
|
3.19 |
% |
42.98 |
% |
$ |
2,558 |
|
9.18 |
% |
9.10 |
% |
2.13 |
% |
0.83 |
% |
8.97 |
% |
0.86 |
% |
9.22 |
% |
|
|
|
OSHC |
Ocean Shore Holding Co. |
|
|
NJ |
|
$ |
17.75 |
|
$ |
113.65 |
|
$ |
1.12 |
|
$ |
17.29 |
|
15.85 |
x |
101.67 |
% |
10.89 |
% |
107.62 |
% |
15.85 |
x |
$ |
0.24 |
|
1.35 |
% |
21.43 |
% |
$ |
1,067 |
|
10.37 |
% |
9.94 |
% |
1.05 |
% |
0.64 |
% |
6.28 |
% |
0.65 |
% |
6.36 |
% |
|
|
|
SIFI |
SI Financial Group, Inc. |
|
|
CT |
|
$ |
13.91 |
|
$ |
169.96 |
|
$ |
0.36 |
|
$ |
12.60 |
|
NM |
|
110.43 |
% |
11.70 |
% |
125.27 |
% |
NM |
|
$ |
0.16 |
|
1.15 |
% |
47.06 |
% |
$ |
1,454 |
|
10.59 |
% |
9.46 |
% |
0.85 |
% |
0.31 |
% |
2.75 |
% |
0.33 |
% |
2.94 |
% |
|
|
|
WFD |
Westfield Financial, Inc. |
|
|
MA |
|
$ |
7.84 |
|
$ |
143.30 |
|
$ |
0.28 |
|
$ |
7.59 |
|
23.76 |
x |
102.75 |
% |
10.69 |
% |
102.75 |
% |
29.19 |
x |
$ |
0.12 |
|
1.53 |
% |
36.36 |
% |
$ |
1,357 |
|
10.29 |
% |
10.29 |
% |
0.57 |
% |
0.45 |
% |
4.25 |
% |
0.36 |
% |
3.47 |
% |
|
|
(1) Core income, on a diluted per-share basis. Core income is net income after taxes and before extraordinary items, less net income attributable to noncontrolling interest, gain on the sale of securities, amortization of intangibles, goodwill and nonrecurring items. Assumed tax rate is 35%.
(2) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/Core = Price to core earnings. P/E and P/Core =NM if the ratio is negative or above 35x.
(3) Indicated 12 month dividend, based on last quarterly dividend declared.
(4) Indicated 12 month dividend as a percent of trailing 12 month earnings.
(5) Equity and tangible equity equal common equity and tangible common equity, respectively. ROAA (return on average assets) and ROAE (return on average equity) are indicated ratios based on trailing 12 month earnings and average equity and assets balances.
(6) Excludes from averages and medians those companies the subject of actual or rumored acquisition activities or unusual operating characteristics.
Source: SNL Financial, LC. and RP Financial, LC. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2016 by RP® Financial, LC.
given the nature of the calculation of the P/B ratio which mathematically results in a ratio discounted to book value. The discounts reflected under the P/B approach were also supported by the significant premiums reflected in the Banks P/E multiples.
On an MHC reported basis, the Banks P/B and P/TB ratios at the $227.7 million midpoint value equaled 82.03% and 86.28%, respectively. In comparison to the average P/B and P/TB ratios indicated for the Peer Group of 109.43% and 113.20%, respectively, HarborOne Banks ratios were discounted by 25.04% on a P/B basis and 23.78% on a P/TB basis. In comparison to the Peer Groups median P/B and P/TB ratios of 105.16% and 106.58%, respectively, the Banks pro forma P/B and P/TB ratios (MHC basis) at the midpoint value reflected discounts of 22.00% and 19.05%, respectively. At the top of the super range, the Banks P/B and P/TB ratios (MHC basis) equaled 98.23% and 102.77%, respectively. In comparison to the Peer Groups average P/B and P/TB ratios, the Banks P/B and P/TB ratios at the top of the super range reflected discounts of 10.23% and 9.21%, respectively. In comparison to the Peer Groups median P/B and P/TB ratios, the Banks P/B and P/TB ratios at the top of the super range reflected discounts of 6.59% and 3.57%, respectively.
3. Price-to-Assets (P/A) . The P/A valuation methodology determines market value by applying a valuation P/A ratio (fully-converted basis) to the Banks pro forma asset base, conservatively assuming no deposit withdrawals are made to fund stock purchases. In all likelihood there will be deposit withdrawals, which results in understating the pro forma P/A ratio which is computed herein. At the $227.7 million midpoint of the valuation range, HarborOne Banks pro forma P/A ratio (fully-converted basis) equaled 9.67% of pro forma assets. Comparatively, the Peer Group companies exhibited an average P/A ratio of 14.39%, which implies a discount of 32.80% has been applied to the Banks pro forma P/A ratio. In comparison to the Peer Groups median P/A ratio of 11.19%, the Banks pro forma P/A ratio (fully-converted basis) at the midpoint value reflects a discount of 13.58%.
On an MHC reported basis, HarborOne Banks pro forma P/A ratio at the $227.7 million midpoint value equaled 10.12%. In comparison to the Peer Groups average P/A ratio of 14.39%, HarborOne Banks P/A ratio (MHC basis) indicated a discount of 29.67%. In comparison to the Peer Groups median P/A ratio of 11.19%, the Banks pro forma P/A ratio (MHC basis) at the midpoint value reflects a discount of 9.56%.
Comparison to Publicly-Traded MHCs
As indicated in Chapter III, we believe there are a number of characteristics of MHC shares that make them different from the shares of fully-converted companies. These factors include: (1) lower aftermarket liquidity in the MHC shares since less than 50% of the shares are available for trading; (2) no opportunity for public shareholders to exercise voting control; (3) the potential pro forma impact of second-step conversions on the pricing of MHC institutions; and (4) the regulatory policies regarding the accounting for net assets held by the MHC in a second-step conversion and, thereby, lessening the attractiveness of paying cash dividends. The above characteristics of MHC shares have provided MHC stocks with different trading characteristics versus fully-converted companies. To account for the unique trading characteristics of MHC shares, RP Financial has placed the financial data and pricing ratios of the publicly-traded MHCs on a fully-converted basis to make them comparable for valuation purposes. Using the per share and pricing information of the publicly-traded MHCs on a fully-converted basis accomplishes a number of objectives. First, such figures eliminate distortions that result when trying to compare institutions that have different public ownership interests outstanding. Secondly, such an analysis provides ratios that are comparable to the pricing information of fully-converted public companies and are directly applicable to determining the pro forma market value range of the 100% ownership interest in HarborOne Bank as an MHC. This technique is validated by the investment communitys evaluation of MHC pricing, which also incorporates the pro forma impact of a second-step conversion based on the current market price.
To calculate the fully-converted pricing information for MHCs, the reported financial information for the public MHCs incorporate the following assumptions: (1) all shares owned by the MHC are assumed to be sold at the current trading price in a second step-conversion; (2) the gross proceeds from such a sale are adjusted to reflect reasonable offering expenses and standard stock based benefit plan parameters that would be factored into a second-step conversion of an MHC institution; and (3) net proceeds are assumed to be reinvested at market rates on a tax effected basis. Book value per share and earnings per share figures for the public MHCs were adjusted by the impact of the assumed second step-conversion, resulting in an estimation of book value per share and earnings per share figures on a fully-converted basis. Table 4.6 on the following page shows the calculation of per share financial data (fully-
Table 4.6
Calculation of Implied Per Share Data - Incorporating MHC Second Step Conversion
Publicly Traded MHC Institutions
|
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Per Share |
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|
Net |
|
Net |
|
Pro Forma |
|
||||||||||||||||||||||||||||||
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|
|
Current Ownership |
|
TTM Net Income |
|
Book |
|
Tang. |
|
|
|
Share |
|
Gross |
|
Capital |
|
Income |
|
Net Inc./ |
|
Core Net Inc./ |
|
Bk Value/ |
|
Tang. Bk. |
|
Assets/ |
|
||||||||||||||||||||
Ticker |
|
Name |
|
City |
|
State |
|
Exhange |
|
Public |
|
MHC Shares |
|
Total Shares |
|
Reported |
|
Core |
|
Value |
|
Bk Value |
|
Assets |
|
Price |
|
Proceeds(1) |
|
Increase(2) |
|
Increase(3) |
|
Share |
|
Share |
|
Share |
|
Value/Share |
|
Share |
|
||||||||||||||
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|
|
|
|
|
|
|
GCBC |
|
Greene County Bncp Inc. (MHC) |
|
Catskill |
|
NY |
|
NASDAQ |
|
1,919,825 |
|
2,304,632 |
|
4,224,457 |
|
$ |
1.79 |
|
$ |
1.81 |
|
$ |
16.28 |
|
$ |
16.28 |
|
$ |
181.74 |
|
$ |
31.00 |
|
$ |
71,443,592 |
|
$ |
60,727,053 |
|
$ |
(96,899 |
) |
$ |
1.77 |
|
$ |
1.79 |
|
$ |
30.66 |
|
$ |
30.66 |
|
$ |
196.11 |
|
KFFB |
|
Kentucky First Federal (MHC) |
|
Frankfort |
|
KY |
|
NASDAQ |
|
3,755,563 |
|
4,727,938 |
|
8,483,501 |
|
$ |
0.26 |
|
$ |
0.26 |
|
$ |
7.96 |
|
$ |
6.25 |
|
$ |
34.88 |
|
$ |
9.17 |
|
$ |
43,355,664 |
|
$ |
36,852,315 |
|
$ |
(58,803 |
) |
$ |
0.25 |
|
$ |
0.25 |
|
$ |
12.30 |
|
$ |
10.59 |
|
$ |
39.23 |
|
LSBK |
|
Lake Shore Bancorp Inc. (MHC) |
|
Dunkirk |
|
NY |
|
NASDAQ |
|
2,340,497 |
|
3,636,875 |
|
5,977,372 |
|
$ |
0.55 |
|
$ |
0.49 |
|
$ |
12.27 |
|
$ |
12.27 |
|
$ |
79.01 |
|
$ |
13.40 |
|
$ |
48,734,125 |
|
$ |
41,424,006 |
|
$ |
(66,098 |
) |
$ |
0.54 |
|
$ |
0.48 |
|
$ |
19.20 |
|
$ |
19.20 |
|
$ |
85.94 |
|
MGYR |
|
Magyar Bancorp Inc. (MHC) |
|
New Brunswick |
|
NJ |
|
NASDAQ |
|
2,619,044 |
|
3,200,450 |
|
5,819,494 |
|
$ |
0.15 |
|
$ |
0.16 |
|
$ |
8.02 |
|
$ |
8.02 |
|
$ |
94.61 |
|
$ |
9.75 |
|
$ |
31,204,388 |
|
$ |
26,523,729 |
|
$ |
(42,323 |
) |
$ |
0.15 |
|
$ |
0.16 |
|
$ |
12.58 |
|
$ |
12.58 |
|
$ |
99.16 |
|
OFED |
|
Oconee Federal Financial Corp. |
|
Seneca |
|
SC |
|
NASDAQ |
|
1,717,585 |
|
4,164,555 |
|
5,882,140 |
|
$ |
0.84 |
|
$ |
0.86 |
|
$ |
13.99 |
|
$ |
13.41 |
|
$ |
79.65 |
|
$ |
19.40 |
|
$ |
80,792,367 |
|
$ |
68,673,512 |
|
$ |
(109,579 |
) |
$ |
0.82 |
|
$ |
0.84 |
|
$ |
25.67 |
|
$ |
25.08 |
|
$ |
91.33 |
|
PVBC |
|
Provident Bancorp Inc (MHC) |
|
Amesbury |
|
MA |
|
NASDAQ |
|
4,464,399 |
|
5,034,323 |
|
9,498,722 |
|
$ |
0.36 |
|
$ |
0.48 |
|
$ |
12.32 |
|
$ |
12.32 |
|
$ |
73.60 |
|
$ |
13.01 |
|
$ |
65,496,542 |
|
$ |
55,672,061 |
|
$ |
(88,833 |
) |
$ |
0.35 |
|
$ |
0.47 |
|
$ |
18.18 |
|
$ |
18.18 |
|
$ |
79.46 |
|
TFSL |
|
TFS Financial Corp (MHC) |
|
Cleveland |
|
OH |
|
NASDAQ |
|
63,763,247 |
|
227,119,132 |
|
290,882,379 |
|
$ |
0.25 |
|
$ |
0.25 |
|
$ |
5.95 |
|
$ |
5.91 |
|
$ |
42.52 |
|
$ |
16.33 |
|
$ |
3,708,855,426 |
|
$ |
3,152,527,112 |
|
$ |
(5,030,321 |
) |
$ |
0.23 |
|
$ |
0.23 |
|
$ |
16.78 |
|
$ |
16.75 |
|
$ |
53.36 |
|
Source: SNL Financial, LC and RP Financial, LC. calculations.
converted basis) for each of the seven publicly-traded MHC institutions.
The table below shows a comparative pricing analysis of the publicly-traded MHCs on a fully-converted basis versus the Banks Peer Group. In comparison to the Peer Groups P/TB ratio, the P/TB ratio of the publicly-traded MHCs reflected a discount of 26.63%. In comparison to the Peer Groups core P/E multiple, the core P/E multiple of the publicly-traded MHCs reflected a premium of 80.03%. Detailed pricing characteristics of the fully-converted MHCs is shown in Table 4.7.
|
|
Publicly-Traded |
|
|
|
|
|
MHCs |
|
Peer Group |
|
|
|
|
|
|
|
Pricing Ratios (Averages) (1) |
|
|
|
|
|
Core price/earnings (x) |
|
37.86 |
x |
21.03 |
x |
Price/tangible book (%) |
|
83.06 |
% |
113.20 |
% |
Price/assets (%) |
|
18.98 |
|
14.39 |
|
(1) Based on market prices as of February 5, 2016.
In comparison to the publicly-traded MHCs, the Banks pro forma P/TB ratio (fully-converted basis) of 61.77% at the midpoint of the valuation range reflected a discount of 25.63%. At the top of the super range, the Banks P/TB ratio (fully-converted basis) of 69.98% reflected a discount of 15.75%. In comparison to the publicly-traded MHCs, the Banks pro forma core P/E multiple (fully-converted basis) of 44.90 times at the midpoint of the valuation range reflected a premium of 18.59%. At the top of the super range, the Banks core P/E multiple (fully-converted basis) of 61.41 times reflected a premium of 62.20%.
It should be noted that in a comparison of the publicly-traded MHCs to HarborOne Bank, the publicly-traded MHCs maintain certain inherit characteristics in support of increasing the attractiveness of their stocks relative to HarborOne Banks stock as an MHC that will just be completing an IPO: (1) the seasoned publicly-traded MHCs are viewed as potential candidates to complete a second-step offering; (2) some of the publicly-traded MHCs have been grandfathered to waive dividend payments to the MHC pursuant to receiving an annual majority vote by the depositors to approve the waiver of dividends; and (3) as there have been only two MHC offerings completed in recent years, there is a degree of uncertainty on how well an MHC offering will be received in the prevailing regulatory environment.
Table 4.7
MHC Institutions, Implied Pricing Ratios, Full Conversion Basis
Financial Data as of the Most Recent Quarter or Twelve Month Period Available
Prices as of February 5, 2016
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|
Key Financial Data |
|
||||||||||||
|
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|
|
|
|
|
Per Share Data |
|
Pricing Ratios |
|
Dividends |
|
|
|
|
|
|
|
LTM |
|
||||||||||||||||||||||||
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|
Stock |
|
Mkt |
|
LTM |
|
LTM |
|
BV/ |
|
Tang. |
|
P/E |
|
P/E Cre |
|
Price/ |
|
Price/ |
|
Price/ |
|
Ann Div |
|
Div. |
|
Div Pay |
|
Total |
|
|
|
Tang. |
|
Reported |
|
Core |
|
||||
Ticker |
|
Company Name |
|
City |
|
State |
|
Exchange |
|
Price |
|
Value |
|
EPS |
|
Cr EPS |
|
Shr |
|
BV/Sh |
|
LTM |
|
LTM |
|
Book |
|
TBk |
|
Assts |
|
Rate |
|
Yield |
|
Ratio |
|
Assets |
|
E/A |
|
E/A |
|
ROAA |
|
ROAE |
|
ROAA |
|
ROAE |
|
|
|
|
|
|
|
|
|
|
|
($) |
|
($M) |
|
($) |
|
($) |
|
($) |
|
($) |
|
(x) |
|
(x) |
|
(%) |
|
(%) |
|
(%) |
|
($) |
|
(%) |
|
(%) |
|
($000) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
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|
|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Publicly Traded MHCs, Full Conversion Basis - Averages |
|
|
|
|
|
|
|
16.01 |
|
761.9 |
|
0.59 |
|
0.60 |
|
19.34 |
|
19.01 |
|
39.52 |
|
37.86 |
|
81.06 |
|
83.06 |
|
18.98 |
|
0.32 |
|
1.91 |
|
67.69 |
|
2,723,636 |
|
23.49 |
|
22.77 |
|
0.58 |
|
2.61 |
|
0.60 |
|
2.69 |
|
||
Publicly Traded MHCs, Full Conversion Basis - Medians |
|
|
|
|
|
|
|
13.40 |
|
114.1 |
|
0.35 |
|
0.47 |
|
18.18 |
|
18.18 |
|
36.49 |
|
28.17 |
|
75.58 |
|
77.52 |
|
16.37 |
|
0.40 |
|
2.09 |
|
48.81 |
|
577,089 |
|
22.88 |
|
22.88 |
|
0.63 |
|
2.04 |
|
0.59 |
|
2.48 |
|
||
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|
|
|
|
|
|
|
|
|
Publicly Traded MHCs, Full Conversion Basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
||
GCBC |
|
Greene County Bncp Inc. (MHC) |
|
Catskill |
|
NY |
|
NASDAQ |
|
31.00 |
|
131.0 |
|
1.77 |
|
1.79 |
|
30.66 |
|
30.66 |
|
17.54 |
|
17.30 |
|
101.12 |
|
101.12 |
|
15.81 |
|
0.74 |
|
2.39 |
|
41.9 |
|
828,472 |
|
15.63 |
|
15.63 |
|
0.90 |
|
5.77 |
|
0.91 |
|
5.84 |
|
KFFB |
|
Kentucky First Federal (MHC) |
|
Frankfort |
|
KY |
|
NASDAQ |
|
9.17 |
|
77.8 |
|
0.25 |
|
0.25 |
|
12.30 |
|
10.59 |
|
36.49 |
|
36.49 |
|
74.54 |
|
86.57 |
|
23.38 |
|
0.40 |
|
4.36 |
|
159.2 |
|
332,770 |
|
31.36 |
|
27.00 |
|
0.64 |
|
2.04 |
|
0.64 |
|
2.04 |
|
LSBK |
|
Lake Shore Bancorp Inc. (MHC) |
|
Dunkirk |
|
NY |
|
NASDAQ |
|
13.40 |
|
80.1 |
|
0.54 |
|
0.48 |
|
19.20 |
|
19.20 |
|
24.77 |
|
28.17 |
|
69.79 |
|
69.79 |
|
15.59 |
|
0.28 |
|
2.09 |
|
51.8 |
|
513,721 |
|
22.34 |
|
22.34 |
|
0.63 |
|
2.82 |
|
0.55 |
|
2.48 |
|
MGYR |
|
Magyar Bancorp Inc. (MHC) |
|
New Brunswick |
|
NJ |
|
NASDAQ |
|
9.75 |
|
56.7 |
|
0.15 |
|
0.16 |
|
12.58 |
|
12.58 |
|
66.39 |
|
62.03 |
|
77.52 |
|
77.52 |
|
9.83 |
|
0.00 |
|
0.00 |
|
0.0 |
|
577,089 |
|
12.68 |
|
12.68 |
|
0.15 |
|
1.17 |
|
0.16 |
|
1.25 |
|
OFED |
|
Oconee Federal Financial Corp. |
|
Seneca |
|
SC |
|
NASDAQ |
|
19.40 |
|
114.1 |
|
0.82 |
|
0.84 |
|
25.67 |
|
25.08 |
|
23.67 |
|
23.14 |
|
75.58 |
|
77.34 |
|
21.24 |
|
0.40 |
|
2.06 |
|
48.8 |
|
537,206 |
|
28.10 |
|
27.47 |
|
0.90 |
|
3.19 |
|
0.92 |
|
3.27 |
|
PVBC |
|
Provident Bancorp Inc (MHC) |
|
Amesbury |
|
MA |
|
NASDAQ |
|
13.01 |
|
123.6 |
|
0.35 |
|
0.47 |
|
18.18 |
|
18.18 |
|
37.49 |
|
27.55 |
|
71.56 |
|
71.56 |
|
16.37 |
|
0.00 |
|
0.00 |
|
0.0 |
|
754,784 |
|
22.88 |
|
22.88 |
|
0.44 |
|
1.91 |
|
0.59 |
|
2.60 |
|
TFSL |
|
TFS Financial Corp (MHC) |
|
Cleveland |
|
OH |
|
NASDAQ |
|
16.33 |
|
4,750.1 |
|
0.23 |
|
0.23 |
|
16.78 |
|
16.75 |
|
70.31 |
|
70.31 |
|
97.30 |
|
97.49 |
|
30.60 |
|
0.40 |
|
2.45 |
|
172.2 |
|
15,521,413 |
|
31.45 |
|
31.39 |
|
0.44 |
|
1.38 |
|
0.44 |
|
1.38 |
|
Source: SNL Financial, LC and RP Financial, LC. calculations.
Comparison to Recent Offerings and Publicly-Traded Mortgage Banking Companies
As indicated at the beginning of this chapter, RP Financials analysis of recent conversion offering pricing characteristics at closing and in the aftermarket has been limited to a technical analysis and, thus, the pricing characteristics of recent conversion offerings can not be a primary determinate of value. Particular focus was placed on the P/TB approach in this analysis, since the P/E multiples do not reflect the actual impact of reinvestment and the source of the stock proceeds (i.e., external funds vs. deposit withdrawals). The most recent first-step MHC offering that is comparable to HarborOne Banks first-step MHC offering was completed by Provident Bancorp, Inc. of Amesbury, Massachusetts. Provident Bancorps offering, which closed in July 2015, raised gross proceeds of $42.7 million through the sale of 45.0% of its stock in a public offering. Provident Bancorps offering closed at slightly above the maximum of its offering range at a fully-converted pro forma price/tangible book ratio of 68.10%. In comparison, the Banks pro forma price/tangible book ratio at the midpoint value reflects an implied discount of 9.30%. Comparative pre-conversion financial data for Provident Bancorp has been included in the Chapter III tables and show that, in comparison to HarborOne Bank, Provident Bancorp maintained a higher tangible equity-to-assets ratio (11.51% versus 8.17% for HarborOne Bank), a higher return on average assets (0.71% versus 0.27% for HarborOne Bank) and a lower ratio of non-performing assets (inclusive of performing troubles debt restructurings) as a percent of assets (0.86% versus 2.62% for HarborOne Bank).
In light of the significance of the Banks mortgage banking activities on the Banks overall operations, we also reviewed current pricing of publicly-traded mortgage banking companies compared to the pricing of the Banks Peer Group. The publicly-traded mortgage banking companies are currently trading at a P/TB ratio of 110% and 11 times forward earnings. Comparatively, pricing for the Peer Group reflected a P/TB ratio of 113% and a core P/E multiple of 21 times.
Valuation Conclusion
Based on the foregoing, it is our opinion that, as of February 5, 2016, the estimated aggregate pro forma market value of the shares to be issued immediately following the conversion, both shares issued publicly as well as to the MHC, equaled $227,700,000 at the midpoint, equal to 22,770,000 shares offered at a per share value of $10.00. Pursuant to
conversion guidelines, the 15% offering range indicates a minimum value of $193,545,000 and a maximum value of $261,855,000. Based on the $10.00 per share offering price determined by the Board, this valuation range equates to total shares outstanding of 19,354,500 at the minimum and 26,185,500 at the maximum. In the event the appraised value is subject to an increase, the aggregate pro forma market value may be increased up to a super maximum value of $301,133,250 without a resolicitation. Based on the $10.00 per share offering price, the super maximum value would result in total shares outstanding of 30,113,325. The Board of Directors has established a public offering range such that the public ownership of the Bank will constitute a 45.0% ownership interest prior to the issuance of shares to the Foundation. Accordingly, the offering to the public of the minority stock will equal $87,095,250 at the minimum, $102,465,000 at the midpoint, $117,834,750 at the maximum and $135,509,960 at the super maximum of the valuation range. Based on the public offering range and inclusive of the shares issued to the Foundation, equal to 1.2% of the shares issued in the stock issuance, the public ownership of shares will represent 46.2% of the shares issued throughout the valuation range. The pro forma valuation calculations relative to the Peer Group (fully-converted basis) are shown in Table 4.4 and are detailed in Exhibit IV-7 and Exhibit IV-8; the pro forma valuation calculations relative to the Peer Group based on reported financials are shown in Table 4.5 and are detailed in Exhibits IV-9 and IV-10.
EXHIBITS
LIST OF EXHIBITS
Exhibit |
|
|
Number |
|
Description |
|
|
|
I-1 |
|
Map of Office Locations |
|
|
|
I-2 |
|
Audited Financial Statements |
|
|
|
I-3 |
|
Key Operating Ratios |
|
|
|
I-4 |
|
Investment Portfolio Composition |
|
|
|
I-5 |
|
Yields and Costs |
|
|
|
I-6 |
|
Loan Loss Allowance Activity |
|
|
|
I-7 |
|
Interest Rate Risk Analysis |
|
|
|
I-8 |
|
Fixed and Adjustable Rate Loans |
|
|
|
I-9 |
|
Loan Portfolio Composition |
|
|
|
I-10 |
|
Contractual Maturity by Loan Type |
|
|
|
I-11 |
|
Loan Originations, Purchases, Sales and Repayments |
|
|
|
I-12 |
|
Non-Performing Assets |
|
|
|
I-13 |
|
Deposit Composition |
|
|
|
I-14 |
|
Maturity of Time Deposits |
|
|
|
I-15 |
|
Borrowing Activity |
|
|
|
II-1 |
|
Description of Office Properties |
|
|
|
II-2 |
|
Historical Interest Rates |
LIST OF EXHIBITS (continued)
Exhibit |
|
|
Number |
|
Description |
|
|
|
III-1 |
|
General Characteristics of Publicly-Traded Institutions |
|
|
|
III-2 |
|
Public Market Pricing of Northeast Thrift Institutions |
|
|
|
III-3 |
|
Public Market Pricing of Mid-Atlantic Thrift Institutions |
|
|
|
III-4 |
|
Peer Group Market Area Comparative Analysis |
|
|
|
IV-1 |
|
Stock Prices: As of February 5, 2016 |
|
|
|
IV-2 |
|
Historical Stock Price Indices |
|
|
|
IV-3 |
|
Stock Indices as of February 5, 2016 |
|
|
|
IV-4 |
|
Massachusetts Thrift Acquisitions 2011 - Present |
|
|
|
IV-5 |
|
Director and Senior Management Summary Resumes |
|
|
|
IV-6 |
|
Pro Forma Regulatory Capital Ratios |
|
|
|
IV-7 |
|
Pro Forma Analysis Sheet Fully Converted Basis |
|
|
|
IV-8 |
|
Pro Forma Effect of Conversion Proceeds Fully Converted Basis |
|
|
|
IV-9 |
|
Pro Forma Analysis Sheet Minority Stock Offering |
|
|
|
IV-10 |
|
Pro Forma Effect of Conversion Proceeds Minority Stock Offering |
|
|
|
V-1 |
|
Firm Qualifications Statement |
EXHIBIT I-1
HarborOne Bank
Map of Office Locations
Exhibit I-1 HarborOne Bank Map of Office Locations Source: SNL Financial, LC.
wakefield salem wobum lunn lincoin medford somerville waltham wellesley boston needham dedham quincy norwood hull weymouth scituate randolph hanover franklin stoughton pembroke marifield kingston attleboro taunton middleboro plymouth dighton lakeville
EXHIBIT I-2
HarborOne Bank
Audited Financial Statements
[Incorporated by Reference]
EXHIBIT I-3
HarborOne Bank
Key Operating Ratios
Exhibit I-3
HarborOne Bank
Key Operating Ratios
|
|
At or For the Year Ended December 31, |
|
||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2012(1) |
|
2011(1) |
|
Performance Ratios: |
|
|
|
|
|
|
|
|
|
|
|
Return on average assets (ratio of net income to average total assets) |
|
0.27 |
% |
0.13 |
% |
0.38 |
% |
0.46 |
% |
0.38 |
% |
Return on average equity (ratio of net income to average equity) |
|
3.04 |
% |
1.38 |
% |
3.98 |
% |
5.01 |
% |
4.27 |
% |
Interest rate spread(2) |
|
2.50 |
% |
2.26 |
% |
2.23 |
% |
2.34 |
% |
2.45 |
% |
Net interest margin(3) |
|
2.60 |
% |
2.38 |
% |
2.36 |
% |
2.51 |
% |
2.65 |
% |
Efficiency ratio(4) |
|
88.80 |
% |
88.99 |
% |
88.88 |
% |
81.11 |
% |
82.04 |
% |
Average interest-earning assets to average interest-bearing liabilities |
|
115.38 |
% |
115.72 |
% |
115.73 |
% |
115.29 |
% |
114.65 |
% |
Average equity to average total assets |
|
8.93 |
% |
9.40 |
% |
9.54 |
% |
9.23 |
% |
8.96 |
% |
Asset Quality Ratios: |
|
|
|
|
|
|
|
|
|
|
|
Non-performing assets to total assets |
|
1.47 |
% |
1.87 |
% |
1.90 |
% |
2.19 |
% |
2.46 |
% |
Non-performing loans to total loans |
|
1.69 |
% |
2.12 |
% |
2.13 |
% |
2.57 |
% |
2.77 |
% |
Allowance for loan losses to non-performing loans |
|
46.56 |
% |
39.49 |
% |
42.44 |
% |
43.73 |
% |
41.61 |
% |
Allowance for loan losses to total loans |
|
0.79 |
% |
0.84 |
% |
0.90 |
% |
1.12 |
% |
1.15 |
% |
Capital Ratios: |
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 to risk weighted Assets |
|
10.7 |
% |
N/A |
|
N/A |
|
N/A |
|
N/A |
|
Tier 1 capital to risk weighted assets |
|
10.7 |
% |
12.2 |
% |
14.0 |
% |
N/A |
|
N/A |
|
Total capital to risk weighted assets |
|
11.6 |
% |
13.1 |
% |
13.0 |
% |
N/A |
|
N/A |
|
Tier 1 capital to average assets |
|
8.3 |
% |
8.9 |
% |
9.1 |
% |
N/A |
|
N/A |
|
(1) As a credit union during 2011 and 2012, HarborOne Bank was subject to different capital requirements.
(2) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of interest-bearing liabilities.
(3) Represents net interest income as a percent of average interest-earning assets.
(4) Represents noninterest expense divided by the sum of net interest income and noninterest income.
Source: HarborOne Banks prospectus.
EXHIBIT I-4
HarborOne Bank
Investment Portfolio Composition
Exhibit I-4
HarborOne Bank
Investment Portfolio Composition
|
|
At December 31, |
|
||||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
||||||||||||
|
|
Amortized |
|
Fair |
|
Amortized |
|
Fair |
|
Amortized |
|
Fair |
|
||||||
(In thousands) |
|
Cost |
|
Value |
|
Cost |
|
Value |
|
Cost |
|
Value |
|
||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
U.S. government and government-sponsored enterprise obligations |
|
$ |
5,000 |
|
$ |
4,967 |
|
$ |
4,891 |
|
$ |
4,983 |
|
$ |
14,571 |
|
$ |
14,308 |
|
U.S. government-sponsored mortgage-backed and collateralized mortgage obligations |
|
93,071 |
|
93,086 |
|
127,016 |
|
127,392 |
|
121,683 |
|
121,110 |
|
||||||
SBA asset-backed securities |
|
30,258 |
|
30,488 |
|
15,539 |
|
15,640 |
|
|
|
|
|
||||||
Total securities available for sale |
|
$ |
128,329 |
|
$ |
128,541 |
|
$ |
147,446 |
|
$ |
148,015 |
|
$ |
136,254 |
|
$ |
135,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
U.S. government and government-sponsored enterprise obligations |
|
$ |
9,954 |
|
$ |
9,940 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
U.S. government-sponsored mortgage-backed and collateralized mortgage obligations |
|
27,594 |
|
27,563 |
|
32,088 |
|
32,372 |
|
31,234 |
|
30,055 |
|
||||||
Other bonds and obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
State and political subdivisions |
|
26,031 |
|
27,703 |
|
26,296 |
|
27,933 |
|
26,043 |
|
25,913 |
|
||||||
Total securities held to maturity |
|
$ |
63,579 |
|
$ |
65,206 |
|
$ |
58,384 |
|
$ |
60,305 |
|
$ |
57,277 |
|
$ |
55,968 |
|
Source: HarborOne Banks prospectus.
EXHIBIT I-5
HarborOne Bank
Yields and Costs
Exhibit I-5
HarborOne Bank
Yields and Costs
|
|
For the Years Ended December 31, |
|
||||||||||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
||||||||||||||||||
|
|
Average |
|
Interest |
|
Average |
|
Average |
|
Interest |
|
Average |
|
Average |
|
Interest |
|
Average |
|
||||||
|
|
Outstanding |
|
Earned/ |
|
Yield/ |
|
Outstanding |
|
Earned/ |
|
Yield/ |
|
Outstanding |
|
Earned/ |
|
Yield/ |
|
||||||
(Dollars in thousands) |
|
Balance |
|
Paid |
|
Rate |
|
Balance |
|
Paid |
|
Rate |
|
Balance |
|
Paid |
|
Rate |
|
||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loans(1) |
|
$ |
1,746,346 |
|
$ |
61,413 |
|
3.52 |
% |
$ |
1,618,958 |
|
$ |
56,379 |
|
3.48 |
% |
$ |
1,566,556 |
|
$ |
56,007 |
|
3.58 |
% |
Investment securities(2) |
|
229,296 |
|
5,606 |
|
2.44 |
% |
228,747 |
|
4,876 |
|
2.13 |
% |
184,463 |
|
3,080 |
|
1.67 |
% |
||||||
Other interest-earning assets |
|
35,479 |
|
98 |
|
0.28 |
% |
54,128 |
|
137 |
|
0.25 |
% |
58,489 |
|
148 |
|
0.25 |
% |
||||||
Total interest-earning assets |
|
2,011,120 |
|
67,117 |
|
3.34 |
% |
1,901,834 |
|
61,392 |
|
3.23 |
% |
1,809,508 |
|
59,235 |
|
3.27 |
% |
||||||
Noninterest-earning assets |
|
110,501 |
|
|
|
|
|
83,965 |
|
|
|
|
|
73,076 |
|
|
|
|
|
||||||
Total assets |
|
$ |
2,121,621 |
|
|
|
|
|
$ |
1,985,798 |
|
|
|
|
|
$ |
1,882,584 |
|
|
|
|
|
|||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Savings accounts |
|
$ |
286,381 |
|
492 |
|
0.17 |
% |
$ |
270,776 |
|
515 |
|
0.19 |
% |
$ |
261,700 |
|
652 |
|
0.25 |
% |
|||
NOW accounts |
|
109,674 |
|
69 |
|
0.06 |
% |
101,642 |
|
67 |
|
0.07 |
% |
96,487 |
|
72 |
|
0.07 |
% |
||||||
Money market accounts |
|
559,745 |
|
2,417 |
|
0.43 |
% |
440,597 |
|
1,907 |
|
0.43 |
% |
331,887 |
|
1,192 |
|
0.36 |
% |
||||||
Certificates of deposit |
|
491,235 |
|
5,722 |
|
1.16 |
% |
537,149 |
|
6,544 |
|
1.22 |
% |
529,600 |
|
6,518 |
|
1.23 |
% |
||||||
Total interest-bearing deposits |
|
1,447,036 |
|
8,700 |
|
0.60 |
% |
1,350,164 |
|
9,033 |
|
0.67 |
% |
1,219,674 |
|
8,434 |
|
0.69 |
% |
||||||
FHLB advances |
|
296,016 |
|
5,875 |
|
1.98 |
% |
293,316 |
|
6,845 |
|
2.33 |
% |
343,840 |
|
7,947 |
|
2.31 |
% |
||||||
Total interest-bearing liabilities |
|
1,743,051 |
|
14,575 |
|
0.84 |
% |
1,643,480 |
|
15,878 |
|
0.97 |
% |
1,563,514 |
|
16,381 |
|
1.05 |
% |
||||||
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Noninterest-bearing deposits |
|
167,517 |
|
|
|
|
|
137,475 |
|
|
|
|
|
122,400 |
|
|
|
|
|
||||||
Other noninterest-bearing liabilities |
|
21,596 |
|
|
|
|
|
18,185 |
|
|
|
|
|
17,144 |
|
|
|
|
|
||||||
Total liabilities |
|
1,932,164 |
|
|
|
|
|
1,799,140 |
|
|
|
|
|
1,703,058 |
|
|
|
|
|
||||||
Total equity |
|
189,457 |
|
|
|
|
|
186,658 |
|
|
|
|
|
179,526 |
|
|
|
|
|
||||||
Total liabilities and equity |
|
$ |
2,121,621 |
|
|
|
|
|
$ |
1,985,798 |
|
|
|
|
|
$ |
1,882,584 |
|
|
|
|
|
|||
Net interest income |
|
|
|
$ |
52,542 |
|
|
|
|
|
$ |
45,514 |
|
|
|
|
|
$ |
42,854 |
|
|
|
|||
Interest rate spread(3) |
|
|
|
|
|
2.50 |
% |
|
|
|
|
2.26 |
% |
|
|
|
|
2.23 |
% |
||||||
Less: tax equivalent adjustment |
|
|
|
316 |
|
|
|
|
|
313 |
|
|
|
|
|
123 |
|
|
|
||||||
Net interest income as reported |
|
|
|
$ |
52,225 |
|
|
|
|
|
$ |
45,201 |
|
|
|
|
|
$ |
42,731 |
|
|
|
|||
Net interest-earning assets(4) |
|
$ |
268,069 |
|
|
|
|
|
$ |
258,354 |
|
|
|
|
|
$ |
245,994 |
|
|
|
|
|
|||
Net interest margin(5) |
|
|
|
|
|
2.60 |
% |
|
|
|
|
2.38 |
% |
|
|
|
|
2.36 |
% |
||||||
Tax equivalent effect |
|
|
|
|
|
0.01 |
% |
|
|
|
|
0.01 |
% |
|
|
|
|
0.01 |
% |
||||||
Net interest margin on a fully tax equivalent basis |
|
|
|
|
|
2.61 |
% |
|
|
|
|
2.39 |
% |
|
|
|
|
2.37 |
% |
||||||
Ratio of interest-earning assets to interest-bearing liabilities |
|
115.38 |
x |
|
|
|
|
115.72 |
x |
|
|
|
|
115.73 |
x |
|
|
|
|
(1) Includes loans held for sale, nonaccruing loan balances and interest received on such loans.
(2) Includes securities available for sale, securities held to maturity and FHLB stock. Interest income from tax exempt securities is computed on a taxable equivalent basis using a tax rate of 35% for all periods presented. The yield on investments before tax-equivalent adjustments were 2.31%, 1.99% and 1.60% for the years ended December 31, 2015, 2014, and 2013, respectively.
(3) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average total interest-earning assets.
Source: HarborOne Banks prospectus.
EXHIBIT I-6
HarborOne Bank
Loan Loss Allowance Activity
Exhibit I-6
HarborOne Bank
Loan Loss Allowance Activity
|
|
For the Year Ended December 31, |
|
|||||||||||||
(Dollars in thousands) |
|
2015 |
|
2014 |
|
2013 |
|
2012 |
|
2011 |
|
|||||
Allowance at beginning of period |
|
$ |
13,934 |
|
$ |
14,529 |
|
$ |
17,254 |
|
$ |
17,873 |
|
$ |
16,736 |
|
Provision for loan losses |
|
1,257 |
|
2,589 |
|
2,235 |
|
3,839 |
|
4,024 |
|
|||||
Charge offs: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|||||
One- to four-family |
|
(860 |
) |
(2,223 |
) |
(2,977 |
) |
(2,430 |
) |
(1,193 |
) |
|||||
Second mortgages and equity lines of credit |
|
(161 |
) |
(352 |
) |
(385 |
) |
(950 |
) |
(356 |
) |
|||||
Commercial real estate |
|
|
|
(67 |
) |
(41 |
) |
|
|
(116 |
) |
|||||
Construction |
|
|
|
(67 |
) |
(631 |
) |
(221 |
) |
|
|
|||||
Commercial |
|
|
|
(229 |
) |
(110 |
) |
|
|
(212 |
) |
|||||
Consumer: |
|
(1,007 |
) |
(949 |
) |
(1,146 |
) |
(1,191 |
) |
(1,361 |
) |
|||||
Total charge-offs |
|
(2,028 |
) |
(3,887 |
) |
(5,290 |
) |
(4,792 |
) |
(3,238 |
) |
|||||
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|||||
One- to four-family |
|
358 |
|
393 |
|
54 |
|
114 |
|
154 |
|
|||||
Second mortgages and equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|||||
Construction |
|
|
|
130 |
|
|
|
|
|
|
|
|||||
Commercial |
|
7 |
|
2 |
|
|
|
|
|
1 |
|
|||||
Consumer: |
|
172 |
|
178 |
|
276 |
|
220 |
|
196 |
|
|||||
Total recoveries |
|
537 |
|
703 |
|
330 |
|
334 |
|
351 |
|
|||||
Net charge-offs |
|
1,491 |
|
3,184 |
|
4,960 |
|
4,458 |
|
2,887 |
|
|||||
Allowance at end of period |
|
$ |
13,700 |
|
$ |
13,934 |
|
$ |
14,529 |
|
$ |
17,254 |
|
$ |
17,873 |
|
Total loans outstanding(1) |
|
$ |
1,743,088 |
|
$ |
1,665,828 |
|
$ |
1,606,343 |
|
$ |
1,535,275 |
|
$ |
1,548,541 |
|
Average loans outstanding |
|
$ |
1,746,346 |
|
$ |
1,618,958 |
|
$ |
1,566,556 |
|
$ |
1,585,499 |
|
$ |
1,499,741 |
|
Allowance for loan losses as a percent of total loans outstanding(1) |
|
0.79 |
% |
0.84 |
% |
0.90 |
% |
1.12 |
% |
1.15 |
% |
|||||
Net loans charged off as a percent of average loans outstanding |
|
0.09 |
% |
0.20 |
% |
0.32 |
% |
0.28 |
% |
0.19 |
% |
|||||
Allowance for loan losses to nonperforming loans |
|
46.56 |
% |
39.49 |
% |
42.44 |
% |
43.73 |
% |
41.61 |
% |
(1) Loans are presented before allowance for loan losses, but include deferred loan origination costs (fees), net.
Source: HarborOne Banks prospectus.
EXHIBIT I-7
HarborOne Bank
Interest Rate Risk Analysis
Exhibit I-7
HarborOne Bank
Interest Rate Risk Analysis
At December 31, 2015 |
|
||||||||||||
|
|
|
|
Estimated Increase (Decrease) in |
|
EVE as Percentage of Economic |
|
||||||
|
|
|
|
EVE |
|
Value of Assets(3) |
|
||||||
Changes in Interest |
|
|
|
|
|
|
|
|
|
Changes in |
|
||
Rates (basis points)(1) |
|
Estimated EVE(2) |
|
Amount |
|
Percent |
|
EVE Ratio |
|
Basis Points |
|
||
|
|
(Dollars in thousands) |
|
||||||||||
+300 |
|
$ |
211,507 |
|
$ |
(52,162 |
) |
(19.8 |
)% |
10.6 |
% |
(1.40 |
) |
0 |
|
$ |
263,669 |
|
|
|
0.0 |
% |
12.0 |
% |
0.00 |
|
|
-100 |
|
$ |
253,850 |
|
$ |
(9,819 |
) |
(3.7 |
)% |
11.4 |
% |
(0.60 |
) |
(1) Assumes instantaneous parallel changes in interest rates.
(2) EVE, or Economic Value of Equity at Risk, measures the Banks exposure to equity due to changes in a forecast interest rate environment.
(3) EVE Ratio represents EVE divided by the economic value of assets which should translate into built in stability for future earnings.
Source: HarborOne Banks prospectus.
EXHIBIT I-8
HarborOne Bank
Fixed and Adjustable Rate Loans
Exhibit I-8
HarborOne Bank
Fixed and Adjustable Rate Loans
|
|
Fixed |
|
Adjustable |
|
|
|
|||
(In thousands) |
|
Rates |
|
Rates |
|
Total |
|
|||
Residential real estate loans: |
|
|
|
|
|
|
|
|||
One- to four-family residential |
|
$ |
629,466 |
|
$ |
81,503 |
|
$ |
710,969 |
|
Second mortgages and equity lines of credit |
|
22,313 |
|
77,061 |
|
99,374 |
|
|||
Commercial real estate |
|
114,992 |
|
150,490 |
|
265,482 |
|
|||
Construction |
|
25,244 |
|
10,586 |
|
35,830 |
|
|||
Commercial |
|
23,387 |
|
47,085 |
|
70,472 |
|
|||
Consumer |
|
548,944 |
|
|
|
548,944 |
|
|||
Total |
|
$ |
1,364,346 |
|
$ |
366,725 |
|
$ |
1,731,071 |
|
Source: HarborOne Banks prospectus.
EXHIBIT I-9
HarborOne Bank
Loan Portfolio Composition
Exhibit I-9
HarborOne Bank
Loan Portfolio Composition
|
|
At December 31, |
|
|||||||||||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2012 |
|
2011 |
|
|||||||||||||||
(Dollars in thousands) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
|||||
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
One- to four-family |
|
$ |
710,969 |
|
41 |
% |
$ |
768,129 |
|
47 |
% |
$ |
806,371 |
|
51 |
% |
$ |
781,445 |
|
51 |
% |
$ |
776,002 |
|
51 |
% |
Second mortgages and equity lines of credit |
|
99,374 |
|
6 |
|
95,465 |
|
6 |
|
96,194 |
|
6 |
|
104,766 |
|
7 |
|
122,845 |
|
8 |
|
|||||
Commercial real estate |
|
265,482 |
|
15 |
|
142,452 |
|
9 |
|
63,795 |
|
4 |
|
42,694 |
|
3 |
|
26,553 |
|
2 |
|
|||||
Construction |
|
35,830 |
|
2 |
|
26,125 |
|
2 |
|
29,822 |
|
2 |
|
20,476 |
|
1 |
|
13,867 |
|
1 |
|
|||||
Total mortgage loans on real estate |
|
1,111,655 |
|
64 |
|
1,032,171 |
|
62 |
|
996,182 |
|
63 |
|
949,381 |
|
62 |
|
939,267 |
|
61 |
|
|||||
Commercial |
|
70,472 |
|
4 |
|
47,453 |
|
3 |
|
22,969 |
|
1 |
|
16,473 |
|
1 |
|
15,513 |
|
1 |
|
|||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Auto |
|
532,071 |
|
31 |
|
556,095 |
|
34 |
|
559,661 |
|
35 |
|
544,206 |
|
36 |
|
568,079 |
|
37 |
|
|||||
Personal |
|
16,873 |
|
1 |
|
15,968 |
|
1 |
|
12,826 |
|
1 |
|
10,889 |
|
|
|
11,054 |
|
1 |
|
|||||
Total consumer |
|
548,944 |
|
32 |
|
572,063 |
|
35 |
|
572,487 |
|
36 |
|
555,095 |
|
36 |
|
579,133 |
|
38 |
|
|||||
Total loans |
|
1,731,071 |
|
100 |
% |
1,651,687 |
|
100 |
% |
1,591,638 |
|
100 |
% |
1,520,949 |
|
100 |
% |
1,533,913 |
|
100 |
% |
|||||
Deferred loan origination costs, net |
|
12,017 |
|
|
|
14,141 |
|
|
|
14,705 |
|
|
|
14,326 |
|
|
|
14,628 |
|
|
|
|||||
Allowance for loan losses |
|
(13,700 |
) |
|
|
(13,934 |
) |
|
|
(14,529 |
) |
|
|
(17,254 |
) |
|
|
(17,873 |
) |
|
|
|||||
Loans, net |
|
$ |
1,729,388 |
|
|
|
$ |
1,651,894 |
|
|
|
$ |
1,591,814 |
|
|
|
$ |
1,518,021 |
|
|
|
$ |
l,530,668 |
|
|
|
Source: HarborOne Banks prospectus.
EXHIBIT I-10
HarborOne Bank
Contractual Maturity by Loan Type
Exhibit I-10
HarborOne Bank
Contractual Maturity by Loan Type
|
|
One- to |
|
Second Mortgage |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Four-Family |
|
and Equity |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Residential |
|
Lines of |
|
Commercial |
|
|
|
|
|
|
|
Total |
|
|||||||
(In thousands) |
|
Real Estate |
|
Credit |
|
Real Estate |
|
Construction |
|
Commercial |
|
Consumer |
|
Loans |
|
|||||||
Due during the years ending December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
2016 |
|
$ |
161 |
|
$ |
122 |
|
$ |
191 |
|
$ |
965 |
|
$ |
13,657 |
|
$ |
28,254 |
|
$ |
43,350 |
|
2017 |
|
261 |
|
350 |
|
4,952 |
|
974 |
|
2,941 |
|
76,656 |
|
86,134 |
|
|||||||
2018 |
|
4,978 |
|
1,216 |
|
11,585 |
|
617 |
|
4,632 |
|
146,188 |
|
169,216 |
|
|||||||
2019 to 2020 |
|
21,491 |
|
5,859 |
|
25,669 |
|
|
|
25,274 |
|
245,660 |
|
323,953 |
|
|||||||
2021 to 2025 |
|
67,105 |
|
39,882 |
|
190,815 |
|
17,714 |
|
20,152 |
|
48,997 |
|
384,665 |
|
|||||||
2026 to 2030 |
|
158,178 |
|
23,479 |
|
22,523 |
|
5,599 |
|
896 |
|
2,041 |
|
212,716 |
|
|||||||
2031 and beyond |
|
458,795 |
|
28,466 |
|
9,747 |
|
9,961 |
|
2,920 |
|
1,148 |
|
511,037 |
|
|||||||
Total |
|
$ |
710,969 |
|
$ |
99,374 |
|
$ |
265,481 |
|
$ |
35,831 |
|
$ |
70,472 |
|
$ |
548,944 |
|
$ |
1,731,071 |
|
Source: HarborOne Banks prospectus.
EXHIBIT I-11
HarborOne Bank
Loan Originations, Purchases, Sales and Repayments
Exhibit I-11
HarborOne Bank
Loan Originations, Purchases, Sales and Repayments
|
|
Years Ended December31, |
|
|||||||
(In thousands) |
|
2015 |
|
2104 |
|
2,013 |
|
|||
Total loans and loans held for sale at beginning of period (excluding net deferred loan costs) |
|
$ |
1,655,212 |
|
$ |
1,593,699 |
|
$ |
1,532,446 |
|
Loan originations: |
|
|
|
|
|
|
|
|||
Residential real estate: |
|
|
|
|
|
|
|
|||
One- to four-family residentialBank |
|
156,403 |
|
105,344 |
|
252,195 |
|
|||
One- to four-family residentialMerrimack Mortgage (MMC) |
|
547,795 |
|
|
|
|
|
|||
Second mortgages and lines of credit |
|
32,725 |
|
28,881 |
|
22,890 |
|
|||
Commercial real estate |
|
132,053 |
|
78,394 |
|
20,706 |
|
|||
Construction |
|
28,263 |
|
29,523 |
|
44,702 |
|
|||
Total mortgage loans on real estate |
|
897,239 |
|
242,142 |
|
340,493 |
|
|||
Commercial |
|
19,143 |
|
13,766 |
|
13,558 |
|
|||
Consumer |
|
254,444 |
|
291,832 |
|
285,281 |
|
|||
Total loans originations |
|
1,170,826 |
|
547,740 |
|
639,331 |
|
|||
Loan purchases:(1) |
|
|
|
|
|
|
|
|||
Residential real estate: |
|
|
|
|
|
|
|
|||
One- to four-family residential acquired from MMC on July 1, 2015 |
|
81,410 |
|
|
|
|
|
|||
Commercial real estate |
|
33,018 |
|
6,977 |
|
|
|
|||
Total mortgage loans on real estate |
|
114,428 |
|
6,977 |
|
|
|
|||
Commercial |
|
12,985 |
|
23,133 |
|
|
|
|||
Total loan purchases |
|
127,413 |
|
30,110 |
|
|
|
|||
Loan sales:(2) |
|
|
|
|
|
|
|
|||
Residential real estate: |
|
|
|
|
|
|
|
|||
One- to four-family residentialBank |
|
(103,886 |
) |
(57,843 |
) |
(111,576 |
) |
|||
One- to four-family residentialMMC |
|
(567,663 |
) |
|
|
|
|
|||
Commercial |
|
(4,930 |
) |
|
|
|
|
|||
Total mortgage loans on real estate |
|
(676,479 |
) |
(57,843 |
) |
(111,576 |
) |
|||
Consumer |
|
(31,337 |
) |
(40,697 |
) |
|
|
|||
Total loan sales |
|
(707,816 |
) |
(98,540 |
) |
(111,576 |
) |
|||
Other: |
|
|
|
|
|
|
|
|||
Principal repayments, net |
|
(393,587 |
) |
(382,393 |
) |
(428,514 |
) |
|||
Unadvanced funds on originations |
|
(54,736 |
) |
(32,742 |
) |
(33,561 |
) |
|||
Transfer to other real estate owned |
|
(2,444 |
) |
(2,662 |
) |
(4,428 |
) |
|||
Total other |
|
(450,767 |
) |
(417,797 |
) |
(466,503 |
) |
|||
Net loan activity |
|
139,656 |
|
61,513 |
|
61,253 |
|
|||
Total loans and loans held for sale at end of period (excluding net deferred loan costs) |
|
$ |
1,794,868 |
|
$ |
1,655,212 |
|
$ |
l,593,699 |
|
(1) Includes loan purchases and participations by the Bank in loans originated by other financial institutions.
(2) Includes loan sales and participations by other financial institutions in loans originated by the Bank.
Source: HarborOne Banks prospectus.
EXHIBIT I-12
HarborOne Bank
Non-Performing Assets
Exhibit I-12
HarborOne Bank
Non-Performing Assets
|
|
At December 31, |
|
|||||||||||||
(Dollars in thousands) |
|
2015 |
|
2014 |
|
2013 |
|
2012 |
|
2011 |
|
|||||
Nonaccrual loans: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|||||
One- to four-family |
|
$ |
25,841 |
|
$ |
31,333 |
|
$ |
29,729 |
|
$ |
33,991 |
|
$ |
35,911 |
|
Second mortgages and equity lines of credit |
|
2,386 |
|
1,102 |
|
2,301 |
|
2,126 |
|
2,166 |
|
|||||
Commercial real estate |
|
|
|
1,241 |
|
654 |
|
373 |
|
2,711 |
|
|||||
Construction |
|
136 |
|
|
|
482 |
|
1,677 |
|
1,677 |
|
|||||
Commercial |
|
731 |
|
1,053 |
|
897 |
|
721 |
|
|
|
|||||
Consumer |
|
333 |
|
555 |
|
175 |
|
568 |
|
489 |
|
|||||
Total nonaccrual loans(1) |
|
29,427 |
|
35,284 |
|
34,238 |
|
39,456 |
|
42,954 |
|
|||||
Repossessed Assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
One- to four-family residential |
|
2,286 |
|
2,915 |
|
2,884 |
|
1,308 |
|
2,961 |
|
|||||
Other repossessed assets |
|
61 |
|
11 |
|
11 |
|
140 |
|
46 |
|
|||||
Total nonperforming assets |
|
31,774 |
|
38,210 |
|
37,133 |
|
40,904 |
|
45,961 |
|
|||||
Performing troubled debt restructurings |
|
24,963 |
|
26,814 |
|
31,492 |
|
32,971 |
|
9,440 |
|
|||||
Total nonperforming assets and performing troubled debt restructurings |
|
$ |
56,737 |
|
$ |
65,024 |
|
$ |
68,625 |
|
$ |
73,875 |
|
$ |
55,401 |
|
Total nonperforming loans to total loans(2) |
|
1.69 |
% |
2.12 |
% |
2.13 |
% |
2.57 |
% |
2.77 |
% |
|||||
Total nonperforming assets and performing troubled debt restructurings to total assets |
|
2.62 |
% |
3.18 |
% |
3.51 |
% |
3.95 |
% |
2.96 |
% |
|||||
Total nonperforming assets to total assets |
|
1.47 |
% |
1.87 |
% |
1.90 |
% |
2.19 |
% |
2.46 |
% |
(1) $9.4 million troubled debt restructurings are included in total nonaccrual loans.
(2) Loans are presented before allowance for loan losses, but include deferred loan origination costs (fees), net.
Source: HarborOne Banks prospectus.
EXHIBIT I-13
HarborOne Bank
Deposit Composition
Exhibit I-13
HarborOne Bank
Deposit Composition
|
|
For the Years Ended December 31, |
|
|||||||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||||||||||||||
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|||
|
|
Average |
|
|
|
Average |
|
Average |
|
|
|
Average |
|
Average |
|
|
|
Average |
|
|||
(Dollars in thousands) |
|
Balance |
|
Percent |
|
Rate |
|
Balance |
|
Percent |
|
Rate |
|
Balance |
|
Percent |
|
Rate |
|
|||
Deposit type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Noninterest-bearing demand |
|
$ |
167,517 |
|
10 |
% |
|
% |
$ |
137,475 |
|
9 |
% |
|
% |
$ |
122,400 |
|
9 |
% |
|
% |
NOW accounts |
|
109,674 |
|
7 |
|
0.07 |
|
101,642 |
|
7 |
|
0.07 |
|
96,487 |
|
7 |
|
0.07 |
|
|||
Regular savings and club |
|
286,381 |
|
18 |
|
0.17 |
|
270,776 |
|
18 |
|
0.19 |
|
261,700 |
|
19 |
|
0.21 |
|
|||
Money market |
|
559,745 |
|
35 |
|
0.44 |
|
440,597 |
|
30 |
|
0.42 |
|
331,887 |
|
25 |
|
0.39 |
|
|||
Certificates of deposit |
|
491,235 |
|
30 |
|
1.15 |
|
537,149 |
|
36 |
|
1.20 |
|
529,600 |
|
39 |
|
1.27 |
|
|||
Total |
|
$ |
1,614,552 |
|
100 |
% |
0.51 |
% |
$ |
1,487,639 |
|
100 |
% |
0.58 |
% |
$ |
1,342,074 |
|
100 |
% |
0.65 |
% |
Source: HarborOne Banks prospectus.
EXHIBIT I-14
HarborOne Bank
Maturity of Time Deposits
Exhibit I-14
HarborOne Bank
Maturity of Time Deposits
|
|
Period to Maturity |
|
|
|
|
|
||||||||||||||
|
|
|
|
More Than |
|
More than |
|
More Than |
|
|
|
|
|
% of Total |
|
||||||
|
|
Less than |
|
One Year to |
|
Two Years to |
|
Three Years |
|
More than |
|
|
|
Certificate |
|
||||||
(Dollars in thousands) |
|
One Year |
|
Two Years |
|
Three Years |
|
to Four Years |
|
Four Years |
|
Total |
|
Accounts |
|
||||||
Less than 0.50% |
|
$ |
91,319 |
|
$ |
2,954 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
94,273 |
|
20.4 |
% |
0.50% to 0.99% |
|
88,591 |
|
20,644 |
|
4,714 |
|
|
|
|
|
113.949 |
|
24.6 |
% |
||||||
1.00% to 1.49% |
|
27,556 |
|
52,777 |
|
24.641 |
|
5,238 |
|
4,990 |
|
115.202 |
|
24.9 |
% |
||||||
1.50% to 1.99% |
|
3,581 |
|
71,097 |
|
14,107 |
|
14,824 |
|
10,217 |
|
113,826 |
|
24.6 |
% |
||||||
2.00% to 2.99% |
|
19,927 |
|
807 |
|
291 |
|
3,465 |
|
57 |
|
25,247 |
|
5.5 |
% |
||||||
3.00% and greater |
|
95 |
|
|
|
|
|
|
|
|
|
95 |
|
|
% |
||||||
Total |
|
$ |
231,069 |
|
$ |
148,279 |
|
$ |
43,753 |
|
$ |
23,527 |
|
$ |
15,964 |
|
$ |
462,592 |
|
100.00 |
% |
Source: HarborOne Banks prospectus.
EXHIBIT I-15
HarborOne Bank
Borrowing Activity
Exhibit I-15
HarborOne Bank
Borrowing Activity
|
|
At or For the Years Ended |
|
|||||||
|
|
December 31, |
|
|||||||
(Dollars in thousands) |
|
2015 |
|
2014 |
|
2013 |
|
|||
FHLB Advances: |
|
|
|
|
|
|
|
|||
Balance outstanding at end of year |
|
$ |
249,598 |
|
$ |
329,602 |
|
$ |
339,606 |
|
Average amount outstanding during the year |
|
$ |
296,016 |
|
$ |
293,316 |
|
$ |
343,840 |
|
Maximum outstanding at any month end |
|
$ |
334,602 |
|
$ |
329,602 |
|
$ |
369,607 |
|
Weighted average interest rate during the year |
|
1.98 |
% |
2.33 |
% |
2.31 |
% |
|||
Weighted average interest rate at end of year |
|
2.08 |
% |
1.81 |
% |
2.21 |
% |
Source: HarborOne Banks prospectus.
EXHIBIT II-1
Description of Office Properties
Exhibit II-1
HarborOne Bank
Description of Office Properties
Properties
At December 31, 2015, the Bank conducted its business from its corporate headquarters located at 770 Oak St, Brockton, Massachusetts and fourteen full service branches, one loan production office and two limited service branches located in Plymouth, Norfolk and Bristol counties in eastern Massachusetts and Providence, Rhode Island. In addition to its corporate headquarters, the bank owns ten of these locations and leases five branches, the loan production office as well as five remote ATM locations.
Merrimack Mortgage conducts its business from its headquarters in Manchester, New Hampshire and 34 offices in New Hampshire, Maine, Connecticut, and Massachusetts. All of these locations are leased facilities.
Source: HarborOne Banks prospectus.
EXHIBIT II-2
Historical Interest Rates
Exhibit II-2
Historical Interest Rates(1)
|
|
Prime |
|
90 Day |
|
One Year |
|
10 Year |
|
|
Year/Qtr. Ended |
|
Rate |
|
T-Note |
|
T-Note |
|
T-Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
2004: |
Quarter 1 |
|
4.00 |
% |
0.95 |
% |
1.20 |
% |
3.86 |
% |
|
Quarter 2 |
|
4.00 |
% |
1.33 |
% |
2.09 |
% |
4.62 |
% |
|
Quarter 3 |
|
4.75 |
% |
1.70 |
% |
2.16 |
% |
4.12 |
% |
|
Quarter 4 |
|
5.25 |
% |
2.22 |
% |
2.75 |
% |
4.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
2005: |
Quarter 1 |
|
5.75 |
% |
2.80 |
% |
3.43 |
% |
4.51 |
% |
|
Quarter 2 |
|
6.00 |
% |
3.12 |
% |
3.51 |
% |
3.98 |
% |
|
Quarter 3 |
|
6.75 |
% |
3.55 |
% |
4.01 |
% |
4.34 |
% |
|
Quarter 4 |
|
7.25 |
% |
4.08 |
% |
4.38 |
% |
4.39 |
% |
|
|
|
|
|
|
|
|
|
|
|
2006: |
Quarter 1 |
|
7.75 |
% |
4.63 |
% |
4.82 |
% |
4.86 |
% |
|
Quarter 2 |
|
8.25 |
% |
5.01 |
% |
5.21 |
% |
5.15 |
% |
|
Quarter 3 |
|
8.25 |
% |
4.88 |
% |
4.91 |
% |
4.64 |
% |
|
Quarter 4 |
|
8.25 |
% |
5.02 |
% |
5.00 |
% |
4.71 |
% |
|
|
|
|
|
|
|
|
|
|
|
2007: |
Quarter 1 |
|
8.25 |
% |
5.04 |
% |
4.90 |
% |
4.65 |
% |
|
Quarter 2 |
|
8.25 |
% |
4.82 |
% |
4.91 |
% |
5.03 |
% |
|
Quarter 3 |
|
7.75 |
% |
3.82 |
% |
4.05 |
% |
4.59 |
% |
|
Quarter 4 |
|
7.25 |
% |
3.36 |
% |
3.34 |
% |
3.91 |
% |
|
|
|
|
|
|
|
|
|
|
|
2008: |
Quarter 1 |
|
5.25 |
% |
1.38 |
% |
1.55 |
% |
3.45 |
% |
|
Quarter 2 |
|
5.00 |
% |
1.90 |
% |
2.36 |
% |
3.99 |
% |
|
Quarter 3 |
|
5.00 |
% |
0.92 |
% |
1.78 |
% |
3.85 |
% |
|
Quarter 4 |
|
3.25 |
% |
0.11 |
% |
0.37 |
% |
2.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
2009: |
Quarter 1 |
|
3.25 |
% |
0.21 |
% |
0.57 |
% |
2.71 |
% |
|
Quarter 2 |
|
3.25 |
% |
0.19 |
% |
0.56 |
% |
3.53 |
% |
|
Quarter 3 |
|
3.25 |
% |
0.14 |
% |
0.40 |
% |
3.31 |
% |
|
Quarter 4 |
|
3.25 |
% |
0.06 |
% |
0.47 |
% |
3.85 |
% |
|
|
|
|
|
|
|
|
|
|
|
2010: |
Quarter 1 |
|
3.25 |
% |
0.16 |
% |
0.41 |
% |
3.84 |
% |
|
Quarter 2 |
|
3.25 |
% |
0.18 |
% |
0.32 |
% |
2.97 |
% |
|
Quarter 3 |
|
3.25 |
% |
0.18 |
% |
0.32 |
% |
2.97 |
% |
|
Quarter 4 |
|
3.25 |
% |
0.12 |
% |
0.29 |
% |
3.30 |
% |
|
|
|
|
|
|
|
|
|
|
|
2011: |
Quarter 1 |
|
3.25 |
% |
0.09 |
% |
0.30 |
% |
3.47 |
% |
|
Quarter 2 |
|
3.25 |
% |
0.03 |
% |
0.19 |
% |
3.18 |
% |
|
Quarter 3 |
|
3.25 |
% |
0.02 |
% |
0.13 |
% |
1.92 |
% |
|
Quarter 4 |
|
3.25 |
% |
0.02 |
% |
0.12 |
% |
1.89 |
% |
|
|
|
|
|
|
|
|
|
|
|
2012: |
Quarter 1 |
|
3.25 |
% |
0.07 |
% |
0.19 |
% |
2.23 |
% |
|
Quarter 2 |
|
3.25 |
% |
0.09 |
% |
0.21 |
% |
1.67 |
% |
|
Quarter 3 |
|
3.25 |
% |
0.10 |
% |
0.17 |
% |
1.65 |
% |
|
Quarter 4 |
|
3.25 |
% |
0.05 |
% |
0.16 |
% |
1.78 |
% |
|
|
|
|
|
|
|
|
|
|
|
2013: |
Quarter 1 |
|
3.25 |
% |
0.07 |
% |
0.14 |
% |
1.87 |
% |
|
Quarter 2 |
|
3.25 |
% |
0.04 |
% |
0.15 |
% |
2.52 |
% |
|
Quarter 3 |
|
3.25 |
% |
0.02 |
% |
0.10 |
% |
2.64 |
% |
|
Quarter 4 |
|
3.25 |
% |
0.07 |
% |
0.13 |
% |
3.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
2014: |
Quarter 1 |
|
3.25 |
% |
0.05 |
% |
0.13 |
% |
2.73 |
% |
|
Quarter 2 |
|
3.25 |
% |
0.04 |
% |
0.11 |
% |
2.53 |
% |
|
Quarter 3 |
|
3.25 |
% |
0.02 |
% |
0.13 |
% |
2.52 |
% |
|
Quarter 4 |
|
3.25 |
% |
0.04 |
% |
0.25 |
% |
2.17 |
% |
|
|
|
|
|
|
|
|
|
|
|
2015: |
Quarter 1 |
|
3.25 |
% |
0.03 |
% |
0.26 |
% |
1.94 |
% |
|
Quarter 2 |
|
3.25 |
% |
0.01 |
% |
0.28 |
% |
2.35 |
% |
|
Quarter 3 |
|
3.25 |
% |
0.00 |
% |
0.33 |
% |
2.06 |
% |
|
Quarter 4 |
|
3.50 |
% |
0.16 |
% |
0.65 |
% |
2.27 |
% |
As of Feb. 5, 2016 |
|
3.50 |
% |
0.30 |
% |
0.55 |
% |
1.86 |
% |
(1) End of period data.
Sources: Federal Reserve and The Wall Street Journal.
EXHIBIT III-1
General Characteristics of Publicly-Traded Institutions
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
February 5, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 5, 2016 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Fiscal |
|
Conv. |
|
Stock |
|
Market |
|
||
Ticker |
|
Financial Institution |
|
Exchange |
|
Region |
|
City |
|
State |
|
Assets |
|
Offices |
|
Mth End |
|
Date |
|
Price |
|
Value |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
($Mil) |
|
|
|
|
|
|
|
($) |
|
($Mil) |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
ANCB |
|
Anchor Bancorp |
|
NASDAQ |
|
WE |
|
Lacey |
|
WA |
|
381 |
(1) |
10 |
|
Jun |
|
1/26/11 |
|
$ |
24.17 |
|
$ |
61 |
|
ASBB |
|
ASB Bancorp, Inc. |
|
NASDAQ |
|
SE |
|
Asheville |
|
NC |
|
798 |
(1) |
13 |
|
Dec |
|
10/12/11 |
|
$ |
24.91 |
|
$ |
99 |
|
ACFC |
|
Atlantic Coast Financial Corporation |
|
NASDAQ |
|
SE |
|
Jacksonville |
|
FL |
|
818 |
(1) |
12 |
|
Dec |
|
2/4/11 |
|
$ |
5.55 |
|
$ |
86 |
|
BKMU |
|
Bank Mutual Corporation |
|
NASDAQ |
|
MW |
|
Milwaukee |
|
WI |
|
2,467 |
(1) |
70 |
|
Dec |
|
10/30/03 |
|
$ |
7.21 |
|
$ |
328 |
|
BFIN |
|
BankFinancial Corporation |
|
NASDAQ |
|
MW |
|
Burr Ridge |
|
IL |
|
1,431 |
(1) |
20 |
|
Dec |
|
6/24/05 |
|
$ |
12.00 |
|
$ |
244 |
|
BYBK |
|
Bay Bancorp, Inc. |
|
NASDAQ |
|
MA |
|
Columbia |
|
MD |
|
474 |
(1) |
13 |
|
Dec |
|
1/0/00 |
|
$ |
4.80 |
|
$ |
53 |
|
BNCL |
|
Beneficial Bancorp, Inc. |
|
NASDAQ |
|
MA |
|
Philadelphia |
|
PA |
|
4,728 |
(1) |
57 |
|
Dec |
|
1/13/15 |
|
$ |
12.53 |
|
$ |
1,039 |
|
BHBK |
|
Blue Hills Bancorp, Inc. |
|
NASDAQ |
|
NE |
|
Norwood |
|
MA |
|
1,934 |
(1) |
11 |
|
Dec |
|
7/22/14 |
|
$ |
13.82 |
|
$ |
394 |
|
BOFI |
|
BofI Holding, Inc. |
|
NASDAQ |
|
WE |
|
San Diego |
|
CA |
|
6,260 |
(1) |
3 |
|
Jun |
|
3/14/05 |
|
$ |
14.80 |
|
$ |
933 |
|
BYFC |
|
Broadway Financial Corporation |
|
NASDAQ |
|
WE |
|
Los Angeles |
|
CA |
|
404 |
(1) |
3 |
|
Dec |
|
1/9/96 |
|
$ |
1.50 |
|
$ |
32 |
|
BLMT |
|
BSB Bancorp, Inc. |
|
NASDAQ |
|
NE |
|
Belmont |
|
MA |
|
1,692 |
(1) |
7 |
|
Dec |
|
10/5/11 |
|
$ |
21.38 |
|
$ |
194 |
|
CFFN |
|
Capitol Federal Financial, Inc. |
|
NASDAQ |
|
MW |
|
Topeka |
|
KS |
|
9,844 |
(1) |
47 |
|
Sep |
|
12/22/10 |
|
$ |
12.00 |
|
$ |
1,646 |
|
CARV |
|
Carver Bancorp, Inc. |
|
NASDAQ |
|
MA |
|
New York |
|
NY |
|
737 |
(1) |
9 |
|
Mar |
|
10/25/94 |
|
$ |
3.19 |
|
$ |
12 |
|
CFBK |
|
Central Federal Corporation |
|
NASDAQ |
|
MW |
|
Worthington |
|
OH |
|
331 |
(1) |
4 |
|
Dec |
|
12/30/98 |
|
$ |
1.35 |
|
$ |
22 |
|
CHFN |
|
Charter Financial Corporation |
|
NASDAQ |
|
SE |
|
West Point |
|
GA |
|
1,027 |
(1) |
17 |
|
Sep |
|
4/9/13 |
|
$ |
13.01 |
|
$ |
198 |
|
CBNK |
|
Chicopee Bancorp, Inc. |
|
NASDAQ |
|
NE |
|
Chicopee |
|
MA |
|
695 |
(1) |
9 |
|
Dec |
|
7/20/06 |
|
$ |
17.98 |
|
$ |
94 |
|
CSBK |
|
Clifton Bancorp Inc. |
|
NASDAQ |
|
MA |
|
Clifton |
|
NJ |
|
1,154 |
(1) |
11 |
|
Mar |
|
4/2/14 |
|
$ |
13.88 |
|
$ |
345 |
|
CWAY |
|
Coastway Bancorp, Inc. |
|
NASDAQ |
|
NE |
|
Warwick |
|
RI |
|
528 |
(1) |
11 |
|
Dec |
|
1/15/14 |
|
$ |
12.29 |
|
$ |
60 |
|
DCOM |
|
Dime Community Bancshares, Inc. |
|
NASDAQ |
|
MA |
|
Brooklyn |
|
NY |
|
4,832 |
(1) |
26 |
|
Dec |
|
6/26/96 |
|
$ |
16.42 |
|
$ |
614 |
|
ESBK |
|
Elmira Savings Bank |
|
NASDAQ |
|
MA |
|
Elmira |
|
NY |
|
566 |
(1) |
13 |
|
Dec |
|
3/1/85 |
|
$ |
18.11 |
|
$ |
49 |
|
ENFC |
|
Entegra Financial Corp. |
|
NASDAQ |
|
SE |
|
Franklin |
|
NC |
|
984 |
(1) |
15 |
|
Dec |
|
10/1/14 |
|
$ |
16.98 |
|
$ |
111 |
|
EQFN |
|
Equitable Financial Corp. |
|
NASDAQ |
|
MW |
|
Grand Island |
|
NE |
|
212 |
(1) |
6 |
|
Jun |
|
7/9/15 |
|
$ |
8.47 |
|
$ |
29 |
|
ESSA |
|
ESSA Bancorp, Inc. |
|
NASDAQ |
|
MA |
|
Stroudsburg |
|
PA |
|
1,607 |
(1) |
31 |
|
Sep |
|
4/4/07 |
|
$ |
13.34 |
|
$ |
151 |
|
EVER |
|
EverBank Financial Corp |
|
NYSE |
|
SE |
|
Jacksonville |
|
FL |
|
25,215 |
(1) |
12 |
|
Dec |
|
5/2/12 |
|
$ |
13.73 |
|
$ |
1,717 |
|
FCAP |
|
First Capital, Inc. |
|
NASDAQ |
|
MW |
|
Corydon |
|
IN |
|
465 |
(1) |
17 |
|
Dec |
|
1/4/99 |
|
$ |
25.00 |
|
$ |
69 |
|
FBNK |
|
First Connecticut Bancorp, Inc. |
|
NASDAQ |
|
NE |
|
Farmington |
|
CT |
|
2,708 |
(1) |
26 |
|
Dec |
|
6/30/11 |
|
$ |
16.21 |
|
$ |
257 |
|
FDEF |
|
First Defiance Financial Corp. |
|
NASDAQ |
|
MW |
|
Defiance |
|
OH |
|
2,228 |
(1) |
34 |
|
Dec |
|
10/2/95 |
|
$ |
37.61 |
|
$ |
339 |
|
FFNW |
|
First Financial Northwest, Inc. |
|
NASDAQ |
|
WE |
|
Renton |
|
WA |
|
984 |
(1) |
2 |
|
Dec |
|
10/10/07 |
|
$ |
13.02 |
|
$ |
179 |
|
FNWB |
|
First Northwest Bancorp |
|
NASDAQ |
|
WE |
|
Port Angeles |
|
WA |
|
958 |
(1) |
10 |
|
Jun |
|
1/30/15 |
|
$ |
12.45 |
|
$ |
163 |
|
FBC |
|
Flagstar Bancorp, Inc. |
|
NYSE |
|
MW |
|
Troy |
|
MI |
|
12,519 |
(1) |
99 |
|
Dec |
|
4/30/97 |
|
$ |
17.77 |
|
$ |
1,004 |
|
FSBW |
|
FS Bancorp, Inc. |
|
NASDAQ |
|
WE |
|
Mountlake Terrace |
|
WA |
|
642 |
(1) |
12 |
|
Dec |
|
7/10/12 |
|
$ |
23.81 |
|
$ |
77 |
|
GTWN |
|
Georgetown Bancorp, Inc. |
|
NASDAQ |
|
NE |
|
Georgetown |
|
MA |
|
287 |
(1) |
3 |
|
Dec |
|
7/12/12 |
|
$ |
19.40 |
|
$ |
35 |
|
HBK |
|
Hamilton Bancorp, Inc. |
|
NASDAQ |
|
MA |
|
Towson |
|
MD |
|
364 |
(1) |
5 |
|
Mar |
|
10/10/12 |
|
$ |
14.14 |
|
$ |
48 |
|
HIFS |
|
Hingham Institution for Savings |
|
NASDAQ |
|
NE |
|
Hingham |
|
MA |
|
1,691 |
(1) |
13 |
|
Dec |
|
12/20/88 |
|
$ |
120.02 |
|
$ |
255 |
|
HMNF |
|
HMN Financial, Inc. |
|
NASDAQ |
|
MW |
|
Rochester |
|
MN |
|
619 |
(1) |
13 |
|
Dec |
|
6/30/94 |
|
$ |
11.64 |
|
$ |
52 |
|
HFBL |
|
Home Federal Bancorp, Inc. of Louisiana |
|
NASDAQ |
|
SW |
|
Shreveport |
|
LA |
|
366 |
(1) |
6 |
|
Jun |
|
12/22/10 |
|
$ |
22.40 |
|
$ |
46 |
|
HMST |
|
HomeStreet, Inc. |
|
NASDAQ |
|
WE |
|
Seattle |
|
WA |
|
4,976 |
(1) |
46 |
|
Dec |
|
2/10/12 |
|
$ |
19.43 |
|
$ |
477 |
|
IROQ |
|
IF Bancorp, Inc. |
|
NASDAQ |
|
MW |
|
Watseka |
|
IL |
|
558 |
(1) |
6 |
|
Jun |
|
7/8/11 |
|
$ |
17.46 |
|
$ |
70 |
|
ISBC |
|
Investors Bancorp, Inc. |
|
NASDAQ |
|
MA |
|
Short Hills |
|
NJ |
|
20,331 |
(1) |
142 |
|
Dec |
|
5/8/14 |
|
$ |
11.48 |
|
$ |
3,843 |
|
JXSB |
|
Jacksonville Bancorp, Inc. |
|
NASDAQ |
|
MW |
|
Jacksonville |
|
IL |
|
306 |
(1) |
6 |
|
Dec |
|
7/15/10 |
|
$ |
25.75 |
|
$ |
46 |
|
KRNY |
|
Kearny Financial Corp. |
|
NASDAQ |
|
MA |
|
Fairfield |
|
NJ |
|
4,302 |
(1) |
42 |
|
Jun |
|
5/19/15 |
|
$ |
11.51 |
|
$ |
1,077 |
|
LPSB |
|
La Porte Bancorp, Inc. |
|
NASDAQ |
|
MW |
|
La Porte |
|
IN |
|
545 |
(1) |
7 |
|
Dec |
|
10/5/12 |
|
$ |
14.65 |
|
$ |
82 |
|
LSBG |
|
Lake Sunapee Bank Group |
|
NASDAQ |
|
NE |
|
Newport |
|
NH |
|
1,491 |
(1) |
34 |
|
Dec |
|
5/27/86 |
|
$ |
13.63 |
|
$ |
114 |
|
MLVF |
|
Malvern Bancorp, Inc. |
|
NASDAQ |
|
MA |
|
Paoli |
|
PA |
|
656 |
(1) |
8 |
|
Sep |
|
10/12/12 |
|
$ |
16.80 |
|
$ |
110 |
|
MELR |
|
Melrose Bancorp, Inc. |
|
NASDAQ |
|
NE |
|
Melrose |
|
MA |
|
224 |
(1) |
1 |
|
Dec |
|
10/22/14 |
|
$ |
15.00 |
|
$ |
42 |
|
EBSB |
|
Meridian Bancorp, Inc. |
|
NASDAQ |
|
NE |
|
Peabody |
|
MA |
|
3,376 |
(1) |
30 |
|
Dec |
|
7/29/14 |
|
$ |
13.72 |
|
$ |
753 |
|
CASH |
|
Meta Financial Group, Inc. |
|
NASDAQ |
|
MW |
|
Sioux Falls |
|
SD |
|
2,530 |
(1) |
11 |
|
Sep |
|
9/20/93 |
|
$ |
40.67 |
|
$ |
346 |
|
MSBF |
|
MSB Financial Corp. |
|
NASDAQ |
|
MA |
|
Millington |
|
NJ |
|
371 |
(1) |
5 |
|
Dec |
|
7/17/15 |
|
$ |
12.43 |
|
$ |
74 |
|
NYCB |
|
New York Community Bancorp, Inc. |
|
NYSE |
|
MA |
|
Westbury |
|
NY |
|
49,045 |
(1) |
265 |
|
Dec |
|
11/23/93 |
|
$ |
15.38 |
|
$ |
7,458 |
|
NFBK |
|
Northfield Bancorp, Inc. |
|
NASDAQ |
|
MA |
|
Woodbridge |
|
NJ |
|
3,181 |
(1) |
40 |
|
Dec |
|
1/25/13 |
|
$ |
14.95 |
|
$ |
722 |
|
NWBI |
|
Northwest Bancshares, Inc. |
|
NASDAQ |
|
MA |
|
Warren |
|
PA |
|
8,935 |
(1) |
183 |
|
Dec |
|
12/18/09 |
|
$ |
12.05 |
|
$ |
1,228 |
|
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
February 5, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 5, 2016 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Fiscal |
|
Conv. |
|
Stock |
|
Market |
|
||
Ticker |
|
Financial Institution |
|
Exchange |
|
Region |
|
City |
|
State |
|
Assets |
|
Offices |
|
Mth End |
|
Date |
|
Price |
|
Value |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
($Mil) |
|
|
|
|
|
|
|
($) |
|
($Mil) |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
OSHC |
|
Ocean Shore Holding Co. |
|
NASDAQ |
|
MA |
|
Ocean City |
|
NJ |
|
1,067 |
(1) |
11 |
|
Dec |
|
12/21/09 |
|
$ |
17.75 |
|
$ |
114 |
|
OCFC |
|
OceanFirst Financial Corp. |
|
NASDAQ |
|
MA |
|
Toms River |
|
NJ |
|
2,558 |
(1) |
28 |
|
Dec |
|
7/3/96 |
|
$ |
16.30 |
|
$ |
282 |
|
ORIT |
|
Oritani Financial Corp. |
|
NASDAQ |
|
MA |
|
Township of Washington. |
|
NJ |
|
3,349 |
(1) |
27 |
|
Jun |
|
6/24/10 |
|
$ |
15.48 |
|
$ |
687 |
|
PBHC |
|
Pathfinder Bancorp, Inc. |
|
NASDAQ |
|
MA |
|
Oswego |
|
NY |
|
607 |
(1) |
18 |
|
Dec |
|
10/17/14 |
|
$ |
12.19 |
|
$ |
53 |
|
PBBI |
|
PB Bancorp, Inc. |
|
NASDAQ |
|
NE |
|
Putnam |
|
CT |
|
469 |
(1) |
8 |
|
Jun |
|
1/8/16 |
|
$ |
8.62 |
|
$ |
68 |
|
PBSK |
|
Poage Bankshares, Inc. |
|
NASDAQ |
|
MW |
|
Ashland |
|
KY |
|
425 |
(1) |
9 |
|
Dec |
|
9/13/11 |
|
$ |
17.28 |
|
$ |
68 |
|
PROV |
|
Provident Financial Holdings, Inc. |
|
NASDAQ |
|
WE |
|
Riverside |
|
CA |
|
1,177 |
(1) |
15 |
|
Jun |
|
6/28/96 |
|
$ |
17.08 |
|
$ |
143 |
|
PFS |
|
Provident Financial Services, Inc. |
|
NYSE |
|
MA |
|
Iselin |
|
NJ |
|
8,859 |
(1) |
90 |
|
Dec |
|
1/16/03 |
|
$ |
18.57 |
|
$ |
1,216 |
|
PBIP |
|
Prudential Bancorp, Inc. |
|
NASDAQ |
|
MA |
|
Philadelphia |
|
PA |
|
487 |
(1) |
7 |
|
Sep |
|
10/10/13 |
|
$ |
15.62 |
|
$ |
131 |
|
RVSB |
|
Riverview Bancorp, Inc. |
|
NASDAQ |
|
WE |
|
Vancouver |
|
WA |
|
896 |
(1) |
17 |
|
Mar |
|
10/1/97 |
|
$ |
4.35 |
|
$ |
98 |
|
SVBI |
|
Severn Bancorp, Inc. |
|
NASDAQ |
|
MA |
|
Annapolis |
|
MD |
|
774 |
(1) |
4 |
|
Dec |
|
1/0/00 |
|
$ |
5.22 |
|
$ |
53 |
|
SIFI |
|
SI Financial Group, Inc. |
|
NASDAQ |
|
NE |
|
Willimantic |
|
CT |
|
1,454 |
(1) |
25 |
|
Dec |
|
1/13/11 |
|
$ |
13.91 |
|
$ |
170 |
|
SBCP |
|
Sunshine Bancorp, Inc. |
|
NASDAQ |
|
SE |
|
Plant City |
|
FL |
|
442 |
(1) |
10 |
|
Dec |
|
7/15/14 |
|
$ |
14.12 |
|
$ |
74 |
|
TBNK |
|
Territorial Bancorp Inc. |
|
NASDAQ |
|
WE |
|
Honolulu |
|
HI |
|
1,784 |
(1) |
29 |
|
Dec |
|
7/13/09 |
|
$ |
25.40 |
|
$ |
245 |
|
TSBK |
|
Timberland Bancorp, Inc. |
|
NASDAQ |
|
WE |
|
Hoquiam |
|
WA |
|
816 |
(1) |
22 |
|
Sep |
|
1/13/98 |
|
$ |
12.39 |
|
$ |
87 |
|
TRST |
|
TrustCo Bank Corp NY |
|
NASDAQ |
|
MA |
|
Glenville |
|
NY |
|
4,726 |
(1) |
147 |
|
Dec |
|
1/0/00 |
|
$ |
5.49 |
|
$ |
523 |
|
UCBA |
|
United Community Bancorp |
|
NASDAQ |
|
MW |
|
Lawrenceburg |
|
IN |
|
520 |
(1) |
8 |
|
Jun |
|
1/10/13 |
|
$ |
13.70 |
|
$ |
58 |
|
UCFC |
|
United Community Financial Corp. |
|
NASDAQ |
|
MW |
|
Youngstown |
|
OH |
|
1,971 |
(1) |
31 |
|
Dec |
|
7/9/98 |
|
$ |
5.71 |
|
$ |
271 |
|
UBNK |
|
United Financial Bancorp, Inc. |
|
NASDAQ |
|
NE |
|
Glastonbury |
|
CT |
|
5,843 |
(1) |
54 |
|
Dec |
|
3/4/11 |
|
$ |
11.25 |
|
$ |
562 |
|
WSBF |
|
Waterstone Financial, Inc. |
|
NASDAQ |
|
MW |
|
Wauwatosa |
|
WI |
|
1,745 |
(1) |
13 |
|
Dec |
|
1/23/14 |
|
$ |
13.42 |
|
$ |
395 |
|
WAYN |
|
Wayne Savings Bancshares, Inc. |
|
NASDAQ |
|
MW |
|
Wooster |
|
OH |
|
424 |
(1) |
12 |
|
Dec |
|
1/9/03 |
|
$ |
12.85 |
|
$ |
36 |
|
WEBK |
|
Wellesley Bancorp, Inc. |
|
NASDAQ |
|
NE |
|
Wellesley |
|
MA |
|
590 |
(1) |
5 |
|
Dec |
|
1/26/12 |
|
$ |
18.42 |
|
$ |
45 |
|
WBB |
|
Westbury Bancorp, Inc. |
|
NASDAQ |
|
MW |
|
West Bend |
|
WI |
|
639 |
(1) |
9 |
|
Sep |
|
4/10/13 |
|
$ |
18.70 |
|
$ |
79 |
|
WFD |
|
Westfield Financial, Inc. |
|
NASDAQ |
|
NE |
|
Westfield |
|
MA |
|
1,357 |
(1) |
14 |
|
Dec |
|
1/4/07 |
|
$ |
7.84 |
|
$ |
143 |
|
WBKC |
|
Wolverine Bancorp, Inc. |
|
NASDAQ |
|
MW |
|
Midland |
|
MI |
|
344 |
(1) |
3 |
|
Dec |
|
1/20/11 |
|
$ |
25.50 |
|
$ |
56 |
|
WSFS |
|
WSFS Financial Corporation |
|
NASDAQ |
|
MA |
|
Wilmington |
|
DE |
|
5,068 |
(1) |
54 |
|
Dec |
|
11/26/86 |
|
$ |
27.88 |
|
$ |
830 |
|
WVFC |
|
WVS Financial Corp. |
|
NASDAQ |
|
MA |
|
Pittsburgh |
|
PA |
|
334 |
(1) |
6 |
|
Jun |
|
11/29/93 |
|
$ |
11.58 |
|
$ |
24 |
|
GCBC |
|
Greene County Bancorp, Inc. (MHC) |
|
NASDAQ |
|
MA |
|
Catskill |
|
NY |
|
768 |
(1) |
15 |
|
Jun |
|
12/30/98 |
|
$ |
31.00 |
|
$ |
131 |
|
KFFB |
|
Kentucky First Federal Bancorp (MHC) |
|
NASDAQ |
|
MW |
|
Frankfort |
|
KY |
|
296 |
(1) |
7 |
|
Jun |
|
3/3/05 |
|
$ |
9.17 |
|
$ |
77 |
|
LSBK |
|
Lake Shore Bancorp, Inc. (MHC) |
|
NASDAQ |
|
MA |
|
Dunkirk |
|
NY |
|
472 |
(1) |
11 |
|
Dec |
|
4/4/06 |
|
$ |
13.40 |
|
$ |
80 |
|
MGYR |
|
Magyar Bancorp, Inc. (MHC) |
|
NASDAQ |
|
MA |
|
New Brunswick |
|
NJ |
|
551 |
(1) |
6 |
|
Sep |
|
1/24/06 |
|
$ |
9.75 |
|
$ |
57 |
|
OFED |
|
Oconee Federal Financial Corp. (MHC) |
|
NASDAQ |
|
SE |
|
Seneca |
|
SC |
|
469 |
(1) |
7 |
|
Jun |
|
1/14/11 |
|
$ |
19.40 |
|
$ |
114 |
|
PVBC |
|
Provident Bancorp, Inc. (MHC) |
|
NASDAQ |
|
NE |
|
Amesbury |
|
MA |
|
699 |
(1) |
8 |
|
Dec |
|
7/16/15 |
|
$ |
13.01 |
|
$ |
124 |
|
TFSL |
|
TFS Financial Corporation (MHC) |
|
NASDAQ |
|
MW |
|
Cleveland |
|
OH |
|
12,369 |
(1) |
38 |
|
Sep |
|
4/23/07 |
|
$ |
16.33 |
|
$ |
4,723 |
|
(1) As of September 30, 2015.
Source: SNL Financial, LC.
EXHIBIT III-2
Public Market Pricing of Northeast Thrift Institutions
Exhibit III-2
Public Market Pricing
Northeast Companies
As of February 5, 2016
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Market |
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Per Share Data |
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Capitalization |
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Core |
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Book |
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Dividends(3) |
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Financial Characteristics(5) |
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Price/ |
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Market |
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12 Month |
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Value/ |
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Pricing Ratios(2) |
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Amount/ |
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Payout |
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Total |
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Equity/ |
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Tang. Eq./ |
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NPAs/ |
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Reported |
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Core |
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Share |
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Value |
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EPS(1) |
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Share |
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P/E |
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P/B |
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P/A |
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P/TB |
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P/Core |
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Share |
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Yield |
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Ratio(4) |
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Assets |
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Assets |
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T. Assets |
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Assets |
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ROAA |
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ROAE |
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ROAA |
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ROAE |
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($) |
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($Mil) |
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($) |
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($) |
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(x) |
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(%) |
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(%) |
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(%) |
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(x) |
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($) |
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(%) |
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(%) |
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($Mil) |
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(%) |
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(%) |
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(%) |
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(%) |
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(%) |
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(%) |
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(%) |
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All Non-MHC Public Companies(6) |
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Averages |
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$ |
16.39 |
|
$ |
435.84 |
|
$ |
1.06 |
|
$ |
15.16 |
|
17.93x |
|
104.85 |
% |
13.38 |
% |
113.19 |
% |
18.53x |
|
$ |
0.29 |
|
1.79 |
% |
44.94 |
% |
$ |
3,109 |
|
13.51 |
% |
12.79 |
% |
1.46 |
% |
0.74 |
% |
6.05 |
% |
0.77 |
% |
6.24 |
% |
|
Median |
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|
|
$ |
14.01 |
|
$ |
122.65 |
|
$ |
0.74 |
|
$ |
14.38 |
|
16.55x |
|
102.61 |
% |
12.65 |
% |
107.14 |
% |
17.41x |
|
$ |
0.24 |
|
1.53 |
% |
41.38 |
% |
$ |
984 |
|
12.29 |
% |
11.79 |
% |
1.10 |
% |
0.70 |
% |
5.40 |
% |
0.68 |
% |
5.22 |
% |
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|||||||
Northeast Non-MHC Public Companies(6) |
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Averages |
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$ |
21.57 |
|
$ |
212.50 |
|
$ |
1.21 |
|
$ |
17.39 |
|
20.91x |
|
109.85 |
% |
12.80 |
% |
117.48 |
% |
22.73x |
|
$ |
0.31 |
|
1.65 |
% |
39.80 |
% |
$ |
1,623 |
|
12.16 |
% |
11.59 |
% |
0.89 |
% |
0.47 |
% |
4.37 |
% |
0.48 |
% |
4.45 |
% |
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Medians |
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|
|
$ |
13.91 |
|
$ |
143.30 |
|
$ |
0.46 |
|
$ |
15.30 |
|
21.04x |
|
104.77 |
% |
11.70 |
% |
111.19 |
% |
22.56x |
|
$ |
0.18 |
|
1.16 |
% |
31.43 |
% |
$ |
1,454 |
|
10.64 |
% |
9.76 |
% |
0.84 |
% |
0.42 |
% |
4.25 |
% |
0.40 |
% |
3.53 |
% |
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Northeast Non-MHC Public Companies |
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BHBK |
Blue Hills Bancorp, Inc. |
|
MA |
|
$ |
13.82 |
|
$ |
393.77 |
|
$ |
0.26 |
|
$ |
14.48 |
|
NM |
|
98.73 |
% |
18.62 |
% |
101.74 |
% |
NM |
|
$ |
0.08 |
|
0.58 |
% |
14.29 |
% |
$ |
1,934 |
|
21.07 |
% |
20.57 |
% |
0.27 |
% |
0.42 |
% |
1.83 |
% |
0.40 |
% |
1.71 |
% |
BLMT |
BSB Bancorp, Inc. |
|
MA |
|
$ |
21.38 |
|
$ |
194.30 |
|
NA |
|
$ |
15.80 |
|
30.11x |
|
135.31 |
% |
11.48 |
% |
135.31 |
% |
NM |
|
NA |
|
NA |
|
NM |
|
$ |
1,692 |
|
8.48 |
% |
8.48 |
% |
0.58 |
% |
0.42 |
% |
4.45 |
% |
NA |
|
NA |
|
||
CBNK |
Chicopee Bancorp, Inc. |
|
MA |
|
$ |
17.98 |
|
$ |
93.69 |
|
$ |
0.46 |
|
$ |
16.98 |
|
29.97x |
|
104.95 |
% |
13.81 |
% |
104.95 |
% |
29.97x |
|
$ |
0.36 |
|
2.00 |
% |
53.33 |
% |
$ |
695 |
|
12.73 |
% |
12.73 |
% |
1.18 |
% |
0.36 |
% |
2.61 |
% |
0.36 |
% |
2.61 |
% |
CWAY |
Coastway Bancorp, Inc. |
|
RI |
|
$ |
12.29 |
|
$ |
59.73 |
|
$ |
0.28 |
|
$ |
14.53 |
|
NM |
|
84.60 |
% |
11.33 |
% |
84.60 |
% |
NM |
|
NA |
|
NA |
|
NM |
|
$ |
528 |
|
13.39 |
% |
13.39 |
% |
2.31 |
% |
0.26 |
% |
1.75 |
% |
0.26 |
% |
1.75 |
% |
|
FBNK |
First Connecticut Bancorp, Inc. |
|
CT |
|
$ |
16.21 |
|
$ |
257.44 |
|
$ |
0.82 |
|
$ |
15.30 |
|
19.53x |
|
104.77 |
% |
9.50 |
% |
104.77 |
% |
21.66x |
|
$ |
0.24 |
|
1.48 |
% |
26.51 |
% |
$ |
2,708 |
|
8.98 |
% |
8.98 |
% |
1.26 |
% |
0.52 |
% |
5.57 |
% |
0.48 |
% |
5.16 |
% |
GTWN |
Georgetown Bancorp, Inc. |
|
MA |
|
$ |
19.40 |
|
$ |
35.47 |
|
$ |
0.84 |
|
$ |
17.24 |
|
22.56x |
|
111.19 |
% |
11.98 |
% |
111.19 |
% |
22.56x |
|
$ |
0.19 |
|
0.98 |
% |
22.09 |
% |
$ |
287 |
|
10.97 |
% |
10.97 |
% |
NA |
|
0.54 |
% |
4.88 |
% |
0.54 |
% |
4.88 |
% |
HIFS |
Hingham Institution for Savings |
|
MA |
|
$ |
120.02 |
|
$ |
255.49 |
|
$ |
8.69 |
|
$ |
62.94 |
|
13.31x |
|
185.12 |
% |
14.45 |
% |
185.12 |
% |
13.32x |
|
$ |
1.20 |
|
1.00 |
% |
16.19 |
% |
$ |
1,691 |
|
7.92 |
% |
7.92 |
% |
0.40 |
% |
1.17 |
% |
14.72 |
% |
1.17 |
% |
14.71 |
% |
LSBG |
Lake Sunapee Bank Group |
|
NH |
|
$ |
13.63 |
|
$ |
114.18 |
|
$ |
1.24 |
|
$ |
16.30 |
|
12.62x |
|
83.52 |
% |
7.52 |
% |
135.42 |
% |
NM |
|
$ |
0.56 |
|
4.11 |
% |
50.93 |
% |
$ |
1,491 |
|
9.67 |
% |
6.36 |
% |
0.88 |
% |
0.65 |
% |
6.79 |
% |
0.69 |
% |
7.24 |
% |
MELR |
Melrose Bancorp, Inc. |
|
MA |
|
$ |
15.00 |
|
$ |
42.44 |
|
NA |
|
$ |
16.23 |
|
NM |
|
92.45 |
% |
18.98 |
% |
92.45 |
% |
NM |
|
NA |
|
NA |
|
NM |
|
$ |
224 |
|
20.53 |
% |
20.53 |
% |
0.13 |
% |
-0.09 |
% |
-0.44 |
% |
0.00 |
% |
-0.02 |
% |
||
EBSB |
Meridian Bancorp, Inc. |
|
MA |
|
$ |
13.72 |
|
$ |
752.89 |
|
$ |
0.40 |
|
$ |
10.71 |
|
29.83x |
|
128.01 |
% |
21.36 |
% |
131.06 |
% |
31.87x |
|
$ |
0.12 |
|
0.87 |
% |
13.04 |
% |
$ |
3,376 |
|
17.27 |
% |
16.94 |
% |
1.47 |
% |
0.72 |
% |
4.07 |
% |
0.64 |
% |
3.59 |
% |
PBBI |
PB Bancorp, Inc. |
|
CT |
|
$ |
8.62 |
|
$ |
67.93 |
|
$ |
0.09 |
|
$ |
6.67 |
|
NM |
|
129.17 |
% |
14.32 |
% |
148.98 |
% |
NM |
|
$ |
0.10 |
|
1.16 |
% |
139.77 |
% |
$ |
469 |
|
11.09 |
% |
9.76 |
% |
NA |
|
0.14 |
% |
1.26 |
% |
0.15 |
% |
1.37 |
% |
SIFI |
SI Financial Group, Inc. |
|
CT |
|
$ |
13.91 |
|
$ |
169.96 |
|
$ |
0.36 |
|
$ |
12.60 |
|
NM |
|
110.43 |
% |
11.70 |
% |
125.27 |
% |
NM |
|
$ |
0.16 |
|
1.15 |
% |
47.06 |
% |
$ |
1,454 |
|
10.59 |
% |
9.46 |
% |
0.85 |
% |
0.31 |
% |
2.75 |
% |
0.33 |
% |
2.94 |
% |
UBNK |
United Financial Bancorp, Inc. |
|
CT |
|
$ |
11.25 |
|
$ |
561.62 |
|
$ |
1.08 |
|
$ |
12.55 |
|
11.25x |
|
89.78 |
% |
9.02 |
% |
111.71 |
% |
10.51x |
|
$ |
0.48 |
|
4.27 |
% |
48.00 |
% |
$ |
5,843 |
|
10.64 |
% |
8.71 |
% |
0.83 |
% |
0.74 |
% |
6.68 |
% |
0.96 |
% |
8.61 |
% |
WEBK |
Wellesley Bancorp, Inc. |
|
MA |
|
$ |
18.42 |
|
$ |
45.36 |
|
$ |
0.93 |
|
$ |
20.90 |
|
16.16x |
|
86.93 |
% |
7.30 |
% |
86.93 |
% |
NM |
|
$ |
0.12 |
|
0.65 |
% |
10.09 |
% |
$ |
590 |
|
8.72 |
% |
8.72 |
% |
NA |
|
0.40 |
% |
4.37 |
% |
0.40 |
% |
4.33 |
% |
WFD |
Westfield Financial, Inc. |
|
MA |
|
$ |
7.84 |
|
$ |
143.30 |
|
$ |
0.28 |
|
$ |
7.59 |
|
23.76x |
|
102.75 |
% |
10.69 |
% |
102.75 |
% |
29.19x |
|
$ |
0.12 |
|
1.53 |
% |
36.36 |
% |
$ |
1,357 |
|
10.29 |
% |
10.29 |
% |
0.57 |
% |
0.45 |
% |
4.25 |
% |
0.36 |
% |
3.47 |
% |
|
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|
|||||||
Northeast MHCs |
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|||||||
PVBC |
Provident Bancorp, Inc. (MHC) |
|
MA |
|
$ |
13.01 |
|
$ |
123.58 |
|
NA |
|
$ |
10.51 |
|
NM |
|
121.86 |
% |
16.62 |
% |
121.86 |
% |
NM |
|
NA |
|
NA |
|
NM |
|
$ |
699 |
|
16.74 |
% |
16.74 |
% |
NA |
|
NA |
|
4.05 |
% |
NA |
|
5.48 |
% |
(1) Core income, on a diluted per-share basis. Core income is net income after taxes and before extraordinary items, less net income attributable to noncontrolling interest, gain on the sale of securities, amortization of intangibles, goodwill and nonrecurring items. Assumed tax rate is 35%.
(2) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/Core = Price to core earnings. P/E and P/Core =NM if the ratio is negative or above 35x.
(3) Indicated 12 month dividend, based on last quarterly dividend declared.
(4) Indicated 12 month dividend as a percent of trailing 12 month earnings.
(5) ROAA (return on average assets) and ROAE (return on average equity) are indicated ratios based on trailing 12 month earnings and average equity and assets balances.
(6) Excludes from averages and medians those companies the subject of actual or rumored acquisition activities or unusual operating characteristics.
Source: SNL Financial, LC. and RP Financial, LC. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2015 by RP® Financial, LC.
EXHIBIT III-3
Public Market Pricing of Mid-Atlantic Thrift Institutions
Exhibit III-3
Public Market Pricing
Mid-Atlantic Companies
As of February 5, 2016
(1) Core income, on a diluted per-share basis. Core income is net income after taxes and before extraordinary items, less net income attributable to noncontrolling interest, gain on the sale of securities, amortization of intangibles, goodwill and nonrecurring items. Assumed tax rate is 35%.
(2) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/Core = Price to core earnings. P/E and P/Core =NM if the ratio is negative or above 35x.
(3) Indicated 12 month dividend, based on last quarterly dividend declared.
(4) Indicated 12 month dividend as a percent of trailing 12 month earnings.
(5) ROAA (return on average assets) and ROAE (return on average equity) are indicated ratios based on trailing 12 month earnings and average equity and assets balances.
(6) Excludes from averages and medians those companies the subject of actual or rumored acquisition activities or unusual operating characteristics.
Source: SNL Financial, LC. and RP Financial, LC. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2015 by RP® Financial, LC.
EXHIBIT III-4
Peer Group Market Area Comparative Analysis
Exhibit III-4
Peer Group Market Area Comparative Analysis
|
|
|
|
|
|
|
|
Proj. |
|
|
|
|
|
Per Capita Income |
|
Deposit |
|
||
|
|
|
|
Population |
|
Pop. |
|
2010-2015 |
|
2015-2021 |
|
2015 |
|
% State |
|
Market |
|
||
Institution |
|
County |
|
2010 |
|
2015 |
|
2021 |
|
% Change |
|
% Change |
|
Amount |
|
Average |
|
Share(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BSB Bancorp, Inc. - MA |
|
Middlesex |
|
1,503,085 |
|
1,575,748 |
|
1,663,792 |
|
0.9 |
% |
0.9 |
% |
45,380 |
|
120.7 |
% |
2.22 |
% |
Blue Hills Bancorp, Inc. - MA |
|
Suffolk |
|
722,023 |
|
770,158 |
|
823,432 |
|
1.3 |
% |
1.1 |
% |
33,537 |
|
89.2 |
% |
0.82 |
% |
Clifton Bancorp, Inc. - NJ |
|
Passaic |
|
501,226 |
|
507,449 |
|
521,471 |
|
0.2 |
% |
0.5 |
% |
28,358 |
|
78.3 |
% |
4.18 |
% |
ESSA Bancorp, Inc. - PA |
|
Monroe |
|
169,842 |
|
165,381 |
|
162,062 |
|
-0.5 |
% |
-0.3 |
% |
26,193 |
|
88.1 |
% |
31.04 |
% |
First Connecticut Bancorp, Inc. - CT |
|
Hartford |
|
894,014 |
|
899,669 |
|
902,795 |
|
0.1 |
% |
0.1 |
% |
35,061 |
|
91.9 |
% |
5.34 |
% |
Meridian Bancorp, Inc. - MA |
|
Essex |
|
743,159 |
|
771,527 |
|
807,716 |
|
0.8 |
% |
0.8 |
% |
37,377 |
|
99.4 |
% |
3.50 |
% |
Ocean First Financial Corp. - NJ |
|
Ocean |
|
576,567 |
|
586,602 |
|
603,372 |
|
0.3 |
% |
0.5 |
% |
30,761 |
|
84.9 |
% |
9.98 |
% |
Ocean Shore Holding Co. - NJ |
|
Cape May |
|
97,265 |
|
95,231 |
|
93,575 |
|
-0.4 |
% |
-0.3 |
% |
33,865 |
|
93.5 |
% |
9.33 |
% |
SI Financial Group, Inc. - CT |
|
Windham |
|
118,428 |
|
117,113 |
|
115,104 |
|
-0.2 |
% |
-0.3 |
% |
28,850 |
|
75.6 |
% |
21.83 |
% |
Westfield Financial Inc. - MA |
|
Hampden |
|
463,490 |
|
468,898 |
|
478,116 |
|
0.2 |
% |
0.3 |
% |
27,947 |
|
74.3 |
% |
9.26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Averages: |
|
578,910 |
|
595,778 |
|
617,144 |
|
0.3 |
% |
0.3 |
% |
32,733 |
|
89.6 |
% |
9.75 |
% |
|
|
Medians: |
|
538,897 |
|
547,026 |
|
562,422 |
|
0.2 |
% |
0.4 |
% |
32,149 |
|
88.6 |
% |
7.30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HarborOne Bank - MA |
|
Plymouth |
|
494,919 |
|
505,606 |
|
529,058 |
|
0.4 |
% |
0.8 |
% |
36,479 |
|
97.0 |
% |
11.32 |
% |
(1) Total institution deposits in headquarters county as percent of total county deposits as of June 30, 2015.
Sources: SNL Financial, LC.
EXHIBIT IV-1
Stock Prices:
As of February 5, 2016
Exhibit IV-1A
Weekly Thrift Market Line - Part One
Prices As of February 6, 2016
|
|
|
|
|
|
Market Capitalization |
|
Price Change Data |
|
Current Per Share Financials |
|
||||||||||||||||||||||
|
|
|
|
|
|
Price/ |
|
Shares |
|
Market |
|
52 Week (1) |
|
|
|
% Change From |
|
LTM |
|
LTM Core |
|
BV/ |
|
TBV/ |
|
Assets/ |
|
||||||
Companies |
|
|
|
Share(1) |
|
Outstanding |
|
Capitalization |
|
High |
|
Low |
|
Last Wk |
|
Last Wk |
|
52 Wks (2) |
|
MRY (2) |
|
EPS (3) |
|
EPS (3) |
|
Share |
|
Share (4) |
|
Share |
|
||
|
|
|
|
|
|
($) |
|
(000) |
|
($Mil) |
|
($) |
|
($) |
|
($) |
|
(%) |
|
(%) |
|
(%) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ANCB |
|
Anchor Bancorp |
|
WA |
|
24.17 |
|
2,521 |
|
60.9 |
|
26.94 |
|
20.40 |
|
24.46 |
|
-1.19 |
|
8.90 |
|
-6.64 |
|
4.06 |
|
4.15 |
|
25.22 |
|
25.22 |
|
151.08 |
|
ASBB |
|
ASB Bancorp, Inc. |
|
NC |
|
24.91 |
|
3,985 |
|
99.3 |
|
27.24 |
|
19.29 |
|
24.50 |
|
1.67 |
|
26.96 |
|
-4.03 |
|
0.81 |
|
0.75 |
|
22.41 |
|
22.41 |
|
200.19 |
|
ACFC |
|
Atlantic Coast Financial Corporation |
|
FL |
|
5.55 |
|
15,501 |
|
86.0 |
|
6.75 |
|
3.74 |
|
5.55 |
|
0.00 |
|
46.83 |
|
-5.29 |
|
0.49 |
|
0.70 |
|
5.16 |
|
5.16 |
|
52.77 |
|
BKMU |
|
Bank Mutual Corporation |
|
WI |
|
7.21 |
|
45,444 |
|
327.6 |
|
8.13 |
|
6.44 |
|
7.88 |
|
-8.50 |
|
4.04 |
|
-7.56 |
|
0.31 |
|
NA |
|
6.09 |
|
6.09 |
|
54.28 |
|
BFIN |
|
BankFinancial Corporation |
|
IL |
|
12.00 |
|
20,297 |
|
243.6 |
|
13.62 |
|
11.38 |
|
12.27 |
|
-2.20 |
|
2.65 |
|
-4.99 |
|
2.05 |
|
2.07 |
|
10.39 |
|
10.32 |
|
70.52 |
|
BYBK |
|
Bay Bancorp, Inc. |
|
MD |
|
4.80 |
|
11,047 |
|
53.0 |
|
5.51 |
|
4.51 |
|
4.71 |
|
1.91 |
|
5.50 |
|
-5.14 |
|
0.25 |
|
0.30 |
|
6.05 |
|
5.80 |
|
42.92 |
|
BNCL |
|
Beneficial Bancorp, Inc. |
|
PA |
|
12.53 |
|
82,915 |
|
1,038.9 |
|
14.26 |
|
10.91 |
|
12.95 |
|
-3.24 |
|
13.70 |
|
-5.93 |
|
0.29 |
|
0.31 |
|
13.42 |
|
11.89 |
|
57.02 |
|
BHBK |
|
Blue Hills Bancorp, Inc. |
|
MA |
|
13.82 |
|
28,493 |
|
393.8 |
|
16.58 |
|
12.82 |
|
14.70 |
|
-5.99 |
|
3.60 |
|
-9.73 |
|
0.28 |
|
0.26 |
|
14.48 |
|
14.05 |
|
67.89 |
|
BOFI |
|
BofI Holding, Inc. |
|
CA |
|
14.80 |
|
63,032 |
|
932.9 |
|
35.98 |
|
14.78 |
|
17.16 |
|
-13.75 |
|
-32.63 |
|
-29.69 |
|
1.44 |
|
1.44 |
|
9.12 |
|
9.12 |
|
99.31 |
|
BYFC |
|
Broadway Financial Corporation |
|
CA |
|
1.50 |
|
29,077 |
|
43.6 |
|
2.08 |
|
1.13 |
|
1.50 |
|
0.01 |
|
30.43 |
|
-0.66 |
|
0.14 |
|
0.13 |
|
1.40 |
|
1.40 |
|
13.89 |
|
BLMT |
|
BSB Bancorp, Inc. |
|
MA |
|
21.38 |
|
9,088 |
|
194.3 |
|
23.64 |
|
17.67 |
|
22.10 |
|
-3.26 |
|
13.12 |
|
-8.59 |
|
0.71 |
|
NA |
|
15.80 |
|
15.80 |
|
186.22 |
|
CFFN |
|
Capitol Federal Financial, Inc. |
|
KS |
|
12.00 |
|
137,131 |
|
1,645.6 |
|
13.36 |
|
11.39 |
|
12.27 |
|
-2.20 |
|
-5.14 |
|
-4.46 |
|
0.58 |
|
0.58 |
|
10.33 |
|
10.33 |
|
71.79 |
|
CARV |
|
Carver Bancorp, Inc. |
|
NY |
|
3.19 |
|
3,696 |
|
11.8 |
|
7.60 |
|
1.92 |
|
1.92 |
|
66.14 |
|
-47.71 |
|
-14.94 |
|
0.01 |
|
0.05 |
|
2.73 |
|
2.73 |
|
199.33 |
|
CFBK |
|
Central Federal Corporation |
|
OH |
|
1.35 |
|
16,034 |
|
21.6 |
|
1.50 |
|
1.12 |
|
1.37 |
|
-1.46 |
|
3.85 |
|
2.27 |
|
0.04 |
|
0.04 |
|
1.50 |
|
1.50 |
|
20.67 |
|
CHFN |
|
Charter Financial Corporation |
|
GA |
|
13.01 |
|
15,229 |
|
198.1 |
|
14.76 |
|
11.36 |
|
13.44 |
|
-3.20 |
|
13.13 |
|
-1.51 |
|
0.34 |
|
0.35 |
|
12.79 |
|
12.51 |
|
67.44 |
|
CBNK |
|
Chicopee Bancorp, Inc. |
|
MA |
|
17.98 |
|
5,211 |
|
93.7 |
|
18.25 |
|
15.90 |
|
18.00 |
|
-0.11 |
|
9.04 |
|
3.69 |
|
0.46 |
|
0.46 |
|
16.98 |
|
16.98 |
|
133.46 |
|
CSBK |
|
Clifton Bancorp Inc. |
|
NJ |
|
13.88 |
|
24,839 |
|
344.8 |
|
14.98 |
|
13.09 |
|
14.43 |
|
-3.81 |
|
2.06 |
|
-3.21 |
|
0.34 |
|
0.27 |
|
13.14 |
|
13.14 |
|
46.46 |
|
CWAY |
|
Coastway Bancorp, Inc. |
|
RI |
|
12.29 |
|
4,858 |
|
59.7 |
|
14.01 |
|
10.75 |
|
12.42 |
|
-1.01 |
|
10.67 |
|
-6.00 |
|
0.28 |
|
0.28 |
|
14.53 |
|
14.53 |
|
108.76 |
|
DCOM |
|
Dime Community Bancshares, Inc. |
|
NY |
|
16.42 |
|
37,372 |
|
613.6 |
|
18.74 |
|
15.16 |
|
17.19 |
|
-4.48 |
|
6.14 |
|
-6.12 |
|
1.26 |
|
1.15 |
|
13.01 |
|
11.52 |
|
129.31 |
|
ESBK |
|
Elmira Savings Bank |
|
NY |
|
18.11 |
|
2,723 |
|
49.3 |
|
22.00 |
|
18.11 |
|
18.12 |
|
-0.06 |
|
-17.61 |
|
-8.92 |
|
1.16 |
|
1.11 |
|
16.49 |
|
11.94 |
|
207.97 |
|
ENFC |
|
Entegra Financial Corp. |
|
NC |
|
16.98 |
|
6,531 |
|
110.9 |
|
19.90 |
|
14.93 |
|
17.35 |
|
-2.13 |
|
10.98 |
|
-12.28 |
|
3.54 |
|
3.68 |
|
19.99 |
|
19.99 |
|
150.72 |
|
EQFN |
|
Equitable Financial Corp. |
|
NE |
|
8.47 |
|
3,477 |
|
29.5 |
|
9.09 |
|
5.32 |
|
8.71 |
|
-2.75 |
|
54.03 |
|
-3.86 |
|
0.42 |
|
0.42 |
|
10.10 |
|
10.10 |
|
60.86 |
|
ESSA |
|
ESSA Bancorp, Inc. |
|
PA |
|
13.34 |
|
11,331 |
|
151.1 |
|
13.92 |
|
11.98 |
|
13.51 |
|
-1.26 |
|
7.93 |
|
-2.49 |
|
0.93 |
|
0.94 |
|
15.09 |
|
14.03 |
|
141.79 |
|
EVER |
|
EverBank Financial Corp |
|
FL |
|
13.73 |
|
125,021 |
|
1,716.5 |
|
21.18 |
|
12.80 |
|
14.07 |
|
-2.42 |
|
-23.68 |
|
-14.08 |
|
0.89 |
|
0.96 |
|
13.39 |
|
13.00 |
|
201.68 |
|
FCAP |
|
First Capital, Inc. |
|
IN |
|
25.00 |
|
2,759 |
|
69.0 |
|
28.25 |
|
23.01 |
|
24.23 |
|
3.18 |
|
6.02 |
|
-4.21 |
|
1.94 |
|
1.99 |
|
21.57 |
|
19.61 |
|
168.64 |
|
FBNK |
|
First Connecticut Bancorp, Inc. |
|
CT |
|
16.21 |
|
15,882 |
|
257.4 |
|
18.40 |
|
14.42 |
|
16.27 |
|
-0.37 |
|
5.26 |
|
-6.89 |
|
0.89 |
|
0.82 |
|
15.30 |
|
15.30 |
|
170.54 |
|
FDEF |
|
First Defiance Financial Corp. |
|
OH |
|
37.61 |
|
9,010 |
|
338.9 |
|
42.46 |
|
31.26 |
|
38.93 |
|
-3.39 |
|
17.09 |
|
-0.45 |
|
2.76 |
|
2.81 |
|
30.37 |
|
23.41 |
|
247.32 |
|
FFNW |
|
First Financial Northwest, Inc. |
|
WA |
|
13.02 |
|
13,769 |
|
179.3 |
|
14.00 |
|
11.49 |
|
13.53 |
|
-3.77 |
|
4.66 |
|
-6.73 |
|
0.71 |
|
0.71 |
|
12.32 |
|
12.32 |
|
71.47 |
|
FNWB |
|
First Northwest Bancorp |
|
WA |
|
12.45 |
|
13,100 |
|
163.1 |
|
14.26 |
|
11.62 |
|
12.95 |
|
-3.86 |
|
0.81 |
|
-12.01 |
|
NA |
|
NA |
|
14.68 |
|
NA |
|
73.14 |
|
FBC |
|
Flagstar Bancorp, Inc. |
|
MI |
|
17.77 |
|
56,483 |
|
1,003.7 |
|
25.05 |
|
13.95 |
|
18.65 |
|
-4.72 |
|
18.86 |
|
-23.11 |
|
1.87 |
|
2.38 |
|
21.92 |
|
21.92 |
|
221.64 |
|
FSBW |
|
FS Bancorp, Inc. |
|
WA |
|
23.81 |
|
3,242 |
|
77.2 |
|
26.49 |
|
18.71 |
|
24.75 |
|
-3.80 |
|
25.58 |
|
-8.41 |
|
2.81 |
|
2.89 |
|
22.60 |
|
22.60 |
|
198.01 |
|
GTWN |
|
Georgetown Bancorp, Inc. |
|
MA |
|
19.40 |
|
1,828 |
|
35.5 |
|
20.00 |
|
17.55 |
|
18.87 |
|
2.81 |
|
8.08 |
|
2.54 |
|
0.84 |
|
0.84 |
|
17.24 |
|
17.24 |
|
157.22 |
|
HBK |
|
Hamilton Bancorp, Inc. |
|
MD |
|
14.14 |
|
3,418 |
|
48.3 |
|
16.00 |
|
12.61 |
|
14.00 |
|
1.00 |
|
10.47 |
|
-0.84 |
|
-0.05 |
|
-0.01 |
|
17.84 |
|
15.75 |
|
106.46 |
|
HIFS |
|
Hingham Institution for Savings |
|
MA |
|
120.02 |
|
2,129 |
|
255.5 |
|
135.03 |
|
86.21 |
|
123.01 |
|
-2.43 |
|
36.39 |
|
0.18 |
|
8.70 |
|
8.69 |
|
62.94 |
|
62.94 |
|
794.34 |
|
HMNF |
|
HMN Financial, Inc. |
|
MN |
|
11.64 |
|
4,483 |
|
52.2 |
|
12.61 |
|
10.18 |
|
11.52 |
|
1.04 |
|
-4.98 |
|
0.78 |
|
0.69 |
|
0.65 |
|
15.33 |
|
15.24 |
|
138.06 |
|
HFBL |
|
Home Federal Bancorp, Inc. of Louisiana |
|
LA |
|
22.40 |
|
2,038 |
|
45.6 |
|
27.37 |
|
19.06 |
|
22.00 |
|
1.82 |
|
13.71 |
|
-3.66 |
|
1.73 |
|
1.73 |
|
20.96 |
|
20.96 |
|
179.67 |
|
HMST |
|
HomeStreet, Inc. |
|
WA |
|
19.43 |
|
24,539 |
|
476.8 |
|
24.43 |
|
17.00 |
|
20.48 |
|
-5.13 |
|
10.34 |
|
-10.50 |
|
1.98 |
|
2.21 |
|
20.87 |
|
19.95 |
|
202.77 |
|
IROQ |
|
IF Bancorp, Inc. |
|
IL |
|
17.46 |
|
4,014 |
|
70.1 |
|
19.97 |
|
16.35 |
|
18.02 |
|
-3.11 |
|
4.55 |
|
-5.62 |
|
0.85 |
|
0.81 |
|
20.14 |
|
20.14 |
|
139.02 |
|
ISBC |
|
Investors Bancorp, Inc. |
|
NJ |
|
11.48 |
|
334,894 |
|
3,842.9 |
|
13.13 |
|
11.05 |
|
11.69 |
|
-1.84 |
|
-0.56 |
|
-7.76 |
|
0.53 |
|
0.53 |
|
9.87 |
|
9.61 |
|
60.71 |
|
JXSB |
|
Jacksonville Bancorp, Inc. |
|
IL |
|
25.75 |
|
1,793 |
|
46.2 |
|
33.08 |
|
21.97 |
|
25.75 |
|
0.00 |
|
14.44 |
|
-2.02 |
|
1.66 |
|
1.52 |
|
26.10 |
|
24.58 |
|
170.82 |
|
KRNY |
|
Kearny Financial Corp. |
|
NJ |
|
11.51 |
|
93,528 |
|
1,076.5 |
|
13.00 |
|
9.49 |
|
12.09 |
|
-4.80 |
|
19.91 |
|
-9.16 |
|
0.06 |
|
0.12 |
|
12.44 |
|
11.27 |
|
46.00 |
|
LPSB |
|
La Porte Bancorp, Inc. |
|
IN |
|
14.65 |
|
5,569 |
|
81.6 |
|
15.50 |
|
12.49 |
|
14.70 |
|
-0.34 |
|
16.59 |
|
-3.62 |
|
0.82 |
|
0.82 |
|
15.15 |
|
13.61 |
|
97.80 |
|
LSBG |
|
Lake Sunapee Bank Group |
|
NH |
|
13.63 |
|
8,377 |
|
114.2 |
|
16.35 |
|
13.36 |
|
13.74 |
|
-0.80 |
|
-11.43 |
|
-2.85 |
|
1.16 |
|
1.24 |
|
16.30 |
|
9.98 |
|
177.97 |
|
MLVF |
|
Malvern Bancorp, Inc. |
|
PA |
|
16.80 |
|
6,558 |
|
110.2 |
|
17.70 |
|
12.00 |
|
16.79 |
|
0.06 |
|
38.96 |
|
-4.33 |
|
0.58 |
|
0.53 |
|
12.41 |
|
12.41 |
|
99.98 |
|
MELR |
|
Melrose Bancorp, Inc. |
|
MA |
|
15.00 |
|
2,830 |
|
42.4 |
|
15.69 |
|
13.20 |
|
15.02 |
|
-0.13 |
|
14.07 |
|
-1.83 |
|
NA |
|
NA |
|
16.23 |
|
16.23 |
|
79.02 |
|
EBSB |
|
Meridian Bancorp, Inc. |
|
MA |
|
13.72 |
|
54,875 |
|
752.9 |
|
14.91 |
|
11.87 |
|
14.05 |
|
-2.35 |
|
10.65 |
|
-2.70 |
|
0.45 |
|
0.40 |
|
10.71 |
|
10.46 |
|
61.52 |
|
CASH |
|
Meta Financial Group, Inc. |
|
SD |
|
40.67 |
|
8,495 |
|
345.5 |
|
53.51 |
|
33.61 |
|
43.36 |
|
-6.20 |
|
19.30 |
|
-11.45 |
|
2.66 |
|
3.30 |
|
33.24 |
|
24.60 |
|
297.78 |
|
MSBF |
|
MSB Financial Corp. |
|
NJ |
|
12.43 |
|
5,954 |
|
74.0 |
|
12.89 |
|
8.86 |
|
12.39 |
|
0.32 |
|
34.92 |
|
-0.56 |
|
0.07 |
|
0.07 |
|
12.82 |
|
12.82 |
|
62.28 |
|
NYCB |
|
New York Community Bancorp, Inc. |
|
NY |
|
15.38 |
|
484,943 |
|
7,458.4 |
|
19.18 |
|
14.26 |
|
15.48 |
|
-0.65 |
|
-2.78 |
|
-5.76 |
|
1.11 |
|
1.10 |
|
13.11 |
|
7.62 |
|
101.14 |
|
NFBK |
|
Northfield Bancorp, Inc. |
|
NJ |
|
14.95 |
|
48,273 |
|
721.7 |
|
16.40 |
|
14.28 |
|
15.48 |
|
-3.42 |
|
1.98 |
|
-6.09 |
|
0.43 |
|
0.44 |
|
12.25 |
|
11.89 |
|
65.91 |
|
NWBI |
|
Northwest Bancshares, Inc. |
|
PA |
|
12.05 |
|
101,872 |
|
1,227.6 |
|
14.11 |
|
11.52 |
|
12.57 |
|
-4.14 |
|
1.69 |
|
-10.01 |
|
0.67 |
|
0.73 |
|
11.42 |
|
8.75 |
|
87.71 |
|
OSHC |
|
Ocean Shore Holding Co. |
|
NJ |
|
17.75 |
|
6,403 |
|
113.7 |
|
18.06 |
|
13.91 |
|
17.97 |
|
-1.22 |
|
24.61 |
|
3.50 |
|
1.10 |
|
1.12 |
|
17.29 |
|
16.49 |
|
166.71 |
|
OCFC |
|
OceanFirst Financial Corp. |
|
NJ |
|
16.30 |
|
17,287 |
|
281.8 |
|
21.00 |
|
16.25 |
|
17.72 |
|
-8.01 |
|
-1.75 |
|
-18.62 |
|
1.21 |
|
1.24 |
|
13.58 |
|
13.46 |
|
147.97 |
|
ORIT |
|
Oritani Financial Corp. |
|
NJ |
|
15.48 |
|
44,398 |
|
687.3 |
|
17.43 |
|
14.18 |
|
16.72 |
|
-7.42 |
|
7.50 |
|
-6.18 |
|
1.16 |
|
0.90 |
|
11.88 |
|
11.88 |
|
75.42 |
|
PBHC |
|
Pathfinder Bancorp, Inc. |
|
NY |
|
12.19 |
|
4,352 |
|
53.1 |
|
13.32 |
|
9.81 |
|
12.39 |
|
-1.61 |
|
23.26 |
|
-5.54 |
|
0.67 |
|
0.57 |
|
13.27 |
|
12.18 |
|
139.52 |
|
PBBI |
|
PB Bancorp, Inc. |
|
CT |
|
8.62 |
|
7,881 |
|
67.9 |
|
10.15 |
|
6.17 |
|
8.80 |
|
-2.05 |
|
36.13 |
|
1.12 |
|
0.08 |
|
0.09 |
|
6.67 |
|
5.79 |
|
59.48 |
|
PBSK |
|
Poage Bankshares, Inc. |
|
KY |
|
17.28 |
|
3,923 |
|
67.8 |
|
18.85 |
|
14.63 |
|
17.29 |
|
-0.06 |
|
15.59 |
|
1.05 |
|
1.02 |
|
0.88 |
|
18.06 |
|
17.36 |
|
108.42 |
|
PROV |
|
Provident Financial Holdings, Inc. |
|
CA |
|
17.08 |
|
8,346 |
|
142.5 |
|
19.19 |
|
15.06 |
|
17.48 |
|
-2.29 |
|
9.21 |
|
-9.58 |
|
1.10 |
|
1.10 |
|
16.52 |
|
16.52 |
|
141.06 |
|
PFS |
|
Provident Financial Services, Inc. |
|
NJ |
|
18.57 |
|
65,489 |
|
1,216.1 |
|
21.20 |
|
17.71 |
|
19.64 |
|
-5.45 |
|
1.42 |
|
-7.84 |
|
1.34 |
|
1.38 |
|
18.11 |
|
11.56 |
|
135.27 |
|
PBIP |
|
Prudential Bancorp, Inc. |
|
PA |
|
15.62 |
|
8,395 |
|
131.1 |
|
16.20 |
|
12.15 |
|
15.62 |
|
0.00 |
|
27.51 |
|
2.76 |
|
0.26 |
|
0.10 |
|
13.85 |
|
13.85 |
|
58.04 |
|
RVSB |
|
Riverview Bancorp, Inc. |
|
WA |
|
4.35 |
|
22,500 |
|
97.9 |
|
5.48 |
|
4.00 |
|
4.32 |
|
0.69 |
|
-0.46 |
|
-7.25 |
|
0.26 |
|
0.25 |
|
4.73 |
|
3.59 |
|
39.84 |
|
SVBI |
|
Severn Bancorp, Inc. |
|
MD |
|
5.22 |
|
10,086 |
|
52.6 |
|
5.88 |
|
4.25 |
|
5.53 |
|
-5.61 |
|
15.74 |
|
-9.22 |
|
0.26 |
|
0.26 |
|
5.87 |
|
5.84 |
|
76.74 |
|
SIFI |
|
SI Financial Group, Inc. |
|
CT |
|
13.91 |
|
12,218 |
|
170.0 |
|
14.47 |
|
11.00 |
|
13.96 |
|
-0.36 |
|
25.32 |
|
1.90 |
|
0.34 |
|
0.36 |
|
12.60 |
|
11.10 |
|
118.97 |
|
SBCP |
|
Sunshine Bancorp, Inc. |
|
FL |
|
14.12 |
|
5,259 |
|
74.3 |
|
15.50 |
|
11.80 |
|
14.28 |
|
-1.14 |
|
19.44 |
|
-7.12 |
|
-0.64 |
|
-0.46 |
|
14.47 |
|
12.29 |
|
84.06 |
|
TBNK |
|
Territorial Bancorp Inc. |
|
HI |
|
25.40 |
|
9,660 |
|
245.4 |
|
29.44 |
|
21.45 |
|
26.65 |
|
-4.69 |
|
16.78 |
|
-8.44 |
|
1.56 |
|
1.51 |
|
22.52 |
|
22.52 |
|
184.63 |
|
TSBK |
|
Timberland Bancorp, Inc. |
|
WA |
|
12.39 |
|
6,994 |
|
86.7 |
|
13.86 |
|
9.28 |
|
12.49 |
|
-0.80 |
|
15.69 |
|
-0.16 |
|
1.17 |
|
1.14 |
|
12.76 |
|
11.95 |
|
116.64 |
|
TRST |
|
TrustCo Bank Corp NY |
|
NY |
|
5.49 |
|
95,262 |
|
523.0 |
|
7.20 |
|
5.17 |
|
5.50 |
|
-0.18 |
|
-18.79 |
|
-10.59 |
|
0.45 |
|
0.45 |
|
4.33 |
|
4.33 |
|
49.61 |
|
UCBA |
|
United Community Bancorp |
|
IN |
|
13.70 |
|
4,201 |
|
57.6 |
|
15.42 |
|
11.77 |
|
13.80 |
|
-0.72 |
|
14.17 |
|
-8.61 |
|
0.63 |
|
0.71 |
|
15.75 |
|
15.11 |
|
123.75 |
|
UCFC |
|
United Community Financial Corp. |
|
OH |
|
5.71 |
|
47,518 |
|
271.3 |
|
6.33 |
|
3.58 |
|
6.13 |
|
-6.85 |
|
3.82 |
|
-3.22 |
|
0.30 |
|
0.30 |
|
5.12 |
|
5.12 |
|
41.48 |
|
UBNK |
|
United Financial Bancorp, Inc. |
|
CT |
|
11.25 |
|
49,922 |
|
561.6 |
|
14.16 |
|
10.28 |
|
11.30 |
|
-0.44 |
|
-12.79 |
|
-12.66 |
|
0.83 |
|
1.08 |
|
12.55 |
|
10.06 |
|
117.04 |
|
WSBF |
|
Waterstone Financial, Inc. |
|
WI |
|
13.42 |
|
29,429 |
|
394.9 |
|
14.48 |
|
12.38 |
|
13.85 |
|
-3.10 |
|
3.79 |
|
-4.82 |
|
0.53 |
|
0.53 |
|
13.27 |
|
13.25 |
|
59.28 |
|
Exhibit IV-1A
Weekly Thrift Market Line - Part One
Prices As of February 6, 2016
|
|
|
|
Market Capitalization |
|
Price Change Data |
|
Current Per Share Financials |
|
||||||||||||||||||||||||
|
|
|
|
Price/ |
|
Shares |
|
Market |
|
52 Week (1) |
|
|
|
% Change From |
|
LTM |
|
LTM Core |
|
BV/ |
|
TBV/ |
|
Assets/ |
|
||||||||
Companies |
|
|
|
Share(1) |
|
Outstanding |
|
Capitalization |
|
High |
|
Low |
|
Last Wk |
|
Last Wk |
|
52 Wks (2) |
|
MRY (2) |
|
EPS (3) |
|
EPS (3) |
|
Share |
|
Share (4) |
|
Share |
|
||
|
|
|
|
($) |
|
(000) |
|
($Mil) |
|
($) |
|
($) |
|
($) |
|
(%) |
|
(%) |
|
(%) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
WAYN |
|
Wayne Savings Bancshares, Inc. |
|
OH |
|
12.85 |
|
2,782 |
|
35.7 |
|
14.49 |
|
11.69 |
|
12.57 |
|
2.21 |
|
-7.97 |
|
-2.74 |
|
0.62 |
|
0.62 |
|
14.28 |
|
13.67 |
|
152.41 |
|
WEBK |
|
Wellesley Bancorp, Inc. |
|
MA |
|
18.42 |
|
2,462 |
|
45.4 |
|
20.59 |
|
18.05 |
|
18.54 |
|
-0.65 |
|
-3.46 |
|
-3.05 |
|
0.94 |
|
0.93 |
|
20.90 |
|
20.90 |
|
239.41 |
|
WBB |
|
Westbury Bancorp, Inc. |
|
WI |
|
18.70 |
|
4,229 |
|
79.1 |
|
19.63 |
|
16.05 |
|
18.35 |
|
1.88 |
|
15.40 |
|
3.86 |
|
0.85 |
|
0.87 |
|
18.21 |
|
18.21 |
|
151.08 |
|
WFD |
|
Westfield Financial, Inc. |
|
MA |
|
7.84 |
|
18,279 |
|
143.3 |
|
8.60 |
|
7.06 |
|
7.98 |
|
-1.75 |
|
6.81 |
|
-6.67 |
|
0.34 |
|
0.28 |
|
7.59 |
|
7.59 |
|
74.25 |
|
WBKC |
|
Wolverine Bancorp, Inc. |
|
MI |
|
25.50 |
|
2,180 |
|
55.6 |
|
27.73 |
|
23.70 |
|
25.75 |
|
-0.97 |
|
7.37 |
|
-4.28 |
|
1.70 |
|
1.46 |
|
28.51 |
|
28.51 |
|
157.79 |
|
WSFS |
|
WSFS Financial Corporation |
|
DE |
|
27.88 |
|
29,763 |
|
829.8 |
|
35.42 |
|
23.59 |
|
29.06 |
|
-4.06 |
|
6.12 |
|
-13.84 |
|
1.83 |
|
1.95 |
|
18.46 |
|
16.42 |
|
170.28 |
|
WVFC |
|
WVS Financial Corp. |
|
PA |
|
11.58 |
|
2,040 |
|
23.6 |
|
12.60 |
|
10.75 |
|
11.51 |
|
0.61 |
|
3.58 |
|
-5.85 |
|
0.70 |
|
0.70 |
|
15.85 |
|
15.85 |
|
163.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
MHCs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
GCBC |
|
Greene County Bancorp, Inc. (MHC) |
|
IN |
|
31.00 |
|
4,229 |
|
131.1 |
|
33.00 |
|
25.20 |
|
31.43 |
|
-1.37 |
|
5.08 |
|
-2.97 |
|
1.79 |
|
1.81 |
|
16.28 |
|
16.28 |
|
181.54 |
|
KFFB |
|
Kentucky First Federal Bancorp (MHC) |
|
OH |
|
9.17 |
|
8,440 |
|
77.4 |
|
10.37 |
|
7.95 |
|
9.30 |
|
-1.40 |
|
15.35 |
|
-1.82 |
|
0.26 |
|
0.26 |
|
7.96 |
|
6.25 |
|
35.06 |
|
LSBK |
|
Lake Shore Bancorp, Inc. (MHC) |
|
CT |
|
13.40 |
|
5,979 |
|
80.1 |
|
15.85 |
|
13.00 |
|
13.42 |
|
-0.15 |
|
-0.74 |
|
0.00 |
|
0.57 |
|
0.50 |
|
12.27 |
|
12.27 |
|
79.00 |
|
MGYR |
|
Magyar Bancorp, Inc. (MHC) |
|
WI |
|
9.75 |
|
5,819 |
|
56.7 |
|
11.15 |
|
8.35 |
|
9.80 |
|
-0.51 |
|
17.47 |
|
-2.60 |
|
0.15 |
|
0.16 |
|
8.02 |
|
8.02 |
|
94.61 |
|
OFED |
|
Oconee Federal Financial Corp. (MHC) |
|
OH |
|
19.40 |
|
5,882 |
|
114.1 |
|
20.95 |
|
16.50 |
|
18.91 |
|
2.59 |
|
-3.05 |
|
4.02 |
|
0.85 |
|
0.87 |
|
13.99 |
|
13.41 |
|
79.65 |
|
PVBC |
|
Provident Bancorp, Inc. (MHC) |
|
MA |
|
13.01 |
|
9,499 |
|
123.6 |
|
13.49 |
|
11.26 |
|
12.90 |
|
0.85 |
|
NA |
|
0.15 |
|
NA |
|
NA |
|
10.51 |
|
10.51 |
|
73.60 |
|
TFSL |
|
TFS Financial Corporation (MHC) |
|
WI |
|
16.33 |
|
289,244 |
|
4,723.3 |
|
19.42 |
|
13.94 |
|
17.45 |
|
-6.42 |
|
14.92 |
|
-13.28 |
|
0.25 |
|
NA |
|
5.95 |
|
5.91 |
|
42.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Under Acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
ABCW |
|
Anchor BanCorp Wisconsin Inc. |
|
MA |
|
40.93 |
|
9,597 |
|
392.8 |
|
45.75 |
|
32.57 |
|
42.68 |
|
-4.10 |
|
22.36 |
|
-5.95 |
|
14.19 |
|
13.93 |
|
37.49 |
|
37.49 |
|
233.07 |
|
AF |
|
Astoria Financial Corporation |
|
MI |
|
15.12 |
|
100,721 |
|
1,522.9 |
|
18.13 |
|
12.47 |
|
15.13 |
|
-0.07 |
|
17.30 |
|
-4.61 |
|
0.84 |
|
0.84 |
|
15.06 |
|
13.22 |
|
149.91 |
|
CBNJ |
|
Cape Bancorp, Inc. |
|
DE |
|
12.47 |
|
13,541 |
|
168.9 |
|
14.15 |
|
8.63 |
|
13.25 |
|
-5.89 |
|
42.35 |
|
0.32 |
|
0.86 |
|
0.65 |
|
12.45 |
|
10.63 |
|
115.45 |
|
CHEV |
|
Cheviot Financial Corp. |
|
PA |
|
14.29 |
|
6,803 |
|
97.2 |
|
16.35 |
|
13.81 |
|
15.04 |
|
-4.99 |
|
1.49 |
|
-6.78 |
|
0.26 |
|
0.24 |
|
14.24 |
|
12.68 |
|
84.75 |
|
FXCB |
|
Fox Chase Bancorp, Inc. |
|
NY |
|
19.13 |
|
11,768 |
|
225.1 |
|
20.78 |
|
16.05 |
|
19.57 |
|
-2.25 |
|
15.52 |
|
-5.72 |
|
0.88 |
|
0.94 |
|
15.18 |
|
15.18 |
|
93.37 |
|
(1) Average of High/Low or Bid/Ask price per share.
(2) Or since offering price if converted of first listed in the past 52 weeks. Percent change figures are actual year-to-date and are not annualized.
(3) EPS (earnings per share) is based on actual trailing 12 month data and is not shown on a pro forma basis.
(4) Excludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing 12 month common earnings and average common equity and total assets balances.
(6) Annualized based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing 12 month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities or unusual operating characteristics.
(9) For MHC institutions, market value reflects share price multiplied by public (non-MHC) shares.
Source: SNL Financial, LC. and RP
®
Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2015 by RP
®
Financial, LC.
Exhibit IV-1B
Weekly Thrift Market Line - Part Two
Prices As of February 6, 2016
|
|
|
|
Key Financial Ratios |
|
Asset Quality Ratios |
|
Pricing Ratios |
|
Dividend Data (6) |
|
||||||||||||||||||||||||||
|
|
|
|
|
|
Equity/ |
|
Tang Equity/ |
|
Reported Earnings |
|
Core Earnings |
|
NPAs/ |
|
Rsvs/ |
|
Price/ |
|
Price/ |
|
Price/ |
|
Price/ |
|
Price/ |
|
Div/ |
|
Dividend |
|
Payout |
|
||||
Companies |
|
|
|
Assets(1) |
|
Assets(1) |
|
ROA(5) |
|
ROE(5) |
|
ROA(5) |
|
ROE(5) |
|
Assets |
|
NPLs |
|
Earnings |
|
Book |
|
Assets |
|
Tang Book |
|
Core Earnings |
|
Share |
|
Yield |
|
Ratio (7) |
|
||
|
|
|
|
|
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(x) |
|
(%) |
|
(%) |
|
(%) |
|
(x) |
|
($) |
|
(%) |
|
(%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
ANCB |
|
Anchor Bancorp |
|
WA |
|
16.62 |
|
16.62 |
|
2.65 |
|
16.22 |
|
2.71 |
|
16.58 |
|
NA |
|
NA |
|
61.97 |
|
96.30 |
|
15.26 |
|
96.30 |
|
50.37 |
|
NA |
|
NA |
|
NM |
|
ASBB |
|
ASB Bancorp, Inc. |
|
NC |
|
12.38 |
|
12.38 |
|
0.42 |
|
3.39 |
|
0.39 |
|
3.12 |
|
2.06 |
|
83.46 |
|
27.99 |
|
110.70 |
|
12.68 |
|
110.70 |
|
31.26 |
|
NA |
|
NA |
|
NM |
|
ACFC |
|
Atlantic Coast Financial Corporation |
|
FL |
|
9.79 |
|
9.79 |
|
1.00 |
|
9.92 |
|
1.44 |
|
14.31 |
|
5.13 |
|
19.84 |
|
11.10 |
|
107.14 |
|
10.04 |
|
107.14 |
|
7.72 |
|
0.00 |
|
0.00 |
|
NM |
|
BKMU |
|
Bank Mutual Corporation |
|
WI |
|
11.26 |
|
11.26 |
|
0.60 |
|
5.07 |
|
NA |
|
NA |
|
0.66 |
|
148.19 |
|
23.26 |
|
117.27 |
|
13.09 |
|
117.27 |
|
22.40 |
|
0.20 |
|
2.77 |
|
64.52 |
|
BFIN |
|
BankFinancial Corporation |
|
IL |
|
14.89 |
|
14.80 |
|
2.87 |
|
19.87 |
|
2.89 |
|
20.04 |
|
1.00 |
|
106.43 |
|
27.27 |
|
114.69 |
|
16.10 |
|
115.40 |
|
26.19 |
|
0.20 |
|
1.67 |
|
47.73 |
|
BYBK |
|
Bay Bancorp, Inc. |
|
MD |
|
14.10 |
|
13.59 |
|
0.55 |
|
3.98 |
|
0.67 |
|
4.82 |
|
2.00 |
|
21.57 |
|
28.24 |
|
78.34 |
|
10.80 |
|
81.50 |
|
23.58 |
|
0.00 |
|
0.00 |
|
NM |
|
BNCL |
|
Beneficial Bancorp, Inc. |
|
PA |
|
23.51 |
|
21.40 |
|
0.48 |
|
2.41 |
|
0.52 |
|
2.60 |
|
0.30 |
|
374.27 |
|
43.21 |
|
93.35 |
|
NA |
|
105.38 |
|
40.18 |
|
NA |
|
NA |
|
NM |
|
BHBK |
|
Blue Hills Bancorp, Inc. |
|
MA |
|
21.07 |
|
20.57 |
|
0.42 |
|
1.83 |
|
0.40 |
|
1.71 |
|
0.27 |
|
288.04 |
|
49.36 |
|
98.73 |
|
18.62 |
|
101.74 |
|
51.02 |
|
0.08 |
|
0.58 |
|
14.29 |
|
BOFI |
|
BofI Holding, Inc. |
|
CA |
|
9.24 |
|
9.24 |
|
1.64 |
|
18.39 |
|
1.65 |
|
18.48 |
|
0.50 |
|
101.66 |
|
9.47 |
|
153.36 |
|
14.01 |
|
153.36 |
|
9.47 |
|
NA |
|
NA |
|
NM |
|
BYFC |
|
Broadway Financial Corporation |
|
CA |
|
10.06 |
|
10.06 |
|
1.16 |
|
10.97 |
|
1.10 |
|
10.35 |
|
4.78 |
|
35.89 |
|
10.71 |
|
107.30 |
|
10.80 |
|
107.30 |
|
11.53 |
|
0.04 |
|
0.00 |
|
NM |
|
BLMT |
|
BSB Bancorp, Inc. |
|
MA |
|
8.48 |
|
8.48 |
|
0.42 |
|
4.45 |
|
NA |
|
NA |
|
0.58 |
|
124.66 |
|
30.11 |
|
135.31 |
|
11.48 |
|
135.31 |
|
NA |
|
NA |
|
NA |
|
NM |
|
CFFN |
|
Capitol Federal Financial, Inc. |
|
KS |
|
14.39 |
|
14.39 |
|
0.70 |
|
5.32 |
|
0.70 |
|
5.32 |
|
0.55 |
|
18.79 |
|
20.69 |
|
118.32 |
|
18.02 |
|
118.32 |
|
20.69 |
|
0.34 |
|
2.83 |
|
144.83 |
|
CARV |
|
Carver Bancorp, Inc. |
|
NY |
|
7.50 |
|
7.50 |
|
-0.02 |
|
-0.28 |
|
0.00 |
|
-0.01 |
|
2.62 |
|
29.36 |
|
NM |
|
116.71 |
|
1.70 |
|
116.71 |
|
63.76 |
|
0.00 |
|
0.00 |
|
NM |
|
CFBK |
|
Central Federal Corporation |
|
OH |
|
10.60 |
|
10.60 |
|
0.42 |
|
3.91 |
|
0.42 |
|
3.93 |
|
2.44 |
|
100.87 |
|
33.75 |
|
89.92 |
|
6.67 |
|
89.92 |
|
33.75 |
|
0.00 |
|
0.00 |
|
NM |
|
CHFN |
|
Charter Financial Corporation |
|
GA |
|
19.95 |
|
19.60 |
|
0.56 |
|
2.62 |
|
0.58 |
|
2.71 |
|
1.32 |
|
93.40 |
|
24.09 |
|
99.88 |
|
19.72 |
|
102.16 |
|
23.70 |
|
0.20 |
|
1.54 |
|
37.04 |
|
CBNK |
|
Chicopee Bancorp, Inc. |
|
MA |
|
12.73 |
|
12.73 |
|
0.36 |
|
2.61 |
|
0.36 |
|
2.61 |
|
1.18 |
|
78.23 |
|
29.97 |
|
104.95 |
|
13.81 |
|
104.95 |
|
29.97 |
|
0.36 |
|
2.00 |
|
53.33 |
|
CSBK |
|
Clifton Bancorp Inc. |
|
NJ |
|
29.32 |
|
29.32 |
|
0.73 |
|
2.42 |
|
0.58 |
|
1.92 |
|
0.44 |
|
71.02 |
|
44.77 |
|
105.54 |
|
30.18 |
|
105.54 |
|
56.93 |
|
0.24 |
|
1.73 |
|
77.42 |
|
CWAY |
|
Coastway Bancorp, Inc. |
|
RI |
|
13.39 |
|
13.39 |
|
0.26 |
|
1.75 |
|
0.26 |
|
1.75 |
|
2.31 |
|
26.41 |
|
43.91 |
|
84.60 |
|
11.33 |
|
84.60 |
|
43.91 |
|
NA |
|
NA |
|
NM |
|
DCOM |
|
Dime Community Bancshares, Inc. |
|
NY |
|
10.01 |
|
8.96 |
|
1.00 |
|
9.68 |
|
0.92 |
|
8.88 |
|
0.25 |
|
177.15 |
|
13.35 |
|
124.23 |
|
12.19 |
|
140.00 |
|
14.34 |
|
0.56 |
|
3.41 |
|
45.53 |
|
ESBK |
|
Elmira Savings Bank |
|
NY |
|
9.65 |
|
7.63 |
|
0.74 |
|
7.41 |
|
0.71 |
|
7.16 |
|
0.80 |
|
91.16 |
|
15.48 |
|
109.52 |
|
8.94 |
|
151.07 |
|
16.22 |
|
0.92 |
|
5.08 |
|
78.63 |
|
ENFC |
|
Entegra Financial Corp. |
|
NC |
|
13.29 |
|
13.29 |
|
2.51 |
|
20.34 |
|
2.62 |
|
21.17 |
|
2.60 |
|
47.59 |
|
4.66 |
|
84.35 |
|
10.75 |
|
85.19 |
|
NA |
|
NA |
|
NA |
|
NM |
|
EQFN |
|
Equitable Financial Corp. |
|
NE |
|
16.59 |
|
16.59 |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
20.36 |
|
83.87 |
|
13.92 |
|
83.87 |
|
20.23 |
|
NA |
|
NA |
|
NM |
|
ESSA |
|
ESSA Bancorp, Inc. |
|
PA |
|
10.66 |
|
9.99 |
|
0.62 |
|
5.68 |
|
0.62 |
|
5.73 |
|
1.53 |
|
40.35 |
|
15.33 |
|
88.90 |
|
8.57 |
|
98.69 |
|
14.92 |
|
0.36 |
|
2.70 |
|
41.38 |
|
EVER |
|
EverBank Financial Corp |
|
FL |
|
7.23 |
|
7.05 |
|
0.55 |
|
6.95 |
|
0.59 |
|
7.46 |
|
0.62 |
|
51.16 |
|
14.45 |
|
99.90 |
|
6.49 |
|
102.81 |
|
NA |
|
0.24 |
|
1.75 |
|
23.16 |
|
FCAP |
|
First Capital, Inc. |
|
IN |
|
12.81 |
|
11.79 |
|
1.14 |
|
9.24 |
|
1.17 |
|
9.51 |
|
0.82 |
|
106.04 |
|
13.37 |
|
115.92 |
|
NA |
|
127.46 |
|
NA |
|
0.84 |
|
3.36 |
|
44.92 |
|
FBNK |
|
First Connecticut Bancorp, Inc. |
|
CT |
|
8.98 |
|
8.98 |
|
0.52 |
|
5.57 |
|
0.48 |
|
5.16 |
|
1.26 |
|
59.41 |
|
19.53 |
|
104.77 |
|
9.50 |
|
104.77 |
|
21.66 |
|
0.24 |
|
1.48 |
|
26.51 |
|
FDEF |
|
First Defiance Financial Corp. |
|
OH |
|
12.50 |
|
9.92 |
|
1.19 |
|
9.44 |
|
1.22 |
|
9.63 |
|
1.59 |
|
82.93 |
|
13.34 |
|
122.17 |
|
14.90 |
|
158.10 |
|
13.12 |
|
0.88 |
|
2.34 |
|
29.08 |
|
FFNW |
|
First Financial Northwest, Inc. |
|
WA |
|
17.78 |
|
17.78 |
|
1.06 |
|
5.56 |
|
1.05 |
|
5.53 |
|
5.41 |
|
20.69 |
|
19.43 |
|
105.04 |
|
18.29 |
|
105.04 |
|
19.56 |
|
0.24 |
|
1.84 |
|
44.78 |
|
FNWB |
|
First Northwest Bancorp |
|
WA |
|
20.07 |
|
NA |
|
-0.51 |
|
-3.13 |
|
0.17 |
|
1.06 |
|
1.05 |
|
74.19 |
|
NM |
|
86.13 |
|
17.03 |
|
NA |
|
111.59 |
|
NA |
|
NA |
|
NM |
|
FBC |
|
Flagstar Bancorp, Inc. |
|
MI |
|
12.01 |
|
12.01 |
|
1.21 |
|
9.39 |
|
1.20 |
|
9.35 |
|
1.53 |
|
113.22 |
|
7.93 |
|
79.51 |
|
7.46 |
|
79.51 |
|
NA |
|
0.00 |
|
0.00 |
|
NM |
|
FSBW |
|
FS Bancorp, Inc. |
|
WA |
|
11.41 |
|
11.41 |
|
1.54 |
|
12.41 |
|
1.59 |
|
12.75 |
|
0.16 |
|
702.28 |
|
8.13 |
|
102.46 |
|
11.39 |
|
102.46 |
|
7.68 |
|
0.28 |
|
1.18 |
|
9.56 |
|
GTWN |
|
Georgetown Bancorp, Inc. |
|
MA |
|
10.97 |
|
10.97 |
|
0.54 |
|
4.88 |
|
0.54 |
|
4.88 |
|
NA |
|
NA |
|
22.56 |
|
111.19 |
|
11.98 |
|
111.19 |
|
22.56 |
|
0.19 |
|
0.98 |
|
22.09 |
|
HBK |
|
Hamilton Bancorp, Inc. |
|
MD |
|
16.76 |
|
15.09 |
|
-0.05 |
|
-0.25 |
|
0.00 |
|
-0.01 |
|
2.40 |
|
20.93 |
|
NM |
|
79.27 |
|
NA |
|
89.76 |
|
NM |
|
NA |
|
NA |
|
NM |
|
HIFS |
|
Hingham Institution for Savings |
|
MA |
|
7.92 |
|
7.92 |
|
1.17 |
|
14.72 |
|
1.17 |
|
14.71 |
|
0.40 |
|
143.42 |
|
13.31 |
|
185.12 |
|
14.45 |
|
185.12 |
|
13.32 |
|
1.20 |
|
1.00 |
|
16.19 |
|
HMNF |
|
HMN Financial, Inc. |
|
MN |
|
11.10 |
|
11.04 |
|
0.61 |
|
5.00 |
|
0.58 |
|
4.75 |
|
2.15 |
|
81.36 |
|
19.08 |
|
74.92 |
|
8.11 |
|
75.35 |
|
20.32 |
|
0.00 |
|
0.00 |
|
NM |
|
HFBL |
|
Home Federal Bancorp, Inc. of Louisiana |
|
LA |
|
12.02 |
|
12.02 |
|
0.97 |
|
7.80 |
|
0.97 |
|
7.78 |
|
0.00 |
|
NM |
|
13.41 |
|
106.58 |
|
12.65 |
|
106.58 |
|
13.41 |
|
0.32 |
|
1.43 |
|
18.56 |
|
HMST |
|
HomeStreet, Inc. |
|
WA |
|
9.25 |
|
8.88 |
|
0.91 |
|
9.62 |
|
1.01 |
|
10.67 |
|
1.74 |
|
34.41 |
|
9.91 |
|
92.19 |
|
8.76 |
|
96.39 |
|
9.32 |
|
NA |
|
NA |
|
NM |
|
IROQ |
|
IF Bancorp, Inc. |
|
IL |
|
14.54 |
|
14.54 |
|
0.60 |
|
3.97 |
|
0.57 |
|
3.79 |
|
0.90 |
|
94.57 |
|
20.79 |
|
86.98 |
|
12.51 |
|
86.98 |
|
NA |
|
0.10 |
|
0.57 |
|
11.90 |
|
ISBC |
|
Investors Bancorp, Inc. |
|
NJ |
|
16.54 |
|
16.17 |
|
0.93 |
|
5.14 |
|
0.94 |
|
5.17 |
|
0.77 |
|
146.24 |
|
20.86 |
|
116.04 |
|
18.40 |
|
119.45 |
|
20.94 |
|
0.24 |
|
2.09 |
|
38.18 |
|
JXSB |
|
Jacksonville Bancorp, Inc. |
|
IL |
|
15.25 |
|
14.49 |
|
0.97 |
|
6.52 |
|
0.89 |
|
5.98 |
|
1.16 |
|
90.73 |
|
15.24 |
|
101.26 |
|
14.96 |
|
107.70 |
|
16.37 |
|
0.32 |
|
1.24 |
|
78.11 |
|
KRNY |
|
Kearny Financial Corp. |
|
NJ |
|
27.05 |
|
25.15 |
|
0.15 |
|
0.76 |
|
0.29 |
|
1.53 |
|
0.61 |
|
71.97 |
|
NM |
|
92.29 |
|
24.44 |
|
102.09 |
|
82.49 |
|
0.08 |
|
0.70 |
|
54.45 |
|
LPSB |
|
La Porte Bancorp, Inc. |
|
IN |
|
15.49 |
|
14.13 |
|
0.85 |
|
5.24 |
|
0.85 |
|
5.22 |
|
1.09 |
|
68.33 |
|
17.87 |
|
96.71 |
|
14.98 |
|
107.68 |
|
17.93 |
|
0.16 |
|
1.09 |
|
19.51 |
|
LSBG |
|
Lake Sunapee Bank Group |
|
NH |
|
9.67 |
|
6.36 |
|
0.65 |
|
6.79 |
|
0.69 |
|
7.24 |
|
0.88 |
|
69.01 |
|
12.62 |
|
83.52 |
|
7.52 |
|
135.42 |
|
NA |
|
0.56 |
|
4.11 |
|
50.93 |
|
MLVF |
|
Malvern Bancorp, Inc. |
|
PA |
|
12.41 |
|
12.41 |
|
0.60 |
|
4.65 |
|
0.54 |
|
4.23 |
|
0.56 |
|
187.43 |
|
22.70 |
|
133.30 |
|
15.15 |
|
133.30 |
|
24.83 |
|
0.11 |
|
0.00 |
|
NM |
|
MELR |
|
Melrose Bancorp, Inc. |
|
MA |
|
20.53 |
|
20.53 |
|
-0.09 |
|
-0.44 |
|
0.00 |
|
-0.02 |
|
0.13 |
|
198.25 |
|
NA |
|
92.45 |
|
18.98 |
|
92.45 |
|
NA |
|
NA |
|
NA |
|
NA |
|
EBSB |
|
Meridian Bancorp, Inc. |
|
MA |
|
17.27 |
|
16.94 |
|
0.72 |
|
4.07 |
|
0.64 |
|
3.59 |
|
1.47 |
|
66.40 |
|
29.83 |
|
128.01 |
|
21.36 |
|
131.06 |
|
31.87 |
|
0.12 |
|
0.87 |
|
13.04 |
|
CASH |
|
Meta Financial Group, Inc. |
|
SD |
|
10.73 |
|
8.17 |
|
0.78 |
|
8.83 |
|
0.96 |
|
10.94 |
|
0.26 |
|
94.57 |
|
15.89 |
|
119.27 |
|
11.67 |
|
156.82 |
|
13.07 |
|
0.52 |
|
1.28 |
|
20.31 |
|
MSBF |
|
MSB Financial Corp. |
|
NJ |
|
20.59 |
|
20.59 |
|
0.12 |
|
0.95 |
|
0.12 |
|
0.95 |
|
4.87 |
|
20.46 |
|
NM |
|
96.93 |
|
19.96 |
|
96.93 |
|
187.42 |
|
0.00 |
|
0.00 |
|
NM |
|
NYCB |
|
New York Community Bancorp, Inc. |
|
NY |
|
11.88 |
|
7.27 |
|
1.00 |
|
8.42 |
|
1.00 |
|
8.38 |
|
0.18 |
|
290.08 |
|
NM |
|
125.67 |
|
14.82 |
|
213.34 |
|
12.16 |
|
0.68 |
|
4.42 |
|
NM |
|
NFBK |
|
Northfield Bancorp, Inc. |
|
NJ |
|
17.54 |
|
17.12 |
|
0.62 |
|
3.24 |
|
0.63 |
|
3.29 |
|
1.16 |
|
70.10 |
|
33.22 |
|
121.69 |
|
21.27 |
|
125.35 |
|
32.33 |
|
0.28 |
|
1.87 |
|
62.22 |
|
NWBI |
|
Northwest Bancshares, Inc. |
|
PA |
|
13.00 |
|
10.28 |
|
0.77 |
|
5.71 |
|
0.84 |
|
6.24 |
|
1.17 |
|
64.37 |
|
18.83 |
|
105.54 |
|
13.71 |
|
137.55 |
|
16.94 |
|
0.60 |
|
4.98 |
|
89.06 |
|
OSHC |
|
Ocean Shore Holding Co. |
|
NJ |
|
10.37 |
|
9.94 |
|
0.64 |
|
6.28 |
|
0.65 |
|
6.36 |
|
1.05 |
|
33.52 |
|
15.85 |
|
101.67 |
|
10.89 |
|
107.62 |
|
15.85 |
|
0.24 |
|
1.35 |
|
21.43 |
|
OCFC |
|
OceanFirst Financial Corp. |
|
NJ |
|
9.18 |
|
9.10 |
|
0.83 |
|
8.97 |
|
0.86 |
|
9.22 |
|
2.13 |
|
32.41 |
|
13.47 |
|
118.17 |
|
10.87 |
|
119.21 |
|
12.70 |
|
0.52 |
|
3.19 |
|
42.98 |
|
ORIT |
|
Oritani Financial Corp. |
|
NJ |
|
15.60 |
|
15.60 |
|
1.49 |
|
9.51 |
|
1.16 |
|
7.41 |
|
0.42 |
|
271.36 |
|
12.00 |
|
132.59 |
|
19.56 |
|
132.59 |
|
24.13 |
|
0.70 |
|
4.52 |
|
93.02 |
|
PBHC |
|
Pathfinder Bancorp, Inc. |
|
NY |
|
11.72 |
|
11.03 |
|
0.51 |
|
4.30 |
|
0.44 |
|
3.71 |
|
1.26 |
|
79.76 |
|
18.47 |
|
91.78 |
|
8.70 |
|
100.00 |
|
21.55 |
|
0.20 |
|
1.64 |
|
24.24 |
|
PBBI |
|
PB Bancorp, Inc. |
|
CT |
|
11.09 |
|
9.76 |
|
0.14 |
|
1.26 |
|
0.15 |
|
1.37 |
|
NA |
|
NA |
|
NM |
|
129.17 |
|
14.32 |
|
148.98 |
|
94.19 |
|
0.10 |
|
1.16 |
|
139.77 |
|
PBSK |
|
Poage Bankshares, Inc. |
|
KY |
|
16.65 |
|
16.12 |
|
0.88 |
|
5.40 |
|
0.76 |
|
4.68 |
|
1.40 |
|
52.02 |
|
16.94 |
|
95.70 |
|
15.94 |
|
99.52 |
|
19.67 |
|
0.24 |
|
1.39 |
|
23.53 |
|
PROV |
|
Provident Financial Holdings, Inc. |
|
CA |
|
11.83 |
|
11.83 |
|
0.86 |
|
6.90 |
|
0.86 |
|
6.90 |
|
1.65 |
|
57.38 |
|
17.79 |
|
103.39 |
|
12.24 |
|
103.39 |
|
17.79 |
|
0.48 |
|
2.81 |
|
50.00 |
|
PFS |
|
Provident Financial Services, Inc. |
|
NJ |
|
13.37 |
|
8.97 |
|
0.97 |
|
7.17 |
|
1.00 |
|
7.41 |
|
1.10 |
|
69.07 |
|
13.96 |
|
101.68 |
|
13.65 |
|
160.61 |
|
13.99 |
|
0.68 |
|
3.66 |
|
49.62 |
|
PBIP |
|
Prudential Bancorp, Inc. |
|
PA |
|
24.02 |
|
24.02 |
|
0.43 |
|
1.78 |
|
0.17 |
|
0.71 |
|
3.51 |
|
18.05 |
|
65.08 |
|
113.11 |
|
25.08 |
|
113.11 |
|
184.19 |
|
0.12 |
|
0.77 |
|
112.50 |
|
RVSB |
|
Riverview Bancorp, Inc. |
|
WA |
|
11.93 |
|
9.34 |
|
0.70 |
|
5.71 |
|
0.68 |
|
5.63 |
|
2.32 |
|
50.93 |
|
15.00 |
|
92.37 |
|
11.05 |
|
121.75 |
|
NA |
|
0.07 |
|
1.61 |
|
19.40 |
|
SVBI |
|
Severn Bancorp, Inc. |
|
MD |
|
11.10 |
|
11.06 |
|
0.65 |
|
5.98 |
|
0.65 |
|
5.98 |
|
4.54 |
|
26.15 |
|
24.86 |
|
88.03 |
|
7.16 |
|
88.52 |
|
NA |
|
0.00 |
|
0.00 |
|
NM |
|
SIFI |
|
SI Financial Group, Inc. |
|
CT |
|
10.59 |
|
9.46 |
|
0.31 |
|
2.75 |
|
0.33 |
|
2.94 |
|
0.85 |
|
84.49 |
|
40.91 |
|
110.43 |
|
11.70 |
|
125.27 |
|
38.28 |
|
0.16 |
|
1.15 |
|
47.06 |
|
SBCP |
|
Sunshine Bancorp, Inc. |
|
FL |
|
13.85 |
|
12.01 |
|
-0.91 |
|
-4.23 |
|
-0.68 |
|
-3.15 |
|
0.50 |
|
88.58 |
|
NM |
|
104.00 |
|
14.64 |
|
121.14 |
|
NM |
|
NA |
|
NA |
|
NM |
|
TBNK |
|
Territorial Bancorp Inc. |
|
HI |
|
12.24 |
|
12.24 |
|
0.84 |
|
6.65 |
|
0.82 |
|
6.45 |
|
0.42 |
|
31.24 |
|
15.97 |
|
111.71 |
|
13.47 |
|
111.71 |
|
16.48 |
|
0.72 |
|
2.83 |
|
49.06 |
|
TSBK |
|
Timberland Bancorp, Inc. |
|
WA |
|
10.93 |
|
10.31 |
|
1.07 |
|
9.70 |
|
1.04 |
|
9.46 |
|
3.35 |
|
53.57 |
|
9.53 |
|
95.17 |
|
10.35 |
|
101.47 |
|
9.73 |
|
0.32 |
|
2.58 |
|
25.38 |
|
TRST |
|
TrustCo Bank Corp NY |
|
NY |
|
8.72 |
|
8.71 |
|
0.91 |
|
10.65 |
|
0.90 |
|
10.56 |
|
1.04 |
|
104.66 |
|
12.36 |
|
126.54 |
|
11.05 |
|
126.71 |
|
12.41 |
|
0.26 |
|
4.78 |
|
59.12 |
|
UCBA |
|
United Community Bancorp |
|
IN |
|
13.73 |
|
13.24 |
|
0.53 |
|
3.86 |
|
0.60 |
|
4.35 |
|
2.16 |
|
46.99 |
|
19.03 |
|
85.52 |
|
11.28 |
|
89.36 |
|
17.43 |
|
0.24 |
|
1.75 |
|
33.33 |
|
UCFC |
|
United Community Financial Corp. |
|
OH |
|
12.38 |
|
12.37 |
|
0.79 |
|
6.09 |
|
0.79 |
|
6.08 |
|
2.24 |
|
42.81 |
|
16.79 |
|
111.09 |
|
13.65 |
|
111.10 |
|
16.85 |
|
0.10 |
|
1.75 |
|
25.00 |
|
UBNK |
|
United Financial Bancorp, Inc. |
|
CT |
|
10.64 |
|
8.71 |
|
0.74 |
|
6.68 |
|
0.96 |
|
8.61 |
|
0.83 |
|
63.90 |
|
11.25 |
|
89.78 |
|
9.02 |
|
111.71 |
|
10.51 |
|
0.48 |
|
4.27 |
|
48.00 |
|
WSBF |
|
Waterstone Financial, Inc. |
|
WI |
|
22.39 |
|
22.36 |
|
0.90 |
|
3.68 |
|
0.90 |
|
3.68 |
|
2.50 |
|
53.75 |
|
25.32 |
|
101.14 |
|
22.64 |
|
101.29 |
|
25.34 |
|
0.20 |
|
1.49 |
|
37.74 |
|
Exhibit IV-1B
Weekly Thrift Market Line - Part Two
Prices As of February 6, 2016
|
|
|
|
Key Financial Ratios |
|
Asset Quality Ratios |
|
Pricing Ratios |
|
Dividend Data (6) |
|
|||||||||||||||||||||||||
|
|
|
|
Equity/ |
|
Tang Equity/ |
|
Reported Earnings |
|
Core Earnings |
|
NPAs/ |
|
Rsvs/ |
|
Price/ |
|
Price/ |
|
Price/ |
|
Price/ |
|
Price/ |
|
Div/ |
|
Dividend |
|
Payout |
|
|||||
|
|
|
|
Assets(1) |
|
Assets(1) |
|
ROA(5) |
|
ROE(5) |
|
ROA(5) |
|
ROE(5) |
|
Assets |
|
NPLs |
|
Earnings |
|
Book |
|
Assets |
|
Tang Book |
|
Core Earnings |
|
Share |
|
Yield |
|
Ratio (7) |
|
|
|
|
|
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(x) |
|
(%) |
|
(%) |
|
(%) |
|
(x) |
|
($) |
|
(%) |
|
(%) |
|
|
Companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WAYN |
Wayne Savings Bancshares, Inc. |
|
OH |
|
9.37 |
|
9.00 |
|
0.41 |
|
4.36 |
|
0.41 |
|
4.36 |
|
1.26 |
|
52.74 |
|
20.72 |
|
89.94 |
|
8.43 |
|
94.01 |
|
20.72 |
|
0.36 |
|
2.80 |
|
58.06 |
|
WEBK |
Wellesley Bancorp, Inc. |
|
MA |
|
8.72 |
|
8.72 |
|
0.40 |
|
4.37 |
|
0.40 |
|
4.33 |
|
NA |
|
130.10 |
|
16.16 |
|
86.93 |
|
7.30 |
|
86.93 |
|
NA |
|
0.12 |
|
0.65 |
|
10.09 |
|
WBB |
Westbury Bancorp, Inc. |
|
WI |
|
12.34 |
|
12.34 |
|
0.57 |
|
4.28 |
|
0.58 |
|
4.39 |
|
0.80 |
|
116.79 |
|
17.80 |
|
101.75 |
|
12.01 |
|
101.75 |
|
17.11 |
|
NA |
|
NA |
|
NM |
|
WFD |
Westfield Financial, Inc. |
|
MA |
|
10.29 |
|
10.29 |
|
0.45 |
|
4.25 |
|
0.36 |
|
3.47 |
|
0.57 |
|
108.46 |
|
23.76 |
|
102.75 |
|
10.69 |
|
102.75 |
|
29.19 |
|
0.12 |
|
1.53 |
|
36.36 |
|
WBKC |
Wolverine Bancorp, Inc. |
|
MI |
|
18.18 |
|
18.18 |
|
1.02 |
|
5.74 |
|
0.88 |
|
4.95 |
|
2.36 |
|
120.94 |
|
15.00 |
|
89.44 |
|
16.26 |
|
89.44 |
|
17.41 |
|
NA |
|
NA |
|
58.82 |
|
WSFS |
WSFS Financial Corporation |
|
DE |
|
9.98 |
|
8.97 |
|
1.07 |
|
10.43 |
|
1.14 |
|
11.17 |
|
0.81 |
|
97.02 |
|
15.07 |
|
142.95 |
|
14.85 |
|
169.79 |
|
13.59 |
|
0.24 |
|
0.86 |
|
11.89 |
|
WVFC |
WVS Financial Corp. |
|
PA |
|
9.67 |
|
9.67 |
|
0.43 |
|
4.25 |
|
0.43 |
|
4.25 |
|
0.08 |
|
124.71 |
|
16.31 |
|
73.06 |
|
7.15 |
|
73.06 |
|
16.31 |
|
0.16 |
|
1.38 |
|
28.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MHCs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GCBC |
Greene County Bancorp, Inc. (MHC) |
|
IN |
|
8.96 |
|
8.96 |
|
1.05 |
|
11.51 |
|
1.06 |
|
11.67 |
|
0.78 |
|
164.87 |
|
16.23 |
|
185.30 |
|
16.45 |
|
185.30 |
|
16.23 |
|
0.74 |
|
2.39 |
|
38.48 |
|
KFFB |
Kentucky First Federal Bancorp (MHC) |
|
OH |
|
22.81 |
|
18.84 |
|
0.74 |
|
3.26 |
|
0.74 |
|
3.26 |
|
NA |
|
NA |
|
38.21 |
|
114.50 |
|
25.22 |
|
145.79 |
|
NA |
|
0.40 |
|
4.36 |
|
166.67 |
|
LSBK |
Lake Shore Bancorp, Inc. (MHC) |
|
CT |
|
15.53 |
|
15.53 |
|
0.68 |
|
4.57 |
|
0.60 |
|
4.03 |
|
1.28 |
|
36.80 |
|
23.93 |
|
109.21 |
|
NA |
|
109.21 |
|
27.09 |
|
0.28 |
|
2.09 |
|
37.50 |
|
MGYR |
Magyar Bancorp, Inc. (MHC) |
|
WI |
|
8.48 |
|
8.48 |
|
0.17 |
|
1.91 |
|
0.18 |
|
2.04 |
|
4.14 |
|
43.65 |
|
54.17 |
|
121.05 |
|
9.93 |
|
121.05 |
|
50.71 |
|
NA |
|
NA |
|
NM |
|
OFED |
Oconee Federal Financial Corp. (MHC) |
|
OH |
|
17.57 |
|
16.96 |
|
1.07 |
|
6.13 |
|
1.10 |
|
6.27 |
|
1.11 |
|
28.64 |
|
22.82 |
|
138.65 |
|
24.36 |
|
144.68 |
|
22.31 |
|
0.40 |
|
2.06 |
|
47.06 |
|
PVBC |
Provident Bancorp, Inc. (MHC) |
|
MA |
|
16.74 |
|
16.74 |
|
NA |
|
4.05 |
|
NA |
|
5.48 |
|
NA |
|
NA |
|
NA |
|
121.86 |
|
16.62 |
|
121.86 |
|
NA |
|
NA |
|
NA |
|
NA |
|
TFSL |
TFS Financial Corporation (MHC) |
|
WI |
|
13.98 |
|
13.91 |
|
0.57 |
|
4.04 |
|
NA |
|
NA |
|
1.88 |
|
33.35 |
|
65.32 |
|
277.45 |
|
38.12 |
|
279.04 |
|
NA |
|
0.40 |
|
2.45 |
|
136.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABCW |
Anchor BanCorp Wisconsin Inc. |
|
MA |
|
16.09 |
|
16.09 |
|
6.30 |
|
51.74 |
|
6.18 |
|
50.81 |
|
4.30 |
|
41.22 |
|
2.81 |
|
107.15 |
|
17.47 |
|
107.15 |
|
2.83 |
|
NA |
|
NA |
|
NM |
|
AF |
Astoria Financial Corporation |
|
MI |
|
10.91 |
|
9.80 |
|
0.60 |
|
5.78 |
|
0.60 |
|
5.77 |
|
1.68 |
|
44.04 |
|
19.14 |
|
99.30 |
|
10.19 |
|
112.93 |
|
18.54 |
|
0.16 |
|
1.06 |
|
20.25 |
|
CBNJ |
Cape Bancorp, Inc. |
|
DE |
|
10.85 |
|
9.41 |
|
0.85 |
|
7.16 |
|
0.63 |
|
5.28 |
|
1.07 |
|
78.67 |
|
12.99 |
|
100.28 |
|
10.54 |
|
117.36 |
|
17.22 |
|
0.40 |
|
3.21 |
|
37.50 |
|
CHEV |
Cheviot Financial Corp. |
|
PA |
|
16.80 |
|
15.24 |
|
0.30 |
|
1.78 |
|
0.28 |
|
1.69 |
|
NA |
|
NA |
|
NM |
|
100.77 |
|
17.00 |
|
112.67 |
|
76.28 |
|
0.40 |
|
2.80 |
|
278.57 |
|
FXCB |
Fox Chase Bancorp, Inc. |
|
NY |
|
16.02 |
|
16.02 |
|
0.91 |
|
5.62 |
|
0.97 |
|
5.98 |
|
1.11 |
|
112.81 |
|
22.51 |
|
127.24 |
|
20.00 |
|
127.24 |
|
20.10 |
|
0.56 |
|
2.93 |
|
82.35 |
|
(1) Average of High/Low or Bid/Ask price per share.
(2) Or since offering price if converted of first listed in the past 52 weeks. Percent change figures are actual year-to-date and are not annualized.
(3) EPS (earnings per share) is based on actual trailing 12 month data and is not shown on a pro forma basis.
(4) Exludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing 12 month common earnings and average common equity and total assets balances.
(6) Annualized based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing 12 month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities or unusual operating characteristics.
(9) For MHC institutions, market value reflects share price multiplied by public (non-MHC) shares.
Source: SNL Financial, LC. and RP ® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2015 by RP ® Financial, LC.
EXHIBIT IV-2
Historical Stock Prices Indices
Exhibit IV-2
Historical Stock Price Indices(1)
|
|
|
|
|
|
|
|
|
|
SNL |
|
SNL |
|
|
|
|
|
|
|
|
|
NASDAQ |
|
Thrift |
|
Bank |
|
Year/Qtr. Ended |
|
DJIA |
|
S&P 500 |
|
Composite |
|
Index |
|
Index |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004: |
|
Quarter 1 |
|
10357.7 |
|
1126.2 |
|
1994.2 |
|
1585.3 |
|
562.20 |
|
|
|
Quarter 2 |
|
10435.5 |
|
1140.8 |
|
2047.8 |
|
1437.8 |
|
546.62 |
|
|
|
Quarter 3 |
|
10080.3 |
|
1114.6 |
|
1896.8 |
|
1495.1 |
|
556.00 |
|
|
|
Quarter 4 |
|
10783.0 |
|
1211.9 |
|
2175.4 |
|
1605.6 |
|
595.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005: |
|
Quarter 1 |
|
10503.8 |
|
1180.6 |
|
1999.2 |
|
1516.6 |
|
551.00 |
|
|
|
Quarter 2 |
|
10275.0 |
|
1191.3 |
|
2057.0 |
|
1577.1 |
|
563.27 |
|
|
|
Quarter 3 |
|
10568.7 |
|
1228.8 |
|
2151.7 |
|
1527.2 |
|
546.30 |
|
|
|
Quarter 4 |
|
10717.5 |
|
1248.3 |
|
2205.3 |
|
1616.4 |
|
582.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006: |
|
Quarter 1 |
|
11109.3 |
|
1294.8 |
|
2339.8 |
|
1661.1 |
|
595.50 |
|
|
|
Quarter 2 |
|
11150.2 |
|
1270.2 |
|
2172.1 |
|
1717.9 |
|
601.14 |
|
|
|
Quarter 3 |
|
11679.1 |
|
1335.9 |
|
2258.4 |
|
1727.1 |
|
634.00 |
|
|
|
Quarter 4 |
|
12463.2 |
|
1418.3 |
|
2415.3 |
|
1829.3 |
|
658.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007: |
|
Quarter 1 |
|
12354.4 |
|
1420.9 |
|
2421.6 |
|
1703.6 |
|
634.40 |
|
|
|
Quarter 2 |
|
13408.6 |
|
1503.4 |
|
2603.2 |
|
1645.9 |
|
622.63 |
|
|
|
Quarter 3 |
|
13895.6 |
|
1526.8 |
|
2701.5 |
|
1523.3 |
|
595.80 |
|
|
|
Quarter 4 |
|
13264.8 |
|
1468.4 |
|
2652.3 |
|
1058.0 |
|
492.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008: |
|
Quarter 1 |
|
12262.9 |
|
1322.7 |
|
2279.1 |
|
1001.5 |
|
442.5 |
|
|
|
Quarter 2 |
|
11350.0 |
|
1280.0 |
|
2293.0 |
|
822.6 |
|
332.2 |
|
|
|
Quarter 3 |
|
10850.7 |
|
1166.4 |
|
2082.3 |
|
760.1 |
|
414.8 |
|
|
|
Quarter 4 |
|
8776.4 |
|
903.3 |
|
1577.0 |
|
653.9 |
|
268.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009: |
|
Quarter 1 |
|
7608.9 |
|
797.9 |
|
1528.6 |
|
542.8 |
|
170.1 |
|
|
|
Quarter 2 |
|
8447.0 |
|
919.3 |
|
1835.0 |
|
538.8 |
|
227.6 |
|
|
|
Quarter 3 |
|
9712.3 |
|
1057.1 |
|
2122.4 |
|
561.4 |
|
282.9 |
|
|
|
Quarter 4 |
|
10428.1 |
|
1115.1 |
|
2269.2 |
|
587.0 |
|
260.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010: |
|
Quarter 1 |
|
10856.6 |
|
1169.4 |
|
2398.0 |
|
626.3 |
|
301.1 |
|
|
|
Quarter 2 |
|
9744.0 |
|
1030.7 |
|
2109.2 |
|
564.5 |
|
257.2 |
|
|
|
Quarter 3 |
|
9744.0 |
|
1030.7 |
|
2109.2 |
|
564.5 |
|
257.2 |
|
|
|
Quarter 4 |
|
11577.5 |
|
1257.6 |
|
2652.9 |
|
592.2 |
|
290.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011: |
|
Quarter 1 |
|
12319.7 |
|
1325.8 |
|
2781.1 |
|
578.1 |
|
293.1 |
|
|
|
Quarter 2 |
|
12414.3 |
|
1320.6 |
|
2773.5 |
|
540.8 |
|
266.8 |
|
|
|
Quarter 3 |
|
10913.4 |
|
1131.4 |
|
2415.4 |
|
443.2 |
|
198.9 |
|
|
|
Quarter 4 |
|
12217.6 |
|
1257.6 |
|
2605.2 |
|
481.4 |
|
221.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012: |
|
Quarter 1 |
|
13212.0 |
|
1408.5 |
|
3091.6 |
|
529.3 |
|
284.9 |
|
|
|
Quarter 2 |
|
12880.1 |
|
1362.2 |
|
2935.1 |
|
511.6 |
|
257.3 |
|
|
|
Quarter 3 |
|
13437.1 |
|
1440.7 |
|
3116.2 |
|
557.6 |
|
276.8 |
|
|
|
Quarter 4 |
|
13104.1 |
|
1426.2 |
|
3019.5 |
|
565.8 |
|
292.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013: |
|
Quarter 1 |
|
14578.5 |
|
1569.2 |
|
3267.5 |
|
602.3 |
|
318.9 |
|
|
|
Quarter 2 |
|
14909.6 |
|
1606.3 |
|
3404.3 |
|
625.3 |
|
346.7 |
|
|
|
Quarter 3 |
|
15129.7 |
|
1681.6 |
|
3771.5 |
|
650.8 |
|
354.4 |
|
|
|
Quarter 4 |
|
16576.7 |
|
1848.4 |
|
4176.6 |
|
706.5 |
|
394.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014: |
|
Quarter 1 |
|
16457.7 |
|
1872.3 |
|
4199.0 |
|
718.9 |
|
410.8 |
|
|
|
Quarter 2 |
|
16826.6 |
|
1960.2 |
|
4408.2 |
|
723.9 |
|
405.2 |
|
|
|
Quarter 3 |
|
17042.9 |
|
1972.3 |
|
4493.4 |
|
697.7 |
|
411.0 |
|
|
|
Quarter 4 |
|
17823.1 |
|
2058.9 |
|
4736.1 |
|
738.7 |
|
432.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015: |
|
Quarter 1 |
|
17776.1 |
|
2067.9 |
|
4900.9 |
|
749.3 |
|
418.8 |
|
|
|
Quarter 2 |
|
17619.5 |
|
2063.1 |
|
4986.9 |
|
795.7 |
|
448.4 |
|
|
|
Quarter 3 |
|
16284.7 |
|
1920.0 |
|
4620.2 |
|
811.7 |
|
409.4 |
|
|
|
Quarter 4 |
|
17425.0 |
|
2043.9 |
|
5007.4 |
|
809.1 |
|
431.5 |
|
As of Feb. 5, 2016 |
|
16205.0 |
|
1880.1 |
|
4363.1 |
|
738.0 |
|
366.1 |
|
(1) End of period data.
Sources: SNL Financial and The Wall Street Journal.
EXHIBIT IV-3
Stock Indices as of February 5, 2016
|
SNL Financial |
Current Values
Industry: Banking
Geography: United States and Canada
|
|
|
|
|
|
|
|
Days |
|
|
|
||||
|
|
Index |
|
Last |
|
Days |
|
Change |
|
Market Breadth |
|
||||
|
|
Value |
|
Update |
|
Change |
|
(%) |
|
|
|
|
|
|
|
SNL Custom** Indexes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL Banking Indexes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL U.S. Bank and Thrift |
|
352.21 |
* |
2/5/2016 |
|
(4.88 |
)* |
(1.37 |
)* |
58 |
* |
335 |
* |
32 |
* |
SNL U.S. Bank |
|
366.14 |
* |
2/5/2016 |
|
(5.13 |
)* |
(1.38 |
)* |
48 |
* |
268 |
* |
19 |
* |
SNL U.S. Thrift |
|
738.02 |
* |
2/5/2016 |
|
(7.23 |
)* |
(0.97 |
)* |
10 |
* |
67 |
* |
13 |
* |
SNL TARP Participants |
|
43.09 |
* |
2/5/2016 |
|
(0.50 |
)* |
(1.15 |
)* |
4 |
* |
2 |
* |
13 |
* |
KBW Nasdaq Bank |
|
61.38 |
* |
2/5/2016 |
|
(0.79 |
)* |
(1.27 |
)* |
NA |
* |
NA |
* |
NA |
* |
KBW Nasdaq Regional Bank |
|
71.70 |
* |
2/5/2016 |
|
(1.27 |
)* |
(1.74 |
)* |
NA |
* |
NA |
* |
NA |
* |
S&P 500 Bank |
|
197.16 |
* |
2/5/2016 |
|
(2.58 |
)* |
(1.29 |
)* |
NA |
* |
NA |
* |
NA |
* |
NASDAQ Bank |
|
2,479.51 |
* |
2/5/2016 |
|
(41.20 |
)* |
(1.63 |
)* |
NA |
* |
NA |
* |
NA |
* |
S&P 500 Commercial Banks |
|
281.68 |
* |
2/5/2016 |
|
(3.69 |
)* |
(1.29 |
)* |
NA |
* |
NA |
* |
NA |
* |
S&P 500 Diversified Banks |
|
339.73 |
* |
2/5/2016 |
|
(4.55 |
)* |
(1.32 |
)* |
NA |
* |
NA |
* |
NA |
* |
S&P 500 Regional Banks |
|
66.37 |
* |
2/5/2016 |
|
(0.77 |
)* |
(1.15 |
)* |
NA |
* |
NA |
* |
NA |
* |
S&P 500 Thrifts & Mortgage Finance |
|
4.56 |
* |
11/2/2015 |
|
(0.01 |
)* |
(0.31 |
)* |
NA |
* |
NA |
* |
NA |
* |
SNL Asset Size Indexes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL U.S. Bank < $250M |
|
33.15 |
* |
2/5/2016 |
|
(0.41 |
)* |
(1.23 |
)* |
0 |
* |
1 |
* |
0 |
* |
SNL U.S. Bank $250M-$500M |
|
310.42 |
* |
2/5/2016 |
|
(5.40 |
)* |
(1.71 |
)* |
1 |
* |
4 |
* |
4 |
* |
SNL U.S. Thrift < $250M |
|
1,053.03 |
* |
2/5/2016 |
|
(15.18 |
)* |
(1.42 |
)* |
0 |
* |
2 |
* |
0 |
* |
SNL U.S. Thrift $250M-$500M |
|
4,996.71 |
* |
2/5/2016 |
|
(16.63 |
)* |
(0.33 |
)* |
2 |
* |
7 |
* |
8 |
* |
SNL U.S. Bank < $500M |
|
595.65 |
* |
2/5/2016 |
|
(10.33 |
)* |
(1.70 |
)* |
1 |
* |
5 |
* |
4 |
* |
SNL U.S. Thrift < $500M |
|
1,705.21 |
* |
2/5/2016 |
|
(7.02 |
)* |
(0.41 |
)* |
2 |
* |
9 |
* |
8 |
* |
SNL U.S. Bank $500M-$1B |
|
664.00 |
* |
2/5/2016 |
|
(1.50 |
)* |
(0.23 |
)* |
20 |
* |
28 |
* |
11 |
* |
SNL U.S. Thrift $500M-$1B |
|
2,140.78 |
* |
2/5/2016 |
|
(16.32 |
)* |
(0.76 |
)* |
4 |
* |
19 |
* |
4 |
* |
SNL U.S. Bank $1B-$5B |
|
735.78 |
* |
2/5/2016 |
|
(14.11 |
)* |
(1.88 |
)* |
19 |
* |
127 |
* |
4 |
* |
SNL U.S. Thrift $1B-$5B |
|
2,552.04 |
* |
2/5/2016 |
|
(32.46 |
)* |
(1.26 |
)* |
1 |
* |
29 |
* |
1 |
* |
SNL U.S. Bank $5B-$10B |
|
872.33 |
* |
2/5/2016 |
|
(15.19 |
)* |
(1.71 |
)* |
5 |
* |
48 |
* |
0 |
* |
SNL U.S. Thrift $5B-$10B |
|
703.85 |
* |
2/5/2016 |
|
(11.88 |
)* |
(1.66 |
)* |
1 |
* |
6 |
* |
0 |
* |
SNL U.S. Bank > $10B |
|
318.27 |
* |
2/5/2016 |
|
(4.35 |
)* |
(1.35 |
)* |
3 |
* |
60 |
* |
0 |
* |
SNL U.S. Thrift > $10B |
|
147.08 |
* |
2/5/2016 |
|
(0.92 |
)* |
(0.62 |
)* |
2 |
* |
4 |
* |
0 |
* |
SNL Market Cap Indexes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL Micro Cap U.S. Bank |
|
466.13 |
* |
2/5/2016 |
|
(2.59 |
)* |
(0.55 |
)* |
76 |
* |
144 |
* |
416 |
* |
SNL Micro Cap U.S. Thrift |
|
847.85 |
* |
2/5/2016 |
|
(5.36 |
)* |
(0.63 |
)* |
15 |
* |
47 |
* |
79 |
* |
SNL Micro Cap U.S. Bank & Thrift |
|
547.50 |
* |
2/5/2016 |
|
(3.11 |
)* |
(0.57 |
)* |
91 |
* |
191 |
* |
495 |
* |
SNL Small Cap U.S. Bank |
|
423.85 |
* |
2/5/2016 |
|
(7.48 |
)* |
(1.74 |
)* |
9 |
* |
94 |
* |
12 |
* |
SNL Small Cap U.S. Thrift |
|
547.21 |
* |
2/5/2016 |
|
(9.42 |
)* |
(1.69 |
)* |
2 |
* |
18 |
* |
1 |
* |
SNL Small Cap U.S. Bank & Thrift |
|
445.41 |
* |
2/5/2016 |
|
(7.84 |
)* |
(1.73 |
)* |
11 |
* |
112 |
* |
13 |
* |
SNL Mid Cap U.S. Bank |
|
280.79 |
* |
2/5/2016 |
|
(5.10 |
)* |
(1.78 |
)* |
5 |
* |
64 |
* |
2 |
* |
SNL Mid Cap U.S. Thrift |
|
265.95 |
* |
2/5/2016 |
|
(3.03 |
)* |
(1.13 |
)* |
1 |
* |
9 |
* |
0 |
* |
SNL Mid Cap U.S. Bank & Thrift |
|
282.06 |
* |
2/5/2016 |
|
(4.91 |
)* |
(1.71 |
)* |
6 |
* |
73 |
* |
2 |
* |
SNL Large Cap U.S. Bank |
|
227.43 |
* |
2/5/2016 |
|
(2.98 |
)* |
(1.29 |
)* |
0 |
* |
21 |
* |
0 |
* |
SNL Large Cap U.S. Thrift |
|
159.11 |
* |
2/5/2016 |
|
0.62 |
* |
0.39 |
* |
1 |
* |
0 |
* |
0 |
* |
SNL Large Cap U.S. Bank & Thrift |
|
229.69 |
* |
2/5/2016 |
|
(2.98 |
)* |
(1.28 |
)* |
1 |
* |
21 |
* |
0 |
* |
SNL Geographic Indexes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL Mid-Atlantic U.S. Bank |
|
330.48 |
* |
2/5/2016 |
|
(4.96 |
)* |
(1.48 |
)* |
14 |
* |
52 |
* |
5 |
* |
SNL Mid-Atlantic U.S. Thrift |
|
2,921.87 |
* |
2/5/2016 |
|
(17.02 |
)* |
(0.58 |
)* |
4 |
* |
23 |
* |
4 |
* |
SNL Midwest U.S. Bank |
|
435.99 |
* |
2/5/2016 |
|
(3.49 |
)* |
(0.79 |
)* |
8 |
* |
62 |
* |
8 |
* |
SNL Midwest U.S. Thrift |
|
2,564.33 |
* |
2/5/2016 |
|
(31.92 |
)* |
(1.23 |
)* |
4 |
* |
17 |
* |
3 |
* |
SNL New England U.S. Bank |
|
378.79 |
* |
2/5/2016 |
|
(5.67 |
)* |
(1.47 |
)* |
1 |
* |
19 |
* |
0 |
* |
SNL New England U.S. Thrift |
|
2,129.22 |
* |
2/5/2016 |
|
(28.50 |
)* |
(1.32 |
)* |
0 |
* |
12 |
* |
4 |
* |
SNL Southeast U.S. Bank |
|
202.36 |
* |
2/5/2016 |
|
(3.51 |
)* |
(1.71 |
)* |
10 |
* |
75 |
* |
5 |
* |
SNL Southeast U.S. Thrift |
|
295.55 |
* |
2/5/2016 |
|
(1.44 |
)* |
(0.49 |
)* |
1 |
* |
5 |
* |
1 |
* |
SNL Southwest U.S. Bank |
|
604.63 |
* |
2/5/2016 |
|
(10.49 |
)* |
(1.71 |
)* |
3 |
* |
25 |
* |
0 |
* |
SNL Southwest U.S. Thrift |
|
660.63 |
* |
2/5/2016 |
|
(2.95 |
)* |
(0.44 |
)* |
0 |
* |
1 |
* |
0 |
* |
SNL Western U.S. Bank |
|
1,168.74 |
* |
2/5/2016 |
|
(13.93 |
)* |
(1.18 |
)* |
12 |
* |
35 |
* |
1 |
* |
SNL Western U.S. Thrift |
|
89.66 |
* |
2/5/2016 |
|
(3.15 |
)* |
(3.39 |
)* |
1 |
* |
9 |
* |
1 |
* |
SNL Stock Exchange Indexes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL U.S. Bank NYSE |
|
316.11 |
* |
2/5/2016 |
|
(4.25 |
)* |
(1.33 |
)* |
4 |
* |
44 |
* |
0 |
* |
SNL U.S. Thrift NYSE |
|
125.97 |
* |
2/5/2016 |
|
(0.19 |
)* |
(0.15 |
)* |
2 |
* |
3 |
* |
0 |
* |
SNL U.S. Bank NYSE MKT |
|
612.14 |
* |
2/5/2016 |
|
(19.42 |
)* |
(3.08 |
)* |
1 |
* |
5 |
* |
0 |
* |
SNL U.S. Bank NASDAQ |
|
586.32 |
* |
2/5/2016 |
|
(9.73 |
)* |
(1.63 |
)* |
43 |
* |
219 |
* |
19 |
* |
SNL U.S. Thrift NASDAQ |
|
2,104.46 |
* |
2/5/2016 |
|
(28.41 |
)* |
(1.33 |
)* |
8 |
* |
64 |
* |
13 |
* |
SNL U.S. Bank Pink |
|
304.43 |
* |
2/5/2016 |
|
0.03 |
* |
0.01 |
* |
42 |
* |
55 |
* |
415 |
* |
SNL U.S. Thrift Pink |
|
270.16 |
* |
2/5/2016 |
|
0.04 |
* |
0.01 |
* |
9 |
* |
7 |
* |
67 |
* |
SNL Bank TSX |
|
852.58 |
* |
2/5/2016 |
|
(1.29 |
)* |
(0.15 |
)* |
3 |
* |
8 |
* |
1 |
* |
SNL Other Indexes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL U.S. Thrift MHCs |
|
5,360.33 |
* |
2/5/2016 |
|
(68.63 |
)* |
(1.26 |
)* |
0 |
* |
6 |
* |
1 |
* |
SNL Pink Asset Size Indexes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL U.S. Bank Pink < $100M |
|
173.90 |
* |
2/5/2016 |
|
6.41 |
* |
3.83 |
* |
3 |
* |
0 |
* |
27 |
* |
SNL U.S. Bank Pink $100M-$500M |
|
335.45 |
* |
2/5/2016 |
|
(0.24 |
)* |
(0.07 |
)* |
26 |
* |
23 |
* |
285 |
* |
SNL U.S. Bank Pink > $500M |
|
265.68 |
* |
2/5/2016 |
|
0.02 |
* |
0.01 |
* |
13 |
* |
32 |
* |
103 |
* |
Broad Market Indexes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DJIA |
|
16,204.83 |
* |
2/5/2016 |
|
(211.75 |
)* |
(1.29 |
)* |
|
|
|
|
|
|
S&P 500 |
|
1,880.05 |
* |
2/5/2016 |
|
(35.39 |
)* |
(1.85 |
)* |
|
|
|
|
|
|
S&P Mid-Cap |
|
1,279.32 |
* |
2/5/2016 |
|
(27.66 |
)* |
(2.12 |
)* |
|
|
|
|
|
|
S&P Small-Cap |
|
605.16 |
* |
2/5/2016 |
|
(14.62 |
)* |
(2.36 |
)* |
|
|
|
|
|
|
S&P 500 Financials |
|
282.15 |
* |
2/5/2016 |
|
(3.90 |
)* |
(1.36 |
)* |
|
|
|
|
|
|
SNL U.S. Financial Institutions |
|
615.96 |
* |
2/5/2016 |
|
(8.01 |
)* |
(1.28 |
)* |
|
|
|
|
|
|
MSCI US IMI Financials |
|
1,045.65 |
* |
2/5/2016 |
|
(14.94 |
)* |
(1.41 |
)* |
|
|
|
|
|
|
NASDAQ |
|
4,363.14 |
* |
2/5/2016 |
|
(146.42 |
)* |
(3.25 |
)* |
|
|
|
|
|
|
NASDAQ Finl |
|
2,869.05 |
* |
2/5/2016 |
|
(38.93 |
)* |
(1.34 |
)* |
|
|
|
|
|
|
NYSE |
|
9,390.33 |
* |
2/5/2016 |
|
(143.97 |
)* |
(1.51 |
)* |
|
|
|
|
|
|
Russell 1000 |
|
1,036.00 |
* |
2/5/2016 |
|
(20.87 |
)* |
(1.97 |
)* |
|
|
|
|
|
|
Russell 2000 |
|
985.62 |
* |
2/5/2016 |
|
(29.17 |
)* |
(2.87 |
)* |
|
|
|
|
|
|
Russell 3000 |
|
1,099.56 |
* |
2/5/2016 |
|
(22.90 |
)* |
(2.04 |
)* |
|
|
|
|
|
|
S&P TSX Composite |
|
12,763.99 |
* |
2/5/2016 |
|
(10.51 |
)* |
(0.08 |
)* |
|
|
|
|
|
|
MSCI AC World (USD) |
|
366.57 |
* |
2/5/2016 |
|
(5.42 |
)* |
(1.46 |
)* |
|
|
|
|
|
|
MSCI World (USD) |
|
1,523.87 |
* |
2/5/2016 |
|
(24.99 |
)* |
(1.61 |
)* |
|
|
|
|
|
|
Bermuda Royal Gazette/BSX |
|
1,220.18 |
* |
2/5/2016 |
|
(4.41 |
)* |
(0.36 |
)* |
|
|
|
|
|
|
Intraday data is available for certain exchanges. In all cases, the data is at least 15 minutes delayed.
* - Intraday data is not currently available. Data is as of the previous close.
** - Non-publicly traded institutions and institutions outside of your current subscription are not included in custom indexes. Custom indexes including foreign institutions do not take into account currency translations. Data is as of the previous close.
All SNL indexes are market-value weighted; i.e., an institutions effect on an index is proportional to that institutions market capitalization.
Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products.
Mid-Atlantic: DE, DC, MD, NJ, NY, PA, PR Midwest: IA, IN, IL, KS, KY, MI, MN, MO, ND, NE, OH, SD, WI
New England: CT, ME, MA, NH, RI, VT Southeast: AL, AR, FL, GA, MS, NC, SC, TN, VA, WV
Southwest: CO, LA, NM, OK, TX, UT West: AZ, AK, CA, HI, ID, MT, NV, OR, WA, WY
Copyright © 2016, SNL Financial LC
Usage of this product is governed by the License Agreement.
SNL Financial LC, One SNL Plaza, PO Box 2124, Charlottesville, Virginia 22902 USA, (434) 977-1600
EXHIBIT IV-4
Massachusetts Thrift Acquistions 2011 - Present
Exhibit IV-4
Massachusetts Thrift Acquisitions 2011-Present
|
|
|
|
|
|
|
|
|
|
|
|
Target Financials at Announcement |
|
Deal Terms and Pricing at Announcement |
|
||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
LTM |
|
LTM |
|
NPAs/ |
|
Rsrvs/ |
|
Deal |
|
Value/ |
|
|
|
|
|
|
|
|
|
Prem/ |
|
Announce |
|
Complete |
|
|
|
|
|
|
|
|
|
Assets |
|
E/A |
|
TE/A |
|
ROAA |
|
ROAE |
|
Assets |
|
NPLs |
|
Value |
|
Share |
|
P/B |
|
P/TB |
|
P/E |
|
P/A |
|
Cdeps |
|
Date |
|
Date |
|
Buyer Short Name |
|
|
|
Target Name |
|
|
|
($000) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
(%) |
|
($M) |
|
($) |
|
(%) |
|
(%) |
|
(x) |
|
(%) |
|
(%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/04/2014 |
|
Def. Agrmt |
|
Investor group |
|
|
|
Radius Bancorp, Inc. |
|
MA |
|
744,135 |
|
8.15 |
|
8.15 |
|
0.25 |
|
3.05 |
|
0.68 |
|
137.52 |
|
47.0 |
|
NA |
|
81.57 |
|
81.57 |
|
27.14 |
|
6.65 |
|
-2.33 |
|
08/05/2014 |
|
Def. Agrmt |
|
Fidelity MHC |
|
MA |
|
Barre Savings Bank |
|
MA |
|
152,983 |
|
9.67 |
|
9.67 |
|
0.43 |
|
4.47 |
|
0.94 |
|
119.10 |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
07/16/2014 |
|
11/01/2015 |
|
North Shore Bancorp |
|
MA |
|
Merrimac Savings Bank |
|
MA |
|
73,637 |
|
6.97 |
|
6.97 |
|
0.37 |
|
5.63 |
|
1.66 |
|
32.68 |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
02/13/2014 |
|
04/17/2015 |
|
Berkshire Hills Bancorp Inc. |
|
MA |
|
Hampden Bancorp, Inc. |
|
MA |
|
705,681 |
|
12.14 |
|
12.14 |
|
0.64 |
|
5.20 |
|
1.48 |
|
55.99 |
|
114.5 |
|
20.882 |
|
134.81 |
|
134.81 |
|
25.16 |
|
16.86 |
|
6.00 |
|
12/31/2013 |
|
02/20/2015 |
|
Independent Bank Corp. |
|
MA |
|
Peoples Federal Bancshares, Inc. |
|
MA |
|
606,201 |
|
17.11 |
|
17.11 |
|
0.35 |
|
1.96 |
|
0.30 |
|
220.44 |
|
130.6 |
|
20.386 |
|
122.66 |
|
122.66 |
|
59.96 |
|
21.55 |
|
7.28 |
|
11/15/2013 |
|
01/17/2015 |
|
Cape Ann SB |
|
MA |
|
Granite Savings Bank |
|
MA |
|
70,076 |
|
13.95 |
|
13.95 |
|
-0.09 |
|
-0.64 |
|
0.00 |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
05/14/2013 |
|
09/01/2014 |
|
North Shore Bancorp |
|
MA |
|
Saugusbank, a Co-operative Bank |
|
MA |
|
206,232 |
|
8.91 |
|
8.91 |
|
0.31 |
|
3.56 |
|
3.02 |
|
25.84 |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
05/01/2012 |
|
06/01/2014 |
|
North Brookfield SB |
|
MA |
|
FamilyFirst Bank |
|
MA |
|
51,905 |
|
9.17 |
|
9.15 |
|
-0.39 |
|
-4.03 |
|
1.47 |
|
31.54 |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
|
|
04/30/2014 |
|
Rockville Financial Inc. |
|
CT |
|
United Financial Bancorp, Inc. |
|
MA |
|
2,490,737 |
|
12.16 |
|
10.56 |
|
0.37 |
|
2.93 |
|
0.76 |
|
81.88 |
|
370.7 |
|
18.416 |
|
119.66 |
|
140.26 |
|
48.46 |
|
14.88 |
|
7.21 |
|
|
|
11/15/2013 |
|
Independent Bank Corp. |
|
MA |
|
Mayflower Bancorp, Inc. |
|
MA |
|
261,344 |
|
8.66 |
|
8.66 |
|
0.58 |
|
6.56 |
|
0.36 |
|
151.76 |
|
37.4 |
|
17.918 |
|
163.48 |
|
163.48 |
|
25.24 |
|
14.29 |
|
7.20 |
|
|
|
11/09/2012 |
|
Independent Bank Corp. |
|
MA |
|
Central Bancorp, Inc. |
|
MA |
|
521,350 |
|
8.59 |
|
8.20 |
|
0.21 |
|
2.23 |
|
2.75 |
|
29.08 |
|
54.8 |
|
32.006 |
|
154.47 |
|
164.98 |
|
NM |
|
10.51 |
|
8.43 |
|
|
|
07/01/2012 |
|
Framingham Co-operative Bank |
|
MA |
|
Natick Federal Savings Bank |
|
MA |
|
155,587 |
|
9.23 |
|
9.23 |
|
-0.05 |
|
-0.53 |
|
1.26 |
|
11.04 |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
03/14/2012 |
|
02/25/2012 |
|
South Adams Savings Bank |
|
MA |
|
Adams Co-operative Bank |
|
MA |
|
196,056 |
|
9.47 |
|
9.47 |
|
0.16 |
|
1.73 |
|
6.05 |
|
14.25 |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
09/13/2011 |
|
01/03/2012 |
|
Haverhill Bank |
|
MA |
|
Economy Co-operative Bank |
|
MA |
|
24,145 |
|
10.33 |
|
10.33 |
|
0.13 |
|
1.33 |
|
0.31 |
|
127.03 |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
09/08/2011 |
|
02/01/2012 |
|
Salem Five Bancorp |
|
MA |
|
Stoneham Savings Bank |
|
MA |
|
366,819 |
|
6.43 |
|
5.58 |
|
-1.29 |
|
-19.55 |
|
4.93 |
|
18.98 |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
09/01/2011 |
|
04/01/2011 |
|
Hometown Bank A Co-Op Bank |
|
MA |
|
Athol-Clinton Co-operative Bank |
|
MA |
|
89,181 |
|
9.17 |
|
9.17 |
|
-1.50 |
|
-15.30 |
|
13.20 |
|
20.47 |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
NA |
|
01/20/2011 |
|
06/30/2011 |
|
Peoples United Financial Inc. |
|
CT |
|
Danvers Bancorp, Inc. |
|
MA |
|
2,630,968 |
|
11.16 |
|
10.01 |
|
0.65 |
|
5.71 |
|
0.73 |
|
89.87 |
|
488.9 |
|
22.810 |
|
163.16 |
|
184.10 |
|
28.51 |
|
18.58 |
|
13.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average: |
|
|
|
549,826 |
|
10.08 |
|
9.84 |
|
0.07 |
|
0.25 |
|
2.35 |
|
72.97 |
|
|
|
|
|
134.26 |
|
141.69 |
|
35.75 |
|
14.76 |
|
6.74 |
|
|
|
|
|
|
|
|
|
Median: |
|
|
|
206,232 |
|
9.23 |
|
9.23 |
|
0.25 |
|
2.23 |
|
1.26 |
|
44.33 |
|
|
|
|
|
134.81 |
|
140.26 |
|
27.83 |
|
14.88 |
|
7.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: SNL Financial, LC.
EXHIBIT IV-5
HarborOne Bank
Director and Senior Management Summary Resumes
Exhibit IV-5
HarborOne Bank
Director and Senior Management Summary Resumes
The following includes a brief biography for each of our directors. The biography of each director also includes information regarding the experience, qualifications, attributes or skills that caused our board of directors to determine that such member of our board of directors should serve as a director. There are no family relationships among any of our directors or executive officers. Unless otherwise stated, each director has held his or her current occupation for the last five years.
Joseph F. Barry retired in 2003 as Senior Vice President of HMI, Inc., a travel marketing firm located in Norwood, Massachusetts, after 14 years with the company. Before joining HMI, Inc., Mr. Barry was Vice President at Knapp Shoes, Inc. from 1986 to 1989 and Vice President at Herman Shoe International, Inc. from 1983 to 1986. Mr. Barry was selected to serve as a director because of his business experience and ability to assist us in strategic planning.
James W. Blake has served as President and Chief Executive Officer of HarborOne Bank since 1995, after serving as Chief Operating Officer in 1993. Prior to joining HarborOne Bank, Mr. Blake was Senior Vice President of Retail Banking and Marketing at Mechanics Bank in Worcester, Massachusetts, from 1986 to 1993. Mr. Blake has served on the Community Depository Institutions Advisory Council of the Federal Reserve Bank of Boston. Since 2011, he has served on the Signature Healthcare Executive Business Council, and the YMCA Foundation. He also currently serves on the board of the Connecticut Online Computer Center, a position he has held since 2003. He also served on the board of the Massachusetts Credit Union League, from 1998 to 2012. As President and Chief Executive Officer, Mr. Blake is familiar with our banking operations and provides the board of directors with insight into our challenges, opportunities and operations. In addition, he was selected to serve as a director because of his extensive banking experience and familiarity with our market area.
David P. Frenette, Esq. is an attorney in solo practice in Brockton, Massachusetts, focusing primarily on elder care law, estate planning, residential and commercial real estate and business organization. Mr. Frenette has practiced law for nearly 25 years. Mr. Frenette was a partner at Frenette & Dukess from 1995 to 2012 and with Wheatley, Frenette & Dukess from 1990 to 1995, specializing in real estate closings for local banks, including HarborOne Bank. Mr. Frenette has served on the Board of Trustees of Signature Healthcare Brockton Hospital, since 1999, as well as on the Boards at the Old Colony YMCA since 1993. He is also an active member at Rotary Club of Brockton. Mr. Frenette was selected to serve as a director because of his extensive experience in the practice of law, particularly in real estate, and because of his involvement and knowledge of the local community.
Gordon Jezard retired in 2012 after a 28-year career in the automotive parts and supplies retail business, as owner of and director of operations at Bettridge Auto Parts, Inc. in Brockton, Massachusetts, which he sold in 2012. Prior to his tenure at Bettridge Auto Parts, Inc., Mr. Jezard held management positions at Eastern Edison Co., an electric company in Brockton, Massachusetts. Mr. Jezard is a graduate of Northeastern University with degrees in Business Management and Electrical Engineering. Mr. Jezard was selected to serve as a director because of his knowledge of and experience working with small businesses.
Edward F. Kent retired in 1999. Prior to retiring, Mr. Kent served as Vice President, Regulatory Affairs at Mitek Surgical Products Inc., a Johnson & Johnson Company, in Norwood, Massachusetts, and held management positions at Accumetrics, Inc., a healthcare company in San Diego, California, providing diagnostic testing, Beaver Surgical in Norwood, Massachusetts, and Acufex Microsurgical, Inc. in Norwood, Massachusetts. Mr. Kent is also the former owner of Kent Products Inc., a manufacturing company in Easton, Massachusetts. He graduated from Wentworth Institute of Technology with an aerospace engineering license and Boston University with a B.S. degree in aeronautical engineering. Mr. Kent also served in the U.S. Navy, receiving an honorable discharge in 1955. He has been an active member in the community, including having been a member of the board of the Goddard Hospital from 1983 to 1987, and a tutor at Trinity Catholic Academy in Brockton, Massachusetts and the Adult Learning Center in Brockton, Massachusetts. Mr. Kent was selected to serve as a director because of his knowledge of and service to our local community.
Exhibit IV-5 (continued)
HarborOne Bank
Director and Senior Management Summary Resumes
Barry R. Koretz is President and founder of BKA Architects, Inc. in Brockton, Massachusetts, a full-service commercial architecture and design firm he started in 1974. As President of BKA Architects, Inc., Mr. Koretz is responsible for matters related to finance, administration, business development and project management of the 50-person firm with approximately $7 million in annual billings. Mr. Koretz has served as co-chair of the Signature Healthcare Executive Business Council since 2012 and the Signature Healthcare Capital Campaign Steering Committee since 2015, and as a director of the Brockton Boys and Girls Club since 2000. Previously, Mr. Koretz was a member of the Board of Trustees of Brockton Hospital and the boards of directors of Metro South Chamber of Commerce and the United Way of Greater Plymouth County. Mr. Koretz was selected to serve as a director because of his experience owning and managing a business in our market area, which, together with his knowledge of and service to our local community, provides a unique perspective on the needs of customers in our market area.
Timothy R. Lynch has served as Chief Medical Officer at South Shore Physician Ambulatory Enterprise (SSPAE) in Weymouth, Massachusetts, since 2015, and practicing internist at South Shore Medical Center since 2013. Prior to joining SSPAE, Dr. Lynch was Lead Hospital Physician, South Region at Atrius Health from 2013 to 2015. From 1996 to 2013, Dr. Lynch held the following positions at Signature Healthcare: Vice President of Quality from 2011 to 2013; Vice President of the Medical Staff from 2010 to 2013; Vice Chairman, Physician Hospital Organization Board of Directors from 2003 to 2008; Trustee, Signature Healthcare Corporation from 2002 to 2013; Trustee, Signature Healthcare Brockton Hospital Incorporated from 2002 to 2013; and Patient Care Assessment Coordinator from 1996 to 2013. Dr. Lynch currently serves as a member of the board of directors of Health Provider Services Organization. Dr. Lynch was selected to serve as a director because of his management experience, including strategic planning, budget development and state, federal and industry regulatory compliance.
Wallace H. Peckham, III retired in 2015 from Conley & Wood, CPAs P.C., in South Easton, Massachusetts, where he had worked since 2013 following its merger with the company he founded in 2010, Peckham & Eidlin, CPAs, P.C., in Brockton, Massachusetts. Mr. Peckham has been self-employed since 1982 as a certified public accountant in private practice throughout Brockton, Massachusetts, providing professional services to individuals and the business community. Mr. Peckham has been a member of the Board of Trustees of Signature Healthcare, Brockton Hospital since 2007 and served as chairman from 2013 to 2014. He is a member of the Rotary Club of Brockton. Mr. Peckham was selected to serve as a director because of his financial and accounting experience, which provides a unique perspective with respect to the preparation and review of our financial statements, the supervision of our independent auditors and the review and oversight of our financial controls and procedures, accounting practices and tax matters.
Michael Sullivan has been a partner at the Ashcroft Law Firm, LLC in Boston, Massachusetts since 2009. Mr. Sullivan is recognized as an expert in government investigations, corporate compliance and ethics, fraud, corruption, health care and corporate security, with extensive policy and regulatory experience. Prior to joining the Ashcroft Law Firm, LLC, Mr. Sullivan was a United States Attorney for the District of Massachusetts from 2001 to 2009. From 2006 through 2008, Mr. Sullivan served as Director of the Bureau of Alcohol, Tobacco, Firearms and Explosives in Washington, DC and from 1995 to 2001 he served as the District Attorney for Plymouth County, Massachusetts. Mr. Sullivan has been a member of the board of directors of Signature Healthcare since May 2009, Old Colony YMCA since 1995, Continuing Education Institute from 1989 to 1994 and Consumer Credit Counseling Services from 1986 to 1989. Mr. Sullivan was selected to serve as a director because of his extensive policy and regulatory legal experience and continued service to the community.
Exhibit IV-5 (continued)
HarborOne Bank
Director and Senior Management Summary Resumes
Executive Officers
The following table provides information regarding our executive officers who were not directors as of December 31, 2015. Our executive officers serve at the discretion of our board of directors and hold office until their successors are duly elected and qualified or until the earlier of their death, resignation or removal.
Name |
|
Age |
|
Position(s) |
|
|
|
|
|
Joseph F. Casey |
|
55 |
|
Executive Vice President, Chief Operating Officer and Chief Financial Officer at HarborOne Bancorp and HarborOne Bank |
|
|
|
|
|
Leo C. Donahue |
|
66 |
|
Senior Vice President Retail Officer at HarborOne Bank |
|
|
|
|
|
Wayne F. Dunn |
|
60 |
|
Senior Vice President Chief Technology Officer at HarborOne Bank |
|
|
|
|
|
Christopher K. Gibbons |
|
63 |
|
Senior Vice President Consumer Lending at HarborOne Bank |
|
|
|
|
|
Mark T. Langone |
|
47 |
|
Senior Vice President Chief Enterprise Risk Officer at HarborOne Bank |
|
|
|
|
|
Peter F. Makowiecki |
|
55 |
|
Senior Vice President Residential Lending at HarborOne Bank |
|
|
|
|
|
David B. Reilly |
|
50 |
|
Senior Vice President Operations at HarborOne Bank |
|
|
|
|
|
H. Scott Sanborn |
|
52 |
|
Senior Vice President Commercial Lending at HarborOne Bank |
|
|
|
|
|
David E. Tryder |
|
50 |
|
Senior Vice President and Chief Marketing Officer at HarborOne Bank |
|
|
|
|
|
Patricia M. Williams |
|
55 |
|
Senior Vice President Human Resources at HarborOne Bank |
The following is a brief biography of each of our executive officers.
Joseph F. Casey joined HarborOne Bank in 2004 and has served as Executive Vice President, Chief Operating Officer and Chief Financial Officer since 2015. Prior to his current position, he served as Executive Vice President and Chief Financial Officer from 2006 to 2015 and Senior Vice President and Chief Financial Officer from 2004 to 2006. Before joining HarborOne Bank, Mr. Casey was Vice President at Seacoast Financial Services in New Bedford, Massachusetts and Senior Vice President, Chief Financial Officer and Treasurer at Compass Bank for Savings in New Bedford, Massachusetts from 2003 to 2004, and prior to that held various titles, including Chief Financial Officer, Treasurer, Controller and Internal Auditor during his 17 years with Andover Bancorp, Inc. in Andover, Massachusetts.
Leo C. Donahue has served as Senior Vice President Retail Officer since joining HarborOne Bank in 2007. Prior to joining HarborOne Bank, Mr. Donahue was a self-employed consultant from 2005 to 2007; Senior Vice President Division Manager, Personal Banking Group at North Shore Bank in Peabody, Massachusetts from 2003 2004; and Senior Vice President Division Manager, Personal Banking Group at Warren Five Cent Savings Bank in Peabody, Massachusetts from 1987 to 2003.
Wayne F. Dunn has served as Senior Vice President Chief Technology Officer since joining HarborOne Bank in 2008. Prior to joining HarborOne Bank, Mr. Dunn was Director, Enterprise Solutions at NWN Corporation in Waltham, Massachusetts from 2007 to 2008; Chief Technology Officer at Clearway Technology Partners in Medway, Massachusetts in 2007; and Senior Director, Enterprise Computing and Principal Consultant at AimNet Solutions, Inc. (acquired by Cognizant Technology Solutions Corporation) in Holliston, Massachusetts from 2001 to 2007.
Exhibit IV-5 (continued)
HarborOne Bank
Director and Senior Management Summary Resumes
Christopher K. Gibbons joined HarborOne bank in August 1994 and has been the Senior Vice President Consumer Lending since 1999. Prior to his current position, he served as Senior Vice President Consumer Lending & Collections from 1999 to 2015 and Vice President - Consumer Lending from 1994 to 1999. Before joining HarborOne Bank, Mr. Gibbons worked at several banks in Abington, Massachusetts and Brockton, Massachusetts as Vice President Consumer Lending.
Mark T. Langone has served as Senior Vice President Chief Enterprise Risk Officer since joining HarborOne Bank in 2015. Prior to joining HarborOne Bank, Mr. Langone was a bank examiner at the FDIC in Foxboro, Massachusetts, from 1990 to 2003 and 2012 to 2015; Senior Vice President Director of Risk Governance and Senior Vice President Credit Risk Management at Sovereign Bank (now Santander Bank, N.A.) in Boston, Massachusetts from 2004 to 2012; and Senior Vice President Senior Risk Management at Compass Bank for Savings in New Bedford, Massachusetts, from 2003 to 2004.
Peter F. Makowiecki has served as Senior Vice President Residential Lending since joining HarborOne Bank in 2013. Prior to joining HarborOne Bank, Mr. Makowiecki held various titles, including Senior Vice President Sales & Marketing and President of MetLife Home Loans, at MetLife Bank in Irving, Texas, from 2008 to 2010. Mr. Makowiecki was President and Chief Executive Officer of First Horizon Home Loan Corporation from 2005 to 2008 and Senior Executive Vice President Chief Financial Officer of First Horizon Home Loan Corporation from 2000 to 2005.
David B. Reilly has served as Senior Vice President Operations since joining HarborOne Bank in 2008. Prior to joining HarborOne Bank, Mr. Reilly was Senior Vice President Operations from 2004 to 2008 and Vice President Director Alternative Delivery and Customer Service in 2004 at Rockland Trust Company in Rockland, Massachusetts; Technology Integration On-Site Coordinator at Citizens Bank in Providence, Rhode Island in 2003; and Director, Information Technology from 2000 to 2003 and Vice President Call Center Operations and Retail Delivery from 1996 to 2003 at Cambridgeport Bank in Cambridge, Massachusetts.
H. Scott Sanborn has served as Senior Vice President Commercial Lending since joining HarborOne Bank in 2014. Prior to joining HarborOne Bank, Mr. Sanborn was Regional Vice President Metro Boston & Rhode Island/Southeastern Massachusetts from 2011 to 2014 and Professionals Group Leader, Wealth from 2010 to 2011 at TD Bank in Boston, Massachusetts and Senior Vice President Regional Executive & Professionals Market Leader from 2005 to 2010 and Senior Vice President Market Manager from 2000 to 2004 at Sovereign Bank (now Santander Bank, N.A.) based in Boston, Massachusetts.
David E. Tryder has served as Senior Vice President Chief Marketing Officer since joining HarborOne Bank in 2014. Prior to joining HarborOne Bank, Mr. Tryder was Director Digital Strategy Group in 2013, Director Interactive & Relationship Marketing from 2009 to 2013, and Senior Manager Interactive Marketing from 2005 to 2009 at Dunkin Donuts in Canton, Massachusetts; Vice President Marketing Director at Modem Media in Norwalk, Connecticut, from 2004 to 2005; Vice President Marketing Director at Digitas, LLC in Boston, Massachusetts, from 2000 to 2004; and Product Manager ATM Network and Online Banking at Fleet Bank in Boston, Massachusetts, from 1997 to 2000.
Patricia M. Williams , Senior Vice President of Human Resources, joined HarborOne in 1986. During her tenure she has held the leadership role in the Human Resources Division and has been responsible for the development, implementation and oversight of Human Resources policies, training and development, benefits, talent acquisition and retention and culture.
Source: HarborOne Banks prospectus.
EXHIBIT IV-6
HarborOne Bank
Pro Forma Regulatory Capital Ratios
Exhibit IV-6
HarborOne Bank
Pro Forma Regulatory Capital Ratios
|
|
|
|
|
|
Pro Forma at December 31, 2015 |
|
|||||||||||||||||||
|
|
|
|
|
|
Based Upon the Sale in the Offering of |
|
|||||||||||||||||||
|
|
|
|
|
|
8,709,525 Shares |
|
10,246,500 Shares |
|
11,783,475 Shares |
|
13,550,996 Shares |
|
|||||||||||||
|
|
Historical |
|
(Minimum of |
|
(Midpoint of |
|
(Maximum of |
|
(Adjusted Maximum of |
|
|||||||||||||||
|
|
at December 31, 2015 |
|
Offering Range) |
|
Offering Range) |
|
Offering Range) |
|
Offering Range) (1) |
|
|||||||||||||||
|
|
|
|
Percent of |
|
|
|
Percent of |
|
|
|
Percent of |
|
|
|
Percent of |
|
|
|
Percent of |
|
|||||
|
|
Amount |
|
Assets(2) |
|
Amount |
|
Assets(2) |
|
Amount |
|
Assets(2) |
|
Amount |
|
Assets(2) |
|
Amount |
|
Assets(2) |
|
|||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Capital and Retained Earnings |
|
$ |
190,688 |
|
8.81 |
% |
$ |
221,780 |
|
10.07 |
% |
$ |
227,511 |
|
10.30 |
% |
$ |
233,243 |
|
10.52 |
% |
$ |
239,834 |
|
10.78 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Common equity tier 1 capital(3) |
|
$ |
177,809 |
|
10.84 |
% |
$ |
208,901 |
|
12.68 |
% |
$ |
214,632 |
|
13.02 |
% |
$ |
220,364 |
|
13.35 |
% |
$ |
226,955 |
|
13.74 |
% |
Common equity tier 1 requirement(4) |
|
106,601 |
|
6.50 |
% |
107,098 |
|
6.50 |
% |
107,189 |
|
6.50 |
% |
107,2800 |
|
6.50 |
% |
107,384 |
|
6.50 |
% |
|||||
Excess |
|
$ |
71,208 |
|
4.34 |
% |
$ |
101,803 |
|
6.18 |
% |
$ |
107,443 |
|
6.52 |
% |
$ |
113,084 |
|
6.85 |
% |
$ |
119,571 |
|
7.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Tier 1 leverage capital(3) |
|
$ |
177,809 |
|
8.30 |
% |
$ |
208,901 |
|
9.58 |
% |
$ |
214,632 |
|
9.81 |
% |
$ |
220,364 |
|
13.35 |
% |
$ |
226,955 |
|
10.31 |
% |
Tier 1 leverage requirement(4) |
|
107,082 |
|
5.00 |
% |
108,994 |
|
5.00 |
% |
109,344 |
|
5.00 |
% |
109,693 |
|
5.00 |
% |
110,095 |
|
5.00 |
% |
|||||
Excess |
|
$ |
70,727 |
|
3.30 |
% |
$ |
99,907 |
|
4.58 |
% |
$ |
105,288 |
|
4.81 |
% |
$ |
110,671 |
|
5.04 |
% |
$ |
116,860 |
|
5.31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Tier 1 risk-based capital(3) |
|
$ |
177,809 |
|
10.84 |
% |
$ |
208,901 |
|
12.68 |
% |
$ |
214,632 |
|
13.02 |
% |
$ |
220,364 |
|
13.35 |
% |
$ |
226,955 |
|
13.74 |
% |
Tier 1 risk-based requirement(4) |
|
171,331 |
|
8.00 |
% |
174,390 |
|
8.00 |
% |
174,950 |
|
8.00 |
% |
175,509 |
|
8.00 |
% |
176,153 |
|
8.00 |
% |
|||||
Excess |
|
$ |
6,478 |
|
2.84 |
% |
$ |
34,511 |
|
4.68 |
% |
$ |
39,682 |
|
5.02 |
% |
$ |
44,855 |
|
5.35 |
% |
$ |
50,802 |
|
5.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total risk-based capital(3) |
|
$ |
191,509 |
|
11.68 |
% |
$ |
222,601 |
|
13.51 |
% |
$ |
228,332 |
|
13.85 |
% |
$ |
234,064 |
|
14.18 |
% |
$ |
240,655 |
|
14.57 |
% |
Total risk-based requirement(4) |
|
164,001 |
|
10.00 |
% |
164,766 |
|
10.00 |
% |
164,906 |
|
10.00 |
% |
165,045 |
|
10.00 |
% |
165,206 |
|
10.00 |
% |
|||||
Excess |
|
$ |
27,508 |
|
1.68 |
% |
$ |
57,835 |
|
3.51 |
% |
$ |
63,426 |
|
3.85 |
% |
$ |
69,019 |
|
4.18 |
% |
$ |
75,449 |
|
4.57 |
% |
Net proceeds invested in HarborOne Bank |
|
$ |
41,822 |
|
$ |
49,447 |
|
$ |
57,072 |
|
$ |
65,840 |
|
Less: Common stock acquired by employee stock ownership plan |
|
(7,153 |
) |
(8,416 |
) |
(9,678 |
) |
(11,130 |
) |
||||
Less: Common stock acquired by equity incentive plan |
|
(3,577 |
) |
(4,208 |
) |
(4,839 |
) |
(5,565 |
) |
||||
Pro forma increase in Tier 1 and total risk- based capital |
|
$ |
31,092 |
|
$ |
36,823 |
|
$ |
42,555 |
|
$ |
49,145 |
|
(1) Pro forma capital levels assume that the employee stock ownership plan purchases 8.0% of the shares of common stock sold in the stock offering and issued to the Foundation with funds HarborOne Bancorp lends to such plan. Pro forma generally accepted accounting principles (GAAP) capital and regulatory capital have been reduced by the amount required to fund this plan. See Management for a discussion of the employee stock ownership plan.
(2) Equity and Tier 1 leverage capital levels are shown as a percentage of total average assets. Risk-based capital levels are shown as a percentage of risk-weighted assets. HarborOne Bank obtained FDIC deposit insurance in 2013, and is treated as a de novo institution and required by the FDIC to maintain a Tier 1 leverage ratio of not less than 8.0% for the first seven years of operation following the effectiveness of its deposit insurance.
(3) Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20.0% risk weighting.
(4) Reflects regulatory requirements to be considered well-capitalized. HarborOne Bank obtained FDIC deposit insurance in 2013, and is treated as a de novo institution and required by the FDIC to maintain a Tier 1 leverage ratio of not less than 8.0% for the first seven years of operation following the effectiveness of its deposit insurance.
EXHIBIT IV-7
HarborOne Bank
Pro Forma Analysis Sheet Fully Converted Basis
Exhibit IV-7
PRO FORMA ANALYSIS SHEET - FULLY CONVERTED BASIS
HarborOne Bank
Prices as of February 5, 2016
|
|
|
|
|
|
|
|
Peer Group |
|
Massachusetts Companies |
|
All Publicly-Traded |
|
||||||
Price Multiple |
|
|
|
Symbol |
|
Subject (1) |
|
Average |
|
Median |
|
Average |
|
Median |
|
Average |
|
Median |
|
Price-earnings ratio (x) |
|
|
|
P/E |
|
45.63 |
x |
21.13 |
x |
19.53 |
x |
23.67 |
x |
23.76 |
x |
17.93 |
x |
16.55 |
x |
Price-core earnings ratio (x) |
|
|
|
P/Core |
|
47.31 |
x |
21.03 |
x |
18.76 |
x |
25.38 |
x |
29.19 |
x |
18.53 |
x |
17.41 |
x |
Price-book ratio (%) |
|
= |
|
P/B |
|
59.56 |
% |
109.43 |
% |
105.16 |
% |
118.34 |
% |
108.07 |
% |
104.85 |
% |
102.61 |
% |
Price-tangible book ratio (%) |
|
= |
|
P/TB |
|
61.77 |
% |
113.20 |
% |
106.58 |
% |
118.72 |
% |
108.07 |
% |
113.19 |
% |
107.14 |
% |
Price-assets ratio (%) |
|
= |
|
P/A |
|
9.67 |
% |
14.39 |
% |
11.19 |
% |
13.76 |
% |
12.89 |
% |
13.38 |
% |
12.65 |
% |
Valuation Parameters |
|
|
|
|
|
|
|
|
|
Pre-Conversion Earnings (Y) |
|
$ |
5,768,000 |
|
Pre-Conversion Earnings (CY) |
|
$ |
5,591,000 |
|
Pre-Conversion Book Value (B) |
|
$ |
190,688,000 |
|
Pre-Conv. Tang. Book Val. (TB) |
|
$ |
177,014,000 |
|
Pre-Conversion Assets (A) |
|
$ |
2,163,142,000 |
|
Reinvestment Rate (2)(R) |
|
1.76 |
% |
|
Est. Conversion Expenses (3)(X) |
|
3.00 |
% |
|
Tax Rate (TAX) |
|
40.00 |
% |
|
Shares Tax |
|
$ |
0 |
|
ESOP Stock Purchases (E) |
|
8.00 |
%(5) |
|
Cost of ESOP Borrowings (S) |
|
0.00 |
%(4) |
|
ESOP Amortization (T) |
|
20.00 |
years |
|
RRP Amount (M) |
|
4.00 |
% |
|
RRP Vesting (N) |
|
5.00 |
years (5) |
|
Foundation (F) |
|
1.50 |
% |
|
Tax Benefit (Z) |
|
1,350,000 |
|
|
Percentage Sold (PCT) |
|
100.00 |
% |
|
Option (O1) |
|
10.00 |
%(6) |
|
Estimated Option Value (O2) |
|
28.00 |
%(6) |
|
Option vesting (O3) |
|
5.00 |
(6) |
|
Option pct taxable (O4) |
|
25.00 |
%(6) |
Calculation of Pro Forma Value After Conversion |
|
|
|
|||
|
|
|
|
|
|
|
1. |
V= |
P/E * (Y) |
|
V= |
$227,700,000 |
|
|
|
1 - P/E * PCT * ((1-X-E-M-F)*R*(1-TAX) - (1-TAX)*E/T - (1-TAX)*M/N) - (1-(TAX*O4))*(O1*O2)/O3) |
|
|
|
|
|
|
|
|
|
|
|
2. |
V= |
P/Core * (Y) |
|
V= |
$227,700,000 |
|
|
|
1 - P/core * PCT * ((1-X-E-M-F)*R*(1-TAX) - (1-TAX)*E/T - (1-TAX)*M/N) - (1-(TAX*O4))*(O1*O2)/O3) |
|
|
|
|
|
|
|
|
|
|
|
3. |
V= |
P/B * (B+Z) |
|
|
V= |
$227,700,000 |
|
|
1 - P/B * PCT * (1-X-E-M-F) |
|
|
|
|
|
|
|
|
|
|
|
4. |
V= |
P/TB * (TB+Z) |
|
|
V= |
$227,700,000 |
|
|
1 - P/TB * PCT * (1-X-E-M-F) |
|
|
|
|
|
|
|
|
|
|
|
5. |
V= |
P/A * (A+Z) |
|
|
V= |
$227,700,000 |
|
|
1 - P/A * PCT * (1-X-E-M-F) |
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
Aggregate |
|
||
|
|
Shares Issued |
|
Price Per |
|
Gross Offering |
|
Issued To |
|
Total Shares |
|
Market Value |
|
||
Conclusion |
|
To the Public |
|
Share |
|
Proceeds |
|
Foundation |
|
Issued |
|
of Shares Issued |
|
||
Supermaximum |
|
29,756,250 |
|
10.00 |
|
$ |
297,562,500 |
|
357,075 |
|
30,113,325 |
|
$ |
301,133,250 |
|
Maximum |
|
25,875,000 |
|
10.00 |
|
258,750,000 |
|
310,500 |
|
26,185,500 |
|
261,855,000 |
|
||
Midpoint |
|
22,500,000 |
|
10.00 |
|
225,000,000 |
|
270,000 |
|
22,770,000 |
|
227,700,000 |
|
||
Minimum |
|
19,125,000 |
|
10.00 |
|
191,250,000 |
|
229,500 |
|
19,354,500 |
|
193,545,000 |
|
||
(1) Pricing ratios shown reflect the midpoint value.
(2) Net return reflects a reinvestment rate of 1.76 percent and a tax rate of 40.0 percent.
(3) Offering expenses shown at estimated midpoint value.
(4) No cost is applicable since holding company will fund the ESOP loan.
(5) ESOP and MRP amortize over 20 years and 5 years, respectively; amortization expenses tax effected at 40.0 percent.
(6) 10 percent option plan with an estimated Black-Scholes valuation of 28.0 percent of the exercise price, including a 5 year vesting with 25 percent of the options (granted to directors) tax effected at 40.0 percent.
EXHIBIT IV-8
HarborOne Bank
Pro Forma Effect of Conversion Proceeds Fully Converted Basis
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
HarborOne Bank
At the Minimum
1. |
|
Pro Forma Market Capitalization |
|
$ |
193,545,000 |
|
|
|
|
Less: Foundation Shares |
|
2,295,000 |
|
||
2. |
|
Offering Proceeds |
|
$ |
191,250,000 |
|
|
|
|
Less: Estimated Offering Expenses |
|
5,737,500 |
|
||
|
|
Net Conversion Proceeds |
|
$ |
185,512,500 |
|
|
|
|
|
|
|
|
||
3. |
|
Estimated Additional Income from Conversion Proceeds |
|
|
|
||
|
|
|
|
|
|
||
|
|
Net Conversion Proceeds |
|
$ |
185,512,500 |
|
|
|
|
Less: Cash Contribution to Foundation |
|
573,750 |
|
||
|
|
Less: Non-Cash Stock Purchases (1) |
|
23,225,400 |
|
||
|
|
Net Proceeds Reinvested |
|
$ |
161,713,350 |
|
|
|
|
Estimated net incremental rate of return |
|
1.06 |
% |
||
|
|
Reinvestment Income |
|
$ |
1,707,693 |
|
|
|
|
Less: Shares Tax |
|
0 |
|
||
|
|
Less: Estimated cost of ESOP borrowings (2) |
|
0 |
|
||
|
|
Less: Amortization of ESOP borrowings (3) |
|
464,508 |
|
||
|
|
Less: Amortization of Options (4) |
|
975,467 |
|
||
|
|
Less: Recognition Plan Vesting (5) |
|
929,016 |
|
||
|
|
Net Earnings Impact |
|
$ |
(661,298 |
) |
|
|
|
|
|
|
|
Net |
|
|
|
||||
|
|
|
|
Before |
|
Earnings |
|
After |
|
||||
|
|
|
|
Conversion |
|
Increase |
|
Conversion |
|
||||
4. |
|
Pro Forma Earnings |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
12 Months ended December 31, 2015 (reported) |
|
$ |
5,768,000 |
|
$ |
(661,298 |
) |
$ |
5,106,702 |
|
|
|
|
12 Months ended December 31, 2015 (core) |
|
$ |
5,591,000 |
|
$ |
(661,298 |
) |
$ |
4,929,702 |
|
|
|
|
|
|
Before |
|
Net Cash |
|
Tax Benefit |
|
After |
|
||||
|
|
|
|
Conversion |
|
Proceeds |
|
Of Contribution |
|
Conversion |
|
||||
5. |
|
Pro Forma Net Worth |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2015 |
|
$ |
190,688,000 |
|
$ |
161,713,350 |
|
$ |
1,147,500 |
|
$ |
353,548,850 |
|
|
|
December 31, 2015 (Tangible) |
|
$ |
177,014,000 |
|
$ |
161,713,350 |
|
$ |
1,147,500 |
|
$ |
339,874,850 |
|
|
|
|
|
Before |
|
Net Cash |
|
Tax Benefit |
|
After |
|
||||
|
|
|
|
Conversion |
|
Proceeds |
|
Of Contribution |
|
Conversion |
|
||||
6. |
|
Pro Forma Assets |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2015 |
|
$ |
2,163,142,000 |
|
$ |
161,713,350 |
|
$ |
1,147,500 |
|
$ |
2,326,002,850 |
|
(1) Includes ESOP and RRP stock purchases equal to 8.0 and 4.0 percent of total shares issued, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding company.
(3) ESOP borrowings are amortized over 20 years, amortization expense is tax-effected at a 40.0 percent rate.
(4) Option valuation based on Black-Scholes model, 5 year vesting, and assumes 25 percent is taxable.
(5) RRP is amortized over 5 years, and amortization expense is tax effected at 40.0 percent.
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
HarborOne Bank
At the Midpoint
1. |
|
Pro Forma Market Capitalization |
|
$ |
227,700,000 |
|
|
|
Less: Foundation Shares |
|
2,700,000 |
|
|
2. |
|
Offering Proceeds |
|
$ |
225,000,000 |
|
|
|
Less: Estimated Offering Expenses |
|
6,750,000 |
|
|
|
|
Net Conversion Proceeds |
|
$ |
218,250,000 |
|
|
|
|
|
|
|
|
3. |
|
Estimated Additional Income from Conversion Proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Conversion Proceeds |
|
$ |
218,250,000 |
|
|
|
Less: Cash Contribution to Foundation |
|
675,000 |
|
|
|
|
Less: Non-Cash Stock Purchases (1) |
|
27,324,000 |
|
|
|
|
Net Proceeds Reinvested |
|
$ |
190,251,000 |
|
|
|
Estimated net incremental rate of return |
|
1.06 |
% |
|
|
|
Reinvestment Income |
|
$ |
2,009,051 |
|
|
|
Less: Shares Tax |
|
0 |
|
|
|
|
Less: Estimated cost of ESOP borrowings (2) |
|
0 |
|
|
|
|
Less: Amortization of ESOP borrowings (3) |
|
546,480 |
|
|
|
|
Less: Amortization of Options (4) |
|
1,147,608 |
|
|
|
|
Less: Recognition Plan Vesting (5) |
|
1,092,960 |
|
|
|
|
Net Earnings Impact |
|
$ |
(777,997 |
) |
|
|
|
|
|
|
Net |
|
|
|
|||
|
|
|
|
Before |
|
Earnings |
|
After |
|
|||
|
|
|
|
Conversion |
|
Increase |
|
Conversion |
|
|||
4. |
|
Pro Forma Earnings |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
12 Months ended December 31, 2015 (reported) |
|
$ |
5,768,000 |
|
$ |
(777,997 |
) |
$ |
4,990,003 |
|
|
|
12 Months ended December 31, 2015 (core) |
|
$ |
5,591,000 |
|
$ |
(777,997 |
) |
$ |
4,813,003 |
|
|
|
|
|
Before |
|
Net Cash |
|
Tax Benefit |
|
After |
|
||||
|
|
|
|
Conversion |
|
Proceeds |
|
Of Contribution |
|
Conversion |
|
||||
5. |
|
Pro Forma Net Worth |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2015 |
|
$ |
190,688,000 |
|
$ |
190,251,000 |
|
$ |
1,350,000 |
|
$ |
382,289,000 |
|
|
|
December 31, 2015 (Tangible) |
|
$ |
177,014,000 |
|
$ |
190,251,000 |
|
$ |
1,350,000 |
|
$ |
368,615,000 |
|
|
|
|
|
Before |
|
Net Cash |
|
Tax Benefit |
|
After |
|
||||
|
|
|
|
Conversion |
|
Proceeds |
|
Of Contribution |
|
Conversion |
|
||||
6. |
|
Pro Forma Assets |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2015 |
|
$ |
2,163,142,000 |
|
$ |
190,251,000 |
|
$ |
1,350,000 |
|
$ |
2,354,743,000 |
|
(1) Includes ESOP and RRP stock purchases equal to 8.0 and 4.0 percent of total shares issued, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding company.
(3) ESOP borrowings are amortized over 20 years, amortization expense is tax-effected at a 40.0 percent rate.
(4) Option valuation based on Black-Scholes model, 5 year vesting, and assumes 25 percent is taxable.
(5) RRP is amortized over 5 years, and amortization expense is tax effected at 40.0 percent.
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
HarborOne Bank
At the Maximum Value
1. |
|
Pro Forma Market Capitalization |
|
$ |
261,855,000 |
|
|
|
Less: Foundation Shares |
|
3,105,000 |
|
|
2. |
|
Offering Proceeds |
|
$ |
258,750,000 |
|
|
|
Less: Estimated Offering Expenses |
|
7,762,500 |
|
|
|
|
Net Conversion Proceeds |
|
$ |
250,987,500 |
|
|
|
|
|
|
|
|
3. |
|
Estimated Additional Income from Conversion Proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Conversion Proceeds |
|
$ |
250,987,500 |
|
|
|
Less: Cash Contribution to Foundation |
|
776,250 |
|
|
|
|
Less: Non-Cash Stock Purchases (1) |
|
31,422,600 |
|
|
|
|
Net Proceeds Reinvested |
|
$ |
218,788,650 |
|
|
|
Estimated net incremental rate of return |
|
1.06 |
% |
|
|
|
Reinvestment Income |
|
$ |
2,310,408 |
|
|
|
Less: Shares Tax |
|
0 |
|
|
|
|
Less: Estimated cost of ESOP borrowings (2) |
|
0 |
|
|
|
|
Less: Amortization of ESOP borrowings (3) |
|
628,452 |
|
|
|
|
Less: Amortization of Options (4) |
|
1,319,749 |
|
|
|
|
Less: Recognition Plan Vesting (5) |
|
1,256,904 |
|
|
|
|
Net Earnings Impact |
|
$ |
(894,697 |
) |
|
|
|
|
|
|
Net |
|
|
|
|||
|
|
|
|
Before |
|
Earnings |
|
After |
|
|||
|
|
|
|
Conversion |
|
Increase |
|
Conversion |
|
|||
4. |
|
Pro Forma Earnings |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
12 Months ended December 31, 2015 (reported) |
|
$ |
5,768,000 |
|
$ |
(894,697 |
) |
$ |
4,873,303 |
|
|
|
12 Months ended December 31, 2015 (core) |
|
$ |
5,591,000 |
|
$ |
(894,697 |
) |
$ |
4,696,303 |
|
|
|
|
|
Before |
|
Net Cash |
|
Tax Benefit |
|
After |
|
||||
|
|
|
|
Conversion |
|
Proceeds |
|
Of Contribution |
|
Conversion |
|
||||
5. |
|
Pro Forma Net Worth |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2015 |
|
$ |
190,688,000 |
|
$ |
218,788,650 |
|
$ |
1,552,500 |
|
$ |
411,029,150 |
|
|
|
December 31, 2015 (Tangible) |
|
$ |
177,014,000 |
|
$ |
218,788,650 |
|
$ |
1,552,500 |
|
$ |
397,355,150 |
|
|
|
|
|
Before |
|
Net Cash |
|
Tax Benefit |
|
After |
|
||||
|
|
|
|
Conversion |
|
Proceeds |
|
Of Contribution |
|
Conversion |
|
||||
6. |
|
Pro Forma Assets |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2015 |
|
$ |
2,163,142,000 |
|
$ |
218,788,650 |
|
$ |
1,552,500 |
|
$ |
2,383,483,150 |
|
(1) Includes ESOP and RRP stock purchases equal to 8.0 and 4.0 percent of total shares issued, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding company.
(3) ESOP borrowings are amortized over 20 years, amortization expense is tax-effected at a 40.0 percent rate.
(4) Option valuation based on Black-Scholes model, 5 year vesting, and assumes 25 percent is taxable.
(5) RRP is amortized over 5 years, and amortization expense is tax effected at 40.0 percent.
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
HarborOne Bank
At the Super Maximum Value
1. |
|
Pro Forma Market Capitalization |
|
$ |
301,133,250 |
|
|
|
Less: Foundation Shares |
|
3,570,750 |
|
|
2. |
|
Offering Proceeds |
|
$ |
297,562,500 |
|
|
|
Less: Estimated Offering Expenses |
|
8,926,875 |
|
|
|
|
Net Conversion Proceeds |
|
$ |
288,635,625 |
|
|
|
|
|
|
|
|
3. |
|
Estimated Additional Income from Conversion Proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Conversion Proceeds |
|
$ |
288,635,625 |
|
|
|
Less: Cash Contribution to Foundation |
|
892,688 |
|
|
|
|
Less: Non-Cash Stock Purchases (1) |
|
36,135,990 |
|
|
|
|
Net Proceeds Reinvested |
|
$ |
251,606,947 |
|
|
|
Estimated net incremental rate of return |
|
1.06 |
% |
|
|
|
Reinvestment Income |
|
$ |
2,656,969 |
|
|
|
Less: Shares Tax |
|
0 |
|
|
|
|
Less: Estimated cost of ESOP borrowings (2) |
|
0 |
|
|
|
|
Less: Amortization of ESOP borrowings (3) |
|
722,720 |
|
|
|
|
Less: Amortization of Options (4) |
|
1,517,712 |
|
|
|
|
Less: Recognition Plan Vesting (5) |
|
1,445,440 |
|
|
|
|
Net Earnings Impact |
|
$ |
(1,028,902 |
) |
|
|
|
|
|
|
Net |
|
|
|
|||
|
|
|
|
Before |
|
Earnings |
|
After |
|
|||
|
|
|
|
Conversion |
|
Increase |
|
Conversion |
|
|||
4. |
|
Pro Forma Earnings |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
12 Months ended December 31, 2015 (reported) |
|
$ |
5,768,000 |
|
$ |
(1,028,902 |
) |
$ |
4,739,098 |
|
|
|
12 Months ended December 31, 2015 (core) |
|
$ |
5,591,000 |
|
$ |
(1,028,902 |
) |
$ |
4,562,098 |
|
|
|
|
|
Before |
|
Net Cash |
|
Tax Benefit |
|
After |
|
||||
|
|
|
|
Conversion |
|
Proceeds |
|
Of Contribution |
|
Conversion |
|
||||
5. |
|
Pro Forma Net Worth |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2015 |
|
$ |
190,688,000 |
|
$ |
251,606,947 |
|
$ |
1,785,375 |
|
$ |
444,080,322 |
|
|
|
December 31, 2015 (Tangible) |
|
$ |
177,014,000 |
|
$ |
251,606,947 |
|
$ |
1,785,375 |
|
$ |
430,406,322 |
|
|
|
|
|
Before |
|
Net Cash |
|
Tax Benefit |
|
After |
|
||||
|
|
|
|
Conversion |
|
Proceeds |
|
Of Contribution |
|
Conversion |
|
||||
6. |
|
Pro Forma Assets |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2015 |
|
$ |
2,163,142,000 |
|
$ |
251,606,947 |
|
$ |
1,785,375 |
|
$ |
2,416,534,322 |
|
(1) Includes ESOP and RRP stock purchases equal to 8.0 and 4.0 percent of total shares issued, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding company.
(3) ESOP borrowings are amortized over 20 years, amortization expense is tax-effected at a 40.0 percent rate.
(4) Option valuation based on Black-Scholes model, 5 year vesting, and assumes 25 percent is taxable.
(5) RRP is amortized over 5 years, and amortization expense is tax effected at 40.0 percent.
EXHIBIT IV-9
HarborOne Bank
Pro Forma Analysis Sheet Minority Stock Offering
EXHIBIT IV-9
PRO FORMA ANALYSIS SHEET - MINORITY STOCK OFFERING
HarborOne Bank
February 5, 2016
|
|
|
|
|
|
|
Peer Group |
|
Massachusetts Companies |
|
All Publicly-Traded |
|
||||||
Price Multiple |
|
|
Symbol |
|
Subject (1) |
|
Mean |
|
Median |
|
Mean |
|
Median |
|
Mean |
|
Median |
|
Price-earnings ratio (x) |
|
|
P/E |
|
42.34x |
|
21.13x |
|
19.53x |
|
23.67x |
|
23.76x |
|
17.93x |
|
16.55x |
|
Price-core earnings ratio (x) |
|
|
P/Core |
|
43.78x |
|
21.03x |
|
18.76x |
|
25.38x |
|
29.19x |
|
18.53x |
|
17.41x |
|
Price-book ratio (%) |
= |
|
P/B |
|
82.03% |
|
109.43% |
|
105.16% |
|
118.34% |
|
108.07% |
|
104.85% |
|
102.61% |
|
Price-tangible book ratio (%) |
= |
|
P/TB |
|
86.28% |
|
113.20% |
|
106.58% |
|
118.72% |
|
108.07% |
|
113.19% |
|
107.14% |
|
Price-assets ratio (%) |
= |
|
P/A |
|
10.12% |
|
14.39% |
|
11.19% |
|
13.76% |
|
12.89% |
|
13.38% |
|
12.65% |
|
Valuation Parameters |
|
|
|
|
|
|
|
|
|
Pre-Conversion Earnings (Y)(2) |
|
$ |
5,767,000 |
|
Pre-Conversion Earnings (CY)(2) |
|
$ |
5,590,000 |
|
Pre-Conversion Book Value (B)(2) |
|
$ |
190,588,000 |
|
Pre-Conv. Tang. Book Value (TB)(2) |
|
$ |
176,914,000 |
|
Pre-Conversion Assets (A)(2) |
|
$ |
2,163,042,000 |
|
Reinvestment Rate (3)(R) |
|
1.76 |
% |
|
Est. Conversion Expenses (4)(X) |
|
3.49 |
% |
|
Tax Rate (TAX) |
|
40.00 |
% |
|
|
|
|
|
|
ESOP Stock Purchases (E) |
|
8.00 |
%(6) |
|
Cost of ESOP Borrowings (S) |
|
0.00 |
%(5) |
|
ESOP Amortization (T) |
|
20.00 |
years |
|
MRP Amount (M) |
|
4.00 |
% |
|
MRP Vesting (N) |
|
5.00 |
years(6) |
|
Foundation (F) |
|
2.67 |
% |
|
Tax Benefit (Z) |
|
1,366,200 |
|
|
Percentage Sold (PCT) |
|
46.20 |
% |
|
Option (O1) |
|
10.00 |
%(7) |
|
Estimated Option Value (O2) |
|
28.30 |
%(7) |
|
Option vesting (O3) |
|
5.00 |
(7) |
|
Option pct taxable (O4) |
|
25.00 |
%(7) |
Calculation of Pro Forma Value After Conversion |
|
|
|
||||
|
|
|
|
|
|
||
1. |
V= |
P/E * (Y) |
|
V= |
$227,700,000 |
|
|
|
|
1 - P/E * PCT * ((1-X-E-M-F)*R*(1-TAX) - (1-TAX)*E/T - (1-TAX)*M/N) - (1-(TAX*O4))*(O1*O2)/O3) |
|
|
|
||
|
|
|
|
|
|
||
2. |
V= |
P/Core * (Y) |
|
V= |
$227,700,000 |
|
|
|
|
1 - P/core * PCT * ((1-X-E-M-F)*R*(1-TAX) - (1-TAX)*E/T - (1-TAX)*M/N) - (1-(TAX*O4))*(O1*O2)/O3) |
|
|
|
||
|
|
|
|
|
|
||
3. |
V= |
P/B * (B+Z) |
|
V= |
$227,700,000 |
|
|
|
|
1 - P/B * PCT * (1-X-E-M-F) |
|
|
|
||
|
|
|
|
|
|
||
4. |
V= |
P/TB * (TB+Z) |
|
V= |
$227,700,000 |
|
|
|
|
1 - P/TB * PCT * (1-X-E-M-F) |
|
|
|
||
|
|
|
|
|
|
||
5. |
V= |
P/A * (A+Z) |
|
V= |
$227,700,000 |
|
|
|
|
1 - P/A * PCT * (1-X-E-M-F) |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
Market Value |
|
|
|
||
|
|
Shares Owned by |
|
|
Shares Issued |
|
Price Per |
|
Gross Offering |
|
Issued to |
|
Total Shares |
|
of Shares Issued |
|
Full Value |
|
||
Conclusion |
|
The MHC |
|
|
To the Public |
|
Share |
|
Proceeds |
|
Foundation |
|
Issued Publicly |
|
Publicly |
|
Total Shares |
|
||
Super Maximum |
|
16,200,969 |
|
|
13,550,996 |
|
10.00 |
|
$ |
135,509,960 |
|
361,360 |
|
13,912,356 |
|
$ |
139,123,563 |
|
30,113,325 |
|
Maximum |
|
14,087,799 |
|
|
11,783,475 |
|
10.00 |
|
$ |
117,834,750 |
|
314,226 |
|
12,097,701 |
|
120,977,010 |
|
26,185,500 |
|
|
Midpoint |
|
12,250,260 |
|
|
10,246,500 |
|
10.00 |
|
$ |
102,465,000 |
|
273,240 |
|
10,519,740 |
|
105,197,400 |
|
22,770,000 |
|
|
Minimum |
|
10,412,721 |
|
|
8,709,525 |
|
10.00 |
|
$ |
87,095,250 |
|
232,254 |
|
8,941,779 |
|
89,417,790 |
|
19,354,500 |
|
|
(1) Pricing ratios shown reflect the midpoint value.
(2) Adjusted for capitalizing MHC with $100,000.
(3) Net return reflects a reinvestment rate of 1.76 percent, and a tax rate of 40.0 percent.
(4) Offering expenses shown at estimated midpoint value.
(5) No cost is applicable since holding company will fund the ESOP loan.
(6) ESOP and MRP amortize over 20 years and 5 years, respectively; amortization expenses tax effected at 40.0 percent.
(7) 10 percent option plan with an estimated Black-Scholes valuation of 28.30 percent of the exercise price, including a 5 year vesting with 25 percent of the options (granted to directors) tax effected at 40.0 percent.
EXHIBIT IV-10
HarborOne Bank
Pro Forma Effect of Conversion Proceeds Minority Stock Offering
Exhibit IV-10
PRO FORMA EFFECT OF CONVERSION PROCEEDS
HarborOne Bank
At the Minimum
1. |
|
Pro Forma Market Capitalization |
|
$ |
89,417,790 |
|
|
|
Less: Foundation Shares |
|
2,322,540 |
|
|
2. |
|
Offering Proceeds |
|
$ |
87,095,250 |
|
|
|
Less: Estimated Offering Expenses |
|
3,451,243 |
|
|
|
|
Net Conversion Proceeds |
|
$ |
83,644,007 |
|
|
|
|
|
|
|
|
3. |
|
Estimated Additional Income from Conversion Proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Conversion Proceeds |
|
$ |
83,644,007 |
|
|
|
Less: Cash Contribution to Foundation |
|
580,635 |
|
|
|
|
Less: Non-Cash Stock Purchases (1) |
|
10,730,135 |
|
|
|
|
Net Proceeds Reinvested |
|
$ |
72,333,237 |
|
|
|
Estimated net incremental rate of return |
|
1.06 |
% |
|
|
|
Reinvestment Income |
|
$ |
763,839 |
|
|
|
Less: Estimated cost of ESOP borrowings (2) |
|
0 |
|
|
|
|
Less: Amortization of ESOP borrowings (3) |
|
214,603 |
|
|
|
|
Less: Amortization of Options (4) |
|
455,494 |
|
|
|
|
Less: Recognition Plan Vesting (5) |
|
429,205 |
|
|
|
|
Net Earnings Impact |
|
$ |
(335,463 |
) |
|
|
|
|
|
|
Net |
|
|
|
|||
|
|
|
|
Before |
|
Earnings |
|
After |
|
|||
|
|
|
|
Conversion |
|
Increase |
|
Conversion |
|
|||
4. |
|
Pro Forma Earnings |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
12 Months ended December 31, 2015 (reported) |
|
$ |
5,767,000 |
|
$ |
(335,463 |
) |
$ |
5,431,537 |
|
|
|
12 Months ended December 31, 2015 (core) |
|
$ |
5,590,000 |
|
$ |
(335,463 |
) |
$ |
5,254,537 |
|
|
|
|
|
Before |
|
Net Cash |
|
Tax Benefit |
|
After |
|
||||
|
|
|
|
Conversion |
|
Proceeds |
|
Of Contribution |
|
Conversion |
|
||||
5. |
|
Pro Forma Net Worth |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2015 |
|
$ |
190,588,000 |
|
$ |
72,333,237 |
|
$ |
1,161,270 |
|
$ |
264,082,507 |
|
|
|
December 31, 2015 (Tangible) |
|
$ |
176,914,000 |
|
$ |
72,333,237 |
|
$ |
1,161,270 |
|
$ |
250,408,507 |
|
|
|
|
|
Before |
|
Net Cash |
|
Tax Benefit |
|
After |
|
||||
|
|
|
|
Conversion |
|
Proceeds |
|
Of Contribution |
|
Conversion |
|
||||
6. |
|
Pro Forma Assets |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2015 |
|
$ |
2,163,042,000 |
|
$ |
72,333,237 |
|
$ |
1,161,270 |
|
$ |
2,236,536,507 |
|
(1) Includes ESOP and MRP stock purchases equal to 8.0 and 4.0 percent of the public shares, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding company.
(3) ESOP borrowings are amortized over 20 years, amortization expense is tax-effected at a 40.0 percent rate.
(4) Option valuation based on Black-Scholes model, 5 year vesting, and assuming 25 percent taxable.
(5) MRP is amortized over 5 years, and amortization expense is tax effected at 40.0 percent.
Exhibit IV-10
PRO FORMA EFFECT OF CONVERSION PROCEEDS
HarborOne Bank
At the Midpoint
1. |
|
Pro Forma Market Capitalization |
|
$ |
105,197,400 |
|
|
|
|
Less: Foundation Shares |
|
2,732,400 |
|
||
2. |
|
Offering Proceeds |
|
$ |
102,465,000 |
|
|
|
|
Less: Estimated Offering Expenses |
|
3,571,156 |
|
||
|
|
Net Conversion Proceeds |
|
$ |
98,893,844 |
|
|
|
|
|
|
|
|
||
3. |
|
Estimated Additional Income from Conversion Proceeds |
|
|
|
||
|
|
|
|
|
|
||
|
|
Net Conversion Proceeds |
|
$ |
98,893,844 |
|
|
|
|
Less: Cash Contribution to Foundation |
|
683,100 |
|
||
|
|
Less: Non-Cash Stock Purchases (1) |
|
12,623,688 |
|
||
|
|
Net Proceeds Reinvested |
|
$ |
85,587,056 |
|
|
|
|
Estimated net incremental rate of return |
|
1.06 |
% |
||
|
|
Reinvestment Income |
|
$ |
903,799 |
|
|
|
|
Less: Estimated cost of ESOP borrowings (2) |
|
0 |
|
||
|
|
Less: Amortization of ESOP borrowings (3) |
|
252,474 |
|
||
|
|
Less: Amortization of Options (4) |
|
535,876 |
|
||
|
|
Less: Recognition Plan Vesting (5) |
|
504,948 |
|
||
|
|
Net Earnings Impact |
|
$ |
(389,498 |
) |
|
|
|
|
|
|
|
Net |
|
|
|
|||
|
|
|
|
Before |
|
Earnings |
|
After |
|
|||
|
|
|
|
Conversion |
|
Increase |
|
Conversion |
|
|||
4. |
|
Pro Forma Earnings |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
12 Months ended December 31, 2015 (reported) |
|
$ |
5,767,000 |
|
$ |
(389,498 |
) |
$ |
5,377,502 |
|
|
|
12 Months ended December 31, 2015 (core) |
|
$ |
5,590,000 |
|
$ |
(389,498 |
) |
$ |
5,200,502 |
|
|
|
|
|
Before |
|
Net Cash |
|
Tax Benefit |
|
After |
|
||||
|
|
|
|
Conversion |
|
Proceeds |
|
Of Contribution |
|
Conversion |
|
||||
5. |
|
Pro Forma Net Worth |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2015 |
|
$ |
190,588,000 |
|
$ |
85,587,056 |
|
$ |
1,366,200 |
|
$ |
277,541,256 |
|
|
|
December 31, 2015 (Tangible) |
|
$ |
176,914,000 |
|
$ |
85,587,056 |
|
$ |
1,366,200 |
|
$ |
263,867,256 |
|
|
|
|
|
Before |
|
Net Cash |
|
Tax Benefit |
|
After |
|
||||
|
|
|
|
Conversion |
|
Proceeds |
|
Of Contribution |
|
Conversion |
|
||||
6. |
|
Pro Forma Assets |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2015 |
|
$ |
2,163,042,000 |
|
$ |
85,587,056 |
|
$ |
1,366,200 |
|
$ |
2,249,995,256 |
|
(1) Includes ESOP and MRP stock purchases equal to 8.0 and 4.0 percent of the public shares, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding company.
(3) ESOP borrowings are amortized over 20 years, amortization expense is tax-effected at a 40.0 percent rate.
(4) Option valuation based on Black-Scholes model, 5 year vesting, and assuming 25 percent taxable.
(5) MRP is amortized over 5 years, and amortization expense is tax effected at 40.0 percent.
Exhibit IV-10
PRO FORMA EFFECT OF CONVERSION PROCEEDS
HarborOne Bank
At the Maximum
1. |
|
Pro Forma Market Capitalization |
|
$ |
120,977,010 |
|
|
|
Less: Foundation Shares |
|
3,142,260 |
|
|
2. |
|
Offering Proceeds |
|
$ |
117,834,750 |
|
|
|
Less: Estimated Offering Expenses |
|
3,691,069 |
|
|
|
|
Net Conversion Proceeds |
|
$ |
114,143,681 |
|
|
|
|
|
|
|
|
3. |
|
Estimated Additional Income from Conversion Proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Conversion Proceeds |
|
$ |
114,143,681 |
|
|
|
Less: Cash Contribution to Foundation |
|
785,565 |
|
|
|
|
Less: Non-Cash Stock Purchases (1) |
|
14,517,241 |
|
|
|
|
Net Proceeds Reinvested |
|
$ |
98,840,875 |
|
|
|
Estimated net incremental rate of return |
|
1.06 |
% |
|
|
|
Reinvestment Income |
|
$ |
1,043,760 |
|
|
|
Less: Estimated cost of ESOP borrowings (2) |
|
0 |
|
|
|
|
Less: Amortization of ESOP borrowings (3) |
|
290,345 |
|
|
|
|
Less: Amortization of Options (4) |
|
616,257 |
|
|
|
|
Less: Recognition Plan Vesting (5) |
|
580,690 |
|
|
|
|
Net Earnings Impact |
|
$ |
(443,532 |
) |
|
|
|
|
|
|
Net |
|
|
|
|||
|
|
|
|
Before |
|
Earnings |
|
After |
|
|||
|
|
|
|
Conversion |
|
Increase |
|
Conversion |
|
|||
4. |
|
Pro Forma Earnings |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
12 Months ended December 31, 2015 (reported) |
|
$ |
5,767,000 |
|
$ |
(443,532 |
) |
$ |
5,323,468 |
|
|
|
12 Months ended December 31, 2015 (core) |
|
$ |
5,590,000 |
|
$ |
(443,532 |
) |
$ |
5,146,468 |
|
|
|
|
|
Before |
|
Net Cash |
|
Tax Benefit |
|
After |
|
||||
|
|
|
|
Conversion |
|
Proceeds |
|
Of Contribution |
|
Conversion |
|
||||
5. |
|
Pro Forma Net Worth |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2015 |
|
$ |
190,588,000 |
|
$ |
98,840,875 |
|
$ |
1,571,130 |
|
$ |
291,000,005 |
|
|
|
December 31, 2015 (Tangible) |
|
$ |
176,914,000 |
|
$ |
98,840,875 |
|
$ |
1,571,130 |
|
$ |
277,326,005 |
|
|
|
|
|
Before |
|
Net Cash |
|
Tax Benefit |
|
After |
|
||||
|
|
|
|
Conversion |
|
Proceeds |
|
Of Contribution |
|
Conversion |
|
||||
6. |
|
Pro Forma Assets |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2015 |
|
$ |
2,163,042,000 |
|
$ |
98,840,875 |
|
$ |
1,571,130 |
|
$ |
2,263,454,005 |
|
(1) Includes ESOP and MRP stock purchases equal to 8.0 and 4.0 percent of the public shares, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding company.
(3) ESOP borrowings are amortized over 20 years, amortization expense is tax-effected at a 40.0 percent rate.
(4) Option valuation based on Black-Scholes model, 5 year vesting, and assuming 25 percent taxable.
(5) MRP is amortized over 5 years, and amortization expense is tax effected at 40.0 percent.
Exhibit IV-10
PRO FORMA EFFECT OF CONVERSION PROCEEDS
HarborOne Bank
At the Super Maximum Value
1. |
|
Pro Forma Market Capitalization |
|
$ |
139,123,563 |
|
|
|
Less: Foundation Shares |
|
3,613,600 |
|
|
2. |
|
Offering Proceeds |
|
$ |
135,509,960 |
|
|
|
Less: Estimated Offering Expenses |
|
3,828,968 |
|
|
|
|
Net Conversion Proceeds |
|
$ |
131,680,992 |
|
|
|
|
|
|
|
|
3. |
|
Estimated Additional Income from Conversion Proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Conversion Proceeds |
|
$ |
131,680,992 |
|
|
|
Less: Cash Contribution to Foundation |
|
903,400 |
|
|
|
|
Less: Non-Cash Stock Purchases (1) |
|
16,694,828 |
|
|
|
|
Net Proceeds Reinvested |
|
$ |
114,082,764 |
|
|
|
Estimated net incremental rate of return |
|
1.06 |
% |
|
|
|
Reinvestment Income |
|
$ |
1,204,714 |
|
|
|
Less: Estimated cost of ESOP borrowings (2) |
|
0 |
|
|
|
|
Less: Amortization of ESOP borrowings (3) |
|
333,897 |
|
|
|
|
Less: Amortization of Options (4) |
|
708,695 |
|
|
|
|
Less: Recognition Plan Vesting (5) |
|
667,793 |
|
|
|
|
Net Earnings Impact |
|
$ |
(505,671 |
) |
|
|
|
|
|
|
Net |
|
|
|
|||
|
|
|
|
Before |
|
Earnings |
|
After |
|
|||
|
|
|
|
Conversion |
|
Increase |
|
Conversion |
|
|||
4. |
|
Pro Forma Earnings |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
12 Months ended December 31, 2015 (reported) |
|
$ |
5,767,000 |
|
$ |
(505,671 |
) |
$ |
5,261,329 |
|
|
|
12 Months ended December 31, 2015 (core) |
|
$ |
5,590,000 |
|
$ |
(505,671 |
) |
$ |
5,084,329 |
|
|
|
|
|
Before |
|
Net Cash |
|
Tax Benefit |
|
After |
|
||||
|
|
|
|
Conversion |
|
Proceeds |
|
Of Contribution |
|
Conversion |
|
||||
5. |
|
Pro Forma Net Worth |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2015 |
|
$ |
190,588,000 |
|
$ |
114,082,764 |
|
$ |
1,806,800 |
|
$ |
306,477,564 |
|
|
|
December 31, 2015 (Tangible) |
|
$ |
176,914,000 |
|
$ |
114,082,764 |
|
$ |
1,806,800 |
|
$ |
292,803,564 |
|
|
|
|
|
Before |
|
Net Cash |
|
Tax Benefit |
|
After |
|
||||
|
|
|
|
Conversion |
|
Proceeds |
|
Of Contribution |
|
Conversion |
|
||||
6. |
|
Pro Forma Assets |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2015 |
|
$ |
2,163,042,000 |
|
$ |
114,082,764 |
|
$ |
1,806,800 |
|
$ |
2,278,931,564 |
|
(1) Includes ESOP and MRP stock purchases equal to 8.0 and 4.0 percent of the public shares, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding company.
(3) ESOP borrowings are amortized over 20 years, amortization expense is tax-effected at a 40.0 percent rate.
(4) Option valuation based on Black-Scholes model, 5 year vesting, and assuming 25 percent taxable.
(5) MRP is amortized over 5 years, and amortization expense is tax effected at 40.0 percent.
EXHIBIT V-1
RP ® Financial, LC.
Firm Qualifications Statement
RP FINANCIAL, LC.
Advisory | Planning | Valuation
FIRM QUALIFICATION STATEMENT
RP ® Financial, LC. (RP Financial) provides financial and management consulting, merger advisory and valuation services to the financial services companies, including banks, thrifts, credit unions, insurance companies, mortgage companies and others. We offer a broad array of services, high quality and prompt service, hands-on involvement by our senior staff, careful structuring of strategic initiatives and sophisticated valuation and other analyses consistent with industry practices and regulatory requirements. Our staff has extensive consulting, valuation, financial advisory and industry backgrounds.
STRATEGIC PLANNING SERVICES
RP Financials strategic planning services, for established or de novo banking companies, provide effective feasible plans with quantifiable results to enhance shareholder value, achieve regulatory approval or realize other objectives. We conduct situation analyses; establish mission/vision statements, develope strategic goals and objectives; and identify strategies to enhance value, address capital, increase earnings, manage risk and tackle operational or organizational matters. Our proprietary financial simulation models facilitate the evaluation of the feasibility, impact and merit of alternative financial strategies.
MERGER ADVISORY SERVICES
RP Financials merger advisory services include targeting buyers and sellers, assessing acquisition merit, conducting due diligence, negotiating and structuring deal terms, preparing merger business plans and financial simulations, rendering fairness opinions, preparing fair valuation analyses and supporting post -merger strategies. RP Financial is also expert in de novo charters, shelf charters and failed bank deals with loss sharing or other assistance. Through financial simulations, valuation proficiency and regulatory familiarity, RP Financials merger advisory services center on enhancing shareholder returns.
VALUATION SERVICES
RP Financials extensive valuation practice includes mergers, thrift stock conversions, insurance company demutualizations, merger valuation and goodwill impairment, ESOPs, going private, secondary offerings and other purposes. We are highly experienced in performing appraisals conforming with regulatory guidelines and appraisal standards. RP Financial is the nations leading valuation firm for thrift stock conversions, with offerings ranging up to $4 billion.
MANAGEMENT STUDIES
RP Financial provides effective organizational planning, and we are often engaged to prepare independent management studies required for regulatory enforcement actions. We evaluate Board, management and staffing needs, assess existing talent and capabilities and make strategic recommendations for new positions, replacement, succession and other organizational matters.
ENTERPRISE RISK ASSESSMENT SERVICES
RP Financial provides effective enterprise risk assessment consulting services to assist our clients in evaluating the degree to which they have properly identified, understood, measured, monitored and controlled enterprise risk as part of a deliberate risk/reward strategy and to help them implement strategies to mitigate risk, enhance performance, ensure effective reporting and compliance with laws and regulations and avoid potential future damage to their reputation and associated consequences and to mitigate residual risk and unanticipated losses.
OTHER CONSULTING SERVICES
RP Financial provides other consulting services including evaluating regulatory changes, development diversification and branching strategies, conducting feasibility studies and other research, and preparing management studies in response to regulatory enforcement actions. We assist clients with CRA plans and revising policies and procedures. Our other consulting services are aided by proprietary valuation and financial simulation models.
KEY PERSONNEL (Years of Relevant Experience & Contact Information) |
||||
|
|
|
|
|
Ronald S. Riggins, Managing Director (35) |
|
(703) 647-6543 |
|
rriggins@rpfinancial.com |
William E. Pommerening, Managing Director (32) |
|
(703) 647-6546 |
|
wpommerening@rpfinancial.com |
Marcus Faust, Managing Director (30) |
|
(703) 647-6553 |
|
mfaust@rpfinancial.com |
Gregory E. Dunn, Director (33) |
|
(703) 647-6548 |
|
gdunn@rpfinancial.com |
James P. Hennessey, Director (30) |
|
(703) 647-6544 |
|
jhennessey@rpfinancial.com |
James J. Oren, Director (29) |
|
(703) 647-6549 |
|
joren@rpfinancial.com |
Carla H. Pollard, Senior Vice President (27) |
|
(703) 647-6556 |
|
cpollard@rpfinancial.com |
RP Financial, LC. |
|
Phone: (703) 528-1700 |
1100 North Glebe Road, Suite 600 |
|
Fax: (703) 528-1788 |
Arlington, VA 22201 |
|
www.rpfinancial.com |
Exhibit 99.4
HarborOne Bank
HarborOne Bancorp, Inc.
3/2/16
PROPOSED MAILING AND INFORMATIONAL MATERIALS
INDEX
Produced by the Financial Printer |
|
|
|
|
|
1. |
Dear Depositor & Friends Letter* |
|
|
|
|
2. |
Dear Depositor & Friends Letter for Non Eligible Jurisdictions* |
|
|
|
|
3. |
Dear Potential Investor Letter* |
|
|
|
|
4. |
Dear Prospective Investor Letter - Used as a Cover Letter for States Requiring Agent Mailing* |
|
|
|
|
5. - 9. |
Stock Q&A* |
|
|
|
|
10. |
Stock Order Form (page 1 of 2) * |
|
|
|
|
11. |
Stock Order Form Certification (page 2 of 2) |
|
|
|
|
12. |
Stock Order Form Guidelines* |
|
|
|
|
13. |
Community Meeting Invitation Card* |
|
|
|
|
Produced by the Stock Information Center / Transfer Agent / or Bank |
|
|
|
|
|
14. |
Dear Subscriber/Acknowledgment Letter - Initial Response to Stock Order Received |
|
|
|
|
15. |
Dear Interested Investor - No Shares Available Letter |
|
|
|
|
16. |
Welcome Shareholder Letter - For Initial DRS Statement Mailing (Produced by Transfer Agent) |
|
|
|
|
17. |
Dear Interested Subscriber Letter - Subscription Rejection |
|
|
|
|
18. |
Letter for Sandler ONeill Mailing to Clients* |
|
|
|
|
19. |
Invitation Letter Informational Meetings |
|
|
|
|
20. |
DRS Q&A (Produced by Transfer Agent or other Agent |
|
|
|
|
21. |
Tombstone (Meeting Advertisement) |
|
|
|
|
22. |
Tombstone (Offering Advertisement) |
|
*Accompanied by a Prospectus
1-13 will be typeset by financial printer
HarborOne Bank
Dear Depositors and Friends of HarborOne Bank:
We are pleased to announce that HarborOne Bank is reorganizing into the mutual holding company structure, with a mid-tier holding company that will be offering a minority of its stock to the public, pursuant to a Plan of Reorganization and Minority Stock Issuance. In connection with the reorganization, HarborOne Bancorp, Inc. is offering common stock in a minority stock offering. As a qualifying account holder of HarborOne Bank as of the close of business on December 31, 2014, you have a first priority right to subscribe for shares of HarborOne Bancorp, Inc. common stock in the stock offering. In connection with this priority right, we are providing you with the following enclosed material.
PROSPECTUS : This document provides detailed information about the operations of HarborOne Bank and HarborOne Bancorp, Inc. and the proposed stock offering by HarborOne Bancorp, Inc. Please read it carefully before making an investment decision.
STOCK ORDER FORM: If you wish to subscribe for shares of common stock, please complete the stock order form and return it to HarborOne Bancorp, Inc., together with your payment for the shares, using the enclosed postage-paid envelope marked STOCK ORDER RETURN or by overnight delivery service to our Stock Information Center located at [Street, City, State Zipcode]. You may also hand deliver stock order forms at this location. We will not accept stock order forms at our other banking offices. Your order must be physically received (not postmarked) by HarborOne Bancorp, Inc. no later than :00 p.m., Eastern Time, on day, June , 2016.
If you have any questions after reading the enclosed material, please call our Stock Information Center at ( ) - , Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time. Please note that the Stock Information Center will be closed from 12:00 noon on Friday, May 27, through Monday, May 30, in observance of the Memorial Day holiday.
Sincerely,
James W. Blake
President and Chief Executive Officer
The shares of common stock being offered are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the Share Insurance Fund. This is not an offer to sell or a solicitation of an offer to buy common stock. The offer is made only by the prospectus.
HarborOne Bank
Dear Depositor of HarborOne Bank:
We are pleased to announce that HarborOne Bank is reorganizing into the mutual holding company structure, with a mid-tier holding company that will be offering a minority of its stock to the public, pursuant to a Plan of Reorganization and Minority Stock Issuance. In connection with the reorganization, HarborOne Bancorp, Inc. is offering common stock in a minority stock offering.
We regret that we are unable to offer you common stock in the subscription offering because the laws of your jurisdiction require us to register (1) the to-be-issued common stock of HarborOne Bancorp, Inc. or (2) an agent of HarborOne Bank to solicit the sale of such stock, and the number of eligible subscribers in your jurisdiction does not justify the expense of such registration.
If you have any questions, please call our Stock Information Center at ( ) - , Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time. Please note that the Stock Information Center will be closed from 12:00 noon on Friday, May 27, through Monday, May 30, in observance of the Memorial Day holiday.
Sincerely,
James W. Blake
President and Chief Executive Officer
The shares of common stock being offered are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the Share Insurance Fund. This is not an offer to sell or a solicitation of an offer to buy common stock. The offer is made only by the prospectus.
HarborOne Bancorp, Inc.
Dear Potential Investor:
We are pleased to provide you with the enclosed material in connection with the stock offering by HarborOne Bancorp, Inc. This information includes the following:
PROSPECTUS : This document provides detailed information about the operations of HarborOne Bank and HarborOne Bancorp, Inc. and the proposed stock offering by HarborOne Bancorp, Inc. Please read it carefully before making an investment decision.
STOCK ORDER FORM: Use this form to subscribe for shares of common stock. Please complete the form and return it to HarborOne Bancorp, Inc., together with your payment for the shares, using the enclosed postage-paid envelope marked STOCK ORDER RETURN or by overnight delivery service to our Stock Information Center located at [Street, City, State Zipcode]. You may also hand deliver stock order forms at this location. We will not accept stock order forms at our other banking offices. Your order must be physically received (not postmarked) by HarborOne Bancorp, Inc. no later than :00 p.m., Eastern Time, on day, June , 2016.
We are pleased to offer you this opportunity to become one of our shareholders. If you have any questions after reading the enclosed material, please call our Stock Information Center at ( ) - , Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time. Please note that the Stock Information Center will be closed from 12:00 noon on Friday, May 27, through Monday, May 30, in observance of the Memorial Day holiday.
Sincerely,
James W. Blake
President and Chief Executive Officer
The shares of common stock being offered are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the Share Insurance Fund. This is not an offer to sell or a solicitation of an offer to buy common stock. The offer is made only by the prospectus.
Sandler ONeill + Partners, L.P.
Dear Prospective Investor:
At the request of HarborOne Bank and its holding company, HarborOne Bancorp, Inc., we have enclosed material regarding the offering of common stock by HarborOne Bancorp, Inc. These materials include a prospectus and a stock order form, which offer you the opportunity to subscribe for shares of common stock of HarborOne Bancorp, Inc.
Please read the prospectus carefully before making an investment decision. If you have any questions after reading the enclosed material, please call the Stock Information Center at ( ) - , Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time, and ask for a Sandler ONeill representative. Please note that the Stock Information Center will be closed from 12:00 noon on Friday, May 27, through Monday, May 30, in observance of the Memorial Day holiday. If you decide to subscribe for shares, your order, together with your payment for the shares, must be physically received (not postmarked) by HarborOne Bancorp, Inc. no later than :00 p.m., Eastern Time, on day, June , 2016.
We have been asked to forward these documents to you in view of certain requirements of the securities laws of your jurisdiction. We should not be understood as recommending or soliciting in any way any action by you with regard to the enclosed material.
Sandler ONeill & Partners, L.P.
The shares of common stock being offered are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the Share Insurance Fund. This is not an offer to sell or a solicitation of an offer to buy common stock. The offer is made only by the prospectus.
HarborOne Bancorp, Inc.
Questions & Answers About Our Stock Offering
We are pleased to announce that HarborOne Bank is reorganizing into the mutual holding company structure, with a mid-tier holding company that will be offering a minority of its stock to the public, pursuant to a Plan of Reorganization and Minority Stock Issuance. In connection with the reorganization, HarborOne Bancorp, Inc. is offering common stock in a minority stock offering. To continue our commitment to our present and future local communities, in conjunction with the stock issuance, we intend to establish a new charitable foundation, HarborOne Bank Charitable Foundation, which we will fund with a contribution of cash and shares of our common stock. This brochure provides answers to some of the most commonly asked questions relating to the stock offering.
HarborOne Bancorp, Inc.s prospectus that accompanies this brochure describes the stock offering in detail. Investing in common stock involves certain risks. For a discussion of these risks and other factors, investors are urged to read the accompanying prospectus before making an investment decision.
Q. Why is HarborOne Bank reorganizing?
A. Our primary reasons for the reorganization and offering are to enhance our capital base to support our continued growth and profitability, to offer our depositors, employees, officers and directors an opportunity to purchase an equity ownership in HarborOne Bank and to support our present and future local communities through a contribution to the charitable foundation.
Q. What is a minority stock offering?
A. A minority stock offering means that the shares of stock being sold in the offering will represent less than 50% of the total shares of common stock of HarborOne Bancorp, Inc. outstanding at the completion of the offering. Our newly-formed mutual holding company, HarborOne Mutual Bancshares, will own a majority of the common stock of HarborOne Bancorp, Inc., and HarborOne Bancorp, Inc. will own all of the common stock of HarborOne Bank.
Q. What changes in the Banks day-to-day business will occur as a result of the stock offering? Will the offering affect any of my deposit accounts or loans?
A. No changes are planned in the way we operate our business. The stock issuance will have no effect on the staffing, products or services that we offer to our customers through our offices , and will not affect the balance or terms of any deposit account. Your deposits will continue to be insured to the fullest extent permissible by federal and Massachusetts law. The terms, including interest rates, of your loans with us will also be unaffected.
Q. Who can purchase stock in the subscription offering?
A. The common stock of HarborOne Bancorp, Inc. is being offered in the subscription offering in the following order of priority:
1) Eligible Account Holders - depositors of HarborOne Bank with aggregate balances of $50 or more at the close of business on December 31, 2014.
2) HarborOne Banks tax-qualified employee benefit plans.
3) Employees, officers and directors of HarborOne Bank or any subsidiary of HarborOne Bank who are not eligible in the first priority.
Q. I am not eligible to purchase stock in the subscription offering. May I still place an order to purchase shares?
A. Subject to the priority rights of qualifying persons in the subscription offering, common stock may be offered to the general public in a community offering. In the community offering, a preference will be given to natural persons, and trusts of natural persons, residing in the Massachusetts cities and towns of Abington, Attleboro, Avon, Berkley, Braintree, Bridgewater, Brockton, Canton, Carver, Cohasset, Dighton, Duxbury, East Bridgewater, Easton, Foxboro, Halifax, Hanover, Hanson, Hingham, Holbrook, Hull, Kingston, Lakeville, Mansfield, Marshfield, Middleborough, Milton, North Attleboro, Norton, Norwell, Plainville, Pembroke, Plymouth, Plympton, Quincy, Randolph, Raynham, Rehoboth, Rochester, Rockland, Seekonk, Scituate, Sharon, Stoughton, Taunton, Wareham, West Bridgewater, Weymouth and Whitman. The community offering may begin concurrently with, during or any time after, the subscription offering.
Q. Am I guaranteed to receive shares if I place an order?
A. No. It is possible that orders received during the offering period will exceed the number of shares being sold. Such an oversubscription would result in shares being allocated among subscribers, starting with subscribers who are Eligible Account Holders. If the offering is oversubscribed in the subscription offering, no orders received in any community offering will be filled.
Q. How many shares of stock are being offered, and at what price?
A. HarborOne Bancorp, Inc. is offering a maximum of 11,783,475 shares of common stock at a price of $10.00 per share. The number of shares sold may be increased up to 13,550,996 shares as a result of demand for the shares of common stock or changes in market conditions. HarborOne Bancorp, Inc. must sell a minimum of 8,709,525 shares in order to complete the offering.
Q. How much stock can I purchase?
A. The minimum purchase is 25 shares ($250). As more fully described in the plan of stock issuance and in the prospectus, the maximum purchase by any person in the subscription or community offering is 60,000 shares ($600,000). In addition, no person, together with their associates, or a group of persons acting in concert, may purchase more than 80,000 shares ($800,000) of common stock in the offering.
Q. When is the deadline to subscribe for stock?
A. A properly completed stock order form with the required full payment must be physically received (not postmarked) by HarborOne Bancorp, Inc. no later than :00 p.m., Eastern Time, on day, June , 2016 .
Q. How do I order stock?
A. If you decide to subscribe for shares, you must return your properly completed and signed original stock order form, along with full payment for the shares, to HarborOne Bancorp, Inc. You may return your order form by mail using the enclosed postage-paid envelope or by overnight delivery service to our Stock
Information Center located at [Street, City, State, ZIP code]. You may also hand deliver stock order forms at this location. We will not accept stock order forms at our other banking offices.
Q. How can I pay for my shares of stock?
A. You can pay for the common stock by check, money order, or by withdrawal authorization from your deposit account or certificate of deposit at HarborOne Bank. Checks and money orders must be made payable to HarborOne Bancorp, Inc. Withdrawals from a certificate of deposit at HarborOne Bank to buy shares of common stock may be made without penalty.
Q. Can I use my home equity line of credit at HarborOne Bank to pay for shares of common stock?
A. No. HarborOne Bank cannot knowingly lend funds to anyone to purchase shares. This includes the use of funds available through a home equity line of credit.
Q. Can I subscribe for shares using funds in my IRA at HarborOne Bank?
A. No. Applicable regulations do not permit the purchase of common stock with your existing IRA or other qualified retirement plan at HarborOne Bank. To use these funds to subscribe for common stock, you need to establish a self-directed IRA with an unaffiliated trustee. The transfer of these funds takes time, so please make arrangements as soon as possible. However, if you intend to subscribe for common stock using your eligibility as an IRA account holder but plan to use funds from sources other than your IRA account, you need not close and transfer your IRA account. Please call our Stock Information Center if you need additional information.
Q. Can I subscribe for shares and add someone else who is not on my account to my stock registration?
A. No. Applicable regulations prohibit the transfer of subscription rights. Therefore, to maintain your priority in the subscription offering, you may not add or delete names to the stock registration the stock must generally be titled in the same manner as your eligible account.
Q. Can I subscribe for shares in my name alone if I have a joint account?
A. No. With the exception of certain orders placed through an IRA, Keogh, 401(k) or similar plan, a name can be deleted only in the event of the death of a named eligible depositor.
Q. I have custodial accounts at HarborOne Bank with my minor children. May I use these accounts to purchase stock in the subscription offering?
A. Yes. However, the stock must be purchased in the name of the custodian for the benefit of the minor child under the Uniform Transfers to Minors Act. A custodial account does not entitle the custodian to purchase stock in his or her own name. If the child has reached the age of majority, the child must subscribe for the shares in his or her own name.
Q. I have a business or trust account at HarborOne Bank. May I use these accounts to purchase stock in the subscription offering?
A. Yes. However, the stock must be purchased in the name of the business or trust. A business or trust account does not entitle the owner of or signatory for the business or the trustee to purchase stock in his or her own name.
Q. Will payments for common stock earn interest until the offering closes?
A. Yes. Any payment made by check or money order will earn interest at 0. % from the date the order is processed to the completion or termination of the offering. Depositors who pay for their stock by withdrawal authorization will receive interest at the contractual rate on the account until the completion or termination of the offering.
Q. Will dividends be paid on the stock?
A. Following the completion of the stock offering, our board of directors will have the authority to declare dividends on the common stock. However, due to regulatory restrictions applicable to mutual holding companies, we do not currently anticipate paying cash dividends on our common stock.
Q. Will my stock be covered by deposit insurance?
A. No.
Q. Where will the stock be traded?
A. Upon completion of the stock offering, our shares of common stock are expected to trade on the Nasdaq Global Market under the symbol HONE.
Q. Can I change my mind after I place an order to subscribe for stock?
A. No. After receipt, your order may not be modified or withdrawn.
Q. If I purchase shares of common stock during the offering, when will I receive my stock?
A. Physical stock certificates will not be issued. Our transfer agent will send you a stock ownership statement, via the Direct Registration System (DRS), by first class mail as soon as possible after the completion of the offering. Although the shares of HarborOne Bancorp, Inc. common stock will have begun trading, brokerage firms may require that you have received your stock ownership statement prior to selling your shares. Your ability to sell the shares of common stock prior to your receipt of the statement will depend on arrangements you may make with your brokerage firm.
Q. What is the Direct Registration System (DRS)?
A. Direct registration is the ownership of stock registered in your own name on the books of the Company, without taking possession of a printed stock certificate. Instead, your ownership is recorded and tracked as an accounting entry (book entry) on the books of the Company. DRS is the system that electronically moves investors positions between brokers and transfer agents for issuers that offer direct registration.
Q. What if I have additional questions or require more information?
A. HarborOne Bancorp, Inc.s prospectus that accompanies this brochure describes the stock offering in detail. Please read the prospectus carefully before making an investment decision. If you have any questions after reading the enclosed material, you may call our Stock Information Center at ( ) - , Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time. Please note that the Stock Information Center will be closed from 12:00 noon on Friday, May 27, through Monday,
May 30, in observance of the Memorial Day holiday. Additional material may only be obtained from the Stock Information Center.
To ensure that each purchaser receives a prospectus at least 48 hours before the applicable expiration date, in accordance with Rule 15c2-8 of the Securities Exchange Act of 1934, as amended, no prospectus will be mailed any later than five days prior to such date or hand delivered any later than two days prior to such date.
The shares of common stock being offered are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the Share Insurance Fund. This is not an offer to sell or a solicitation of an offer to buy common stock. The offer is made only by the prospectus.
[logo] HarborOne Bancorp, Inc. Subscription & Community Offering Stock Order Form HarborOne Bancorp, Inc. Stock Information Center ___ Street City, Massachusetts _____ (___) ___-____ Expiration Date for Stock Order Forms: ___day, June __, 2016 _:00 p.m., Eastern Time (received not postmarked) IMPORTANT: A properly completed original stock order form must be used to subscribe for common stock. Copies of this form are not required to be accepted. Please read the Stock Ownership Guide and Stock Order Form Instructions as you complete this form. (1) Number of Shares Subscription Price X 10.00 = (2) Total Payment Due Minimum number of shares: 25 shares ($250) Maximum number of shares: 60,000 shares ($600,000) Maximum number of shares for associates or group: 80,000 shares ($800,000) See Instructions. $ (3) Employee/Officer/Director Information 0 Check here if you are an employee, officer, director of HarborOne Bank or a member of such persons immediate family. (See Instructions) (4) Payment by Check Enclosed is a check, bank draft or money order in the amount indicated here. Make check(s) payable to HarborOne Bancorp, Inc. $ Total Check Amount $ . (5) Payment by Withdrawal - The undersigned authorizes withdrawal from the following account(s) at HarborOne Bank. There is no early withdrawal penalty for this form of payment. Individual Retirement Accounts maintained at HarborOne Bank cannot be used unless special transfer arrangements are made. Bank Use Account Number(s) To Withdraw $ Withdrawal Amount $ . $ . (6) Purchaser Information Subscription Offering. 0 a. Check here if the purchaser listed in section 8 is an Eligible Account Holder with a deposit account(s) at HarborOne Bank totaling $50.00 or more on December 31, 2014. List account(s) below. 0 b. Check here if the purchaser listed in section 8 is an employee, officer or director of HarborOne Bank or any subsidiary of HarborOne Bank and is not an Eligible Account Holder. Community Offering. Check box (c) below if applicable. 0 c. Check here if the purchaser listed in section 8 resides in any of the Massachusetts cities and towns of: Abington, Attleboro, Avon, Berkley, Braintree, Bridgewater, Brockton, Canton, Carver, Cohasset, Dighton, Duxbury, East Bridgewater, Easton, Foxboro, Halifax, Hanover, Hanson, Hingham, Holbrook, Hull, Kingston, Lakeville, Mansfield, Marshfield, Middleborough, Milton, North Attleboro, Norton, Norwell, Plainville, Pembroke, Plymouth, Plympton, Quincy, Randolph, Raynham, Rehoboth, Rochester, Rockland, Seekonk, Scituate, Sharon, Stoughton, Taunton, Wareham, West Bridgewater, Weymouth and Whitman. Indicate city/town of residence here: Purchaser Account Information - List below all accounts in which you had an ownership interest as of December 31, 2014. Failure to list all your eligible accounts, or providing incorrect information, may result in the loss of part or all of your subscription rights. Use reverse side for additional space. Bank Use Account Number(s) Account Title (Name(s) on Account) (7) Form of Stock Ownership and SS# or Tax ID#: SS#/Tax ID# 0 Individual 0 Joint Tenants 0 Tenants in Common 0 Fiduciary (i.e., trust, estate) 0 Uniform Transfers to Minors Act (Indicate SS# of Minor only) 0 Company/Corporation/ Partnership 0 IRA or other qualified plan (Both Tax ID# & SS# for IRAs) SS#/Tax ID# (8) Stock Registration and Address: Name(s) and address to appear on stock registration statement. Adding or deleting a name or otherwise altering the form of beneficial ownership of a qualifying account will result in a loss of your subscription rights (with certain exceptions for IRA, Keogh, 401(k) or similar plan purchases). Name Name continued Mail to Street City State Zip Code (9) Telephone Daytime/Evening ( ) ( ) (10) Associates/Acting in Concert 0 Check here and complete the reverse side of this form if you or any associates or persons acting in concert with you have submitted other orders for shares. (11) Acknowledgement - To be effective, this stock order form must be properly completed and physically received (not postmarked) by HarborOne Bancorp, Inc. no later than _:00 p.m., Eastern Time, on June __, 2016, unless extended; otherwise this stock order form and all subscription rights will be void. The undersigned agrees that after receipt by HarborOne Bancorp, Inc., this stock order form may not be modified, withdrawn or canceled without HarborOne Bancorp, Inc.s consent and if authorization to withdraw from deposit accounts at HarborOne Bank has been given as payment for shares, the amount authorized for withdrawal will not otherwise be available for withdrawal by the undersigned. Under penalty of perjury, I hereby certify that the Social Security or Tax ID Number and the information provided on this stock order form are true, correct and complete and that I am not subject to back-up withholding. It is understood that this stock order form will be accepted in accordance with, and subject to, the terms and conditions of the plan of stock issuance of HarborOne Bancorp, Inc. described in the accompanying prospectus. The undersigned hereby acknowledges receipt of the prospectus at least 48 hours prior to execution and delivery of this stock order form to HarborOne Bancorp, Inc. Federal regulations prohibit any person from transferring, or entering into any agreement, directly or indirectly, to transfer the legal or beneficial ownership of subscription rights or the underlying securities to the account of another. HarborOne Bank, HarborOne Mutual Bancshares and HarborOne Bancorp, Inc. will pursue any and all legal and equitable remedies in the event they become aware of the transfer of subscription rights and will not honor orders known by them to involve such transfer. Under penalty of perjury, I certify that I am purchasing shares solely for my account and that there is no agreement or understanding regarding the sale or transfer of such shares, or my right to subscribe for shares. By signing below, I also acknowledge that I have read the Certification Form on the reverse side of this form. Bank Use 10
Signature Date Signature Date 11
Item (6) Purchaser Account Information continued: Bank Use Account Number(s) Account Title (Name(s) on Account) Item (10) Associates/Acting In Concert continued: If you checked the box in item #10 on the reverse side of this form, list below all other orders submitted by you or associates (as defined below) or by persons acting in concert with you (also defined below). Name(s) listed on other stock order forms Number of shares ordered Name(s) listed on other stock order forms Number of shares ordered Associate - The term associate of a particular person means: (1) any corporation or organization, other than HarborOne Bank, or a majority-owned subsidiary of HarborOne Bank, of which the person is a senior officer, partner or 10% beneficial shareholder or more of any class of equity securities; (2) any trust or other estate in which the person has a substantial beneficial interest or serves as a trustee or in a fiduciary capacity, excluding any employee stock benefit plan in which the person has a substantial beneficial interest or serves as trustee or in a fiduciary capacity; and (3) any relative or spouse of the person, or any relative of the spouse, who either has the same home as the person or who is a director or officer of HarborOne Bank, HarborOne Bancorp or HarborOne Mutual Bancshares. Members of the immediate family of directors, trustees and officers will be considered associates of these individuals regardless of whether they share a household with the director, trustee or officer. See the definition of immediate family in Item 3 of the Stock Order Form Instructions. Acting in concert - The term acting in concert means persons seeking to combine or pool their voting or other interests in the securities of an issuer for a common purpose, pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. In general, a person who acts in concert with another party will also be deemed to be acting in concert with any person who is also acting in concert with that other party. We may presume that certain persons are acting in concert based upon various facts, among other things, joint account relationships and the fact that such persons may have filed joint Schedules 13D or 13G with the Securities and Exchange Commission with respect to other companies. 12
CERTIFICATION FORM I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR SAVINGS ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, AND IS NOT INSURED OR GUARANTEED BY HARBORONE MUTUAL BANCSHARES, HARBORONE BANCORP, INC., HARBORONE BANK, THE FEDERAL GOVERNMENT OR BY ANY GOVERNMENT AGENCY, OR THE SHARE INSURANCE FUND. THE ENTIRE AMOUNT OF AN INVESTORS PRINCIPAL IS SUBJECT TO LOSS. I further certify that, before purchasing the common stock of HarborOne Bancorp, Inc. (the Company), I received a prospectus of the Company dated , 2016 relating to such offer of common stock. The prospectus that I received contains disclosure concerning the nature of the common stock being offered by the Company and describes in the Risk Factors section, the risks involved in the investment in this common stock, including but not limited to the following: Risks Related to Our Business Risks Related to the Offering (By Signing the Front of this Form the Investor is Not Waiving Any Rights Under the Federal Securities Laws, Including the Securities Act of 1933 and the Securities Exchange Act of 1934) 13
HarborOne Bancorp, Inc. Stock Ownership Guide Individual Include the first name, middle initial and last name of the shareholder. Avoid the use of two initials. Please omit words that do not affect ownership rights, such as "Mrs.", "Mr.", "Dr.", "special account", "single person", etc. Joint Tenants Joint tenants with right of survivorship may be specified to identify two or more owners. When stock is held by joint tenants with right of survivorship, ownership is intended to pass automatically to the surviving joint tenant(s) upon the death of any joint tenant. All parties must agree to the transfer or sale of shares held by joint tenants. Tenants in Common Tenants in common may also be specified to identify two or more owners. When stock is held by tenants in common, upon the death of one co-tenant, ownership of the stock will be held by the surviving co-tenant(s) and by the heirs of the deceased co-tenant. All parties must agree to the transfer or sale of shares held by tenants in common. Uniform Transfers to Minors Act ("UTMA") Stock may be held in the name of a custodian for a minor under the Uniform Transfers to Minors Act of each state. There may be only one custodian and one minor designated on a stock certificate. The standard abbreviation for Custodian is "CUST", while the Uniform Transfers to Minors Act is "UTMA". Standard U.S. Postal Service state abbreviations should be used to describe the appropriate state. For example, stock held by John Doe as custodian for Susan Doe under the MA Uniform Transfers to Minors Act will be abbreviated John Doe, CUST Susan Doe UTMA MA (use minor's social security number). Fiduciaries Information provided with respect to stock to be held in a fiduciary capacity must contain the following: The name(s) of the fiduciary. If an individual, list the first name, middle initial and last name. If a corporation, list the full corporate title (name). If an individual and a corporation, list the corporation's title before the individual. The fiduciary capacity, such as administrator, executor, personal representative, conservator, trustee, committee, etc. A description of the document governing the fiduciary relationship, such as a trust agreement or court order. Documentation establishing a fiduciary relationship may be required to register your stock in a fiduciary capacity. The date of the document governing the relationship, except that the date of a trust created by a will need not be included in the description. The name of the maker, donor or testator and the name of the beneficiary. An example of fiduciary ownership of stock in the case of a trust is: John Doe, Trustee Under Agreement Dated 10-1-93 for Susan Doe. Stock Order Form Instructions Items 1 and 2 - Number of Shares and Total Payment Due Fill in the number of shares that you wish to purchase and the total payment due. The amount due is determined by multiplying the number of shares by the subscription price of $10.00 per share. The minimum purchase is 25 shares ($250) of common stock. As more fully described in the plan of stock issuance outlined in the prospectus, the maximum purchase in all categories of the offering is 60,000 shares ($600,000) of common stock. No person, together with associates and persons acting in concert with such person, may purchase in the aggregate more than 80,000 shares ($800,000) of common stock. Item 3 - Employee/Officer/Director/Information Check this box to indicate whether you are an employee, officer, director, trustee, or corporator of HarborOne Bank or HarborOne Mutual Bancshares or a member of such person's immediate family. The term immediate family means: any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, and includes adoptive relationships. Item 4 - Payment by Check If you pay for your stock by check, bank draft or money order, indicate the total amount in this box. Payment for shares may be made by check, bank draft or money order payable to HarborOne Bancorp, Inc. Your funds will earn interest at 0.__% until the stock offering is completed. Item 5 - Payment by Withdrawal If you pay for your stock by a withdrawal from a deposit account at HarborOne Bank, indicate the account number(s) and the amount of your withdrawal authorization for each account. The total amount withdrawn should equal the amount of your stock purchase. There will be no penalty assessed for early withdrawals from certificate accounts used for stock purchases. This form of payment may not be used if your account is an Individual Retirement Account or a home equity line of credit. Item 6 Purchaser Information Subscription Offering a. Check this box if the purchaser had a deposit account(s) at HarborOne Bank totaling $50.00 or more on December 31, 2014 (Eligible Account Holder). b. Check this box if the purchaser is an employee, officer or director of HarborOne Bank or any subsidiary of HarborOne Bank who is not an Eligible Account Holder. Please list all account numbers and all names on accounts you had on these dates in order to insure proper identification of your purchase rights. Note: Failure to list all your eligible accounts, or providing incorrect information, may result in the loss of part or all of your subscription rights. Community Offering c. Check this box if the purchaser is a community member that resides in one of the preferred cities or towns (indicate city or town of residence). Items 7 and 8 - Form of Stock Ownership, SS# or Tax ID#, Stock Registration and Mailing Address Check the box that applies to your requested form of stock ownership and indicate your social security or tax ID number(s) in item 7. Complete the requested stock registration and mailing address in item 8. The stock transfer industry has developed a uniform system of shareholder registrations that will be used in the issuance of your common stock. If you have any questions regarding the registration of your stock, please consult your legal advisor. Stock ownership must be registered in one of the ways described above under "Stock Ownership Guide." Adding a name or otherwise altering the form of beneficial ownership of a qualifying account will result in a loss of your subscription rights (with certain exceptions for IRA, Keogh, 401(k) or similar purchases). Item 9 Telephone Number(s) Indicate your daytime and evening telephone number(s). We may need to call you if we have any questions regarding your order or we cannot execute your order as given. Item 10 Associates/Acting in Concert Check this box and complete the reverse side of the stock order form if you or any associates or persons acting in concert with you (as defined on the reverse side of the stock order form) have submitted other orders for shares. Item 11 Acknowledgement Please review the prospectus carefully before making an investment decision. Sign and date the stock order form where indicated. Before you sign, review the stock order form, including the acknowledgement and certification. Normally, one signature is required. An additional signature is required only when payment is to be made by withdrawal from a deposit account that requires multiple signatures to withdraw funds. Your properly completed signed stock order form and payment in full (or withdrawal authorization) at the subscription price must be physically received (not postmarked) by HarborOne Bancorp, Inc. no later than _:00 p.m., Eastern Time, on ___day, June __, 2016 or it will become void. Delivery Instructions: You may deliver your stock order form by mail using the enclosed stock order return envelope, or by hand delivery or overnight delivery service to our Stock Information Center. Hand delivered stock order forms will only be accepted at this location. We will not accept stock order forms at our other banking offices. If you have any additional questions, or if you would like assistance in completing your stock order form, please call our Stock Information Center, Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time. HarborOne Bancorp, Inc. Stock Information Center: [Street, City, State Zipcode] (___) ___-____ 14
HarborOne Bancorp, Inc.
An Invitation
***********
We cordially invite you to attend one of our community meetings to learn more about the opportunity to purchase newly issued shares of common stock of our holding company, HarborOne Bancorp, Inc.
· Members of senior management will discuss HarborOne Banks operations, past performance and financial history.
· Officers of HarborOne Bank will be available to respond to questions.
· There will be no sales pressure. You will receive HarborOne Bancorp, Inc. stock offering materials. Then you decide if the stock purchase matches your investment objectives.
Community meetings have been scheduled in . For meeting locations and to make a reservation, or to receive a prospectus and a stock order form, please call our Stock Information Center at ( ) - Monday through Friday, 10:00 a.m. to 4:00 p.m., Eastern Time.
HarborOne Bancorp, Inc. (logo)
Holding Company for
HarborOne Bank
Community Meetings
***********
Day, Month
Location
Address
City, State Zip Code
·
Day, Month
Location
Address
City, State Zip Code
HarborOne Bancorp, Inc.
(logo)
Holding Company for
HarborOne Bank
The shares of common stock being offered are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the Share Insurance Fund.
This is not an offer to sell or a solicitation of an offer to buy common stock. The offer is made only by the prospectus .
The shares of common stock being offered are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the Share Insurance Fund. This is not an offer to sell or a solicitation of an offer to buy common stock. The offer is made only by the prospectus.
HarborOne Bancorp, Inc.
, 2016
Dear Subscriber:
We hereby acknowledge receipt of your order and payment for HarborOne Bancorp, Inc. common stock at $10.00 per share. If you are issued shares, the shares will be registered as indicated above.
At this time, we cannot confirm the number of shares of HarborOne Bancorp, Inc. common stock, if any, that will be issued to you. Following completion of the stock offering, shares will be allocated in accordance with the plan of stock issuance. Once the offering has been completed, you will receive by mail from our transfer agent, , a confirmation indicating your ownership of HarborOne Bancorp, Inc. common stock.
Please retain this letter and refer to the batch and item number indicated below for any future inquiries you may have regarding this order.
If you have any questions, please call our Stock Information Center at ( ) - , Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time.
HarborOne Bancorp, Inc.
Stock Information Center
The shares of common stock being offered are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the Share Insurance Fund. This is not an offer to sell or a solicitation of an offer to buy common stock. The offer is made only by the prospectus.
HarborOne Bancorp, Inc.
, 2016
Dear Interested Investor:
We recently completed our subscription offering. Unfortunately, due to the demand for shares from persons with priority rights, stock was not available for our [Employees, Officers and Directors or community friends (if applicable)]. If your subscription was paid for by check, bank draft or money order, a refund of your funds with interest will be mailed promptly.
We appreciate your interest in HarborOne Bancorp, Inc. and hope you become an owner of our stock in the future. Our stock has commenced trading on the Nasdaq Global Market under the symbol HONE.
HarborOne Bancorp, Inc.
Stock Information Center
The shares of common stock being offered are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the Share Insurance Fund.
HarborOne Bancorp, Inc.
, 2016
Welcome Shareholder:
We are pleased to enclose a statement from our transfer agent reflecting the number of shares of common stock of HarborOne Bancorp, Inc. (the Company) purchased by you at a price of $10.00 per share. The transaction closed on [Month date, 2016]. All stock sold in the subscription and community offerings has been issued in book entry form through the direct registration system (DRS). No physical stock certificates will be issued.
Please examine this statement carefully to be certain that it properly reflects the number of shares you purchased and the names in which the ownership of the shares are to be shown on the books of the Company.
If you have any questions about your statement, please contact our transfer agent (by mail, telephone, or via the internet) as follows:
[Transfer Agent]
Attention: Investor Relations Department
Street
City, State Zipcode
1 (xxx) xxx-xxxx
xxxx.com
A short question and answer sheet regarding your DRS statement is enclosed for your information. If your subscription was paid for by check, bank draft or money order, interest and any refund due will be mailed promptly. Trading is expected to commence on the Nasdaq Global Market under the symbol HONE on , 2016. Please contact a stockbroker if you choose to purchase or sell HarborOne Bancorp, Inc. stock in the future.
On behalf of the Board of Directors, Officers and employees of HarborOne Bancorp, Inc., I thank you for supporting our offering and welcome you as a shareholder.
Sincerely,
James W. Blake
President and Chief Executive Officer
The shares of common stock are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the Share Insurance Fund.
HarborOne Bancorp, Inc.
, 2016
Dear Interested Subscriber:
We regret to inform you that HarborOne Bancorp, Inc., the holding company for HarborOne Bank, did not accept your order for shares of HarborOne Bancorp, Inc. common stock in its community offering. This action is in accordance with our plan of stock issuance, which gives HarborOne Bancorp, Inc. the absolute right to reject the order of any person, in whole or in part, in the community offering.
If your order was paid for by check, enclosed is your original check.
HarborOne Bancorp, Inc.
Stock Information Center
The shares of common stock are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the Share Insurance Fund.
Sandler ONeill + Partners, L.P.
, 2016
To Our Friends:
We are enclosing material in connection with the stock offering by HarborOne Bancorp, Inc.
Sandler ONeill & Partners, L.P. is acting as marketing agent in connection with the subscription and community offerings, which will conclude at :00 p.m., Eastern Time, on June , 2016.
Members of the general public are eligible to participate. If you have any questions about this transaction, please call the Stock Information Center at ( ) - , Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time. Please note that the Stock Information Center will be closed from 12:00 noon on Friday, May 27, through Monday, May 30, in observance of the Memorial Day holiday.
Sandler ONeill & Partners, L.P.
The shares of common stock being offered are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the Share Insurance Fund. This is not an offer to sell or a solicitation of an offer to buy common stock. The offer is made only by the prospectus.
HarborOne Bancorp, Inc.
, 2016
Dear :
HarborOne Bancorp, Inc., the proposed new holding company for HarborOne Bank, is offering common stock in a minority stock offering. We are raising capital to support HarborOne Banks future growth.
To learn more about the stock offering, you are cordially invited to join members of our senior management team at [an informational meeting][a reception] to be held at on at :00 . , Eastern Time. A member of our staff will be calling to confirm your interest in attending the meeting.
If you would like additional information regarding the meeting or our stock offering, please call our Stock Information Center at ( ) - , Monday through Friday between the hours of 10:00 a.m. to 4:00 p.m., Eastern Time. Please note that the Stock Information Center will be closed from 12:00 noon on Friday, May 27, through Monday, May 30, in observance of the Memorial Day holiday.
Sincerely,
James W. Blake
President and Chief Executive Officer
The shares of common stock being offered are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the Share Insurance Fund. This is not an offer to sell or a solicitation of an offer to buy common stock. The offer is made only by the prospectus.
HarborOne Bancorp, Inc. [LOGO]
DIRECT REGISTRATION: Holding Your Shares in Book Entry Form
HarborOne Bancorp, Inc. (the Company) has elected to require shareholders of HarborOne Bancorp, Inc. to use the Direct Registration System (DRS) as a means of recording and maintaining the registered shares they will receive as a result of the Companys offering. This flyer outlines what DRS is and what it means to you as a registered shareholder.
What is DRS?
DRS is the system that electronically moves investors positions between brokers and transfer agents for issuers that offer direct registration. Direct registration is the ownership of stock registered in your own name on the books of the Company, without taking possession of a printed stock certificate. Instead, your ownership is recorded and tracked as an accounting entry on the books of the Company.
Why is the Company offering DRS?
DRS gives our shareholders several advantages:
· It eliminates the risk of loss or theft of your stock certificate and the potential cost and inconvenience of having to obtain a surety bond to replace a lost certificate; and
· It eliminates the need for you to store your certificates and retrieve them should you wish to transfer or sell your shares.
How will I know how many shares I own?
The Companys transfer agent, [Transfer Agent Name], will periodically send you an account statement showing you how many shares are held by you in book-entry.
What happens if I lose a DRS account statement?
If you need a duplicate statement of ownership, contact [Transfer Agent Name] and they will mail you a new one.
How can I transfer shares to my broker?
To transfer your shares to your brokerage account, provide your broker with:
· The most recent copy of your transfer agent account statement;
· The Social Security number on your account;
· Your transfer agent account number (which is on the statement);
· [Transfer Agent Name] DTC number, which is ; and
· The number of whole shares held in book-entry that you wish to transfer to your brokerage account.
Your broker will request that your shares be delivered to your brokerage account through the Depository Trust Companys Profile System.
If I have more questions, how can I get answers?
You can go on-line to the [Transfer Agent Name] website, www. .com, or call their Investor Relations Department at to speak to a representative.
HarborOne Bancorp, Inc. (logo)
An Invitation
To Attend a Community Meeting
HarborOne Bancorp, Inc., the proposed new holding company for HarborOne Bank, is offering common stock in a minority stock offering. We are raising capital to support HarborOne Banks future growth.
Up to 11,783,475 shares of HarborOne Bancorp, Inc. are being offered at a price of $10.00 per share.
If you would like to learn more about our stock offering, or would like to attend a community meeting, we invite you to obtain a prospectus and offering material by calling our Stock Information Center at ( ) - , Monday through Friday between the hours of 10:00 a.m. and 4:00 p.m. Eastern Time. Please note that the Stock Information Center will be closed from 12:00 noon on Friday, May 27, through Monday, May 30, in observance of the Memorial Day holiday.
The shares of common stock being offered are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the Share Insurance Fund.
This is not an offer to sell or a solicitation of an offer to buy common stock. The offer is made only by the prospectus .
HarborOne Bancorp, Inc. (logo)
HarborOne Bancorp, Inc.
Commences Stock Offering
HarborOne Bancorp, Inc., the proposed new holding company for HarborOne Bank, is offering common stock in a minority stock offering. We are raising capital to support HarborOne Banks future growth.
Up to 11,783,475 shares of HarborOne Bancorp, Inc. are being offered at a price of $10.00 per share . As a member of the community served by HarborOne Bank, you may have the opportunity to purchase shares in the offering.
If you would like to learn more about our stock offering, we invite you to obtain a prospectus and offering material by calling our Stock Information Center at ( ) - , Monday through Friday between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time. Please note that the Stock Information Center will be closed from 12:00 noon on Friday, May 27, through Monday, May 30, in observance of the Memorial Day holiday.
The shares of common stock being offered are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency or the Share Insurance Fund.
This is not an offer to sell or a solicitation of an offer to buy common stock. The offer is made only by the prospectus .
Exhibit 99.5
[logo] HarborOne Bancorp, Inc. Subscription & Community Offering Stock Order Form HarborOne Bancorp, Inc. Stock Information Center ___ Street City, Massachusetts _____ (___) ___-____ Expiration Date for Stock Order Forms: ___day, June __, 2016 _:00 p.m., Eastern Time (received not postmarked) IMPORTANT: A properly completed original stock order form must be used to subscribe for common stock. Copies of this form are not required to be accepted. Please read the Stock Ownership Guide and Stock Order Form Instructions as you complete this form. (1) Number of Shares Subscription Price X 10.00 = (2) Total Payment Due Minimum number of shares: 25 shares ($250) Maximum number of shares: 60,000 shares ($600,000) Maximum number of shares for associates or group: 80,000 shares ($800,000) See Instructions. $ (3) Employee/Officer/Director Information 0 Check here if you are an employee, officer, director of HarborOne Bank or a member of such persons immediate family. (See Instructions) (4) Payment by Check Enclosed is a check, bank draft or money order in the amount indicated here. Make check(s) payable to HarborOne Bancorp, Inc. $ Total Check Amount $ . (5) Payment by Withdrawal - The undersigned authorizes withdrawal from the following account(s) at HarborOne Bank. There is no early withdrawal penalty for this form of payment. Individual Retirement Accounts maintained at HarborOne Bank cannot be used unless special transfer arrangements are made. Bank Use Account Number(s) To Withdraw $ Withdrawal Amount $ . $ . (6) Purchaser Information Subscription Offering. 0 a. Check here if the purchaser listed in section 8 is an Eligible Account Holder with a deposit account(s) at HarborOne Bank totaling $50.00 or more on December 31, 2014. List account(s) below. 0 b. Check here if the purchaser listed in section 8 is an employee, officer or director of HarborOne Bank or any subsidiary of HarborOne Bank and is not an Eligible Account Holder. Community Offering. Check box (c) below if applicable. 0 c. Check here if the purchaser listed in section 8 resides in any of the Massachusetts cities and towns of: Abington, Attleboro, Avon, Berkley, Braintree, Bridgewater, Brockton, Canton, Carver, Cohasset, Dighton, Duxbury, East Bridgewater, Easton, Foxboro, Halifax, Hanover, Hanson, Hingham, Holbrook, Hull, Kingston, Lakeville, Mansfield, Marshfield, Middleborough, Milton, North Attleboro, Norton, Norwell, Plainville, Pembroke, Plymouth, Plympton, Quincy, Randolph, Raynham, Rehoboth, Rochester, Rockland, Seekonk, Scituate, Sharon, Stoughton, Taunton, Wareham, West Bridgewater, Weymouth and Whitman. Indicate city/town of residence here: Purchaser Account Information - List below all accounts in which you had an ownership interest as of December 31, 2014. Failure to list all your eligible accounts, or providing incorrect information, may result in the loss of part or all of your subscription rights. Use reverse side for additional space. Bank Use Account Number(s) Account Title (Name(s) on Account) (7) Form of Stock Ownership and SS# or Tax ID#: SS#/Tax ID# 0 Individual 0 Joint Tenants 0 Tenants in Common 0 Fiduciary (i.e., trust, estate) 0 Uniform Transfers to Minors Act (Indicate SS# of Minor only) 0 Company/Corporation/ Partnership 0 IRA or other qualified plan (Both Tax ID# & SS# for IRAs) SS#/Tax ID# (8) Stock Registration and Address: Name(s) and address to appear on stock registration statement. Adding or deleting a name or otherwise altering the form of beneficial ownership of a qualifying account will result in a loss of your subscription rights (with certain exceptions for IRA, Keogh, 401(k) or similar plan purchases). Name Name continued Mail to Street City State Zip Code (9) Telephone Daytime/Evening ( ) ( ) (10) Associates/Acting in Concert 0 Check here and complete the reverse side of this form if you or any associates or persons acting in concert with you have submitted other orders for shares. (11) Acknowledgement - To be effective, this stock order form must be properly completed and physically received (not postmarked) by HarborOne Bancorp, Inc. no later than _:00 p.m., Eastern Time, on June __, 2016, unless extended; otherwise this stock order form and all subscription rights will be void. The undersigned agrees that after receipt by HarborOne Bancorp, Inc., this stock order form may not be modified, withdrawn or canceled without HarborOne Bancorp, Inc.s consent and if authorization to withdraw from deposit accounts at HarborOne Bank has been given as payment for shares, the amount authorized for withdrawal will not otherwise be available for withdrawal by the undersigned. Under penalty of perjury, I hereby certify that the Social Security or Tax ID Number and the information provided on this stock order form are true, correct and complete and that I am not subject to back-up withholding. It is understood that this stock order form will be accepted in accordance with, and subject to, the terms and conditions of the plan of stock issuance of HarborOne Bancorp, Inc. described in the accompanying prospectus. The undersigned hereby acknowledges receipt of the prospectus at least 48 hours prior to execution and delivery of this stock order form to HarborOne Bancorp, Inc. Federal regulations prohibit any person from transferring, or entering into any agreement, directly or indirectly, to transfer the legal or beneficial ownership of subscription rights or the underlying securities to the account of another. HarborOne Bank, HarborOne Mutual Bancshares and HarborOne Bancorp, Inc. will pursue any and all legal and equitable remedies in the event they become aware of the transfer of subscription rights and will not honor orders known by them to involve such transfer. Under penalty of perjury, I certify that I am purchasing shares solely for my account and that there is no agreement or understanding regarding the sale or transfer of such shares, or my right to subscribe for shares. By signing below, I also acknowledge that I have read the Certification Form on the reverse side of this form. Bank Use Signature Date Signature Date
Item (6) Purchaser Account Information continued: Bank Use Account Number(s) Account Title (Name(s) on Account) Item (10) Associates/Acting In Concert continued: If you checked the box in item #10 on the reverse side of this form, list below all other orders submitted by you or associates (as defined below) or by persons acting in concert with you (also defined below). Name(s) listed on other stock order forms Number of shares ordered Name(s) listed on other stock order forms Number of shares ordered Associate - The term associate of a particular person means: (1) any corporation or organization, other than HarborOne Bank, or a majority-owned subsidiary of HarborOne Bank, of which the person is a senior officer, partner or 10% beneficial shareholder or more of any class of equity securities; (2) any trust or other estate in which the person has a substantial beneficial interest or serves as a trustee or in a fiduciary capacity, excluding any employee stock benefit plan in which the person has a substantial beneficial interest or serves as trustee or in a fiduciary capacity; and (3) any relative or spouse of the person, or any relative of the spouse, who either has the same home as the person or who is a director or officer of HarborOne Bank, HarborOne Bancorp or HarborOne Mutual Bancshares. Members of the immediate family of directors, trustees and officers will be considered associates of these individuals regardless of whether they share a household with the director, trustee or officer. See the definition of immediate family in Item 3 of the Stock Order Form Instructions. Acting in concert - The term acting in concert means persons seeking to combine or pool their voting or other interests in the securities of an issuer for a common purpose, pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. In general, a person who acts in concert with another party will also be deemed to be acting in concert with any person who is also acting in concert with that other party. We may presume that certain persons are acting in concert based upon various facts, among other things, joint account relationships and the fact that such persons may have filed joint Schedules 13D or 13G with the Securities and Exchange Commission with respect to other companies. CERTIFICATION FORM I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR SAVINGS ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, AND IS NOT INSURED OR GUARANTEED BY HARBORONE MUTUAL BANCSHARES, HARBORONE BANCORP, INC., HARBORONE BANK, THE FEDERAL GOVERNMENT OR BY ANY GOVERNMENT AGENCY, OR THE SHARE INSURANCE FUND. THE ENTIRE AMOUNT OF AN INVESTORS PRINCIPAL IS SUBJECT TO LOSS. I further certify that, before purchasing the common stock of HarborOne Bancorp, Inc. (the Company), I received a prospectus of the Company dated _____, 2016 relating to such offer of common stock. The prospectus that I received contains disclosure concerning the nature of the common stock being offered by the Company and describes in the Risk Factors section, the risks involved in the investment in this common stock, including but not limited to the following: Risks Related to Our Business Risks Related to the Offering (By Signing the Front of this Form the Investor is Not Waiving Any Rights Under the Federal Securities Laws, Including the Securities Act of 1933 and the Securities Exchange Act of 1934)
HarborOne Bancorp, Inc. Stock Ownership Guide Individual Include the first name, middle initial and last name of the shareholder. Avoid the use of two initials. Please omit words that do not affect ownership rights, such as "Mrs.", "Mr.", "Dr.", "special account", "single person", etc. Joint Tenants Joint tenants with right of survivorship may be specified to identify two or more owners. When stock is held by joint tenants with right of survivorship, ownership is intended to pass automatically to the surviving joint tenant(s) upon the death of any joint tenant. All parties must agree to the transfer or sale of shares held by joint tenants. Tenants in Common Tenants in common may also be specified to identify two or more owners. When stock is held by tenants in common, upon the death of one co-tenant, ownership of the stock will be held by the surviving co-tenant(s) and by the heirs of the deceased co-tenant. All parties must agree to the transfer or sale of shares held by tenants in common. Uniform Transfers to Minors Act ("UTMA") Stock may be held in the name of a custodian for a minor under the Uniform Transfers to Minors Act of each state. There may be only one custodian and one minor designated on a stock certificate. The standard abbreviation for Custodian is "CUST", while the Uniform Transfers to Minors Act is "UTMA". Standard U.S. Postal Service state abbreviations should be used to describe the appropriate state. For example, stock held by John Doe as custodian for Susan Doe under the MA Uniform Transfers to Minors Act will be abbreviated John Doe, CUST Susan Doe UTMA MA (use minor's social security number). Fiduciaries Information provided with respect to stock to be held in a fiduciary capacity must contain the following: The name(s) of the fiduciary. If an individual, list the first name, middle initial and last name. If a corporation, list the full corporate title (name). If an individual and a corporation, list the corporation's title before the individual. The fiduciary capacity, such as administrator, executor, personal representative, conservator, trustee, committee, etc. A description of the document governing the fiduciary relationship, such as a trust agreement or court order. Documentation establishing a fiduciary relationship may be required to register your stock in a fiduciary capacity. The date of the document governing the relationship, except that the date of a trust created by a will need not be included in the description. The name of the maker, donor or testator and the name of the beneficiary. An example of fiduciary ownership of stock in the case of a trust is: John Doe, Trustee Under Agreement Dated 10-1-93 for Susan Doe. Stock Order Form Instructions Items 1 and 2 - Number of Shares and Total Payment Due Fill in the number of shares that you wish to purchase and the total payment due. The amount due is determined by multiplying the number of shares by the subscription price of $10.00 per share. The minimum purchase is 25 shares ($250) of common stock. As more fully described in the plan of stock issuance outlined in the prospectus, the maximum purchase in all categories of the offering is 60,000 shares ($600,000) of common stock. No person, together with associates and persons acting in concert with such person, may purchase in the aggregate more than 80,000 shares ($800,000) of common stock. Item 3 - Employee/Officer/Director/Information Check this box to indicate whether you are an employee, officer, director, trustee, or corporator of HarborOne Bank or HarborOne Mutual Bancshares or a member of such person's immediate family. The term immediate family means: any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, and includes adoptive relationships. Item 4 - Payment by Check If you pay for your stock by check, bank draft or money order, indicate the total amount in this box. Payment for shares may be made by check, bank draft or money order payable to HarborOne Bancorp, Inc. Your funds will earn interest at 0.__% until the stock offering is completed. Item 5 - Payment by Withdrawal If you pay for your stock by a withdrawal from a deposit account at HarborOne Bank, indicate the account number(s) and the amount of your withdrawal authorization for each account. The total amount withdrawn should equal the amount of your stock purchase. There will be no penalty assessed for early withdrawals from certificate accounts used for stock purchases. This form of payment may not be used if your account is an Individual Retirement Account or a home equity line of credit. Item 6 Purchaser Information Subscription Offering a. Check this box if the purchaser had a deposit account(s) at HarborOne Bank totaling $50.00 or more on December 31, 2014 (Eligible Account Holder). b. Check this box if the purchaser is an employee, officer or director of HarborOne Bank or any subsidiary of HarborOne Bank who is not an Eligible Account Holder. Please list all account numbers and all names on accounts you had on these dates in order to insure proper identification of your purchase rights. Note: Failure to list all your eligible accounts, or providing incorrect information, may result in the loss of part or all of your subscription rights. Community Offering c. Check this box if the purchaser is a community member that resides in one of the preferred cities or towns (indicate city or town of residence). Items 7 and 8 - Form of Stock Ownership, SS# or Tax ID#, Stock Registration and Mailing Address Check the box that applies to your requested form of stock ownership and indicate your social security or tax ID number(s) in item 7. Complete the requested stock registration and mailing address in item 8. The stock transfer industry has developed a uniform system of shareholder registrations that will be used in the issuance of your common stock. If you have any questions regarding the registration of your stock, please consult your legal advisor. Stock ownership must be registered in one of the ways described above under "Stock Ownership Guide." Adding a name or otherwise altering the form of beneficial ownership of a qualifying account will result in a loss of your subscription rights (with certain exceptions for IRA, Keogh, 401(k) or similar purchases). Item 9 Telephone Number(s) Indicate your daytime and evening telephone number(s). We may need to call you if we have any questions regarding your order or we cannot execute your order as given. Item 10 Associates/Acting in Concert Check this box and complete the reverse side of the stock order form if you or any associates or persons acting in concert with you (as defined on the reverse side of the stock order form) have submitted other orders for shares. Item 11 Acknowledgement Please review the prospectus carefully before making an investment decision. Sign and date the stock order form where indicated. Before you sign, review the stock order form, including the acknowledgement and certification. Normally, one signature is required. An additional signature is required only when payment is to be made by withdrawal from a deposit account that requires multiple signatures to withdraw funds. Your properly completed signed stock order form and payment in full (or withdrawal authorization) at the subscription price must be physically received (not postmarked) by HarborOne Bancorp, Inc. no later than _:00 p.m., Eastern Time, on ___day, June __, 2016 or it will become void. Delivery Instructions: You may deliver your stock order form by mail using the enclosed stock order return envelope, or by hand delivery or overnight delivery service to our Stock Information Center. Hand delivered stock order forms will only be accepted at this location. We will not accept stock order forms at our other banking offices. If you have any additional questions, or if you would like assistance in completing your stock order form, please call our Stock Information Center, Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m., Eastern Time. HarborOne Bancorp, Inc. Stock Information Center: [Street, City, State Zipcode] (___) ___-____
Exhibit 99.6
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RP ® FINANCIAL, LC. |
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Advisory | Planning | Valuation |
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February 26, 2016
Board of Directors
HarborOne Mutual Bancshares
HarborOne Bancorp, Inc.
HarborOne Bank
770 Oak Street
Brockton, Massachusetts 02301
Re:
Plan of Reorganization and Minority Stock Issuance
HarborOne Mutual Bancshares
HarborOne Bancorp, Inc.
HarborOne Bank
Members of the Board of Directors:
All capitalized terms not otherwise defined in this letter have the meanings given such terms in the Plan of Reorganization and Minority Stock Issuance (the Plan) adopted by the Board of Directors of HarborOne Bank, a Massachusetts cooperative bank in mutual form (the Bank). The Plan provides for the reorganization of the Bank into a mutual holding company form of organization with a mid-tier holding company, HarborOne Bancorp, Inc., a Massachusetts corporation (the Company), and the offer for sale a minority of the Companys common stock. Pursuant to the Plan, when the stock offering is completed purchasers in the stock and shares contributed to the Foundation will own up to 49.9% of the common stock and HarborOne Mutual Bancshares will own the remaining majority of the Companys outstanding shares of common stock.
We understand that in accordance with the Plan, depositors will receive rights in a liquidation account maintained by the Company. The Company shall continue to hold the liquidation account for the benefit of Eligible Account Holders who continue to maintain deposits in HarborOne Bank. The liquidation account is designed to provide payments to depositors of their liquidation interests in the event of liquidation of (i) HarborOne Bank or (ii) the Company and HarborOne Bank.
In the unlikely event that either HarborOne Bank or the Company and HarborOne Bank were to liquidate after the issuance of stock, all claims of creditors, including those of depositors, would be paid first, followed by distribution to depositors who had a deposit account balance of at least $50 as of December 31, 2014.
Based upon our review of the Plan and our observations that the liquidation rights are non-transferable and become payable only upon the unlikely event of the liquidation of HarborOne Bank or the Company and HarborOne Bank at a time when the Company is solvent, the amounts credited under the liquidation account will be subject to downward adjustment as an applicable depositors deposit balance is reduced, but will not be increased when such depositors account balance increases, and that after two years from the date of stock issuance and upon written request of the Federal Reserve Board, the Company will transfer the liquidation account and depositors interest in such account to HarborOne Bank and the liquidation account shall thereupon become the liquidation account of HarborOne Bank no longer subject to the Companys creditors, we are of the belief that: the benefit provided by the liquidation account does not have any economic value at the time of the transaction contemplated in the first paragraph above. We note that we have not undertaken any independent investigation of state or federal law or the position
Washington Headquarters |
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Three Ballston Plaza |
Telephone: (703) 528-1700 |
1100 North Glebe Road, Suite 600 |
Fax No.: (703) 528-1788 |
Arlington, VA 22201 |
Toll Free No.: (866) 723-0594 |
www.rpfinancial.com |
E-Mail: mail@rpfinancial.com |