Table of Contents

UNITED STATES   SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one)

 

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

 

For the quarterly period ended June 30, 2017

 

or

 

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

 

Commission File Number 001-37778

 

HarborOne Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

Massachusetts

 

81-1607465

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

770 Oak Street, Brockton, Massachusetts

02301

(Address of principal executive offices)

(Zip Code)

 

(508) 895-1000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

☒ Yes ☐ No

 

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

 

Large accelerated filer  ☐

Accelerated filer  ☐

Non-accelerated filer  ☒
(Do not check if a smaller reporting company)

 

Smaller reporting company  ☐

Emerging growth company  ☒

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

 

As of August 9, 2017 there were 32,120,880 shares of the Registrant’s common stock, par value $0.01 per share, issued and outstanding.

 

 

 


 

Table of Contents

Index

 

 

 

PAGE

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

ITEM 1.

 

Financial Statements

 

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016 (unaudited)

1

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2017 and 2016 (unaudited)

2

 

 

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2017 and 2016 (unaudited)

3

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2017 and 2016 (unaudited)

4

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 (unaudited)

5

 

 

Notes to Consolidated Financial Statements (unaudited)

 

 

 

Note 1. Summary of Significant Accounting Policies

7

 

 

Note 2. Securities

12

 

 

Note 3. Loans

15

 

 

Note 4. Mortgage Loan Servicing

21

 

 

Note 5. Deposits

22

 

 

Note 6. Borrowed Funds

23

 

 

Note 7. Income Taxes

23

 

 

Note 8. Other Commitments and Contingencies

23

 

 

Note 9. Derivatives

24

 

 

Note 10. Compensation and Benefit Plans

26

 

 

Note 11. Minimum Regulatory and Capital Requirements

27

 

 

Note 12. Comprehensive Income (Loss)

29

 

 

Note 13. Fair Value of Assets and Liabilities

30

 

 

Note 14. Earnings Per Share

36

 

 

Note 15. Segment Reporting

37

 

 

Note 16. Subsequent Events

38

 

 

 

ITEM 2.  

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

39

ITEM 3.  

 

Quantitative and Qualitative Disclosures about Market Risk

58

ITEM 4.  

 

Controls and Procedures

58

 

 

 

 

 

PART II .

 

OTHER INFORMATION

 

 

 

 

ITEM 1.  

 

Legal Proceedings

59

ITEM 1A.  

 

Risk Factors

59

ITEM 2.  

 

Unregistered Sales of Equity Securities and Use of Proceeds

59

ITEM 3.  

 

Defaults Upon Senior Securities

59

ITEM 4.  

 

Mine Safety Disclosures

59

ITEM 5.  

 

Other Information

59

ITEM 6.  

 

Exhibits

59

 

 

 

 

SIGNATURE  

 

 

60

 

 

 

 

EXHIBIT INDEX  

61

 

 

 

 

 


 

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Balance Sheets (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

(in thousands, except share data)

    

2017

 

2016

 

 

 

 

 

 

 

 

 

Assets

 

 

 

    

 

 

 

Cash and due from banks

 

$

17,492

 

$

16,464

 

Short-term investments

 

 

84,105

 

 

33,751

 

Total cash and cash equivalents

 

 

101,597

 

 

50,215

 

 

 

 

 

 

 

 

 

Securities available for sale, at fair value

 

 

160,795

 

 

136,469

 

Securities held to maturity, at amortized cost

 

 

45,660

 

 

47,877

 

Federal Home Loan Bank stock, at cost

 

 

16,356

 

 

15,749

 

Loans held for sale, at fair value

 

 

91,849

 

 

86,443

 

Loans, net of allowance for loan losses of $17,181 at June 30, 2017 and $16,968 at December 31, 2016

 

 

2,079,483

 

 

1,981,747

 

Accrued interest receivable

 

 

5,723

 

 

5,603

 

Other real estate owned and repossessed assets

 

 

1,057

 

 

1,767

 

Mortgage servicing rights, at fair value

 

 

20,313

 

 

20,333

 

Property and equipment, net

 

 

24,214

 

 

24,193

 

Retirement plan annuities

 

 

12,267

 

 

12,044

 

Bank-owned life insurance

 

 

39,939

 

 

39,421

 

Deferred income taxes, net

 

 

327

 

 

610

 

Goodwill and other intangible assets

 

 

13,541

 

 

13,585

 

Other assets

 

 

18,949

 

 

12,254

 

Total assets

 

$

2,632,070

 

$

2,448,310

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

$

265,373

 

$

239,210

 

Interest-bearing deposits

 

 

1,635,615

 

 

1,511,498

 

Brokered deposits

 

 

92,803

 

 

54,045

 

Total deposits

 

 

1,993,791

 

 

1,804,753

 

Short-term borrowed funds

 

 

30,000

 

 

80,000

 

Long-term borrowed funds

 

 

235,117

 

 

195,119

 

Mortgagors' escrow accounts

 

 

5,039

 

 

5,034

 

Accrued interest payable

 

 

494

 

 

545

 

Other liabilities and accrued expenses

 

 

30,994

 

 

33,475

 

Total liabilities

 

 

2,295,435

 

 

2,118,926

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Notes 8 and 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; 90,000,000 shares authorized; 32,120,880 shares issued and outstanding

 

 

321

 

 

321

 

Additional paid-in capital

 

 

144,705

 

 

144,420

 

Retained earnings

 

 

203,159

 

 

197,211

 

Accumulated other comprehensive loss

 

 

(568)

 

 

(1,290)

 

Unearned compensation - ESOP

 

 

(10,982)

 

 

(11,278)

 

Total stockholders' equity

 

 

336,635

 

 

329,384

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

2,632,070

 

$

2,448,310

 

 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

 

 

1


 

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Statements of Operations (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

(in thousands, except share data)

 

2017

    

2016

 

2017

    

2016

 

 

 

 

 

 

 

 

 

 

Interest and dividend income:

 

 

 

 

 

 

    

 

 

 

 

 

 

Interest and fees on loans

 

$

19,640

 

$

16,293

 

$

38,775

 

$

31,936

 

Interest on loans held for sale

 

 

620

 

 

581

 

 

1,166

 

 

1,041

 

Interest on taxable securities

 

 

1,116

 

 

801

 

 

2,114

 

 

1,673

 

Interest on non-taxable securities

 

 

216

 

 

222

 

 

434

 

 

449

 

Other interest and dividend income

 

 

320

 

 

209

 

 

572

 

 

446

 

Total interest and dividend income

 

 

21,912

 

 

18,106

 

 

43,061

 

 

35,545

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

2,567

 

 

2,165

 

 

4,999

 

 

4,335

 

Interest on borrowed funds

 

 

1,130

 

 

1,289

 

 

2,415

 

 

2,672

 

Total interest expense

 

 

3,697

 

 

3,454

 

 

7,414

 

 

7,007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest and dividend income

 

 

18,215

 

 

14,652

 

 

35,647

 

 

28,538

 

Provision for loan losses

 

 

470

 

 

801

 

 

735

 

 

1,006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income, after provision for loan losses

 

 

17,745

 

 

13,851

 

 

34,912

 

 

27,532

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage banking income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in mortgage servicing rights fair value

 

 

(1,052)

 

 

(2,163)

 

 

(1,494)

 

 

(4,451)

 

Other

 

 

11,200

 

 

13,837

 

 

19,046

 

 

23,213

 

Total mortgage banking income

 

 

10,148

 

 

11,674

 

 

17,552

 

 

18,762

 

Deposit account fees

 

 

3,071

 

 

2,928

 

 

5,916

 

 

5,675

 

Income on retirement plan annuities

 

 

113

 

 

108

 

 

223

 

 

214

 

Gain on sale of consumer loans

 

 

 —

 

 

29

 

 

78

 

 

79

 

Gain on sale and call of securities, net

 

 

 —

 

 

41

 

 

 —

 

 

283

 

Bank-owned life insurance income

 

 

261

 

 

274

 

 

518

 

 

550

 

Other income

 

 

706

 

 

834

 

 

1,466

 

 

1,387

 

Total noninterest income

 

 

14,299

 

 

15,888

 

 

25,753

 

 

26,950

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

16,414

 

 

16,407

 

 

31,433

 

 

31,925

 

Occupancy and equipment

 

 

2,724

 

 

2,463

 

 

5,710

 

 

5,247

 

Data processing

 

 

1,528

 

 

1,446

 

 

3,050

 

 

2,860

 

Loan expenses

 

 

1,882

 

 

2,128

 

 

3,245

 

 

3,720

 

Marketing

 

 

1,041

 

 

607

 

 

1,523

 

 

1,172

 

Deposit expenses

 

 

367

 

 

370

 

 

708

 

 

729

 

Postage and printing

 

 

295

 

 

301

 

 

637

 

 

647

 

Professional fees

 

 

1,080

 

 

602

 

 

2,010

 

 

1,179

 

Prepayment penalties on Federal Home Loan Bank advances

 

 

 —

 

 

400

 

 

 —

 

 

400

 

Foreclosed and repossessed assets

 

 

25

 

 

127

 

 

52

 

 

72

 

Deposit insurance

 

 

446

 

 

418

 

 

908

 

 

821

 

Charitable foundation contributions

 

 

 —

 

 

4,820

 

 

 —

 

 

4,820

 

Other expenses

 

 

1,076

 

 

1,080

 

 

2,007

 

 

2,134

 

Total noninterest expense

 

 

26,878

 

 

31,169

 

 

51,283

 

 

55,726

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

5,166

 

 

(1,430)

 

 

9,382

 

 

(1,244)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax provision (benefit)

 

 

1,953

 

 

(749)

 

 

3,434

 

 

(687)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

3,213

 

$

(681)

 

$

5,948

 

$

(557)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.10

 

 

N/A

 

$

0.19

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

31,013,002

 

 

N/A

 

 

31,005,623

 

 

N/A

 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements .

 

2


 

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Statements of Comprehensive Income (Loss) (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

(in thousands)

    

2017

    

2016

 

2017

 

2016

 

 

 

 

Net income (loss)

 

$

3,213

 

$

(681)

 

$

5,948

 

$

(557)

Other comprehensive income (loss):

 

 

 

 

 

 

      

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains

 

 

541

 

 

842

 

 

975

 

 

2,635

Reclassification adjustment for net realized gains

 

 

 —

 

 

(41)

 

 

 —

 

 

(283)

Net unrealized gains

 

 

541

 

 

801

 

 

975

 

 

2,352

Related tax effect

 

 

(188)

 

 

(278)

 

 

(340)

 

 

(820)

Net-of-tax amount

 

 

353

 

 

523

 

 

635

 

 

1,532

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental director retirement plan:

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for amortization of prior service cost

 

 

61

 

 

34

 

 

121

 

 

117

Related tax effect

 

 

(25)

 

 

(23)

 

 

(34)

 

 

(46)

Net-of-tax amount

 

 

36

 

 

11

 

 

87

 

 

71

Total other comprehensive income

 

 

389

 

 

534

 

 

722

 

 

1,603

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

3,602

 

$

(147)

 

$

6,670

 

$

1,046

Amortization of prior service cost is included in compensation and benefits in the unaudited interim Consolidated Statements of Operations.  Realized gains on securities available for sale are included in gain on sale and call of securities, net, in the unaudited interim Consolidated Statements of Operations.  The related income tax expense on reclassification for securities available for sale was $14,000 and $94,000 for the three and six months ended June 30, 2016, respectively.  

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

 

 

 

3


 

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

Unearned

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

Retained

 

Comprehensive

 

Compensation

 

Stockholders'

 

(in thousands, except share data)

    

Shares

    

 

Amount

    

 

Capital

    

Earnings

    

Income (Loss)

    

ESOP

    

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

 —

 

$

 —

 

$

 —

 

$

191,280

 

$

(592)

 

$

 —

 

$

190,688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

 —

 

 

 —

 

 

 —

 

 

(557)

 

 

1,603

 

 

 —

 

 

1,046

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock to the mutual holding company

 

17,281,034

 

 

172

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

172

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for initial public offering, net of costs $3,870

 

14,454,396

 

 

145

 

 

140,256

 

 

 —

 

 

 —

 

 

 —

 

 

140,401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock to the HarborOne Foundation

 

385,450

 

 

 4

 

 

3,851

 

 

 —

 

 

 —

 

 

 —

 

 

3,855

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of 1,187,188 shares by the ESOP

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(11,872)

 

 

(11,872)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2016

 

32,120,880

 

$

321

 

$

144,107

 

$

190,723

 

$

1,011

 

$

(11,872)

 

$

324,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2016

 

32,120,880

 

$

321

 

$

144,420

 

$

197,211

 

$

(1,290)

 

$

(11,278)

 

$

329,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

5,948

 

 

722

 

 

 —

 

 

6,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ESOP shares committed to be released (29,680 shares)

 

 —

 

 

 —

 

 

285

 

 

 —

 

 

 —

 

 

296

 

 

581

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2017

 

32,120,880

 

$

321

 

$

144,705

 

$

203,159

 

$

(568)

 

$

(10,982)

 

$

336,635

 

 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements .  

 

 

4


 

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Statements of Cash Flows (unaudited)

 

 

 

 

 

 

 

 

 

 

 

    

Six Months Ended June 30, 

 

(in thousands)

    

2017

    

2016

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

 

$

5,948

 

$

(557)

 

Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:

 

 

 

 

 

 

 

Provision for loan losses

 

 

735

 

 

1,006

 

Net amortization of securities premiums/discounts

 

 

360

 

 

381

 

Net amortization of net deferred loan costs/fees and premiums

 

 

2,524

 

 

3,155

 

Depreciation and amortization of premises and equipment

 

 

1,389

 

 

1,272

 

Change in mortgage servicing rights fair value

 

 

1,494

 

 

4,451

 

Mortgage and consumer servicing rights capitalized

 

 

(1,503)

 

 

(4,238)

 

Amortization of consumer servicing rights

 

 

28

 

 

35

 

Accretion of fair value adjustment on loans and deposits, net

 

 

(199)

 

 

(109)

 

Amortization of intangible assets

 

 

44

 

 

44

 

Gain on sale and call of securities, net

 

 

 —

 

 

(283)

 

Bank-owned life insurance income

 

 

(518)

 

 

(550)

 

Income on retirement plan annuities

 

 

(223)

 

 

(214)

 

Gain on sale of portfolio loans

 

 

(36)

 

 

(365)

 

Net loss (gain) on sale and write-down of other real estate owned and repossessed assets

 

 

20

 

 

(93)

 

Deferred income tax benefit

 

 

(91)

 

 

(159)

 

Issuance of common stock to The HarborOne Foundation

 

 

 —

 

 

3,855

 

ESOP expenses

 

 

581

 

 

 —

 

Net change in:

 

 

 

 

 

 

 

Loans held for sale

 

 

(5,406)

 

 

(35,900)

 

Other assets and liabilities, net

 

 

(9,226)

 

 

(7,584)

 

Net cash used by operating activities

 

 

(4,079)

 

 

(35,853)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Activity in securities available for sale:

 

 

 

 

 

 

 

Maturities, prepayments and calls

 

 

10,901

 

 

14,408

 

Purchases

 

 

(34,442)

 

 

(14,164)

 

Sales

 

 

 —

 

 

8,735

 

Activity in securities held to maturity:

 

 

 

 

 

 

 

Maturities, prepayment and calls

 

 

2,047

 

 

12,933

 

Net (purchase) redemption of FHLB stock

 

 

(607)

 

 

5,657

 

Proceeds from sale of portfolio loans

 

 

5,007

 

 

39,831

 

Loan originations, net of principal payments

 

 

(106,494)

 

 

(135,701)

 

Proceeds from sale of other real estate owned and repossessed assets

 

 

1,418

 

 

1,349

 

Additions to property and equipment

 

 

(1,410)

 

 

(717)

 

Net cash used by investing activities

 

 

(123,580)

 

 

(67,669)

 

(continued)

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

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Table of Contents

HarborOne Bancorp, Inc.

Consolidated Statements of Cash Flows (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

(in thousands)

    

2017

    

2016

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Net increase in deposits

 

 

189,038

 

 

19,022

 

Net change in borrowed funds with maturities less than ninety days

 

 

(50,000)

 

 

 —

 

Proceeds from other borrowed funds

 

 

55,000

 

 

20,000

 

Repayment of other borrowed funds

 

 

(15,002)

 

 

(74,502)

 

Net change in mortgagors' escrow accounts

 

 

 5

 

 

(213)

 

Issuance of common stock

 

 

 —

 

 

140,573

 

Purchase of shares by the ESOP

 

 

 —

 

 

(11,872)

 

Net cash provided by financing activities

 

 

179,041

 

 

93,008

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

51,382

 

 

(10,514)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

50,215

 

 

40,652

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

101,597

 

$

30,138

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

Interest paid on deposits

 

$

4,984

 

$

4,335

 

Interest paid on borrowed funds

 

 

2,471

 

 

2,754

 

Income taxes paid

 

 

5,227

 

 

1,506

 

Transfer of loans to other real estate owned and repossessed assets

 

 

728

 

 

671

 

Transfer of loans to loans held for sale

 

 

5,088

 

 

 —

 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements .  

 

 

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Consolidation

 

The unaudited interim Consolidated Financial Statements of HarborOne Bancorp, Inc. (the “Company”) presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by the U.S. generally accepted accounting principles (“GAAP”). In the opinion of management, all adjustments and disclosures considered necessary for the fair presentation of the accompanying Consolidated Financial Statements have been included.  Interim results are not necessarily reflective of the results of the entire year. The accompanying unaudited interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements for the years ended December 31, 2016 and 2015 and notes thereto included in the Company’s Annual Report on Form 10-K.

 

The unaudited interim Consolidated Financial Statements include the accounts of the Company, the Company’s subsidiaries Legion Parkway Company LLC, a security corporation formed on July 13, 2016 and HarborOne Bank (the “Bank”); and the Bank’s wholly-owned subsidiaries.  The Bank’s subsidiaries consist of a mortgage company and two security corporations.  Merrimack Mortgage Company, LLC (“Merrimack Mortgage”) was acquired and became a wholly-owned subsidiary of the Bank on July 1, 2015.  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.

 

Stock Conversion

 

On June 29, 2016, the Bank reorganized into a two-tier mutual holding company structure with a mid-tier stock holding company. The Company sold 14,454,396 shares of common stock at $10.00 per share, including 1,187,188 shares purchased by the Company’s Employee Stock Ownership Plan (“ESOP”). In addition, the Company issued 17,281,034 shares to HarborOne Mutual Bancshares, a mutual holding company (the “MHC”) and 385,450 shares to The HarborOne Foundation,   a charitable foundation formed in connection with the stock offering and dedicated to supporting charitable organizations operating in the Bank’s local community. A total of 32,120,880 shares of common stock were outstanding following the completion of the stock offering. The direct costs of the Company’s stock offering of $3.9 million were deferred and deducted from the proceeds of the offering. 

 

Upon the completion of the stock offering, a special “liquidation account” was established for the benefit of certain depositors of the Bank in an amount equal to the percentage ownership interest in the equity of the Company held by persons other than the MHC as of the date of the latest balance sheet contained in the prospectus. The Company is not permitted to pay dividends on its capital stock if the Company’s shareholders’ equity would be reduced below the amount of the liquidation account. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases in an eligible account holder’s qualifying deposits will not restore such holder’s interest in the liquidation account.

 

Nature of Operations

 

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, a commercial lending office in Providence, Rhode Island, and a loan office in Westford, Massachusetts.  Merrimack Mortgage maintains 33 offices in Massachusetts, New Hampshire, and Maine, and is also licensed to lend in seven 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 Merrimack Mortgage.

 

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Use of Estimates

 

In preparing unaudited interim Consolidated Financial Statements in conformity with GAAP, 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 valuations of mortgage servicing rights, derivatives, goodwill and deferred tax assets. 

 

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 FDIC’s 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 except commercial real estate and commercial loans.  Due to the lack of historical loss experience for our commercial real estate and commercial loan portfolio, we utilize peer loss data.  Adjustments to this historical loss factor are 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 2016 or the six months ended June 30, 2017.  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 estate – The 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 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 estate – Loans 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.

 

Construction – Loans in this segment include both residential and commercial construction loans.  Residential construction loans include loans to build one- to four-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 lease or sale of the property.  Credit risk is affected by cost overruns, time to lease or sell at an adequate price, and market conditions.

 

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Commercial – Loans 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 or business spending, could have an effect on the credit quality in this segment.  

 

Consumer – Loans 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

 

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. The unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. Additionally the Company's unseasoned commercial portfolio and use of peer group data to establish general reserves for the commercial portfolio adds another element of risk to management's estimates

 

Recent Accounting Pronouncements

 

As an “emerging growth company” as defined in Title 1 of the Jumpstart Our Business Startups (JOBS) Act, the Company has elected to use the extended transition period to delay the adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.  As of June 30, 2017, there is no significant difference in the comparability of the financial statements as a result of this extended transition period.

 

In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-08, Receivables- Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

to maturity. The Company elected to early adopt this new accounting guidance effective January 1, 2017 and the adoption did not have a material impact on the consolidated financial statements.

 

In January 2017, FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment .  This update changes the quantitative impairment test to require an entity to perform a one-step test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the amount of goodwill allocated to the reporting unit.  This new guidance does not amend the optional qualitative assessment of goodwill impairment.  For SEC filers, the ASU is effective for impairment tests in fiscal years beginning after December 15, 2019.  For non-public business entities, the ASU is effective for impairment tests in fiscal years beginning after December 15, 2021.  Early adoption is permitted for impairment tests performed on testing dates after January 1, 2017.  The ASU will be adopted on a prospective basis. The Company will adopt this ASU in the third quarter of 2017.

 

In June 2016, FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) , which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.  Entities will now use forward-looking information to better form their credit loss estimates.  The ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio.  For public entities that are SEC filers, this ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  For non-public entities, this ASU is effective for fiscal years beginning after December 15, 2020, and for interim periods within fiscal years beginning after December 15, 2021.  Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  Management has identified an implementation team that is in the process of developing an understanding of this pronouncement, evaluating the impact of this pronouncement and researching additional software resources that could assist with the implementation.

 

In March 2016, FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . This update makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. For public business entities, this update is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.  For non-public business, entities this update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after December 15, 2018. Early adoption is permitted. Management is currently evaluating the impact of adopting the new guidance on the Company’s Consolidated Financial Statements.

 

In February 2016, 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.  While we are currently evaluating the impact of the new standard, we expect an increase to the Consolidated Balance Sheets for right-of-use assets and associated lease liabilities, as well as resulting depreciation expense of the right-of-use assets and interest expense of the lease liabilities in the Consolidated Statements of Operations, for arrangements previously accounted for as operating leases.

 

In January 2016, FASB issued ASU 2016-01, Financial Instruments – Overall, (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

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

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.  Management is currently evaluating the impact of adopting this update to the Consolidated Financial Statements although it is not expected to have a material impact on the Company's consolidated financial statements as it relates to accounting for financial instruments.

 

In May 2014, FASB issued 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. For non-public business entities, this ASU is effective for annual reporting periods beginning after December 31, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early application is permitted, but only for annual reporting periods beginning after December 15, 2016. The Bank's primary source of revenue is interest income on financial assets and income from mortgage banking activities, which are explicitly excluded from the scope of the new guidance.  As a result, adoption is not expected to have a material impact on the Company’s consolidated financial statements. However, the Company will continue to monitor developments and additional guidance up to the effective date of these amendments.

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

2. SECURITIES

 

The amortized cost and fair value of securities with gross unrealized gains and losses is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

Cost

    

Gains

    

Losses

    

Value

 

 

(in thousands)

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and government-sponsored enterprise obligations

 

$

9,984

 

$

 —

 

$

140

 

$

9,844

 

U.S. government-sponsored residential mortgage-backed securities

 

 

74,263

 

 

259

 

 

568

 

 

73,954

 

U.S. government-sponsored collateralized mortgage obligations

 

 

40,307

 

 

391

 

 

46

 

 

40,652

 

SBA asset-backed securities

 

 

36,288

 

 

130

 

 

73

 

 

36,345

 

Total securities available for sale

 

$

160,842

 

$

780

 

$

827

 

$

160,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored residential mortgage-backed securities

 

$

18,875

 

$

108

 

$

188

 

$

18,795

 

U.S. government-sponsored collateralized mortgage obligations

 

 

2,272

 

 

93

 

 

 —

 

 

2,365

 

Municipal bonds

 

 

24,513

 

 

1,197

 

 

 —

 

 

25,710

 

Total securities held to maturity

 

$

45,660

 

$

1,398

 

$

188

 

$

46,870

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and government-sponsored enterprise obligations

 

$

9,983

 

$

 —

 

$

236

 

$

9,747

 

U.S. government-sponsored residential mortgage-backed securities

 

 

55,730

 

 

 —

 

 

883

 

 

54,847

 

U.S. government-sponsored collateralized mortgage obligations

 

 

38,926

 

 

339

 

 

82

 

 

39,183

 

SBA asset-backed securities

 

 

32,852

 

 

40

 

 

200

 

 

32,692

 

Total securities available for sale

 

$

137,491

 

$

379

 

$

1,401

 

$

136,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored residential mortgage-backed securities

 

$

20,306

 

$

115

 

$

283

 

$

20,138

 

U.S. government-sponsored collateralized mortgage obligations

 

 

2,528

 

 

117

 

 

 —

 

 

2,645

 

Municipal bonds

 

 

25,043

 

 

1,146

 

 

 —

 

 

26,189

 

Total securities held to maturity

 

$

47,877

 

$

1,378

 

$

283

 

$

48,972

 

 

 

Two mortgage-backed securities with a combined fair value of $6.3 million are pledged as collateral for interest rate swap agreements as of June 30, 2017 (see Note 9).  All of the U.S. government-sponsored enterprise obligations, collateralized mortgage obligations and residential mortgage-backed securities are pledged to secure advances with the Federal Home Loan Bank (“FHLB”) of Boston as of June 30, 2017 (see Note 6).

 

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The amortized cost and fair value of debt securities by contractual maturity at June 30, 2017 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale

 

Held to Maturity

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

 

    

Cost

    

Value

    

Cost

    

Value

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After 5 years through 10 years

 

$

5,000

 

$

4,956

 

$

3,419

 

$

3,547

 

Over 10 years

 

 

4,984

 

 

4,887

 

 

21,094

 

 

22,163

 

 

 

 

9,984

 

 

9,843

 

 

24,513

 

 

25,710

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored residential mortgage-backed securities

 

 

74,263

 

 

73,955

 

 

18,875

 

 

18,795

 

U.S. government-sponsored collateralized mortgage obligations

 

 

40,307

 

 

40,652

 

 

2,272

 

 

2,365

 

SBA asset-backed securities

 

 

36,288

 

 

36,345

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

160,842

 

$

160,795

 

$

45,660

 

$

46,870

 

 

U.S. government-sponsored residential mortgage-backed securities, collateralized mortgage obligations and securities whose underlying assets are loans from the U.S. Small Business Administration (“SBA asset-backed securities”) have stated maturities of five to 26 years; however, it is expected that such securities will have shorter actual lives due to prepayments.

 

The following table shows proceeds and gross realized gains and losses related to the sales and calls of securities for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

 

Six Months Ended June 30, 

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(in thousands)

Sales

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds

 

$

 —

 

$

 —

 

$

 —

 

$

8,735

Gross gains

 

 

 —

 

 

 —

 

 

 —

 

 

242

Gross losses

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

Calls

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds (1) (2)

 

$

 —

 

$

10,725

 

$

400

 

$

15,725

Gross gains

 

 

 —

 

 

 —

 

 

 —

 

 

41

Gross losses

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) June 30, 2017 proceeds from calls consists of one held to maturity security.

 

13


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Information pertaining to securities with gross unrealized losses at June 30, 2017 and December 31, 2016 aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Than Twelve Months

 

Twelve Months and Over

 

 

 

Gross

 

 

 

Gross

 

 

 

 

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

 

    

Losses

    

Value

    

Losses

    

Value

 

 

 

(in thousands)

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and government-sponsored enterprise obligations

 

$

140

 

$

9,844

 

$

 —

 

$

 —

 

U.S. government-sponsored residential mortgage-backed securities

 

 

369

 

 

26,935

 

 

199

 

 

11,762

 

U.S. government-sponsored collateralized mortgage obligations

 

 

46

 

 

7,121

 

 

 —

 

 

 —

 

SBA asset-backed securities

 

 

73

 

 

14,483

 

 

 —

 

 

 —

 

 

 

$

628

 

$

58,383

 

$

199

 

$

11,762

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored residential mortgage-backed securities

 

$

188

 

$

16,386

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and government-sponsored enterprise obligations

 

$

236

 

$

9,747

 

$

 —

 

$

 —

 

U.S. government-sponsored residential mortgage-backed securities

 

 

712

 

 

43,684

 

 

171

 

 

11,163

 

U.S. government-sponsored collateralized mortgage obligations

 

 

82

 

 

7,779

 

 

 —

 

 

 —

 

SBA asset-backed securities

 

 

200

 

 

26,153

 

 

 —

 

 

 —

 

 

 

$

1,230

 

$

87,363

 

$

171

 

$

11,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored residential mortgage-backed securities

 

$

283

 

$

17,526

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management evaluates securities for other than temporary impairment (“OTTI”) at each reporting period, and more frequently when economic or market concerns warrant such evaluation.

 

At June 30, 2017, twenty-eight debt securities with an amortized cost of $87.5 million have unrealized losses with aggregate depreciation of 1.16% 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 and 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 fair 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 OTTI at June 30, 2017.

14


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

3. LOANS

 

A summary of the balances of loans follows:

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

 

 

 

(in thousands)

 

Residential real estate:

 

 

 

 

 

 

 

One- to four-family

 

$

679,617

 

$

677,946

 

Second mortgages and equity lines of credit

 

 

91,504

 

 

92,989

 

Commercial real estate

 

 

592,325

 

 

495,801

 

Construction

 

 

66,908

 

 

58,443

 

Total mortgage loans on real estate

 

 

1,430,354

 

 

1,325,179

 

 

 

 

 

 

 

 

 

Commercial

 

 

114,234

 

 

100,501

 

 

 

 

 

 

 

 

 

Consumer loans:

 

 

 

 

 

 

 

Auto

 

 

528,690

 

 

547,400

 

Personal

 

 

14,704

 

 

15,704

 

Total consumer loans

 

 

543,394

 

 

563,104

 

 

 

 

 

 

 

 

 

Total loans

 

 

2,087,982

 

 

1,988,784

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

 

(17,181)

 

 

(16,968)

 

Net deferred loan costs

 

 

8,682

 

 

9,931

 

 

 

 

 

 

 

 

 

Loans, net

 

$

2,079,483

 

$

1,981,747

 

 

 

During the three months ended June 30, 2017, the Company sold indirect auto loans of $5.0 million. The loans were classified as loans held for sale at March 31, 2017 and a gain of $78,000 was recorded in the first quarter. During the three and six months ended June 30, 2016, the Company sold $5.1 million and $9.7 million, respectively, of indirect loans and recognized gains of $29,000 and $79,000, respectively.  The unpaid principal balance of indirect auto loans serviced for others was $29.0 million and $31.4 million at June 30, 2017 and December 31, 2016, respectively. 

 

The Company did not sell residential portfolio loans during the three or six months ended June 30, 2017. The Company sold residential portfolio loans of $4.7 million and $24.7 million during the three and six months ended June 30, 2016, respectively.  Included in mortgage banking income for the three and six months ended June 30, 2016   is the related gain on sale of $210,000 and $501,000, respectively .  

 

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 unaudited interim 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 June 30, 2017 and December 31, 2016, the Company was servicing loans for participants aggregating $53.6 million and $45.3  million, respectively.

 

15


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

 

The following is the activity in the allowance for loan losses for the three and six months ended June 30, 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

    

Residential

    

Real Estate

    

Construction

    

Commercial

    

Consumer

    

Unallocated

    

Total

 

 

 

(in thousands)

 

Balance at March 31, 2017

 

$

4,530

 

$

6,661

 

$

999

 

$

2,009

 

$

1,046

 

$

1,639

 

$

16,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (credit) for loan losses

 

 

(158)

 

 

414

 

 

(63)

 

 

154

 

 

173

 

 

(50)

 

 

470

 

Charge-offs

 

 

(7)

 

 

 —

 

 

 —

 

 

(51)

 

 

(300)

 

 

 —

 

 

(358)

 

Recoveries

 

 

69

 

 

 —

 

 

 —

 

 

 2

 

 

114

 

 

 —

 

 

185

 

Balance at June 30, 2017

 

$

4,434

 

$

7,075

 

$

936

 

$

2,114

 

$

1,033

 

$

1,589

 

$

17,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2016

 

$

5,548

 

$

4,449

 

$

550

 

$

1,467

 

$

835

 

$

847

 

$

13,696

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (credit) for loan losses

 

 

(53)

 

 

910

 

 

37

 

 

(299)

 

 

137

 

 

69

 

 

801

 

Charge-offs

 

 

(55)

 

 

 —

 

 

 —

 

 

(5)

 

 

(237)

 

 

 —

 

 

(297)

 

Recoveries

 

 

179

 

 

 —

 

 

 —

 

 

 1

 

 

59

 

 

 —

 

 

239

 

Balance at June 30, 2016

 

$

5,619

 

$

5,359

 

$

587

 

$

1,164

 

$

794

 

$

916

 

$

14,439

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

    

Residential

    

Real Estate

    

Construction

    

Commercial

    

Consumer

    

Unallocated

    

Total

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2016

 

$

4,963

 

$

7,150

 

$

924

 

$

1,920

 

$

780

 

$

1,231

 

$

16,968

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (credit) for loan losses

 

 

(532)

 

 

(75)

 

 

12

 

 

312

 

 

660

 

 

358

 

 

735

 

Charge-offs

 

 

(144)

 

 

 —

 

 

 —

 

 

(134)

 

 

(560)

 

 

 —

 

 

(838)

 

Recoveries

 

 

147

 

 

 —

 

 

 —

 

 

16

 

 

153

 

 

 —

 

 

316

 

Balance at June 30, 2017

 

$

4,434

 

$

7,075

 

$

936

 

$

2,114

 

$

1,033

 

$

1,589

 

$

17,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

$

5,816

 

$

4,365

 

$

581

 

$

1,454

 

$

830

 

$

654

 

$

13,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (credit) for loan losses

 

 

(268)

 

 

994

 

 

 6

 

 

(288)

 

 

300

 

 

262

 

 

1,006

 

Charge-offs

 

 

(127)

 

 

 —

 

 

 —

 

 

(5)

 

 

(457)

 

 

 —

 

 

(589)

 

Recoveries

 

 

198

 

 

 —

 

 

 —

 

 

 3

 

 

121

 

 

 —

 

 

322

 

Balance at June 30, 2016

 

$

5,619

 

$

5,359

 

$

587

 

$

1,164

 

$

794

 

$

916

 

$

14,439

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

Allocation of the allowance to loan segments at June 30, 2017 and December 31, 2016 follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

    

Residential

    

Real Estate

    

Construction

    

Commercial

    

Consumer

    

Unallocated

    

Total

 

 

 

(in thousands)

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

39,342

 

$

 —

 

$

132

 

$

3,907

 

$

 —

 

$

 —

 

$

43,381

 

Non-impaired loans

 

 

731,779

 

 

592,325

 

 

66,776

 

 

110,327

 

 

543,394

 

 

 —

 

 

2,044,601

 

Total loans

 

$

771,121

 

$

592,325

 

$

66,908

 

$

114,234

 

$

543,394

 

$

 —

 

$

2,087,982

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

1,250

 

$

 —

 

$

 —

 

$

509

 

$

 —

 

$

 —

 

$

1,759

 

Non-impaired loans

 

 

3,184

 

 

7,075

 

 

936

 

 

1,605

 

 

1,033

 

 

1,589

 

 

15,422

 

Total allowance for loan losses

 

$

4,434

 

$

7,075

 

$

936

 

$

2,114

 

$

1,033

 

$

1,589

 

$

17,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

43,012

 

$

 —

 

$

134

 

$

2,936

 

$

 —

 

$

 —

 

$

46,082

 

Non-impaired loans

 

 

727,923

 

 

495,801

 

 

58,309

 

 

97,565

 

 

563,104

 

 

 —

 

 

1,942,702

 

Total loans

 

$

770,935

 

$

495,801

 

$

58,443

 

$

100,501

 

$

563,104

 

$

 —

 

$

1,988,784

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

1,624

 

$

 —

 

$

 —

 

$

499

 

$

 —

 

$

 —

 

$

2,123

 

Non-impaired loans

 

 

3,339

 

 

7,150

 

 

924

 

 

1,421

 

 

780

 

 

1,231

 

 

14,845

 

Total allowance for loan losses

 

$

4,963

 

$

7,150

 

$

924

 

$

1,920

 

$

780

 

$

1,231

 

$

16,968

 

 

 

17


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following is a summary of past due and non-accrual loans at June 30, 2017 and December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90 Days

 

 

 

 

 

 

 

30-59 Days

 

60-89 Days

 

or More

 

Total

 

Loans on

 

 

    

Past Due

    

Past Due

    

Past Due

    

Past Due

    

Non-accrual

 

 

 

(in thousands)

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family

 

$

1,880

 

$

2,523

 

$

5,614

 

$

10,017

 

$

16,143

 

Second mortgages and equity lines of credit

 

 

397

 

 

43

 

 

458

 

 

898

 

 

1,306

 

Construction

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

132

 

Commercial

 

 

192

 

 

 —

 

 

12

 

 

204

 

 

3,663

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

1,327

 

 

281

 

 

188

 

 

1,796

 

 

193

 

Personal

 

 

13

 

 

27

 

 

24

 

 

64

 

 

28

 

Total

 

$

3,809

 

$

2,874

 

$

6,296

 

$

12,979

 

$

21,465

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family

 

$

4,955

 

$

1,873

 

$

7,964

 

$

14,792

 

$

16,456

 

Second mortgages and equity lines of credit

 

 

588

 

 

190

 

 

724

 

 

1,502

 

 

1,686

 

Construction

 

 

 —

 

 

 —

 

 

134

 

 

134

 

 

134

 

Commercial

 

 

55

 

 

 —

 

 

387

 

 

442

 

 

2,674

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

1,978

 

 

297

 

 

150

 

 

2,425

 

 

205

 

Personal

 

 

103

 

 

41

 

 

23

 

 

167

 

 

25

 

Total

 

$

7,679

 

$

2,401

 

$

9,382

 

$

19,462

 

$

21,180

 

 

 

At June 30, 2017 and December 31, 2016, there were no loans past due 90 days or more and still accruing.

 

The following information pertains to impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

December 31, 2016

 

 

 

 

 

Unpaid

 

 

 

 

 

Unpaid

 

 

 

 

 

Recorded

 

Principal

 

Related

 

Recorded

 

Principal

 

Related

 

 

    

Investment

    

Balance

    

Allowance

    

Investment

    

Balance

    

Allowance

 

 

 

(in thousands)

 

Impaired loans without a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

16,720

 

$

17,549

 

$

 —

 

$

17,000

 

$

18,031

 

$

 —

 

Construction

 

 

132

 

 

132

 

 

 —

 

 

134

 

 

134

 

 

 —

 

Commercial

 

 

 —

 

 

 —

 

 

 —

 

 

173

 

 

301

 

 

 —

 

Total

 

$

16,852

 

$

17,681

 

$

 —

 

$

17,307

 

$

18,466

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans with a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

22,622

 

$

23,764

 

$

1,250

 

$

26,012

 

$

27,204

 

$

1,624

 

Commercial

 

 

3,907

 

 

3,907

 

 

509

 

 

2,763

 

 

2,763

 

 

499

 

Total

 

$

26,529

 

$

27,671

 

$

1,759

 

$

28,775

 

$

29,967

 

$

2,123

 

 

 

18


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

 

2017

 

2016

 

 

 

 

 

 

Interest

 

 

 

 

 

Interest

 

 

Average

 

Interest

 

Income

 

Average

 

Interest

 

Income

 

 

Recorded

 

Income

 

Recognized

 

Recorded

 

Income

 

Recognized

 

    

Investment

    

Recognized

    

on Cash Basis

    

Investment

    

Recognized

    

on Cash Basis

 

    

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

40,225

 

$

526

 

$

419

 

$

50,331

 

$

749

 

$

412

Commercial real estate

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Construction

 

 

132

 

 

 2

 

 

 2

 

 

135

 

 

 3

 

 

 3

Commercial

 

 

4,129

 

 

30

 

 

30

 

 

1,892

 

 

 5

 

 

 5

Total

 

$

44,486

 

$

558

 

$

451

 

$

52,358

 

$

757

 

$

420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

 

2017

 

2016

 

 

 

 

 

 

Interest

 

 

 

 

 

Interest

 

 

Average

 

Interest

 

Income

 

Average

 

Interest

 

Income

 

 

Recorded

 

Income

 

Recognized

 

Recorded

 

Income

 

Recognized

 

    

Investment

    

Recognized

    

on Cash Basis

    

Investment

    

Recognized

    

on Cash Basis

 

    

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

41,154

 

$

1,227

 

$

998

 

$

51,415

 

$

1,405

 

$

745

Commercial real estate

 

 

 —

 

 

 —

 

 

 —

 

 

242

 

 

 —

 

 

 —

Construction

 

 

132

 

 

 8

 

 

 8

 

 

135

 

 

 7

 

 

 7

Commercial

 

 

3,731

 

 

133

 

 

131

 

 

1,809

 

 

44

 

 

44

Total

 

$

45,017

 

$

1,368

 

$

1,137

 

$

53,601

 

$

1,456

 

$

796

 

 

Interest income recognized and interest income recognized on a cash basis in the table above represents interest income for the three and six months ended June 30, 2017 and 2016, not for the time period designated as impaired.  No additional funds are committed to be advanced in connection with impaired loans.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-Modification

 

Post-Modification

 

 

 

 

 

Outstanding

 

Outstanding

 

 

 

Number   of

 

Recorded

 

Recorded

 

 

    

Contracts

    

Investment

    

Investment

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

Commercial

 

 2

 

$

1,541

 

$

1,541

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2016

 

 

 

 

 

 

 

 

 

Residential

 

 2

 

$

196

 

$

196

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

Residential

 

 1

 

$

309

 

$

309

 

Commercial

 

 2

 

 

1,541

 

 

1,541

 

 

 

 3

 

$

1,850

 

$

1,850

 

Six Months Ended June 30, 2016

 

 

 

 

 

 

 

 

 

Residential

 

 2

 

$

196

 

$

196

 

 

 

The recorded investment in troubled debt restructurings was $30.4 million and $32.0 million at June 30, 2017 and 2016, respectively.  Of these loans, $8.3 million and $7.4 million were on non-accrual at June 30, 2017 and 2016, respectively.

19


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

 

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.

 

During the three and six months ended June 30, 2017, no troubled debt restructurings defaulted.  During the three and six months ended June 30, 2016, one troubled debt restructuring with a recorded investment of $109,000 defaulted.

 

Credit Quality Information

 

The Company uses 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.  Bi-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.

 

20


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following table presents the Company’s loans by risk rating at June 30, 2017 and December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

December 31, 2016

 

 

 

Commercial

 

 

 

 

 

Commercial

 

 

 

 

 

 

    

Real Estate

    

Commercial

    

Construction

    

Real Estate

    

Commercial

    

Construction

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans rated 1 - 6

 

$

588,963

 

$

109,781

 

$

52,665

 

$

492,473

 

$

97,566

 

$

43,518

 

Loans rated 7

 

 

 —

 

 

802

 

 

 —

 

 

 —

 

 

261

 

 

 —

 

Loans rated 8

 

 

 —

 

 

3,651

 

 

 —

 

 

 —

 

 

2,287

 

 

 —

 

Loans rated 9

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

387

 

 

 —

 

Loans rated 10

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Loans not rated

 

 

3,362

 

 

 —

 

 

14,243

 

 

3,328

 

 

 —

 

 

14,925

 

 

 

$

592,325

 

$

114,234

 

$

66,908

 

$

495,801

 

$

100,501

 

$

58,443

 

 

 

 

4. 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 unaudited interim Consolidated Balance Sheets.  The risks inherent in mortgage servicing rights (“MSRs”) relate primarily to changes in prepayments that primarily result from shifts in mortgage interest rates.  The unpaid principal balances of mortgage loans serviced for others were $1.91 billion and $1.85 billion as of June 30, 2017 and December 31, 2016, respectively. 

 

The Company accounts for MSRs at fair value.  The Company obtains valuations from independent third parties to determine the fair value of MSRs.  Key assumptions used in the estimation of fair value include prepayment speeds, discount rates, default rates, cost to service, and contractual servicing fees.  At June 30, 2017 and December 31, 2016, the following weighted average assumptions were used in the calculation of fair value of MSRs:

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

  

Prepayment speed

 

10.28

9.49

%

Discount rate

 

9.25

 

9.25

 

Default rate

 

1.81

 

1.71

 

 

The following summarizes changes to mortgage servicing rights for the six months ended June 30, 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

    

2017

    

2016

 

 

(in thousands)

 

 

 

 

 

 

 

Balance, beginning of period

 

$

20,333

 

$

12,958

Additions from loans sold with servicing retained

 

 

1,474

 

 

4,181

Changes in fair value due to :

 

 

 

 

 

 

Reductions from loans paid off during the period

 

 

(723)

 

 

(664)

Changes in valuation inputs or assumptions

 

 

(771)

 

 

(3,787)

Balance, end of period

 

$

20,313

 

$

12,688

 

For the three months ended June 30, 2017 and 2016, contractually specified servicing fees included in other mortgage banking income amounted to $1.3 million and $937,000, respectively.  For the six months ended June 30, 2017 and 2016, contractually specified servicing fees included in other mortgage banking income amounted to $2.6 million and $1.8 million, respectively.

.

 

21


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

5. DEPOSITS

 

A summary of deposit balances, by type, is as follows:

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

NOW and demand deposit accounts

    

$

395,150

 

$

365,869

 

Regular savings and club accounts

 

 

334,112

 

 

316,947

 

Money market deposit accounts

 

 

706,547

 

 

595,211

 

Total non-certificate accounts

 

 

1,435,809

 

 

1,278,027

 

 

 

 

 

 

 

 

 

Term certificate accounts greater than $250,000

 

 

91,580

 

 

81,064

 

Term certificate accounts less than or equal to $250,000

 

 

373,599

 

 

391,617

 

Brokered deposits

 

 

92,803

 

 

54,045

 

Total certificate accounts

 

 

557,982

 

 

526,726

 

 

 

 

 

 

 

 

 

Total deposits

 

$

1,993,791

 

$

1,804,753

 

 

A summary of certificate accounts by maturity at June 30, 2017 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

    

Amount

    

Rate

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

Within 1 year

 

$

398,992

 

1.08

%

Over 1 year to 2 years

 

 

92,288

 

1.32

 

Over 2 years to 3 years

 

 

38,918

 

1.50

 

Over 3 years to 4 years

 

 

17,524

 

1.60

 

Over 4 years to 5 years

 

 

10,260

 

1.43

 

 

 

$

557,982

 

1.17

%

 

 

 

 

 

 

 

22


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

 

6. BORROWED FUNDS

 

Borrowed funds at June 30, 2017 and December 31, 2016 consist of FHLB advances.  Short-term advances were $30.0 million and $80.0 million with weighted average rates of 1.27% and 0.77% at June 30, 2017 and December 31, 2016, respectively. Long-term advances are summarized by maturity and call date below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

December 31, 2016

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

Weighted

 

 

 

Scheduled

 

Redeemable

 

Average

 

Scheduled

 

Redeemable

 

Average

 

 

    

Maturity

    

at Call Date (1)

    

Rate (2)

    

Maturity

    

at Call Date (1)

    

Rate (2)

 

 

 

(dollars in thousands)

 

Year ending December 31:

 

 

 

 

 

 

 

 

             

 

 

 

 

 

 

 

 

2017

 

$

25,000

 

$

25,000

 

4.17

%        

$

40,000

 

$

40,000

 

4.22

%

2018

 

 

90,000

 

 

90,000

 

1.48

 

 

50,000

 

 

50,000

 

1.65

 

2019

 

 

50,000

 

 

50,000

 

1.65

 

 

35,000

 

 

35,000

 

1.68

 

2020

 

 

50,000

 

 

50,000

 

1.84

 

 

50,000

 

 

50,000

 

1.84

 

2021

 

 

20,000

 

 

20,000

 

1.79

 

 

20,000

 

 

20,000

 

1.79

 

2022 and thereafter*

 

 

117

 

 

117

 

2.95

 

 

119

 

 

119

 

2.96

 

 

 

$

235,117

 

$

235,117

 

1.92

%  

$

195,119

 

$

195,119

 

2.24

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Includes an amortizing advance requiring monthly principal and interest payments of $1,000.

 

(1) Callable FHLB advances are shown in the respective periods assuming that the callable debt is redeemed at the call date, while all other advances are shown in the periods corresponding to their scheduled maturity date.  There were no callable advances at June 30, 2017.

 

(2) Weighted average rates are based on scheduled maturity dates.

 

 

 

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 residential property and 94% of the fair value of government-sponsored enterprise and mortgage-backed securities obligations. 

 

The Company also has an available line of credit with the Federal Reserve Bank secured by 73% of the carrying value of indirect auto loans with principal balance amounting to $172.5 million and $207.9 million, respectively, of which no amount was outstanding at June 30, 2017 and December 31, 2016, respectively.

 

 

7. INCOME TAXES

 

 

For the three and six months ended June 30, 2017, the Company recorded an expense of $2.0 million and $3.4 million, respectively, representing an effective tax rate of 37.8% and 36.6%, respectively.  For the three and six months ended June 30, 2016, the Company recorded a benefit of $749,000 and $687,000, respectively, due to the tax benefit on the charitable foundation contribution of $4.8 million, offset by the tax provision on taxable income representing an effective tax rate of 34.6% and 34.7%, respectively.  The increase in the effective tax rate in 2017 is due primarily to the effect of nondeductible expense related to the ESOP and decreased tax-advantaged income.

 

 

8. 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 unaudited interim Consolidated Financial Statements.

23


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

 

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 off-balance sheet financial instruments were outstanding at June 30, 2017 and December 31, 2016.  The contract amounts represent credit risk.

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Commitments to grant loans

 

$

65,688

 

$

75,914

 

Unadvanced funds on home equity lines of credit

 

 

80,395

 

 

82,797

 

Unadvanced funds on revolving lines of credit

 

 

67,098

 

 

58,238

 

Unadvanced funds on construction loans

 

 

64,323

 

 

49,999

 

 

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.  Commitments to grant loans, and unadvanced construction loans and home equity lines of credit are collateralized by real estate, while revolving lines of credit are unsecured.

 

Other Commitments

 

On May 31, 2017, the Bank entered into a ground lease for property located in Stoughton, Massachusetts, to develop as a prospective branch site.  Until January 31, 2018, the Bank has the right to terminate the lease without any future obligations.

 

 

 

9. DERIVATIVES

 

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. 

 

All derivatives are recognized in the unaudited interim Consolidated Balance Sheets at fair value.  Changes in the fair value of derivatives are recognized in earnings.  The Company did not have any fair value hedges or cash flow hedges at June 30, 2017 and December 31, 2016. 

 

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.

 

24


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

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 a 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 with a third-party financial institution 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 $6.4 million are pledged to secure the Company’s liability for the offsetting interest rate swaps.  The interest rate swap notional amount below is the aggregate notional amount of the customer swap and the offsetting third-party swap.

 

Risk Participation Agreements

 

The Company has entered into risk participation agreements with the correspondent institutions to share in any interest rate swap gains or losses incurred as a result of the commercial loan customers’ termination of a loan level interest rate swap agreement prior to maturity. The Company records these risk participation agreements at fair value. The Company’s maximum credit exposure is based on its proportionate share of the settlement amount of the referenced interest rate swap. Settlement amounts are generally calculated based on the fair value of the swap plus outstanding accrued interest receivables from the customer.

 

 

25


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following tables present the fair values of derivative instruments in the consolidated balance sheets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

Liabilities

 

 

 

 

 

 

Balance

 

 

 

Balance

 

 

 

 

 

Notional

 

Sheet

 

Fair

 

Sheet

 

Fair

 

 

    

Amount

    

Location

    

Value

    

Location

    

Value

 

 

 

 

(in thousands)

 

June 30, 2017:

 

 

 

 

 

 

 

 

       

 

 

 

 

 

Derivative loan commitments

 

$

158,105

 

Other assets

 

$

1,554

 

Other liabilities

 

$

17

 

Forward loan sale commitments

 

 

190,798

 

Other assets

 

 

440

 

Other liabilities

 

 

221

 

Interest rate swaps

 

 

213,595

 

Other assets

 

 

463

 

Other liabilities

 

 

463

 

Risk participation agreements

 

 

43,208

 

Other assets

 

 

 —

 

Other liabilities

 

 

 —

 

Total

 

 

 

 

 

 

$

2,457

 

 

 

$

701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative loan commitments

 

$

87,728

 

Other assets

 

$

2,231

 

Other liabilities

 

$

 —

 

Forward loan sale commitments

 

 

167,289

 

Other assets

 

 

491

 

Other liabilities

 

 

576

 

Interest rate swaps

 

 

173,477

 

Other assets

 

 

248

 

Other liabilities

 

 

248

 

Total

 

 

 

 

 

 

$

2,970

 

 

 

$

824

 

 

The following table presents information pertaining to the Company’s derivative instruments in the consolidated statements of operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Gain (Loss)

 

    

 

    

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

    

Location of Gain (Loss)

    

 

2017

 

 

2016

    

 

2017

 

 

2016

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative loan commitments

 

Mortgage banking income

 

$

(565)

 

$

1,650

 

$

399

 

$

3,091

Forward loan sale commitments

 

Mortgage banking income

 

 

1,044

 

 

(1,347)

 

 

(789)

 

 

(2,423)

Total

 

 

 

$

479

 

$

303

 

$

(390)

 

$

668

 

 

 

10. COMPENSATION AND BENEFIT PLANS

 

Supplemental Retirement Plans

 

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 was expensed in the first quarter of 2016. 

 

Employee Stock Ownership Plan

 

On June 29, 2016, the Company established an ESOP to provide eligible employees the opportunity to own Company stock. The plan is a tax-qualified retirement plan for the benefit of the Company employees.  The ESOP shares were purchased through a loan from the Company and as the debt is repaid, shares are released.  Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax limits.  The unreleased shares are deducted from stockholders’ equity as unearned ESOP shares in the accompanying balance sheets.  The number of shares committed to be released per year is 59,359 through 2035. 

 

 

 

 

 

 

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following table presents share information held by the ESOP:

 

 

 

 

 

 

 

 

June 30, 2017

 

December 31, 2016

 

 

Allocated shares

 

59,359

 

 

 —

Shares committed to be allocated

 

29,680

 

 

59,359

Unallocated shares

 

1,098,149

 

 

1,127,829

Total shares

 

1,187,188

 

 

1,187,188

Fair value of unallocated shares, end of period

$

21,919,000

 

$

21,812,000

 

Total compensation expense recognized in connection with the ESOP was $299,000 and $581,000 for the three and six months ended June 30, 2017.  There was no compensation expense recognized for the three and six months ended June 30, 2016.

 

 

11. MINIMUM REGULATORY CAPITAL REQUIREMENTS

 

The Company and Bank are subject to various regulatory capital requirements administered by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (the “FDIC”).  Failure to meet minimum capital requirements can result in mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s Consolidated Financial Statements.

 

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 the FDIC’s prompt corrective action rules, which became effective January 1, 2015, an insured state nonmember bank is considered “well capitalized” if its capital ratios meet or exceed the ratios as set forth in the following table and 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.  The Bank must meet well capitalized requirements under prompt corrective action provisions.  Prompt corrective action provisions are not applicable to bank holding companies.

 

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.

 

At June 30, 2017, the capital levels of both the Company and the Bank exceeded all regulatory capital requirements and their regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory purposes.  The capital levels of both the Company and the Bank at June 30, 2017 also exceeded the minimum capital requirements including the currently applicable capital conservation buffer of 1.25%.

 

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The Company’s and the Bank’s actual regulatory capital ratios as of June 30, 2017 and December 31, 2016 are presented in the table below. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum Required to be

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Considered "Well Capitalized"

 

 

 

 

 

 

 

 

 

Minimum Required for

 

 

Under Prompt Corrective

 

 

 

Actual

 

 

Capital Adequacy Purposes

 

 

Action Provisions

 

 

    

Amount

    

Ratio

    

 

Amount

    

Ratio

    

 

Amount

    

Ratio

 

 

 

(dollars in thousands)

 

HarborOne Bancorp, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity Tier 1 capital to risk-weighted assets

 

$

323,694

 

15.1

%  

 

$

96,251

 

4.5

%  

 

 

N/A

 

N/A

 

Tier 1 capital to risk-weighted assets

 

 

323,694

 

15.1

 

 

 

128,335

 

6.0

 

 

 

N/A

 

N/A

 

Total capital to risk-weighted assets

 

 

340,875

 

15.9

 

 

 

171,114

 

8.0

 

 

 

N/A

 

N/A

 

Tier 1 capital to average assets

 

 

323,694

 

12.7

 

 

 

102,094

 

4.0

 

 

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity Tier 1 capital to risk-weighted assets

 

$

317,185

 

16.2

%  

 

$

88,320

 

4.5

%  

 

 

N/A

 

N/A

 

Tier 1 capital to risk-weighted assets

 

 

317,185

 

16.2

 

 

 

117,760

 

6.0

 

 

 

N/A

 

N/A

 

Total capital to risk-weighted assets

 

 

334,153

 

17.0

 

 

 

157,014

 

8.0

 

 

 

N/A

 

N/A

 

Tier 1 capital to average assets

 

 

317,185

 

13.2

 

 

 

95,796

 

4.0

 

 

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HarborOne Bank

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity Tier 1 capital to risk-weighted assets

 

$

240,622

 

11.6

%  

 

$

93,269

 

4.5

%  

 

$

134,722

 

6.5

%

Tier 1 capital to risk-weighted assets

 

 

240,622

 

11.6

 

 

 

124,359

 

6.0

 

 

 

165,811

 

8.0

 

Total capital to risk-weighted assets

 

 

257,803

 

12.4

 

 

 

165,811

 

8.0

 

 

 

207,264

 

10.0

 

Tier 1 capital to average assets

 

 

240,622

 

9.5

 

 

 

100,927

 

4.0

 

 

 

126,159

 

5.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity Tier 1 capital to risk-weighted assets

 

$

234,655

 

12.0

%  

 

$

88,201

 

4.5

%  

 

$

127,402

 

6.5

%

Tier 1 capital to risk-weighted assets

 

 

234,655

 

12.0

 

 

 

117,602

 

6.0

 

 

 

156,802

 

8.0

 

Total capital to risk-weighted assets

 

 

251,623

 

12.8

 

 

 

156,802

 

8.0

 

 

 

196,003

 

10.0

 

Tier 1 capital to average assets

 

 

234,655

 

9.9

 

 

 

95,178

 

4.0

 

 

 

118,973

 

5.0

 

 

28


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

 

 

12. 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 stockholders’ equity section of the consolidated balance sheets, such items, along with net income, are components of comprehensive income (loss).

 

The components of accumulated other comprehensive loss, included in stockholders’ equity, are as follows:

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

 

 

 

(in thousands)

 

Securities available for sale:

 

 

 

 

 

 

 

Net unrealized (loss)

 

$

(47)

 

$

(1,022)

 

Related tax effect

 

 

17

 

 

357

 

Net-of-tax amount

 

 

(30)

 

 

(665)

 

 

 

 

 

 

 

 

 

Directors' retirement plan:

 

 

 

 

 

 

 

Prior service cost

 

 

(895)

 

 

(1,016)

 

Related tax effect

 

 

357

 

 

391

 

Net-of-tax amount

 

 

(538)

 

 

(625)

 

 

 

 

 

 

 

 

 

Total accumulated other comprehensive loss

 

$

(568)

 

$

(1,290)

 

 

29


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The following tables present changes in accumulated other comprehensive loss by component for the three and six months ended June 30, 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

 

and Losses on

 

Director's

 

 

 

 

and Losses on

 

Director's

 

 

 

 

 

Available-for-Sale

 

Retirement

 

 

 

 

Available-for-Sale

 

Retirement

 

 

 

 

 

Securities

 

Plan

 

Total

 

Securities

 

Plan

 

Total

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(383)

 

$

(574)

 

$

(957)

 

$

1,148

 

$

(671)

 

$

477

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income before reclassifications

 

 

541

 

 

 —

 

 

541

 

 

842

 

 

 —

 

 

842

Amounts reclassified from accumulated other comprehensive income

 

 

 —

 

 

61

 

 

61

 

 

(41)

 

 

34

 

 

(7)

Net current period other comprehensive income

 

 

541

 

 

61

 

 

602

 

 

801

 

 

34

 

 

835

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Related tax effect

 

 

(188)

 

 

(25)

 

 

(213)

 

 

(278)

 

 

(23)

 

 

(301)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at end of period

 

$

(30)

 

$

(538)

 

$

(568)

 

$

1,671

 

$

(660)

 

$

1,011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

 

and Losses on

 

Directors'

 

 

 

 

and Losses on

 

Directors'

 

 

 

 

 

Available-for-Sale

 

Retirement

 

 

 

 

Available-for-Sale

 

Retirement

 

 

 

 

 

Securities

 

Plan

 

Total

 

Securities

 

Plan

 

Total

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(665)

 

$

(625)

 

$

(1,290)

 

$

139

 

$

(731)

 

$

(592)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income before reclassifications

 

 

975

 

 

 —

 

 

975

 

 

2,635

 

 

 —

 

 

2,635

Amounts reclassified from accumulated other comprehensive income

 

 

 —

 

 

121

 

 

121

 

 

(283)

 

 

117

 

 

(166)

Net current period other comprehensive income

 

 

975

 

 

121

 

 

1,096

 

 

2,352

 

 

117

 

 

2,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Related tax effect

 

 

(340)

 

 

(34)

 

 

(374)

 

 

(820)

 

 

(46)

 

 

(866)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at end of period

 

$

(30)

 

$

(538)

 

$

(568)

 

$

1,671

 

$

(660)

 

$

1,011

 

 

 

13. 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. 

 

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

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.

 

Loans held for sale - Fair values are based on prevailing market prices for similar commitments.  At June 30, 2017 and December 31, 2016, there were no loans held for sale that were greater than ninety days past due. 

 

The following table provides the fair value and contractual principal balance outstanding of loans held for sale accounted for under the fair value option:

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Loans held for sale, fair value

 

$

91,849

 

$

86,443

 

Loans held for sale, contractual principal outstanding

 

 

88,792

 

 

85,024

 

Fair value less unpaid principal

 

$

3,057

 

$

1,419

 

 

 

 

 

 

 

 

 

 

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 a third party valuation model that calculates the present value of estimated future net servicing income and includes observable market data such as prepayment speeds and default and loss rates.

 

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 value of servicing rights and non-refundable costs of originating the

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

loan based on the Company’s internal cost analysis that is not observable.   At June 30, 2017 and December 31, 2016, the weighted average pull-through rate for derivative loan commitments was 86%.

 

Interest rate swaps and risk participation agreements - 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 by a third party 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 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 judgment.  The Company incorporates credit valuation analysis for counterparty nonperformance risk in the fair value measurement, including the impact of netting applicable credit enhancements such as available collateral.

 

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.

 

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 1 – Valuation 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 2 – Valuation 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 3 – Valuation 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.  There were no transfers during the periods presented.

 

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

    

Level 1

    

Level 2

    

Level 3

    

Fair Value

 

 

 

(in thousands)

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

$

 —

 

$

160,795

 

$

 —

 

$

160,795

 

Loans held for sale

 

 

 —

 

 

91,849

 

 

 —

 

 

91,849

 

Mortgage servicing rights

 

 

 —

 

 

20,313

 

 

 —

 

 

20,313

 

Derivative loan commitments

 

 

 —

 

 

 —

 

 

1,554

 

 

1,554

 

Forward loan sale commitments

 

 

 —

 

 

 —

 

 

440

 

 

440

 

Interest rate swaps

 

 

 —

 

 

463

 

 

 —

 

 

463

 

 

 

$

 —

 

$

273,420

 

$

1,994

 

$

275,414

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative loan commitments

 

$

 —

 

$

 —

 

$

17

 

$

17

 

Forward loan sale commitments

 

 

 —

 

 

 —

 

 

221

 

 

221

 

Interest rate swaps

 

 

 —

 

 

463

 

 

 —

 

 

463

 

 

 

$

 —

 

$

463

 

$

238

 

$

701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

$

 —

 

$

136,469

 

$

 —

 

$

136,469

 

Loans held for sale

 

 

 —

 

 

86,443

 

 

 —

 

 

86,443

 

Mortgage servicing rights

 

 

 —

 

 

20,333

 

 

 —

 

 

20,333

 

Derivative loan commitments

 

 

 —

 

 

 —

 

 

2,231

 

 

2,231

 

Forward loan sale commitments

 

 

 —

 

 

 —

 

 

491

 

 

491

 

Interest rate swaps

 

 

 —

 

 

248

 

 

 —

 

 

248

 

 

 

$

 —

 

$

243,493

 

$

2,722

 

$

246,215

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward loan sale commitments

 

$

 —

 

$

 —

 

$

576

 

$

576

 

Interest rate swaps

 

 

 —

 

 

248

 

 

 —

 

 

248

 

 

 

$

 —

 

$

248

 

$

576

 

$

824

 

 

33


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

The table below presents, for the three and six months ended June 30, 2017 and 2016, the changes in Level 3 assets and liabilities that are measured at fair value on a recurring basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

 

Six Months Ended June 30, 

 

    

2017

    

2016

 

    

2017

    

2016

 

 

 

(in thousands)

Assets:  Derivative and Forward Loan Sale Commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

2,113

 

$

2,944

 

 

$

2,722

 

$

1,661

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total gains (losses) included in net income (1)

 

 

(119)

 

 

1,437

 

 

 

(728)

 

 

2,720

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at end of period

 

$

1,994

 

$

4,381

 

 

$

1,994

 

$

4,381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in unrealized gains relating to instruments at period end

 

$

1,994

 

$

4,381

 

 

$

1,994

 

$

4,381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:  Derivative and Forward Loan Sale Commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(836)

 

$

(1,006)

 

 

$

(576)

 

$

(89)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total gains (losses) included in net income (1)

 

 

598

 

 

(1,135)

 

 

 

338

 

 

(2,052)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at end of period

 

$

(238)

 

$

(2,141)

 

 

$

(238)

 

$

(2,141)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in unrealized losses relating to instruments at period end

 

$

(238)

 

$

(2,141)

 

 

$

(238)

 

$

(2,141)

 

 

 

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 June 30, 2017 and December 31, 2016.  The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related individual assets. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

December 31, 2016

 

    

Level 1

    

Level 2

    

Level 3

 

 

Level 1

    

Level 2

    

Level 3

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

 —

 

$

 —

 

$

3,468

 

 

$

 —

 

$

 —

 

$

2,548

Other real estate owned and repossessed assets

 

 

 —

 

 

 —

 

 

1,057

 

 

 

 —

 

 

 —

 

 

1,767

 

 

$

 —

 

$

 —

 

$

4,525

 

 

$

 —

 

$

 —

 

$

4,315

 

Losses in the following table represent the amount of the fair value adjustments recorded during the period on the carrying value of the assets held at June 30, 2017 and December 31, 2016, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

2017

    

2016

 

2017

    

2016

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

$

 7

 

$

252

 

$

65

 

$

452

Other real estate owned and repossessed assets

 

47

 

 

 —

 

 

47

 

 

22

 

$

54

 

$

252

 

$

112

 

$

474

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.  The losses on impaired loans is not recorded

34


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

directly as an adjustment to current earnings, but rather as a component in determining the allowance for loan losses.  The losses on other real estate owned and repossessed assets represent adjustments in valuation recorded during the time period indicated and not for losses incurred on sales.  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.

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

 

Carrying

 

Fair Value

 

 

    

Amount

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

 

(in thousands)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

101,597

 

$

101,597

 

$

 —

 

$

 —

 

$

101,597

 

Securities available for sale

 

 

160,795

 

 

 —

 

 

160,795

 

 

 —

 

 

160,795

 

Securities held to maturity

 

 

45,660

 

 

 —

 

 

46,870

 

 

 —

 

 

46,870

 

Federal Home Loan Bank stock

 

 

16,356

 

 

 —

 

 

 —

 

 

16,356

 

 

16,356

 

Loans held for sale

 

 

91,849

 

 

 —

 

 

91,849

 

 

 —

 

 

91,849

 

Loans, net

 

 

2,079,483

 

 

 —

 

 

 —

 

 

2,098,282

 

 

2,098,282

 

Retirement plan annuities

 

 

12,267

 

 

 —

 

 

 —

 

 

12,267

 

 

12,267

 

Mortgage servicing rights

 

 

20,313

 

 

 —

 

 

20,313

 

 

 —

 

 

20,313

 

Accrued interest receivable

 

 

5,723

 

 

 —

 

 

5,723

 

 

 —

 

 

5,723

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,993,791

 

 

 —

 

 

 —

 

 

1,994,575

 

 

1,994,575

 

Borrowed funds

 

 

265,117

 

 

 —

 

 

265,730

 

 

 —

 

 

265,730

 

Mortgagors' escrow accounts

 

 

5,039

 

 

 —

 

 

 —

 

 

5,039

 

 

5,039

 

Accrued interest payable

 

 

494

 

 

 —

 

 

494

 

 

 —

 

 

494

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative loan commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

1,554

 

 

 —

 

 

 —

 

 

1,554

 

 

1,554

 

Liabilities

 

 

17

 

 

 —

 

 

 —

 

 

17

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

463

 

 

 —

 

 

463

 

 

 —

 

 

463

 

Liabilities

 

 

463

 

 

 —

 

 

463

 

 

 —

 

 

463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward loan sale commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

440

 

 

 —

 

 

 —

 

 

440

 

 

440

 

Liabilities

 

 

221

 

 

 —

 

 

 —

 

 

221

 

 

221

 

 

 

35


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

Carrying

 

Fair Value

 

 

    

Amount

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

 

(in thousands)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

50,215

 

$

50,215

 

$

 —

 

$

 —

 

$

50,215

 

Securities available for sale

 

 

136,469

 

 

 —

 

 

136,469

 

 

 —

 

 

136,469

 

Securities held to maturity

 

 

47,877

 

 

 —

 

 

48,972

 

 

 —

 

 

48,972

 

Federal Home Loan Bank stock

 

 

15,749

 

 

 —

 

 

 —

 

 

15,749

 

 

15,749

 

Mortgage loans held for sale

 

 

86,443

 

 

 —

 

 

86,443

 

 

 —

 

 

86,443

 

Loans, net

 

 

1,981,747

 

 

 —

 

 

 —

 

 

2,007,394

 

 

2,007,394

 

Retirement plan annuities

 

 

12,044

 

 

 —

 

 

 —

 

 

12,044

 

 

12,044

 

Mortgage servicing rights

 

 

20,333

 

 

 —

 

 

20,333

 

 

 —

 

 

20,333

 

Accrued interest receivable

 

 

5,603

 

 

 —

 

 

5,603

 

 

 —

 

 

5,603

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,804,753

 

 

 —

 

 

 —

 

 

1,806,926

 

 

1,806,926

 

Borrowed funds

 

 

275,119

 

 

 —

 

 

276,741

 

 

 —

 

 

276,741

 

Mortgagors' escrow accounts

 

 

5,034

 

 

 —

 

 

 —

 

 

5,034

 

 

5,034

 

Accrued interest payable

 

 

545

 

 

 —

 

 

545

 

 

 —

 

 

545

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative loan commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

2,231

 

 

 —

 

 

 —

 

 

2,231

 

 

2,231

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

248

 

 

 —

 

 

248

 

 

 —

 

 

248

 

Liabilities

 

 

248

 

 

 —

 

 

248

 

 

 —

 

 

248

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward loan sale commitments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

491

 

 

 —

 

 

 —

 

 

491

 

 

491

 

Liabilities

 

 

576

 

 

 —

 

 

 —

 

 

576

 

 

576

 

 

 

 

14. EARNINGS PER SHARE (“EPS”)

 

Basic EPS represents net income attributable to common shareholders divided by the weighted-average number of common shares outstanding during the period.  Diluted EPS is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding, plus the effect of potential dilutive common stock equivalents outstanding during the period.  Unallocated ESOP shares are not deemed outstanding for EPS calculations.  There were no potentially dilutive common stock equivalents as of June 30, 2017. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

Six Months Ended

 

 

June 30, 2017

 

 

 

 

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

Net income applicable to common stock (in thousands)

 

$

3,213

 

 

 

 

 

$

5,948

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding

 

 

32,120,880

 

 

 

 

 

 

32,120,880

Less: Average unallocated ESOP shares

 

 

(1,107,878)

 

 

 

 

 

 

(1,115,257)

Average number of common shares outstanding used to calculate basic and diluted earnings per common share

 

 

31,013,002

 

 

 

 

 

 

31,005,623

Earnings per common share, basic and dilutive

 

$

0.10

 

 

 

 

 

$

0.19

 

 

36


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

 

15. SEGMENT REPORTING

 

The Company has two reportable segments: HarborOne Bank and Merrimack Mortgage.  Revenue from HarborOne Bank consists primarily of interest earned on loans and investment securities and service charges on deposit accounts.  Revenue from Merrimack Mortgage 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.

 

Information about the reportable segments and reconciliation to the unaudited interim Consolidated Financial Statements at June 30, 2017 and 2016 and for the three and six months then ended is presented in the tables below.  Merrimack Mortgage was acquired in July 2015. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2017

 

 

HarborOne

 

Merrimack

 

HarborOne

 

 

 

 

 

 

    

Bank

    

Mortgage

    

Bancorp, Inc.

 

Eliminations

    

Consolidated

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest and dividend income

 

$

17,772

 

$

402

 

$

41

 

$

 —

 

$

18,215

Provision for loan losses

 

 

470

 

 

 —

 

 

 —

 

 

 —

 

 

470

Net interest income, after provision for loan losses

 

 

17,302

 

 

402

 

 

41

 

 

 —

 

 

17,745

Mortgage banking income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in mortgage servicing rights fair value

 

 

(301)

 

 

(751)

 

 

 —

 

 

 —

 

 

(1,052)

Other

 

 

812

 

 

10,388

 

 

 —

 

 

 —

 

 

11,200

Total mortgage banking income

 

 

511

 

 

9,637

 

 

 —

 

 

 —

 

 

10,148

Other noninterest income

 

 

4,137

 

 

14

 

 

 —

 

 

 —

 

 

4,151

Total noninterest income

 

 

4,648

 

 

9,651

 

 

 —

 

 

 —

 

 

14,299

Noninterest expense

 

 

17,893

 

 

8,929

 

 

56

 

 

 —

 

 

26,878

Income (loss) before income taxes

 

 

4,057

 

 

1,124

 

 

(15)

 

 

 —

 

 

5,166

Provision (benefit) for income taxes

 

 

1,508

 

 

450

 

 

(5)

 

 

 —

 

 

1,953

Net income (loss)

 

$

2,549

 

$

674

 

$

(10)

 

$

 —

 

$

3,213

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2017

 

 

HarborOne

 

Merrimack

 

HarborOne

 

 

 

 

 

 

    

Bank

    

Mortgage

    

Bancorp, Inc.

 

Eliminations

    

Consolidated

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest and dividend income

 

$

34,842

 

$

764

 

$

41

 

$

 —

 

$

35,647

Provision for loan losses

 

 

735

 

 

 —

 

 

 —

 

 

 —

 

 

735

Net interest income, after provision for loan losses

 

 

34,107

 

 

764

 

 

41

 

 

 —

 

 

34,912

Mortgage banking income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in mortgage servicing rights fair value

 

 

(553)

 

 

(941)

 

 

 —

 

 

 —

 

 

(1,494)

Other

 

 

1,642

 

 

17,404

 

 

 —

 

 

 —

 

 

19,046

Total mortgage banking income

 

 

1,089

 

 

16,463

 

 

 —

 

 

 —

 

 

17,552

Other noninterest income (loss)

 

 

8,192

 

 

 9

 

 

 —

 

 

 —

 

 

8,201

Total noninterest income

 

 

9,281

 

 

16,472

 

 

 —

 

 

 —

 

 

25,753

Noninterest expense

 

 

35,215

 

 

15,963

 

 

105

 

 

 —

 

 

51,283

Income (loss) before income taxes

 

 

8,173

 

 

1,273

 

 

(64)

 

 

 —

 

 

9,382

Provision (benefit) for income taxes

 

 

2,949

 

 

510

 

 

(25)

 

 

 —

 

 

3,434

Net income (loss)

 

$

5,224

 

$

763

 

$

(39)

 

$

 —

 

$

5,948

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

2,567,750

 

$

127,909

 

$

333,141

 

$

(396,730)

 

$

2,632,070

Goodwill

 

$

3,186

 

$

10,179

 

$

 —

 

$

 —

 

$

13,365

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37


 

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2016

 

 

HarborOne

 

Merrimack

 

HarborOne

 

 

 

 

 

    

Bank

    

Mortgage

    

Bancorp, Inc.

    

Eliminations

 

Consolidated

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest and dividend income

 

$

14,230

 

$

422

 

$

 —

 

$

 —

 

$

14,652

Provision for loan losses

 

 

801

 

 

 —

 

 

 —

 

 

 —

 

 

801

Net interest income, after provision for loan losses

 

 

13,429

 

 

422

 

 

 —

 

 

 —

 

 

13,851

Mortgage banking income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in mortgage servicing rights fair value

 

 

(787)

 

 

(1,376)

 

 

 —

 

 

 —

 

 

(2,163)

Other

 

 

1,212

 

 

12,625

 

 

 —

 

 

 —

 

 

13,837

Total mortgage banking income

 

 

425

 

 

11,249

 

 

 —

 

 

 —

 

 

11,674

Other noninterest income

 

 

4,209

 

 

 5

 

 

 —

 

 

 —

 

 

4,214

Total noninterest income

 

 

4,634

 

 

11,254

 

 

 —

 

 

 —

 

 

15,888

Noninterest expense

 

 

16,637

 

 

9,712

 

 

4,820

 

 

 —

 

 

31,169

Income (loss) before income taxes

 

 

1,426

 

 

1,964

 

 

(4,820)

 

 

 —

 

 

(1,430)

Provision (benefit) for income taxes

 

 

391

 

 

785

 

 

(1,925)

 

 

 —

 

 

(749)

Net income (loss)

 

$

1,035

 

$

1,179

 

$

(2,895)

 

$

 —

 

$

(681)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HarborOne

 

Merrimack

 

HarborOne

 

 

 

 

 

 

    

Bank

    

Mortgage

    

Bancorp, Inc.

    

Eliminations

 

Consolidated

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest and dividend income

 

$

27,776

 

$

762

 

$

 —

 

$

 —

 

$

28,538

Provision for loan losses

 

 

1,006

 

 

 —

 

 

 —

 

 

 —

 

 

1,006

Net interest income, after provision for loan losses

 

 

26,770

 

 

762

 

 

 —

 

 

 —

 

 

27,532

Mortgage banking income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in mortgage servicing rights fair value

 

 

(1,382)

 

 

(3,069)

 

 

 —

 

 

 —

 

 

(4,451)

Other

 

 

2,272

 

 

20,941

 

 

 —

 

 

 —

 

 

23,213

Total mortgage banking income

 

 

890

 

 

17,872

 

 

 —

 

 

 —

 

 

18,762

Other noninterest income (loss)

 

 

8,192

 

 

(4)

 

 

 —

 

 

 —

 

 

8,188

Total noninterest income

 

 

9,082

 

 

17,868

 

 

 —

 

 

 —

 

 

26,950

Noninterest expense

 

 

33,579

 

 

17,327

 

 

4,820

 

 

 —

 

 

55,726

Income (loss) before income taxes

 

 

2,273

 

 

1,303

 

 

(4,820)

 

 

 —

 

 

(1,244)

Provision (benefit) for income taxes

 

 

717

 

 

521

 

 

(1,925)

 

 

 —

 

 

(687)

Net income (loss)

 

$

1,556

 

$

782

 

$

(2,895)

 

$

 —

 

$

(557)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

2,260,363

 

$

128,331

 

$

323,067

 

$

(445,003)

 

$

2,266,758

Goodwill

 

$

3,186

 

$

10,179

 

$

 —

 

$

 —

 

$

13,365

 

 

 

16. SUBSEQUENT EVENTS

 

Under the HarborOne Bancorp, Inc. 2017 Stock Option and Incentive Plan (the “Equity Plan”), adopted on August 9, 2017, the Company may grant options, stock appreciation rights, restricted stock, restricted units, unrestricted stock awards, cash based awards, performance share awards, and dividend equivalent rights to its directors, officers and employees.  Total shares reserved for issuance under the plan are 2,077,577.

 

 

 

 

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Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This section is intended to assist in the understanding of the financial performance of the Company and its subsidiaries through a discussion of our financial condition at June 30, 2017, and our results of operations for the three and six months ended June 30, 2017 and 2016. This section should be read in conjunction with the unaudited interim Consolidated Financial Statements and Notes thereto of the Company appearing in Part I, Item 1 of this Form 10-Q.

 

Forward-Looking Statements

 

Certain statements contained in this Quarterly Report on Form 10-Q that are not historical facts 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 Securities Exchange Act of 1934, as amended (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. The Company’s actual results could differ materially from those projected in the forward-looking statements as a result of, among others, factors referenced under the section captioned “Risk Factors” at Part II, Item 1A of this Form 10-Q, and in our Annual Report on Form 10-K for the year ended December 31, 2016, as updated by the Company’s quarterly reports on Form 10-Q, including this report, and other filings with the Securities and Exchange Commission, 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. The Company 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.

 

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. 

 

39


 

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

There have been no material changes to our critical accounting policies as compared to the critical accounting policies described in the Company’s Annual Report on Form 10-K.

 

Comparison of Financial Condition at June 30, 2017 and December 31, 2016

 

Total Assets.     Total assets increased $183.8 million, or 7.51%, to $2.63 billion at June 30, 2017 from $2.45 billion at December 31, 2016 primarily due to the continued execution of our commercial loan growth strategy. 

 

Cash and Cash Equivalents.     Cash and cash equivalents increased $51.4 million to $101.6 million at June 30, 2017 from $50.2 million at December 31, 2016. The increase was primarily due to HarborOne Bancorp, Inc.’s participation in the Bank’s reciprocal deposit program that was established in June. Through the program, the Company’s $64.8 million deposit at the Bank was converted to multiple deposits at other financial institutions which are not eliminated in consolidation.

 

Loans Held for Sale.     Loans held for sale at June 30, 2017 were $91.9 million, an increase of $5.4 million from $86.4 million at December 31, 2016 due to the seasonal increase in residential mortgage originations. Of the loans held for sale at June 30, 2017, $87.4 million were originated by Merrimack Mortgage and $4.5 million were originated by the Bank.

 

Loans, net.     At June 30, 2017, net loans were $2.08 billion, an increase of $97.7 million, or 4.93%, from $1.98 billion at December 31, 2016, primarily due to an increase in the Bank’s commercial real estate, construction and commercial loan originations, partially offset by a decrease in consumer loans. Total commercial real estate and commercial loans at June 30, 2017 were $706.6 million, an increase of $110.3 million, or 18.49%, from $596.3 million at December 31, 2016, reflecting the execution of our business strategy to increase commercial lending. Construction loans increased $8.5 million, or 14.48%, in the same period, primarily due to commercial construction loan advances and originations. Consumer loans decreased $19.7 million, or 3.50%, partially the result of a $5.0 million indirect auto loan sale. Our residential portfolio increased by $186,000, or 0.02%. The allowance for loan losses was $17.2 million at June 30, 2017 and $17.0 million December 31, 2016.

 

The following table provides the composition of our loan portfolio at the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

December 31, 2016

 

 

    

Amount

    

Percent

    

    Amount

    

Percent

 

 

 

(dollars in thousands)

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

One- to four-family

 

$

679,617

 

32.5

%  

$

677,946

 

34.1

%

Second mortgages and equity lines of credit

 

 

91,504

 

4.4

 

 

92,989

 

4.7

 

Commercial real estate

 

 

592,325

 

28.4

 

 

495,801

 

24.9

 

Construction

 

 

66,908

 

3.2

 

 

58,443

 

2.9

 

Total real estate

 

 

1,430,354

 

68.5

 

 

1,325,179

 

66.6

 

Commercial

 

 

114,234

 

5.5

 

 

100,501

 

5.1

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

528,690

 

25.3

 

 

547,400

 

27.5

 

Personal

 

 

14,704

 

0.7

 

 

15,704

 

0.8

 

Total consumer

 

 

543,394

 

26.0

 

 

563,104

 

28.3

 

Total loans

 

 

2,087,982

 

100.0

%  

 

1,988,784

 

100.0

%

Allowance for loan losses

 

 

(17,181)

 

 

 

 

(16,968)

 

 

 

Net deferred loan origination costs

 

 

8,682

 

 

 

 

9,931

 

 

 

Loans, net

 

$

2,079,483

 

 

 

$

1,981,747

 

 

 

 

40


 

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

Securities.     Total investment securities at June 30, 2017 were $206.5 million, an increase of $22.1 million, or 11.99%, from December 31, 2016. There were no sales of securities in the first quarter of 2017.  Proceeds from calls of securities amounted to $400,000 in the six months ended June 30, 2017.  The following table provides the composition of our securities available for sale and our securities held to maturity at the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

December 31, 2016

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

 

    

Cost

    

Value

    

Cost

    

Value

 

 

 

(in thousands)

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and government-sponsored enterprise obligations

 

$

9,984

 

$

9,844

 

$

9,983

 

$

9,747

 

U.S. government-sponsored mortgage-backed and collateralized mortgage obligations

 

 

114,570

 

 

114,606

 

 

94,656

 

 

94,030

 

SBA asset-backed securities

 

 

36,288

 

 

36,345

 

 

32,852

 

 

32,692

 

Total securities available for sale

 

$

160,842

 

$

160,795

 

$

137,491

 

$

136,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and government-sponsored enterprise obligations

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

U.S. government-sponsored mortgage-backed and collateralized mortgage obligations

 

 

21,147

 

 

21,160

 

 

22,834

 

 

22,783

 

Other bonds and obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

State and political subdivisions

 

 

24,513

 

 

25,710

 

 

25,043

 

 

26,189

 

Total securities held to maturity

 

$

45,660

 

$

46,870

 

$

47,877

 

$

48,972

 

 

Mortgage servicing rights.     Mortgage servicing rights are created as a result of our mortgage banking origination activities and accounted for at fair value. At June 30, 2017, we serviced mortgage loans for others with an aggregate outstanding principal balance of $1.91 billion. Total mortgage servicing rights were $20.3 million at June 30, 2017 and December 31, 2016.

 

The following table represents the activity for mortgage servicing rights and the related fair value changes during the periods noted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

2017

 

2016

 

2017

 

2016

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

20,839

 

$

12,330

 

$

20,333

 

$

12,958

Additions from loans sold with servicing retained

 

 

526

 

 

2,521

 

 

1,474

 

 

4,181

Changes in fair value due to :

 

 

 

 

 

 

 

 

 

 

 

 

Reductions from loans paid off during the period

 

 

(409)

 

 

(472)

 

 

(723)

 

 

(664)

Changes in valuation inputs or assumptions

 

 

(643)

 

 

(1,691)

 

 

(771)

 

 

(3,787)

Balance, end of period

 

$

20,313

 

$

12,688

 

$

20,313

 

$

12,688

 

 

The fair value of our mortgage servicing rights is determined by a third party provider that determines the appropriate prepayment speed, discount and default rate assumptions based on our portfolio. Any measurement of fair value is limited by the conditions existing and assumptions made at a particular point in time. Those assumptions may not be appropriate if they are applied to a different point in time. The following table presents weighted average assumptions utilized in determining the fair value of mortgage servicing rights at June 30, 2017 and December 31, 2016:

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

  

Prepayment speed

 

10.28

9.49

%

Discount rate

 

9.25

 

9.25

 

Default rate

 

1.81

 

1.71

 

 

41


 

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

Prepayment speeds are significantly impacted by mortgage rates. Decreasing mortgage rates normally encourage increased mortgage refinancing activity, which reduces the life of the loans underlying the mortgage servicing rights, thereby reducing the value of mortgage servicing rights.

 

Management has made the strategic decision not to hedge mortgage servicing assets at this point. Therefore, any future declines in interest rates would likely cause further decreases in the fair value of the mortgage servicing rights, and a corresponding detriment to earnings, whereas increases in interest rates would result in increases in fair value, and a corresponding benefit to earnings. Management may choose to hedge the mortgage servicing assets in the future or limit the balance of mortgage servicing rights by selling them or selling loans with the servicing released.

 

Deposits.     Deposits increased $189.0 million, or 10.48%, to $1.99 billion at June 30, 2017 from $1.80 billion at December 31, 2016. The growth in deposits was driven by an increase of $29.3 million in checking account deposits, $17.2 million in savings account deposits, $111.3 million in money market deposits and $38.8 million in brokered deposits partially offset by a decline in certificates of deposit of $7.7 million.  Included in money market deposits are $99.5 million in reciprocal deposit relationships established in June 2017 that provides access to FDIC insured deposit products in aggregate amounts exceeding the current insurance limits for depositors. The Company’s $64.8 million reciprocal deposit contributed to the money market increase and the remaining $34.7 million reciprocal balances were municipal and commercial customer money market balances.  Overall, municipal money market balances increased $26.0 million from December 31, 2016. 

 

Borrowings.   Total borrowings from the FHLB decreased $10.0 million, or 3.63%, to $265.1 million at June 30, 2017 from $275.1 million at December 31, 2016.

 

Stockholders’ equity .     Total stockholders’ equity was $336.6 million at June 30, 2017 compared to $329.4 million at December 31, 2016, an increase of 2.20%. The increase from December 31, 2016 is primarily due to net income and allocated ESOP shares.

 

Comparison of Results of Operations for the Three and Six Months Ended June 30, 2017 and 2016

 

Overview .    Consolidated net income for the three and six months ended June 30, 2017 was $3.2 million and $5.9 million, respectively, compared to net loss of $681,000 and $557,000 for the three and six months ended June 30, 2016. The 2016 results include a one-time, pre-tax contribution of $4.8 million to establish the Foundation. Excluding the contribution expense, net income would have been $2.2 million and $2.3 million for the three and six months ended June 30, 2016.

42


 

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

HarborOne Bancorp, Inc. Consolidated

 

Average Balances and Yields. The following tables set forth average balance sheets, annualized average yields and costs, and certain other information for the periods indicated, on a consolidated basis. Interest income on tax-exempt securities and loans has been adjusted to a fully taxable-equivalent (FTE) basis using a federal tax rate of 35%.  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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

 

 

2017

 

2016

 

 

 

Average

 

 

 

 

 

Average

 

 

 

 

 

 

 

Outstanding

 

 

 

Yield/

 

Outstanding

 

 

 

Yield/

 

 

    

Balance

    

Interest

    

Cost (6)

    

Balance

    

Interest

    

Cost (6)

 

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (1)

 

$

2,129,280

 

$

20,260

 

3.82

%  

$

1,881,488

 

$

16,874

 

3.61

%

Investment securities (2)

 

 

209,691

 

 

1,408

 

2.69

 

 

173,731

 

 

1,101

 

2.55

 

Other interest-earning assets

 

 

81,370

 

 

320

 

1.58

 

 

51,257

 

 

209

 

1.64

 

Total interest-earning assets

 

 

2,420,341

 

 

21,988

 

3.64

 

 

2,106,476

 

 

18,184

 

3.47

 

Noninterest-earning assets

 

 

129,281

 

 

 

 

 

 

 

131,104

 

 

 

 

 

 

Total assets

 

$

2,549,622

 

 

 

 

 

 

$

2,237,580

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings accounts

 

$

338,607

 

 

141

 

0.17

 

$

317,180

 

 

137

 

0.17

 

NOW accounts

 

 

128,794

 

 

20

 

0.06

 

 

120,702

 

 

19

 

0.06

 

Money market accounts

 

 

667,468

 

 

831

 

0.50

 

 

642,758

 

 

724

 

0.45

 

Certificates of deposit

 

 

469,249

 

 

1,369

 

1.17

 

 

446,848

 

 

1,285

 

1.16

 

Brokered deposits

 

 

76,555

 

 

206

 

1.08

 

 

 —

 

 

 —

 

 —

 

Total interest-bearing deposits

 

 

1,680,673

 

 

2,567

 

0.61

 

 

1,527,488

 

 

2,165

 

0.57

 

FHLB advances

 

 

254,832

 

 

1,130

 

1.78

 

 

239,245

 

 

1,289

 

2.17

 

Total interest-bearing liabilities

 

 

1,935,505

 

 

3,697

 

0.77

 

 

1,766,733

 

 

3,454

 

0.79

 

Noninterest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

250,654

 

 

 

 

 

 

 

244,651

 

 

 

 

 

 

Other noninterest-bearing liabilities

 

 

29,432

 

 

 

 

 

 

 

28,887

 

 

 

 

 

 

Total liabilities

 

 

2,215,591

 

 

 

 

 

 

 

2,040,271

 

 

 

 

 

 

Total equity

 

 

334,031

 

 

 

 

 

 

 

197,309

 

 

 

 

 

 

Total liabilities and equity

 

$

2,549,622

 

 

 

 

 

 

$

2,237,580

 

 

 

 

 

 

Tax equivalent net interest income

 

 

 

 

 

18,291

 

 

 

 

 

 

 

14,730

 

 

 

Tax equivalent interest rate spread (3)

 

 

 

 

 

 

 

2.87

%  

 

 

 

 

 

 

2.68

%

Less: tax equivalent adjustment

 

 

 

 

 

76

 

 

 

 

 

 

 

78

 

 

 

Net interest income as reported

 

 

 

 

$

18,215

 

 

 

 

 

 

$

14,652

 

 

 

Net interest-earning assets (4)

 

$

484,836

 

 

 

 

 

 

$

339,743

 

 

 

 

 

 

Net interest margin (5)

 

 

 

 

 

 

 

3.02

%  

 

 

 

 

 

 

2.80

%

Tax equivalent effect

 

 

 

 

 

 

 

0.01

 

 

 

 

 

 

 

0.01

 

Net interest margin on a fully tax equivalent basis

 

 

 

 

 

 

 

3.03

%  

 

 

 

 

 

 

2.81

%

Ratio of interest-earning assets to interest-bearing liabilities

 

 

125.05

%  

 

 

 

 

 

 

119.23

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Includes loans held for sale, nonaccruing loan balances and interest received on such loans.

 

(2) Includes securities available for sale and securities held to maturity.  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 for the quarters presented were 2.55% and 2.37%, 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.

 

(6) Annualized.

 

43


 

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

 

 

2017

 

2016

 

 

 

Average

 

 

 

 

 

Average

 

 

 

 

 

 

 

Outstanding

 

 

 

Yield/

 

Outstanding

 

 

 

Yield/

 

 

    

Balance

    

Interest

    

Cost (6)

    

Balance

    

Interest

    

Cost (6)

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (1)

 

$

2,120,573

 

$

39,941

 

3.80

%  

$

1,842,228

 

$

32,977

 

3.60

%

Investment securities (2)

 

 

203,642

 

 

2,700

 

2.67

 

 

178,673

 

 

2,279

 

2.57

 

Other interest-earning assets

 

 

74,437

 

 

572

 

1.55

 

 

64,621

 

 

446

 

1.39

 

Total interest-earning assets

 

 

2,398,652

 

 

43,213

 

3.63

 

 

2,085,522

 

 

35,702

 

3.44

 

Noninterest-earning assets

 

 

126,729

 

 

 

 

 

 

 

126,731

 

 

 

 

 

 

Total assets

 

$

2,525,381

 

 

 

 

 

 

$

2,212,253

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings accounts

 

$

332,702

 

 

292

 

0.18

 

$

309,368

 

 

267

 

0.17

 

NOW accounts

 

 

126,037

 

 

39

 

0.06

 

 

118,785

 

 

37

 

0.06

 

Money market accounts

 

 

647,383

 

 

1,584

 

0.49

 

 

636,711

 

 

1,428

 

0.45

 

Certificates of deposit

 

 

469,510

 

 

2,719

 

1.17

 

 

452,742

 

 

2,603

 

1.16

 

Brokered deposits

 

 

71,156

 

 

365

 

1.03

 

 

 —

 

 

 —

 

 —

 

Total interest-bearing deposits

 

 

1,646,788

 

 

4,999

 

0.61

 

 

1,517,606

 

 

4,335

 

0.57

 

FHLB advances

 

 

273,262

 

 

2,415

 

1.78

 

 

252,318

 

 

2,672

 

2.13

 

Total interest-bearing liabilities

 

 

1,920,050

 

 

7,414

 

0.78

 

 

1,769,924

 

 

7,007

 

0.80

 

Noninterest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

243,937

 

 

 

 

 

 

 

219,315

 

 

 

 

 

 

Other noninterest-bearing liabilities

 

 

29,207

 

 

 

 

 

 

 

27,983

 

 

 

 

 

 

Total liabilities

 

 

2,193,194

 

 

 

 

 

 

 

2,017,222

 

 

 

 

 

 

Total equity

 

 

332,187

 

 

 

 

 

 

 

195,031

 

 

 

 

 

 

Total liabilities and equity

 

$

2,525,381

 

 

 

 

 

 

$

2,212,253

 

 

 

 

 

 

Tax equivalent net interest income

 

 

 

 

 

35,799

 

 

 

 

 

 

 

28,695

 

 

 

Tax equivalent interest rate spread (3)

 

 

 

 

 

 

 

2.85

%  

 

 

 

 

 

 

2.64

%

Less: tax equivalent adjustment

 

 

 

 

 

152

 

 

 

 

 

 

 

157

 

 

 

Net interest income as reported

 

 

 

 

$

35,647

 

 

 

 

 

 

$

28,538

 

 

 

Net interest-earning assets (4)

 

$

478,602

 

 

 

 

 

 

$

315,598

 

 

 

 

 

 

Net interest margin (5)

 

 

 

 

 

 

 

3.00

%  

 

 

 

 

 

 

2.75

%

Tax equivalent effect

 

 

 

 

 

 

 

0.01

 

 

 

 

 

 

 

0.02

 

Net interest margin on a fully tax equivalent basis

 

 

 

 

 

 

 

3.01

%  

 

 

 

 

 

 

2.77

%

Ratio of interest-earning assets to  interest-bearing liabilities

 

 

124.93

%  

 

 

 

 

 

 

117.83

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 was 2.52% and 2.39% for the six months ended June 30, 2017 and 2016, 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 represents total interest-earning assets less total interest-bearing liabilities.

 

(5) Net interest margin represents net interest income divided by average total interest-earning assets.

 

(6) Annualized.

 

 

 

44


 

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

Rate/Volume Analysis. The following table presents, on a tax equivalent basis, 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 total 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

2017 v. 2016

 

2017 v. 2016

 

 

Increase (Decrease) Due to Changes in

 

Total

 

Increase (Decrease) Due to Changes in

 

Total

 

    

    Volume

    

    Rate

    

Increase (Decrease)

    

    Volume

    

    Rate

    

Increase (Decrease)

 

 

(in thousands)

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans 

 

$

2,145

 

$

1,241

 

$

3,386

 

$

4,918

 

$

2,046

 

$

6,964

Investment securities

 

 

217

 

 

90

 

 

307

 

 

317

 

 

104

 

 

421

Other interest-earning assets

 

 

119

 

 

(8)

 

 

111

 

 

65

 

 

61

 

 

126

Total interest-earning assets

 

 

2,481

 

 

1,323

 

 

3,804

 

 

5,300

 

 

2,211

 

 

7,511

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings accounts

 

 

 9

 

 

(5)

 

 

 4

 

 

19

 

 

 6

 

 

25

NOW accounts

 

 

 1

 

 

 —

 

 

 1

 

 

 1

 

 

 1

 

 

 2

Money market accounts

 

 

26

 

 

81

 

 

107

 

 

23

 

 

133

 

 

156

Certificates of deposit

 

 

62

 

 

22

 

 

84

 

 

91

 

 

25

 

 

116

Brokered deposit

 

 

206

 

 

 —

 

 

206

 

 

365

 

 

 —

 

 

365

Total interest-bearing deposits

 

 

304

 

 

98

 

 

402

 

 

499

 

 

165

 

 

664

FHLB advances

 

 

81

 

 

(240)

 

 

(159)

 

 

209

 

 

(466)

 

 

(257)

Total interest-bearing liabilities

 

 

385

 

 

(142)

 

 

243

 

 

708

 

 

(301)

 

 

407

Change in net interest income

 

$

2,096

 

$

1,465

 

$

3,561

 

$

4,592

 

$

2,512

 

$

7,104

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and Dividend Income.     Interest and dividend income increased $3.8 million, or 21.02%, to $21.9 million for the three months ended June 30, 2017, compared to $18.1 million for the three months ended June 30, 2016. The increase was primarily due to a $3.4 million, or 20.06%, increase in interest on loans and loans held for sale to $20.3 million for the three months ended June 30, 2017 from $16.9 million for the three months ended June 30, 2016. The increase in loan interest income was attributable to a 13.17% increase in average loans outstanding as well as the shift in mix to higher yielding commercial loans, which resulted in an increase in average yield of 21 basis points. Interest and dividend income on securities increased by $307,000, or 27.88%, from $1.1 million for the three months ended June 30, 2016 to $1.4 million for the three months ended June 30, 2017.

45


 

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

 

Compared to the first six months of 2016, interest and dividend income increased $7.5 million, or 21.04% reflecting similar trends in the quarter over quarter results. Average loans and loans held for sale increased $278.3 million, or 15.11% coupled with a 20 basis point increase in yield resulting in a $7.0 million increase in interest on loans and loans held for sale.

 

Interest Expense.     Interest expense increased $243,000, or 7.04%, to $3.7 million for the three months ended June 30, 2017 from $3.5 million for the three months ended June 30, 2016. The increase resulted from a $402,000 increase in interest expense on deposits partially offset by a $159,000 decrease in interest expense on borrowings. The increase in interest expense on deposits resulted from a 10.03% increase in average balances and a 4 basis point increase in the cost of deposits. Components of the increase included $76.6 million in average brokered deposits at a cost of 1.08% in the first quarter of 2017 whereas brokered deposit had not been utilized in the second quarter of 2016. Average money market deposits increased by $24.7 million, or 3.84% and the cost of money market deposits was 0.50% for the for the second quarter of 2017 compared to 0.45% for the 2016 quarterly period.  The cost of certificates of deposit increased 1 basis point to 1.17% for the three months ended June 30, 2017 compared to the three months ended June 30, 2016 and the average balance increased 5.01%. The cost of savings accounts was 0.17% both periods and the average balance increased 6.76%. The cost of NOW accounts was 0.06% for both periods and the average balance increased 6.70% in the three months ended June 30, 2017 compared to the same period in 2016.  The decrease in interest expense on borrowings reflects the decrease in cost to 1.78% from 2.17% when comparing the three months ended June 30, 2017 and 2016, partially offset by the 6.52% average balance increase.

 

Compared to the first six months of 2016, interest expense increased $407,000, or 5.81% to $7.4 million from $7.0 million reflecting the quarter over quarter trend of increasing deposit average balances. Average interest bearing deposits increased $129.2 million, or 8.51% and the cost of funds increased 4 basis points year over year. The decrease in interest expense on borrowings is due to a 35 basis point decrease in the cost of borrowed funds partially offset by the average balance increase of 20.9 million, or 8.30%.

 

Net Interest and Dividend Income.     Net interest and dividend income on a tax equivalent basis increased $3.6 million, or 24.18%, to $18.3 million for the three months ended June 30, 2017 from $14.7 million for the three months ended June 30, 2016. Growth in higher yielding commercial loans was primarily funded with deposit growth. The tax equivalent net interest spread increased 19 basis points to 2.87% for the three months ended June 30, 2017 from 2.68% for the three months ended June 30, 2016, and net interest margin on a tax equivalent basis rose by 22 basis points to 3.03% for the three months ended June 30, 2017 from 2.81% for the three months ended June 30, 2016.

 

Compared to the first six months of 2016, net interest and dividend income increased $7.1 million, or 24.76% to $35.8 million from $28.7 million.  The tax equivalent net interest spread increased 21 basis points to 2.85% for the six months ended June 30, 2017 from 2.64% for the six months ended June 30, 2016, and net interest margin on a tax equivalent basis also rose by 24 basis points to 3.01% for the six months ended June 30, 2017 from 2.77% for the six months ended June 30, 2016.

 

46


 

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

The tables below show the results of operations for HarborOne Bank (excluding Merrimack Mortgage) for the three and six months ended June 30, 2017 and 2016, the increase or decrease in those results, and the results of operations for Merrimack Mortgage for the three and six months ended June 30, 2017 and 2016. Revenue and expenses for the holding company are minor and not reflected in the below tables. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HarborOne Bank

 

Merrimack Mortgage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

June 30, 

 

Increase (Decrease)

 

June 30, 

 

Increase (Decrease)

 

 

    

2017

    

2016

    

Dollars

    

Percent

    

2017

    

2016

    

Dollars

    

Percent

    

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest and dividend income

 

$

17,772

 

$

14,230

 

$

3,542

 

24.9

%  

$

402

 

$

422

 

$

(20)

 

(4.7)

%  

Provision for loan losses

 

 

470

 

 

801

 

 

(331)

 

(41.3)

 

 

 —

 

 

 —

 

 

 —

 

 —

 

Net interest income, after provision for loan losses

 

 

17,302

 

 

13,429

 

 

3,873

 

28.8

 

 

402

 

 

422

 

 

(20)

 

(4.7)

 

Mortgage banking income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in mortgage servicing rights fair value

 

 

(301)

 

 

(787)

 

 

486

 

161.5

 

 

(751)

 

 

(1,376)

 

 

625

 

83.2

 

Other

 

 

812

 

 

1,212

 

 

(400)

 

(33.0)

 

 

10,388

 

 

12,625

 

 

(2,237)

 

(17.7)

 

Total mortgage banking income

 

 

511

 

 

425

 

 

86

 

20.2

 

 

9,637

 

 

11,249

 

 

(1,612)

 

(14.3)

 

Other noninterest income (loss)

 

 

4,137

 

 

4,209

 

 

(72)

 

(1.7)

 

 

14

 

 

 5

 

 

 9

 

180.0

 

Total noninterest income

 

 

4,648

 

 

4,634

 

 

14

 

0.3

 

 

9,651

 

 

11,254

 

 

(1,603)

 

(14.2)

 

Noninterest expense

 

 

17,893

 

 

16,637

 

 

1,256

 

7.5

 

 

8,929

 

 

9,712

 

 

(783)

 

(8.1)

 

Income (loss) before income taxes

 

 

4,057

 

 

1,426

 

 

2,631

 

184.5

 

 

1,124

 

 

1,964

 

 

(840)

 

(42.8)

 

Provision (benefit) for income taxes

 

 

1,508

 

 

391

 

 

1,117

 

285.7

 

 

450

 

 

785

 

 

(335)

 

(42.7)

 

Net income (loss)

 

$

2,549

 

$

1,035

 

$

1,514

 

146.3

%  

$

674

 

$

1,179

 

$

(505)

 

(42.8)

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HarborOne Bank

 

Merrimack Mortgage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

 

June 30, 

 

Increase (Decrease)

 

June 30, 

 

Increase (Decrease)

 

 

    

2017

    

2016

    

Dollars

    

Percent

    

2017

    

2016

    

Dollars

    

Percent

    

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest and dividend income

 

$

34,842

 

$

27,776

 

$

7,066

 

25.4

%  

$

764

 

$

762

 

$

 2

 

0.3

%  

Provision for loan losses

 

 

735

 

 

1,006

 

 

(271)

 

(26.9)

 

 

 —

 

 

 —

 

 

 —

 

 —

 

Net interest income, after provision for loan losses

 

 

34,107

 

 

26,770

 

 

7,337

 

27.4

 

 

764

 

 

762

 

 

 2

 

0.3

 

Mortgage banking income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in mortgage servicing rights fair value

 

 

(553)

 

 

(1,382)

 

 

829

 

60.0

 

 

(941)

 

 

(3,069)

 

 

2,128

 

69.3

 

Other

 

 

1,642

 

 

2,272

 

 

(630)

 

(27.7)

 

 

17,404

 

 

20,941

 

 

(3,537)

 

(16.9)

 

Total mortgage banking income

 

 

1,089

 

 

890

 

 

199

 

22.4

 

 

16,463

 

 

17,872

 

 

(1,409)

 

(7.9)

 

Other noninterest income (loss)

 

 

8,192

 

 

8,192

 

 

 —

 

 —

 

 

 9

 

 

(4)

 

 

13

 

325.0

 

Total noninterest income

 

 

9,281

 

 

9,082

 

 

199

 

2.2

 

 

16,472

 

 

17,868

 

 

(1,396)

 

(7.8)

 

Noninterest expense

 

 

35,215

 

 

33,579

 

 

1,636

 

4.9

 

 

15,963

 

 

17,327

 

 

(1,364)

 

(7.9)

 

Income (loss) before income taxes

 

 

8,173

 

 

2,273

 

 

5,900

 

259.6

 

 

1,273

 

 

1,303

 

 

(30)

 

(2.3)

 

Provision (benefit) for income taxes

 

 

2,949

 

 

717

 

 

2,232

 

311.3

 

 

510

 

 

521

 

 

(11)

 

(2.1)

 

Net income (loss)

 

$

5,224

 

$

1,556

 

$

3,668

 

235.7

%  

$

763

 

$

782

 

$

(19)

 

(2.4)

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

47


 

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

HarborOne Bank Segment

 

Results of Operations for the Three and Six Months Ended June 30, 2017 and 2016

 

Net Income.     The Bank’s net income increased by $1.5 million to $2.6 million for the three months ended June 30, 2017 from $1.0 million for the three months ended June 30, 2016 and, pre-tax income was $4.1 million for the three months ended June 30, 2017, a $2.6 million increase from the three months ended June 30, 2016. The increases in pre-tax income reflects a $3.5 million increase in net interest income, a $331,000 decrease in the provision for loan losses and a $14,000 increase in noninterest income partially offset by a $1.3 million increase in noninterest expense.  The provision for income taxes increased $1.1 million offsetting the pre-tax income increase for the quarter.

 

Compared to the first six months of 2016, the Bank’s net income for the six months ended June 30, 2017 increased $3.7 million to $5.2 million from $1.6 million. The increase in net income reflects an increase of $7.1 million of net interest and dividend income, a decrease of $271,000 in provision for loan losses and an increase of $199,000 in noninterest income, partially offset by increases of $1.6 million in noninterest expense and $2.2 million in provision for income taxes.

 

Provision for Loan Losses.     The Bank recorded a provision for loan losses of $470,000 and $735,000 for the three and six months ended June 30, 2017, respectively, and $801,000 and $1.0 million for the three and six months ended June 30, 2016. The provision reflects the continued growth in commercial loans and general reserve adjustments based on peer data utilized for commercial real estate and commercial loans. Annually, in the first quarter, the Bank adjusts general reserve allocations for commercial real estate and commercial loans based on updated peer data. The 2017 updated peer data resulted in lower general reserve rates and reserves on these loan types and therefore, despite loan growth, the allowance for loan losses attributable to commercial real estate and commercial loans decreased in the first quarter of 2017. Similarly, in 2016 improved peer data resulted in lower general reserve rates and reserves on commercial real estate and commercial loans.  Net charge-offs increased to $173,000 and $522,000 for the three and six months ended June 30, 2017, respectively,  from $58,000 and $267,000 for the same period in 2016 and  credit quality improved as nonaccrual loans declined to $21.5 million at June 30, 2017 from $26.0 million at June 30, 2016.

 

Noninterest Income.     Total noninterest income increased to $4.7 million for the three months ended June 30, 2017 compared to $4.6 million for the prior year period. Income from mortgage banking operations increased $86,000, or 20.24%, to $511,000 for the three months ended June 30, 2017 compared to $425,000 for the three months ended June 30, 2016. Other mortgage banking income decreased $400,000 compared to the three months ended June 30, 2016 primarily a result of lower residential real estate loan sale volume in 2017 as compared to 2016. The decrease in other mortgage banking income was offset by the mortgage servicing rights fair value adjustment. The fair value adjustment of mortgage servicing rights was a $301,000 loss in 2017 compared to a loss of $787,000 during the three months ended June 30, 2016, driven by the market rate changes during the periods.

 

Other noninterest income decreased $72,000, or 1.72%, to $4.1 million for the three months ended June 30, 2017 compared to $4.2 million for the three months ended June 30, 2016. Significant components of the change include a decrease in commercial loan swap fee income of $143,000, and an $118,000 decrease in business loan fees offset by a $128,000 increase interchange income. Gain on sales of investment securities was $41,000 for the quarter ended June 30, 2016, while no such sales were undertaken in the current year period.

 

Compared to the first six months of 2016, total noninterest income for the six months ended June 30, 2017 increased $199,000, or 2.19%, to $9.3 million from $9.1 million. Total mortgage banking income increased $199,000 as the fair value loss on the mortgage servicing rights decreased $829,000 partially offset by the other mortgage banking income decrease of $630,000. The low rate environment of the first half of 2016 negatively impacted servicing rights values and positively impacted mortgage loan origination volumes. Other noninterest income was flat at $8.2 million for the six months ended June 30, 2017 and 2016.

 

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Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

Noninterest Expense.     Noninterest expense increased $1.3 million, or 7.55%, to $17.9 million for the three months ended June 30, 2017 from $16.6 million for the three months ended June 30, 2016. The increase in noninterest expense included increased compensation and benefit expense of $774,000, marketing expenses increase of $405,000 and professional fee increase of $337,000. Also in the second quarter of 2016 a $400,000 prepayment penalty was recognized on the early extinguishment of debt with no such charge in 2017. The increase in compensation and benefits expense is due to annual salary increases, staff additions to the commercial loan area and ESOP expense of $398,000. The ESOP was established in the third quarter of 2016. The increase in professional fees primarily reflects expenses related to tax and other consulting.

 

Compared to the first six months of 2016, noninterest expense for the six months ended June 30, 2017 increased $1.6 million, or 4.87% to $35.2 million from $33.6 million. The components of the year-to-date increase include increased salaries and benefit costs of $610,000, primarily due to ESOP expense of $833,000, increased occupancy and equipment expense of $308,000 and increased marketing expense of $334,000.

 

Income Tax Provision.     Provision for income taxes for the three and six months ended June 30, 2017 was $1.5 million and $2.9 million, respectively, compared to $391,000 and $717,000 for the three and six months ended June 30, 2016, respectively. The increased provision for income taxes was mainly due to increase in pre-tax earnings of $2.6 million and $5.9 million for the three and six months ended June 30, 2017 and an increase in the effective rate. The increase in the effective tax rate in 2017 is due primarily to the effect of nondeductible expense related to the ESOP and decreased tax-advantaged income .  

 

Merrimack Mortgage Segment

 

Results of Operations for the Three and Six Months Ended June 30, 2017 and 2016

 

Net Income.    Merrimack Mortgage recorded net income of $674,000 and $763,000 for the three and six months ended June 30, 2017, respectively. For the three and six months ended June 30, 2016 net income was $1.2 million and $782,000, respectively. Exclusive of the change in fair value of mortgage servicing rights, pre-tax income for the six months ended June 30, 2017 and 2016 was $2.2 million and $4.4 million, respectively.

 

Noninterest Income.     During the three and six months ended June 30, 2017, noninterest income totaled $9.7 million and $16.5 million, respectively. Noninterest income is primarily from mortgage banking income for which the following table provides further detail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 2017

 

June 30, 2016

 

June 30, 2017

 

June 30, 2016

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of mortgage loans

 

$

8,552

 

$

10,899

 

$

14,038

 

$

17,993

Processing, underwriting and closing fees

 

 

932

 

 

1,165

 

 

1,599

 

 

1,920

Secondary market loan servicing fees, net of guarantee fees

 

 

904

 

 

561

 

 

1,767

 

 

1,028

Changes in mortgage servicing rights, fair value

 

 

(751)

 

 

(1,376)

 

 

(941)

 

 

(3,069)

Total mortgage banking income

 

$

9,637

 

$

11,249

 

$

16,463

 

$

17,872

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated mortgage servicing rights included in gain on sale of mortgage loans

 

$

396

 

$

2,248

 

$

1,183

 

$

3,595

 

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Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

For the three and six months ended June 30, 2017 and 2016, Merrimack Mortgage originated $283.9 million, $467.8 million and $350.9 million $570.4 million, respectively, of residential mortgages. The decrease is due to higher mortgage rates in 2017.  The following tables provide additional loan production detail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

 

 

 

2017

 

2016

 

 

 

 

Loan

 

 

 

 

Loan

 

 

 

 

 

    

Amount

    

% of Total

 

 

Amount

 

% of Total

 

 

 

 

(dollars in thousands)

 

 

Source

 

 

 

 

 

 

        

 

 

 

 

 

        

Retail Offices

 

$

221,972

 

78.2

%

 

$

270,689

 

77.1

%

 

Third Party

 

 

61,942

 

21.8

 

 

 

80,211

 

22.9

 

 

Total

 

$

283,914

 

100.0

%

 

$

350,900

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product Type

 

 

 

 

 

 

 

 

 

 

 

 

 

Conventional

 

$

160,781

 

56.6

%

 

$

217,065

 

61.9

%

 

Government

 

 

92,192

 

32.5

 

 

 

114,265

 

32.6

 

 

State Housing Agency

 

 

10,735

 

3.8

 

 

 

15,649

 

4.4

 

 

Jumbo

 

 

19,961

 

7.0

 

 

 

3,496

 

1.0

 

 

Seconds

 

 

245

 

0.1

 

 

 

426

 

0.1

 

 

Total

 

$

283,914

 

100.0

%

 

$

350,901

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purpose

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase

 

$

239,843

 

84.5

%

 

$

249,792

 

71.2

%

 

Refinance

 

 

44,071

 

15.5

 

 

 

101,109

 

28.8

 

 

Total

 

$

283,914

 

100.0

%

 

$

350,901

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

 

 

 

2017

 

2016

 

 

 

 

Loan

 

 

 

 

Loan

 

 

 

 

 

 

Amount

    

% of Total

 

 

Amount

 

% of Total

 

 

 

 

(dollars in thousands)

 

 

Source

 

 

 

 

 

 

        

 

 

 

 

 

 

Retail Offices

 

$

369,830

 

79.1

%

 

$

440,635

 

77.3

%

 

Third Party

 

 

98,003

 

20.9

 

 

 

129,715

 

22.7

 

 

Total

 

$

467,833

 

100.0

%

 

$

570,350

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product Type

 

 

 

 

 

 

 

 

 

 

 

 

 

Conventional

 

$

270,227

 

57.8

%

 

$

353,191

 

61.9

%

 

Government

 

 

155,638

 

33.2

 

 

 

184,739

 

32.4

 

 

State Housing Agency

 

 

19,555

 

4.2

 

 

 

25,615

 

4.5

 

 

Jumbo

 

 

22,031

 

4.7

 

 

 

6,086

 

1.1

 

 

Seconds

 

 

382

 

0.1

 

 

 

719

 

0.1

 

 

Total

 

$

467,833

 

100.0

%

 

$

570,350

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purpose

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase

 

$

369,209

 

78.9

%

 

$

384,531

 

67.4

%

 

Refinance

 

 

98,624

 

21.1

 

 

 

185,819

 

32.6

 

 

Total

 

$

467,833

 

100.0

%

 

$

570,350

 

100.0

%

 

 

 

During the three and six months ended June 30, 2017, Merrimack Mortgage sold loans to Freddie Mac, Fannie Mae and Ginnie Mae in the amounts of $47.8 million and $126.8 million, respectively and recorded an average originated mortgage servicing right gain of 0.93% and 0.83%, respectively, of the underlying mortgage amount.  For the three and six months ended June 30, 2016, there were $210.3 million and $342.4 million, respectively of agency loan sales at an

50


 

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

average originated mortgage servicing right gain of 1.05% and 1.07%, respectively. The decrease in pricing of the mortgage servicing rights resulted in the decrease agency sales.

For the three and six months ended June 30, 2017 processing, underwriting, and closing fees amounted to  $932,000 and $1.6 million, respectively, as compared to $1.2 million and $1.9 million for the three and six months ended June 30, 2016, reflecting the lower production volumes of 2017. Secondary market loan servicing fees, net of loan guarantee fees were $904,000 and $1.8 million, respectively for the three and six months ended June 30, 2017 as compared to $560,000 and $1.0 million, respectively for the three and six months ended June 30, 2016. At June 30, 2017, the unpaid balance of the servicing portfolio totaled $1.36 billion as compared to $1.0 billion at June 30, 2016, resulting in the lower secondary market servicing fees in 2016.

 

During the three months ended June, 2017 and 2016, the fair value of mortgage servicing rights decreased $751,000 and $1.4 million, respectively, driven primarily by the reduction in market interest rates during the each period. The 10 year Treasury Constant Maturity rate decreased 9 basis points in the first quarter of 2017 as compared to a decrease of 28 basis points in the second quarter of 2016. During the six months ended June 30, 2017 and 2016, the fair value of mortgage servicing rights decreased $941,000 and $3.1million, respectively, reflecting decreases in the 10 year Treasury Constant Maturity rate of 14 basis points and 78 points, respectively. Decreasing interest rates generally result in a decrease in mortgage servicing rights fair value as the assumed prepayment speeds of the underlying mortgage loans tend to increase.  Conversely, as interest rates rise and prepayment speeds slow, mortgage servicing rights fair value tend to increase. 

 

Noninterest Expense.     Noninterest expense for the three months ended June, 2017 and 2016 was $8.9 million and $9.7 million, respectively, generally reflecting the decreased loan volume. Compensation and benefits expenses totaled $6.5 million and $7.2 million, respectively, for the three months ended June 30, 2017 and 2016. Salary expense was $2.1 million for both quarters, and commission-related expenses were $3.7 million and $4.4 million, respectively. Loan expenses totaled $1.5 million and $1.7 million for the three months ended June 30, 2017 and 2016, and included direct loan origination expenses of $960,000 and $1.5 million, respectively, associated with the origination of $283.9 million and $350.9 million of mortgage loans.  Sub-servicing related expenses for the same three month period were $212,000 and $176,000, respectively. Occupancy expense totaled $502,000 and $432,000 for the three months ended June 30, 2017 and 2016, and primarily consisted of rent and other expenses associated with the retail branch network and corporate office. Other expenses totaled $460,000 and $395,000 for the three months ended June 30, 2017 and 2016 and primarily consisted of professional fees and other expenses. The quarter over quarter increase reflects increased professional fees and marketing expense.

 

Noninterest expense for the six months ended June 30, 2017 and 2016 was $16.0 million and $17.3 million, respectively. Salary and benefits was $11.7 million including $4.2 million in salary expense and $6.1 million in commission related expenses for the six months ended June 30, 2017 as compared to $12.6 million including $4.1 million in salary expense and $7.2 million in commission related expenses for the six months ended June 30, 2016.  Loan expenses totaled $2.5 million and $3.1 million for the six months ended June 30, 2017 and 2016, respectively.  Included in loan expense was direct loan origination expense of $1.6 million and $2.6 million, respectively, associated with the origination of mortgage loans of $ 467.8 million and $570.4 million, respectively. Sub-servicing related expenses were $396,000 and $297,000, respectively.  Occupancy expense was $1.0 million and $847,000, respectively for the six months ended June 30, 2017 and 2016. Other expenses totaled $821,000 and $835,000 for the six months ended June 30, 2017 and 2016 and primarily consisted of professional fees and other expenses.

51


 

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

Asset Quality

 

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.

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

 

 

 

(dollars in thousands)

 

Nonaccrual loans:

 

 

 

 

 

 

 

Residential real estate:

 

 

 

        

 

 

 

One- to four-family

 

$

16,143

 

$

16,456

 

Second mortgages and equity lines of credit

 

 

1,306

 

 

1,686

 

Construction

 

 

132

 

 

134

 

Commercial

 

 

3,663

 

 

2,674

 

Consumer

 

 

221

 

 

230

 

Total nonaccrual loans (1)

 

 

21,465

 

 

21,180

 

Other real estate owned:

 

 

 

 

 

 

 

One- to four-family residential

 

 

1,029

 

 

1,767

 

Other repossessed assets

 

 

28

 

 

 —

 

Total nonperforming assets

 

 

22,522

 

 

22,947

 

Performing troubled debt restructurings

 

 

22,149

 

 

25,134

 

Total nonperforming assets and performing troubled debt restructurings

 

$

44,671

 

$

48,081

 

 

 

 

 

 

 

 

 

Total nonperforming loans to total loans (2)

 

 

1.02

%  

 

1.06

%

Total nonperforming assets and performing troubled debt restructurings to total assets

 

 

1.70

%  

 

1.96

%

Total nonperforming assets to total assets

 

 

0.86

%  

 

0.94

%

 

 

 

 

 

 

 

 

(1) $8.3 million and $7.5 million of troubled debt restructurings are included in total nonaccrual loans at June 30, 2017 and December 31, 2016, respectively.

 

(2) Total loans are presented before allowance for loan losses, but include deferred loan origination costs (fees), net.

 

 

Income related to impaired loans included in interest income for the three months ended June 30, 2017 and 2016, amounted to $558,000 and $757,000, respectively.  Income related to impaired loans included in interest income for the six months ended June 30, 2017 and 2016, amounted to $1.4 million and $1.5 million, respectively. 

 

The Company utilizes a ten grade internal loan rating system for commercial real estate, commercial construction and commercial loans.  Loans not rated consist primarily of residential construction loans and certain smaller balance commercial real estate and commercial loans that are managed by exception.

 

The following table presents our risk rated loans considered classified or special mention in accordance with our internal risk rating system:

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2017

    

2016

 

 

(in thousands)

Classified loans:

 

 

 

 

 

 

Substandard

 

$

3,651

 

$

2,287

Doubtful

 

 

 —

 

 

387

Loss

 

 

 —

 

 

 —

Total classified loans

 

 

3,651

 

 

2,674

Special mention

 

 

802

 

 

261

Total criticized loans

 

$

4,453

 

$

2,935

 

None of the special mention assets at June 30, 2017 and December 31, 2016 were on nonaccrual.

 

At June 30, 2017, our allowance for loan losses was $17.2 million, or 0.82% of total loans and 80.04% of nonperforming loans. At December 31, 2016, our allowance for loan losses was $17.0 million, or 0.85% of total loans and

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Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

80.12% of nonperforming loans. Nonperforming loans at June 30, 2017 were $21.5 million, or 1.02% of total loans, compared to $21.2 million, or 1.06% of total loans, at December 31, 2016. 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.

 

The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

December 31, 2016

 

 

 

 

 

 

% of

 

 

 

 

 

 

 

% of

 

 

 

 

 

 

 

 

Allowance

 

 

 

 

 

 

 

Allowance

 

 

 

 

 

 

 

 

Amount to

 

% of Loans

 

 

 

 

 

Amount to

 

% of Loans

 

 

 

 

 

 

Total

 

in Category

 

 

 

 

 

Total

 

in Category

 

 

    

Amount

    

Allowance

    

to Total Loans

    

 

 

Amount

    

Allowance

    

to Total Loans

 

 

 

(dollars in thousands)

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family

 

$

3,763

 

21.90

%  

32.55

%  

 

$

4,193

 

24.70

%  

34.09

%

Second mortgages and equity lines of credit

 

 

671

 

3.91

 

4.39

 

 

 

770

 

4.54

 

4.68

 

Commercial real estate

 

 

7,075

 

41.18

 

28.37

 

 

 

7,150

 

42.14

 

24.93

 

Construction

 

 

936

 

5.45

 

3.20

 

 

 

924

 

5.45

 

2.94

 

Commercial

 

 

2,114

 

12.30

 

5.47

 

 

 

1,920

 

11.32

 

5.05

 

Consumer

 

 

1,033

 

6.01

 

26.02

 

 

 

780

 

4.60

 

28.31

 

Total general and allocated allowance

 

 

15,592

 

90.75

 

100.00

%  

 

 

15,737

 

92.75

 

100.00

%

Unallocated

 

 

1,589

 

9.25

 

 

 

 

 

1,231

 

7.25

 

 

 

Total

 

$

17,181

 

100.00

%  

 

 

 

$

16,968

 

100.00

%  

 

 

 

53


 

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

Analysis of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

 

Six Months Ended June 30, 

 

 

    

2017

    

2016

 

 

2017

    

2016

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance at beginning of period

 

$

16,884

 

$

13,696

 

 

$

16,968

 

$

13,700

 

Provision for loan losses

 

 

470

 

 

801

 

 

 

735

 

 

1,006

 

Charge offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family

 

 

(7)

 

 

(39)

 

 

 

(126)

 

 

(71)

 

Second mortgages and equity lines of credit

 

 

 —

 

 

(16)

 

 

 

(18)

 

 

(56)

 

Commercial real estate

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

Construction

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

Commercial

 

 

(51)

 

 

(5)

 

 

 

(134)

 

 

(5)

 

Consumer

 

 

(300)

 

 

(237)

 

 

 

(560)

 

 

(457)

 

Total charge-offs

 

 

(358)

 

 

(297)

 

 

 

(838)

 

 

(589)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family

 

 

 7

 

 

166

 

 

 

81

 

 

177

 

Second mortgages and equity lines of credit

 

 

62

 

 

13

 

 

 

66

 

 

21

 

Commercial real estate

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

Construction

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

Commercial

 

 

 2

 

 

 1

 

 

 

16

 

 

 3

 

Consumer

 

 

114

 

 

59

 

 

 

153

 

 

121

 

Total recoveries

 

 

185

 

 

239

 

 

 

316

 

 

322

 

Net charge-offs

 

 

(173)

 

 

(58)

 

 

 

(522)

 

 

(267)

 

Allowance at end of period

 

$

17,181

 

$

14,439

 

 

$

17,181

 

$

14,439

 

Total loans outstanding (1)

 

$

2,087,982

 

$

1,835,339

 

 

$

2,087,982

 

$

1,835,339

 

Average loans outstanding

 

$

2,067,634

 

$

1,812,962

 

 

$

2,064,307

 

$

1,782,900

 

Allowance for loan losses as a percent of total loans outstanding (1)

 

 

0.82

%  

 

0.79

%

 

 

0.82

%  

 

0.79

%

Annualized net loans charged off as a percent of average loans outstanding

 

 

0.03

%  

 

0.01

%

 

 

0.05

%  

 

0.02

%

Allowance for loan losses to nonperforming loans

 

 

80.04

%  

 

55.52

%

 

 

80.04

%  

 

55.52

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Loans are presented before allowance for loan losses, but include deferred loan origination costs (fees), net.

 

 

 

 

 

 

 

 

We recorded a provision for loan losses of $470,000 for the three months ended June 30, 2017 and $801,000 for the three months ended June 30, 2016. For the six months ended June 30, 2017 and 2016, we recorded a provision for loan losses of $735,000 and $1.1 million, respectively. Annually, in the first quarter, the Company adjusts general reserve allocations for commercial real estate and commercial loans based on updated peer data. The updated peer data resulted in lower general reserve rates and reserves on these loan types however, the decrease was partially offset by commercial loan growth.  The provision in the previous quarter was primarily due to commercial loan growth.  Changes in the provision for loan losses are also based on management’s assessment of loan portfolio growth and composition changes, historical charge-off trends, and ongoing evaluation of credit quality and current economic conditions. Net charge-offs totaled $173,000 for the quarter ended June 30, 2017, or 0.03%, of average loans outstanding on an annualized basis, compared to $320,000 and 0.06% for the quarter ended December 31, 2016 and $58,000 and 0.01% for the quarter ended June 30, 2016. Nonperforming assets were $22.5 million at June 30, 2017 compared to $22.9 million at December 31, 2016 and $27.8 million at June 30, 2016. Nonperforming assets as a percentage of total assets were 0.86% at June 30, 2017, 0.94% at December 31, 2016 and 1.23% at June 30, 2016. The decrease in the second quarter of 2017 is due to decreases in other real estate owned loan.  The reduction from the second quarter of 2016 reflects the Company’s continued efforts to minimize nonperforming assets through diligent collection efforts and prudent workout arrangements.

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HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

Management of Market Risk

 

Net Interest Income Analysis.  The Bank uses income simulation as 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 and market conditions. Assumptions are supported with quarterly back testing of the model to actual market rate shifts.

 

As of June 30, 2017, net interest income simulation results for the Bank indicated that our exposure over one year to changing interest rates was within our guidelines. The following table presents the estimated impact of interest rate changes on our estimated net interest income over one year:

 

 

 

 

 

 

June 30, 2017

 

 

 

Change in Net Interest Income

Changes in Interest Rates

 

Year One

(basis points) (1)

    

(% change from year one base)

+300

 

0.44

%

(100)

 

(4.79)

%

 

 

 

 

 

(1) The calculated change in net interest income assumes an instantaneous parallel shift of the yield curve.

 

 

Economic Value of Equity Analysis.  The Bank also uses 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 June 30, 2017, 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,

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Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

EVE as a Percentage of Economic

 

 

 

 

 

 

Estimated Increase (Decrease)

 

Value of Assets

Changes in Interest Rates

 

 

Estimated

 

in EVE

 

 

 

Changes in

(basis points) (1)

    

 

EVE

    

Amount

    

Percent

 

EVE Ratio (2)

    

Basis Points

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

+ 300

 

$

299,882

 

$

(42,914)

 

(12.5)

%   

12.6

%   

(0.70)

0

 

 

342,796

 

 

 —

 

 —

 

13.3

 

 —

- 100

 

 

318,773

 

 

(24,023)

 

(7.0)

 

12.1

 

(1.20)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Assumes instantaneous parallel changes in interest rates.

(2) EVE Ratio represents EVE divided by the economic value of assets.

 

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 used by operating activities was $4.1 million and $35.9 million for the six months ended June 30, 2017 and 2016, 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 $123.6 million and $67.7 million for the six months ended June 30, 2017 and 2016, respectively. Net cash provided by financing activities, consisting primarily of the activity in deposit accounts, FHLB advances and the issuance of common stock was $179.0 million and $93.0 million for the six months ended June 30, 2017 and 2016, respectively, resulting from our strategy of managing growth and cash flows to preserve capital ratios and reduce expenses.

 

The Bank is subject to various regulatory capital requirements. At June 30, 2017, the Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines. See Note 11 to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

 

At June 30, 2017, we had outstanding commitments to originate loans of $65.7 million and unadvanced funds on loans of $211.8 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 June 30, 2017 totaled $399.0 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 use FHLB advances, brokered deposits, or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

 

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Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

 

Off-Balance Sheet Arrangements

 

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.  For additional information on financial instruments with off-balance sheet risk see Note 8 to the unaudited Consolidated Financial Statements.

 

 

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Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The information required by this Item is included in Part I, Item 2 of this Form 10-Q under the heading “Management of Market Risk.”

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act) as of June 30, 2017. In designing and evaluating the Company’s disclosure controls and procedures, the Company and its management recognize that any controls and procedures, no matter how well-designed and operated, can provide only a reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures.  Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

During the quarter ended June 30, 2017, there were no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Table of Contents

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are not involved in any material pending legal proceedings as a plaintiff or a defendant other than routine legal proceedings occurring in the ordinary course of business. We are not involved in any legal proceedings the outcome of which we believe would be material to our financial condition or results of operations.

 

ITEM 1A. RISK FACTORS

 

As of June 30, 2017, the risk factors of the Company have not changed materially from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2016.

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

The exhibits listed in the Exhibit Index (following the signatures section of this report) are included in, or incorporated by reference into, this Quarterly Report on Form 10-Q.

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Table of Contents

SIGNATURES

 

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

 

 

 

 

HarborOne Bancorp, Inc.

 

 

Date: August 11, 2017

By:

/s/ James W. Blake

 

 

James W. Blake

 

 

President, Chief Executive Officer and Director

(Principal Executive Officer)

 

 

 

Date: August 11, 2017

By:

/s/ Joseph F. Casey

 

 

Joseph F. Casey

 

 

Executive Vice President, Chief Operating Officer,  Chief Financial Officer, Treasurer and Director

(Principal Accounting and Financial Officer)

 

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Table of Contents

EXHIBIT INDEX

 

The following exhibits are included in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 (and are numbered in accordance with Item 601 of Regulation S-K):

 

 

 

 

Exhibit No.

    

Description

10.1

 

HarborOne Bancorp, Inc. 2017 Stock Option and Incentive Plan (incorporated herein by reference to the Company’s Form 8-K filed with the Commission on August 10, 2017) (1)

10.2*

 

Form of Restricted Stock Award Agreement Under the HarborOne Bancorp, Inc. 2017 Stock Option and Incentive Plan   (1)

10.3*

 

Form of Non-Qualified Stock Option Agreement for Non-Employee Directors Under the HarborOne Bancorp, Inc. 2017 Stock Option and Incentive Plan   (1)

10.4*

 

Form of Non-Qualified Stock Option Agreement for Company Employees Under the HarborOne Bancorp, Inc. 2017 Stock Option and Incentive Plan   (1)

10.5*

 

Form of Incentive Stock Option Agreement Under the HarborOne Bancorp, Inc. 2017 Stock Option and Incentive Plan   (1)

31.1*

 

Certification of Chief Executive Officer Required by Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act

31.2*

 

Certification of Chief Financial Officer Required by Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act

32.1**

 

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

 

Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016, (ii) the Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016 (iii) the Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2017 and 2016, (iv) the Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2017 and 2016, (v) the Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016, and (vi) the Notes to the unaudited Consolidated Financial Statements.

 

*Filed herewith

**Furnished herewith

 

(1) Management contract or compensatory plan or agreement

 

61


Exhibit 10.2

 

RESTRICTED STOCK AWARD AGREEMENT
UNDER THE HARBORONE BANCORP, INC.

2017 STOCK OPTION AND INCENTIVE PLAN

Name of Grantee:

No. of Shares:

Grant Date:

Pursuant to the HarborOne Bancorp, Inc. 2017 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), HarborOne Bancorp, Inc. (the “Company”) hereby grants a Restricted Stock Award (an “Award”) to the Grantee named above.  Upon acceptance of this Award, the Grantee shall receive the number of shares of Common Stock, par value $0.01 per share (the “Stock”) of the Company specified above, subject to the restrictions and conditions set forth herein and in the Plan.  The Company acknowledges the receipt from the Grantee of consideration with respect to the par value of the Stock in the form of cash, past or future services rendered to the Company by the Grantee or such other form of consideration as is acceptable to the Administrator.

1. Award .  The shares of Restricted Stock awarded hereunder shall be issued and held by the Company’s transfer agent in book entry form, and the Grantee’s name shall be entered as the shareholder of record on the books of the Company.  Thereupon, the Grantee shall have all the rights of a shareholder with respect to such shares, including voting and dividend rights, subject, however, to the restrictions and conditions specified in Paragraph 2 below.  The Grantee shall (i) sign and deliver to the Company a copy of this Award Agreement and (ii) deliver to the Company a stock power endorsed in blank.

2. Restrictions and Conditions .

(a) Any book entries for the shares of Restricted Stock granted herein shall bear an appropriate legend, as determined by the Administrator in its sole discretion, to the effect that such shares are subject to restrictions as set forth herein and in the Plan.

(b) Shares of Restricted Stock granted herein may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Grantee prior to vesting.

(c) If the Grantee’s employment with the Company and its Subsidiaries is voluntarily or involuntarily terminated for any reason (including death) prior to vesting of shares of Restricted Stock granted herein, all shares of Restricted Stock shall immediately and automatically be forfeited and returned to the Company.

3. Vesting of Restricted Stock .  The restrictions and conditions in Paragraph 2 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains an employee of the Company or a Subsidiary on such Dates.  If a series

1

 


 

Exhibit 10.2

 

of Vesting Dates is specified, then the restrictions and conditions in Paragraph 2 shall lapse only with respect to the number of shares of Restricted Stock specified as vested on such date.

Incremental Number
of Shares Vested

Vesting Date

_____________ (___%)

____________

_____________ (___%)

____________

_____________ (___%)

____________

_____________ (___%)

____________

_____________ (___%)

____________

Subsequent to such Vesting Date or Dates, the shares of Stock on which all restrictions and conditions have lapsed shall no longer be deemed Restricted Stock.  The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 3.

4. Dividends .  Dividends on shares of Restricted Stock shall be paid currently to the Grantee.

5. Incorporation of Plan .  Notwithstanding anything herein to the contrary, this Award shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan.  Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Transferability .  This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.

7. Tax Withholding .  The Grantee shall, not later than the date as of which the receipt of this Award becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event.  Except in the case where an election is made pursuant to Paragraph 8 below, the Company shall have the authority to cause the required tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued to the Optionee a number of shares of Stock to be issued or released by the transfer agent a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due; provided, however, that to the extent necessary to avoid adverse accounting treatment such share withholding may be limited to the minimum required tax withholding obligation.

8. Election Under Section 83(b) .  The Grantee and the Company hereby agree that the Grantee may, within 30 days following the Grant Date of this Award, file with the Internal Revenue Service and the Company an election under Section 83(b) of the Internal Revenue Code.  In the event the Grantee makes such an election, he or she agrees to provide a copy of the election to the Company.  The Grantee acknowledges that he or she is responsible for obtaining the advice of his or her tax advisors with regard to the Section 83(b) election and that he or she is

2

 


 

Exhibit 10.2

 

relying solely on such advisors and not on any statements or representations of the Company or any of its agents with regard to such election.

9. No Obligation to Continue Employment .  Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Grantee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Grantee at any time.

10. Integration .  This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

11. Data Privacy Consent .  In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”).  By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate.  The Grantee shall have access to, and the right to change, the Relevant Information.  Relevant Information will only be used in accordance with applicable law.

12. Notices .  Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file

3

 


 

Exhibit 10.2

 

with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

HARBORONE BANCORP, INC.

By:

Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.  Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

Dated:

Grantee’s Signature

 

Grantee’s name and address:

 

4

 


Exhibit 10.3

 

NON-QUALIFIED STOCK OPTION AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
UNDER THE HARBORONE BANCORP, INC.

2017 STOCK OPTION AND INCENTIVE PLAN

Name of Optionee:

No. of Option Shares:

Option Exercise Price per Share: $

Grant Date:

Expiration Date:

Pursuant to the HarborOne Bancorp, Inc. 2017 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), HarborOne Bancorp, Inc.  (the “Company”) hereby grants to the Optionee named above, who is a Director of the Company but is not an employee of the Company, an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.01 per share (the “Stock”), of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan.  This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.

1. Exercisability Schedule .  No portion of this Stock Option may be exercised until such portion shall have become exercisable.  Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as the Optionee remains in service as a member of the Board on such dates:

 

 

Incremental Number of
Option Shares Exercisable

Exercisability Date

_____________ (___%)

____________

_____________ (___%)

____________

_____________ (___%)

____________

_____________ (___%)

____________

_____________ (___%)

____________

 

1

 


 

Exhibit 10.3

 

Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.

2. Manner of Exercise .

(a) The Optionee may exercise this Stock Option only in the following manner:  from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice.  This notice shall specify the number of Option Shares to be purchased.

Payment of the purchase price for the Option Shares may be made by one or more of the following methods:  (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iv) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i), (ii), (iii) and (iv) above.  Payment instruments will be received subject to collection.  In addition, to the extent that (1) this Stock Option remains outstanding and has not been exercised by the Optionee and (2) the Fair Market Value of the Stock exceeds the exercise price of the Stock Option by at least one percent, then this Stock Option shall automatically be exercised on the Expiration Date (without any action required on the part of the Optionee) pursuant to the “net exercise” arrangement described in (iv), above.

The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations.  In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.

2

 


 

Exhibit 10.3

 

(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan.  The determination of the Administrator as to such compliance shall be final and binding on the Optionee.  The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the shareholder of record on the books of the Company.  Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.

(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.

(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.

3. Termination as Director . If the Optionee ceases to be a Director of the Company, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.

(a) Termination Due to Death .  If the Optionee’s service as a Director terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier.  Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.

(b) Other Termination .  If the Optionee ceases to be a Director for any reason other than the Optionee’s death, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date the Optionee ceased to be a Director, for a period of six months from the date the Optionee ceased to be a Director or until the Expiration Date, if earlier.  Any portion of this Stock Option that is not exercisable on the date the Optionee ceases to be a Director shall terminate immediately and be of no further force or effect.

4. Incorporation of Plan .  Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan.  Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

5. Transferability .  This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.  This Stock Option is exercisable, during the Optionee’s

3

 


 

Exhibit 10.3

 

lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.

6. No Obligation to Continue as a Director .  Neither the Plan nor this Stock Option confers upon the Optionee any rights with respect to continuance as a Director. 

7. Integration .  This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

8. Data Privacy Consent .  In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”).  By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate.  The Optionee shall have access to, and the right to change, the Relevant Information.  Relevant Information will only be used in accordance with applicable law.

9. Notices .  Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file

4

 


 

Exhibit 10.3

 

with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

HARBORONE BANCORP, INC.

By:

Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.  Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.

Dated:

Optionee’s Signature

 

Optionee’s name and address:

 

5

 


Exhibit 10.4

 

NON-QUALIFIED STOCK OPTION AGREEMENT
FOR COMPANY EMPLOYEES
UNDER THE HARBORONE BANCORP, INC.

2017 STOCK OPTION AND INCENTIVE PLAN

Name of Optionee:

No. of Option Shares:

Option Exercise Price per Share: $

Grant Date:

Expiration Date:

Pursuant to the HarborOne Bancorp, Inc. 2017 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), HarborOne Bancorp, Inc. (the “Company”) hereby grants to the Optionee named above an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.01 per share (the “Stock”) of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan.  This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.

1. Exercisability Schedule .  No portion of this Stock Option may be exercised until such portion shall have become exercisable.  Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as Optionee remains an employee of the Company or a Subsidiary on such dates:

Incremental Number of
Option Shares Exercisable

Exercisability Date

_____________ (___%)

____________

_____________ (___%)

____________

_____________ (___%)

____________

_____________ (___%)

____________

_____________ (___%)

____________

Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.

1

 


 

Exhibit 10.4

 

2. Manner of Exercise .

(a) The Optionee may exercise this Stock Option only in the following manner:  from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice.  This notice shall specify the number of Option Shares to be purchased.

Payment of the purchase price for the Option Shares may be made by one or more of the following methods:  (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iv) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i), (ii), (iii) and (iv) above.  Payment instruments will be received subject to collection.  In addition, to the extent that (1) this Stock Option remains outstanding and has not been exercised by the Optionee and (2) the Fair Market Value of the Stock exceeds the exercise price of the Stock Option by at least one percent, then this Stock Option shall automatically be exercised on the Expiration Date (without any action required on the part of the Optionee) pursuant to the “net exercise” arrangement described in (iv), above.

The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations.  In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.

(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan.  The determination of the Administrator as to such compliance shall be final and binding on the

2

 


 

Exhibit 10.4

 

Optionee.  The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the shareholder of record on the books of the Company.  Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.

(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.

(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.

3. Termination of Employment .  If the Optionee’s employment by the Company or a Subsidiary (as defined in the Plan) is terminated, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.

(a) Termination Due to Death .  If the Optionee’s employment terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier.  Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.

(b) Termination Due to Disability .  If the Optionee’s employment terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such termination of employment, may thereafter be exercised by the Optionee for a period of 12 months from the date of disability or until the Expiration Date, if earlier.  Any portion of this Stock Option that is not exercisable on the date of disability shall terminate immediately and be of no further force or effect.

(c) Termination for Cause .  If the Optionee’s employment terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect.  For purposes hereof, “Cause” shall mean, unless otherwise provided in an employment agreement between the Company and the Optionee, a determination by the Administrator that the Optionee shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company; (ii) the conviction of, indictment for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; or (iii) any material misconduct or willful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company.

(d) Other Termination .  If the Optionee’s employment terminates for any reason other than the Optionee’s death, the Optionee’s disability or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may

3

 


 

Exhibit 10.4

 

be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier.  Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.

The Administrator’s determination of the reason for termination of the Optionee’s employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.

4. Incorporation of Plan .  Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan.  Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

5. Transferability .  This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.  This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.

6. Tax Withholding .  The Optionee shall, not later than the date as of which the exercise of this Stock Option becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event.  The Company shall have the authority to cause the required tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued to the Optionee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due; provided, however, that to the extent necessary to avoid adverse accounting treatment such share withholding may be limited to the minimum required tax withholding obligation.

7. No Obligation to Continue Employment .  Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Optionee at any time.

8. Integration .  This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

9. Data Privacy Consent .  In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). 

4

 


 

Exhibit 10.4

 

By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate.  The Optionee shall have access to, and the right to change, the Relevant Information.  Relevant Information will only be used in accordance with applicable law.

10. Notices .  Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

HABORONE BANCORP, INC.

By:

Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.  Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.

Dated:

Optionee’s Signature

 

Optionee’s name and address:

 

5

 


Exhibit 10.5

 

INCENTIVE STOCK OPTION AGREEMENT
UNDER THE HARBORONE BANCORP, INC.

2017 STOCK OPTION AND INCENTIVE PLAN

Name of Optionee:

No. of Option Shares:

Option Exercise Price per Share: $

Grant Date:

Expiration Date:

Pursuant to the HarborOne Bancorp, Inc. 2017 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), HarborOne Bancorp, Inc. (the “Company”) hereby grants to the Optionee named above an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.01 per share (the “Stock”), of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan.

1. Exercisability Schedule .  No portion of this Stock Option may be exercised until such portion shall have become exercisable.  Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as the Optionee remains an employee of the Company or a Subsidiary on such dates:

Incremental Number of
Option Shares Exercisable *

Exercisability Date

_____________ (___%)

____________

_____________ (___%)

____________

_____________ (___%)

____________

_____________ (___%)

____________

_____________ (___%)

____________

* Max. of $100,000 per yr.

Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.

1

 


 

Exhibit 10.5

 

2. Manner of Exercise .

(a) The Optionee may exercise this Stock Option only in the following manner:  from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice.  This notice shall specify the number of Option Shares to be purchased.

Payment of the purchase price for the Option Shares may be made by one or more of the following methods:  (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; or (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; or (iv) a combination of (i), (ii) and (iii) above.  Payment instruments will be received subject to collection.

The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations.  In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.

(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan.  The determination of the Administrator as to such compliance shall be final and binding on the Optionee.  The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the shareholder of record on the books of the Company.  Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.

2

 


 

Exhibit 10.5

 

(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.

(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.

3. Termination of Employment .  If the Optionee’s employment by the Company or a Subsidiary (as defined in the Plan) is terminated, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.

(a) Termination Due to Death .  If the Optionee’s employment terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier.  Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.

(b) Termination Due to Disability .  If the Optionee’s employment terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such termination of employment, may thereafter be exercised by the Optionee for a period of 12 months from the date of disability or until the Expiration Date, if earlier.  Any portion of this Stock Option that is not exercisable on the date of disability shall terminate immediately and be of no further force or effect.

(c) Termination for Cause .  If the Optionee’s employment terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect.  For purposes hereof, “Cause” shall mean, unless otherwise provided in an employment agreement between the Company and the Optionee, a determination by the Administrator   that the Optionee shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company; (ii) the conviction of, indictment for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; or (iii) any material misconduct or willful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company.

(d) Other Termination .  If the Optionee’s employment terminates for any reason other than the Optionee’s death, the Optionee’s disability, or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier.  Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.

3

 


 

Exhibit 10.5

 

The Administrator’s determination of the reason for termination of the Optionee’s employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.

4. Incorporation of Plan .  Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan.  Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

5. Transferability .  This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.  This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.

6. Status of the Stock Option .  This Stock Option is intended to qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), but the Company does not represent or warrant that this Stock Option qualifies as such.  The Optionee should consult with his or her own tax advisors regarding the tax effects of this Stock Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements.  To the extent any portion of this Stock Option does not so qualify as an “incentive stock option,” such portion shall be deemed to be a non-qualified stock option.  If the Optionee intends to dispose or does dispose (whether by sale, gift, transfer or otherwise) of any Option Shares within the one-year period beginning on the date after the transfer of such shares to him or her, or within the two-year period beginning on the day after the grant of this Stock Option, he or she will so notify the Company within 30 days after such disposition.

7. Tax Withholding .  The Optionee shall, not later than the date as of which the exercise of this Stock Option becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event.  The Company shall have the authority to cause the required tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued to the Optionee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due; provided, however, that to the extent necessary to avoid adverse accounting treatment such share withholding may be limited to the minimum required tax withholding obligation.

8. No Obligation to Continue Employment .  Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Optionee at any time.

4

 


 

Exhibit 10.5

 

9. Integration .  This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

10. Data Privacy Consent .  In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”).  By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate.  The Optionee shall have access to, and the right to change, the Relevant Information.  Relevant Information will only be used in accordance with applicable law.

11. Notices .  Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file

5

 


 

Exhibit 10.5

 

with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

HARBORONE BANCORP, INC.

By:

Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.  Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.

Dated:

Optionee’s Signature

 

Optionee’s name and address:

 

6

 


Exhibit 31.1

Certification Pursuant to

EXCHANGE ACT Rule 13 a -14( a ) and Rule 15 d -14( a )

 

I, James W. Blake, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q of HarborOne Bancorp, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) [paragraph omitted in accordance with Exchange Act Rule 13a-14(a)];

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

 

Date: August 11, 2017

By:

/s/James W. Blake

 

 

James W. Blake

 

 

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

1


Exhibit 31.2

Certification Pursuant to

EXCHANGE ACT Rule 13 a -14( a ) and Rule 15 d -14( a )

I, Joseph F. Casey, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q of HarborOne Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) [paragraph omitted in accordance with Exchange Act Rule 13a-14(a)];

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

 

Date: August 11, 2017

By:

/s/Joseph F. Casey

 

 

Joseph F. Casey

 

 

Executive Vice President, Chief Operating Officer, Chief Financial Officer, Treasurer and Director

 

 

(Principal Accounting and Financial Officer)

 

1


Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of HarborOne Bancorp, Inc. (the “Company”) for the period ended June 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

 

Date: August 11, 2017

By:

/s/James W. Blake

 

 

James W. Blake

 

 

President, Chief Executive Officer and Director

 

 

(Principal Executive Officer)

 

 

 

Date: August 11, 2017

By:

/s/Joseph F. Casey

 

 

Joseph F. Casey

 

 

Executive Vice President, Chief Operating Officer, Chief Financial Officer, Treasurer and Director

 

 

(Principal Accounting and Financial Officer)

 

1