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Section 1: 10-Q (10-Q)

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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, 2018

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 1, 2018 there were 32,622,695 shares of the Registrant’s common stock, par value $0.01 per share, outstanding.

 

 

 


 

Table of Contents

Index

 

 

 

PAGE

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

ITEM 1.

 

Financial Statements

 

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017 (unaudited)

1

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)

2

 

 

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)

3

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June  30, 2018 and 2017 (unaudited)

4

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 (unaudited)

5

 

 

Notes to Consolidated Financial Statements (unaudited)

7

 

 

 

ITEM 2. 

 

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

41

ITEM 3. 

 

Quantitative and Qualitative Disclosures about Market Risk

65

ITEM 4. 

 

Controls and Procedures

65

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

ITEM 1. 

 

Legal Proceedings

66

ITEM 1A. 

 

Risk Factors

66

ITEM 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

66

ITEM 3. 

 

Defaults Upon Senior Securities

66

ITEM 4. 

 

Mine Safety Disclosures

66

ITEM 5. 

 

Other Information

66

ITEM 6. 

 

Exhibits

66

 

 

 

 

EXHIBIT INDEX 

 

 

67

 

 

 

 

SIGNATURE 

 

 

68

 

 

 

 

 

 

 

 

 


 

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Balance Sheets (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31,

 

(in thousands, except share data)

    

2018

 

2017

 

 

 

 

 

 

 

 

 

Assets

 

 

 

    

 

 

 

Cash and due from banks

 

$

20,232

 

$

16,348

 

Short-term investments

 

 

112,264

 

 

64,443

 

Total cash and cash equivalents

 

 

132,496

 

 

80,791

 

 

 

 

 

 

 

 

 

Securities available for sale, at fair value

 

 

185,702

 

 

170,853

 

Securities held to maturity, at amortized cost

 

 

48,251

 

 

46,869

 

Federal Home Loan Bank stock, at cost

 

 

15,310

 

 

15,532

 

Loans held for sale, at fair value

 

 

71,017

 

 

59,460

 

Loans

 

 

2,300,695

 

 

2,194,967

 

Less: Allowance for loan losses

 

 

(19,244)

 

 

(18,489)

 

Net loans

 

 

2,281,451

 

 

2,176,478

 

Accrued interest receivable

 

 

7,284

 

 

6,545

 

Other real estate owned and repossessed assets

 

 

1,029

 

 

762

 

Mortgage servicing rights, at fair value

 

 

22,832

 

 

21,092

 

Property and equipment, net

 

 

24,226

 

 

24,487

 

Retirement plan annuities

 

 

12,730

 

 

12,498

 

Bank-owned life insurance

 

 

40,928

 

 

40,446

 

Deferred income taxes, net

 

 

1,717

 

 

843

 

Goodwill and other intangible assets

 

 

13,717

 

 

13,497

 

Other assets

 

 

21,024

 

 

14,767

 

Total assets

 

$

2,879,714

 

$

2,684,920

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

$

294,944

 

$

264,453

 

Interest-bearing deposits

 

 

1,828,162

 

 

1,675,795

 

Brokered deposits

 

 

79,396

 

 

73,490

 

Total deposits

 

 

2,202,502

 

 

2,013,738

 

Short-term borrowed funds

 

 

70,000

 

 

44,000

 

Long-term borrowed funds

 

 

217,438

 

 

246,365

 

Mortgagors' escrow accounts

 

 

5,299

 

 

5,221

 

Accrued interest payable

 

 

417

 

 

518

 

Other liabilities and accrued expenses

 

 

35,482

 

 

31,594

 

Total liabilities

 

 

2,531,138

 

 

2,341,436

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Notes 2, 9 and 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; 90,000,000 shares authorized; 32,662,295 shares issued at June 30, 2018 and December 31, 2017, respectively

 

 

327

 

 

327

 

Additional paid-in capital

 

 

150,063

 

 

147,060

 

Retained earnings

 

 

213,049

 

 

207,590

 

Treasury stock, at cost, 39,600 and 14,900 shares at June 30, 2018 and December 31, 2017, respectively

 

 

(742)

 

 

(280)

 

Accumulated other comprehensive loss

 

 

(3,733)

 

 

(528)

 

Unearned compensation - ESOP

 

 

(10,388)

 

 

(10,685)

 

Total stockholders' equity

 

 

348,576

 

 

343,484

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

2,879,714

 

$

2,684,920

 

 

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)

 

2018

    

2017

 

2018

    

2017

 

 

 

 

 

 

 

 

 

Interest and dividend income:

 

 

 

 

 

 

    

 

 

 

 

 

Interest and fees on loans

 

$

23,866

 

$

19,640

 

$

46,370

 

$

38,775

Interest on loans held for sale

 

 

521

 

 

620

 

 

932

 

 

1,166

Interest on taxable securities

 

 

1,351

 

 

1,116

 

 

2,630

 

 

2,114

Interest on non-taxable securities

 

 

216

 

 

216

 

 

433

 

 

434

Other interest and dividend income

 

 

297

 

 

320

 

 

571

 

 

572

Total interest and dividend income

 

 

26,251

 

 

21,912

 

 

50,936

 

 

43,061

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

4,450

 

 

2,567

 

 

7,973

 

 

4,999

Interest on borrowed funds

 

 

906

 

 

1,130

 

 

1,944

 

 

2,415

Total interest expense

 

 

5,356

 

 

3,697

 

 

9,917

 

 

7,414

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest and dividend income

 

 

20,895

 

 

18,215

 

 

41,019

 

 

35,647

Provision for loan losses

 

 

886

 

 

470

 

 

1,694

 

 

735

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income, after provision for loan losses

 

 

20,009

 

 

17,745

 

 

39,325

 

 

34,912

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage banking income:

 

 

 

 

 

 

 

 

 

 

 

 

Changes in mortgage servicing rights fair value

 

 

(306)

 

 

(1,052)

 

 

716

 

 

(1,494)

Other

 

 

8,765

 

 

11,200

 

 

15,026

 

 

19,046

Total mortgage banking income

 

 

8,459

 

 

10,148

 

 

15,742

 

 

17,552

Deposit account fees

 

 

3,224

 

 

3,071

 

 

6,191

 

 

5,916

Income on retirement plan annuities

 

 

119

 

 

113

 

 

232

 

 

223

Gain on sale of consumer loans

 

 

 —

 

 

 —

 

 

 —

 

 

78

Bank-owned life insurance income

 

 

243

 

 

261

 

 

482

 

 

518

Other income

 

 

512

 

 

706

 

 

1,259

 

 

1,466

Total noninterest income

 

 

12,557

 

 

14,299

 

 

23,906

 

 

25,753

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

17,345

 

 

16,319

 

 

33,697

 

 

31,243

Occupancy and equipment

 

 

2,961

 

 

2,726

 

 

6,236

 

 

5,714

Data processing

 

 

1,569

 

 

1,528

 

 

3,122

 

 

3,050

Loan expenses

 

 

1,390

 

 

1,882

 

 

2,652

 

 

3,245

Marketing

 

 

1,084

 

 

1,041

 

 

2,083

 

 

1,523

Deposit expenses

 

 

327

 

 

367

 

 

657

 

 

708

Postage and printing

 

 

354

 

 

295

 

 

720

 

 

637

Professional fees

 

 

915

 

 

1,080

 

 

1,883

 

 

2,010

Foreclosed and repossessed assets

 

 

45

 

 

25

 

 

108

 

 

52

Deposit insurance

 

 

491

 

 

446

 

 

985

 

 

908

Other expenses

 

 

2,037

 

 

1,169

 

 

3,974

 

 

2,193

Total noninterest expense

 

 

28,518

 

 

26,878

 

 

56,117

 

 

51,283

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

4,048

 

 

5,166

 

 

7,114

 

 

9,382

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

 

945

 

 

1,953

 

 

1,759

 

 

3,434

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

3,103

 

$

3,213

 

$

5,355

 

$

5,948

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.10

 

$

0.10

 

$

0.17

 

$

0.19

Diluted

 

$

0.10

 

$

0.10

 

$

0.17

 

$

0.19

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

31,578,961

 

 

31,013,002

 

 

31,574,411

 

 

31,005,623

Diluted

 

 

31,578,961

 

 

31,013,002

 

 

31,574,411

 

 

31,005,623

 

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 (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

 

Six Months Ended June 30, 

(in thousands)

    

2018

    

2017

 

 

2018

 

2017

 

 

 

 

 

Net income

 

$

3,103

 

$

3,213

 

 

$

5,355

 

$

5,948

Other comprehensive income:

 

 

 

 

 

 

      

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses)

 

 

(1,328)

 

 

541

 

 

 

(3,975)

 

 

975

Related tax effect

 

 

292

 

 

(188)

 

 

 

874

 

 

(340)

Net-of-tax amount

 

 

(1,036)

 

 

353

 

 

 

(3,101)

 

 

635

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental director retirement plan:

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for amortization of prior service cost

 

 

 —

 

 

61

 

 

 

 —

 

 

121

Related tax effect

 

 

 —

 

 

(25)

 

 

 

 —

 

 

(34)

Net-of-tax amount

 

 

 —

 

 

36

 

 

 

 —

 

 

87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

 

(1,036)

 

 

389

 

 

 

(3,101)

 

 

722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

2,067

 

$

3,602

 

 

$

2,254

 

$

6,670

Amortization of prior service cost is included in compensation and benefits in the unaudited interim Consolidated Statements of Operations. 

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

 

 

 

Treasury

 

Other

 

Unearned

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

Retained

 

Stock,

 

Comprehensive

 

Compensation

 

Stockholders'

 

(in thousands, except share data)

  

Shares

  

 

Amount

  

 

Capital

  

Earnings

 

at Cost

  

Loss

  

- ESOP

  

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

32,647,395

 

$

327

 

$

147,060

 

$

207,590

 

$

(280)

 

$

(528)

 

$

(10,685)

 

$

343,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

 —

 

 

 —

 

 

 —

 

 

5,355

 

 

 —

 

 

(3,101)

 

 

 —

 

 

2,254

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stranded effect of tax rate change (Note 1)

 

 —

 

 

 —

 

 

 —

 

 

104

 

 

 —

 

 

(104)

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 —

 

 

 —

 

 

256

 

 

 —

 

 

 —

 

 

 —

 

 

297

 

 

553

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 —

 

 

 —

 

 

2,747

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,747

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury stock purchased

 

(24,700)

 

 

 —

 

 

 —

 

 

 —

 

 

(462)

 

 

 —

 

 

 —

 

 

(462)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

 

32,622,695

 

$

327

 

$

150,063

 

$

213,049

 

$

(742)

 

$

(3,733)

 

$

(10,388)

 

$

348,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

    

2018

    

2017

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

5,355

 

$

5,948

Adjustments to reconcile net income to net cash used by operating activities:

 

 

 

 

 

 

Provision for loan losses

 

 

1,694

 

 

735

Net amortization of securities premiums/discounts

 

 

280

 

 

360

Net amortization of net deferred loan costs/fees and premiums

 

 

1,753

 

 

2,524

Depreciation and amortization of premises and equipment

 

 

1,429

 

 

1,389

Change in mortgage servicing rights fair value

 

 

(716)

 

 

1,494

Mortgage and consumer servicing rights capitalized

 

 

(1,024)

 

 

(1,503)

Amortization of consumer servicing rights

 

 

24

 

 

28

Accretion of fair value adjustment on loans and deposits, net

 

 

(166)

 

 

(199)

Amortization of intangible assets

 

 

44

 

 

44

Bank-owned life insurance income

 

 

(482)

 

 

(518)

Income on retirement plan annuities

 

 

(232)

 

 

(223)

Gain on sale of portfolio loans

 

 

 —

 

 

(36)

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

 

 

56

 

 

20

Deferred income tax benefit

 

 

 —

 

 

(91)

ESOP expenses

 

 

553

 

 

581

Share-based compensation expense

 

 

2,747

 

 

 —

Net change in:

 

 

 

 

 

 

Loans held for sale

 

 

(11,557)

 

 

(5,406)

Other assets and liabilities, net

 

 

(3,453)

 

 

(9,226)

Net cash used by operating activities

 

 

(3,695)

 

 

(4,079)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Activity in securities available for sale:

 

 

 

 

 

 

Maturities, prepayments and calls

 

 

11,083

 

 

10,901

Purchases

 

 

(30,019)

 

 

(34,442)

Activity in securities held to maturity:

 

 

 

 

 

 

Maturities, prepayment and calls

 

 

1,446

 

 

2,047

Purchases

 

 

(2,996)

 

 

 —

Net redemption (purchase) of FHLB stock

 

 

222

 

 

(607)

Proceeds from sale of portfolio loans

 

 

 —

 

 

5,007

Participation-in loan purchases

 

 

(51,652)

 

 

(49,927)

Loan originations, net of principal payments

 

 

(57,456)

 

 

(56,567)