UNITED STATESSECURITIES 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 ~~September~~June 30, ~~2020~~2021

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

Commission File Number 001-38955

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)

Securities registered pursuant to Section 12(b) of the Act


Title of each Class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	HONE	The NASDAQ Stock Market, LLC

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 every Interactive Data File required to be submitted 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 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 ☐

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 ~~October 28, 2020,~~July 30, 2021, there were ~~58,342,464~~55,150,069 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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (unaudited)	1
	Consolidated Statements of Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 (unaudited)	2
	Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 (unaudited)	3
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and ~~Nine~~Six Months Ended ~~September 30,~~June 31, 2021 and 2020 ~~and 2019~~ (unaudited)	4
	Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September 30,~~June 31, 2021 and 2020 ~~and 2019~~ (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	7071
ITEM 4.	Controls and Procedures	7071

PART II.	OTHER INFORMATION

ITEM 1.	Legal Proceedings	7172
ITEM 1A.	Risk Factors	7172
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7273
ITEM 3.	Defaults Upon Senior Securities	7273
ITEM 4.	Mine Safety Disclosures	7273
ITEM 5.	Other Information	7273
ITEM 6.	Exhibits	7374

EXHIBIT INDEX		74

SIGNATURE		75

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Balance Sheets (unaudited)


	September 30,		December 31,		June 30,		December 31,
(in thousands, except share data)	2020		2019		2021		2020

Assets
Cash and due from banks	$	29,180	$	24,464	$	41,328	$	31,777
Short-term investments		108,338		187,152		374,319		174,093
Total cash and cash equivalents		137,518		211,616		415,647		205,870

Securities available for sale, at fair value		280,308		239,473		353,848		276,498
Securities held to maturity, at amortized cost		—		26,372
Federal Home Loan Bank stock, at cost		11,631		17,121		7,241		8,738
Assets held for sale		—		8,536
Loans held for sale, at fair value		190,373		110,552		103,886		208,612
Loans		3,515,831		3,171,558		3,419,737		3,494,642
Less: Allowance for loan losses		(49,223)		(24,060)		(51,273)		(55,395)
Net loans		3,466,608		3,147,498		3,368,464		3,439,247
Accrued interest receivable		12,504		9,807		11,058		11,874
Other real estate owned and repossessed assets		898		719		298		595
Mortgage servicing rights, at fair value		20,159		17,150		35,955		24,833
Property and equipment, net		49,399		47,951		51,504		49,580
Retirement plan annuities		13,641		13,333		13,957		13,747
Bank-owned life insurance		87,400		85,735		88,951		87,950
Goodwill		69,802		69,802		69,802		69,802
Intangible assets		4,694		6,035		3,723		4,370
Other assets		83,384		47,221		92,088		81,899
Total assets	$	4,428,319	$	4,058,921	$	4,616,422	$	4,483,615

Liabilities and Stockholders' Equity
Deposits:
Demand deposit accounts	$	650,336	$	406,403	$	800,118	$	689,672
NOW accounts		202,020		165,877		250,099		218,584
Regular savings and club accounts		912,017		626,685		1,123,123		998,994
Money market deposit accounts		815,644		856,830		832,006		866,661
Term certificate accounts		785,871		887,078		682,594		732,298
Total deposits		3,365,888		2,942,873		3,687,940		3,506,209
Short-term borrowed funds		95,000		183,000		—		35,000
Long-term borrowed funds		141,106		171,132		87,479		114,097
Subordinated debt		34,002		33,907		34,096		34,033
Mortgagors' escrow accounts		7,979		6,053		8,284		7,736
Accrued interest payable		1,001		1,669		917		1,262
Other liabilities and accrued expenses		89,240		54,493		92,235		88,964
Total liabilities		3,734,216		3,393,127		3,910,951		3,787,301

Commitments and contingencies (Notes 9 and 10)

Common stock, $0.01 par value; 150,000,000 shares authorized; 58,480,543 shares issued; 58,342,464 and 58,418,021 shares outstanding at September 30, 2020 and December 31, 2019, respectively		584		584
Common stock, $0.01 par value; 150,000,000 shares authorized; 59,086,187 and 58,834,970 shares issued; 55,735,623 and 57,205,458 shares outstanding at June 30, 2021 and December 31, 2020, respectively						585		584
Additional paid-in capital		463,531		460,232		467,194		464,176
Retained earnings		261,304		237,356		305,831		277,312
Treasury stock, at cost, 138,079 and 71,201 shares at September 30, 2020 and December 31, 2019, respectively		(1,333)		(721)
Treasury stock, at cost, 3,350,564 and 1,629,512 shares at June 30, 2021 and December 31, 2020, respectively						(38,588)		(16,644)
Accumulated other comprehensive income		1,776		1,480		829		2,185
Unearned compensation - ESOP		(31,759)		(33,137)		(30,380)		(31,299)
Total stockholders' equity		694,103		665,794		705,471		696,314
Total liabilities and stockholders' equity	$	4,428,319	$	4,058,921	$	4,616,422	$	4,483,615

The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Statements of Income (unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except share data)

2020

2019

2020

2019

Interest and dividend income:

Interest and fees on loans

$
34,496

$
36,230

$
102,491

$
106,033

Interest on loans held for sale

1,060

747

2,625

1,647

Interest on taxable securities

1,312

1,450

4,446

4,816

Interest on non-taxable securities

5

92

103

423

Other interest and dividend income

175

1,211

1,173

2,142

Total interest and dividend income

37,048

39,730

110,838

115,061

Interest expense:

Interest on deposits

4,520

9,972

19,018

27,577

Interest on FHLB borrowings

835

1,249

2,933

5,203

Interest on subordinated debentures

524

524

1,571

1,553

Total interest expense

5,879

11,745

23,522

34,333

Net interest and dividend income

31,169

27,985

87,316

80,728

Provision for loan losses

13,454

889

27,207

3,496

Net interest and dividend income, after provision for loan losses

17,715

27,096

60,109

77,232

Noninterest income:

Mortgage banking income:

Gain on sale of mortgage loans

34,055

11,015

77,195

24,086

Changes in mortgage servicing rights fair value

(193)

(2,474)

(5,691)

(6,866)

Other

4,281

2,964

10,962

7,442

Total mortgage banking income

38,143

11,505

82,466

24,662

Deposit account fees

3,451

4,186

10,351

12,020

Income on retirement plan annuities

104

104

308

300

Gain on sale and call of securities, net

—

77

2,533

1,344

Bank-owned life insurance income

560

256

1,665

762

Other income

2,203

1,145

4,642

3,745

Total noninterest income

44,461

17,273

101,965

42,833

Noninterest expense:

Compensation and benefits

29,839

23,238

78,493

63,068

Occupancy and equipment

4,581

4,171

13,296

13,030

Data processing

2,119

2,196

6,576

6,441

Loan expenses

3,189

1,704

7,433

4,309

Marketing

817

799

2,750

2,934

Deposit expenses

475

405

1,435

1,189

Postage and printing

455

435

1,386

1,345

Professional fees

1,458

889

4,204

3,219

Foreclosed and repossessed assets

27

42

165

(34)

Deposit insurance

310

(225)

860

1,030

Other expenses

2,452

2,549

8,350

7,345

Total noninterest expense

45,722

36,203

124,948

103,876

Income before income taxes

16,454

8,166

37,126

16,189

Income tax provision

4,561

1,053

9,934

2,228

Net income

$
11,893

$
7,113

$
27,192

$
13,961

Earnings per common share ⁽¹⁾:

Basic

$
0.22

$
0.13

$
0.50

$
0.25

Diluted

$
0.22

$
0.13

$
0.50

$
0.25

Weighted average shares outstanding⁽¹⁾:

Basic

54,465,339

55,638,734

54,436,090

56,855,930

Diluted

54,465,339

55,638,734

54,436,090

56,855,930

⁽¹⁾ Share amounts related to periods prior to the August 14, 2019 closing of the conversion offering have been restated to give retroactive recognition to the 1.795431 exchange ratio applied in the conversion offering (see Note 1).


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except share data)	2021		2020		2021		2020


Interest and dividend income:
Interest and fees on loans	$	34,106	$	33,970	$	67,966	$	67,995
Interest on loans held for sale		852		988		2,176		1,565
Interest on taxable securities		793		1,392		1,378		3,134
Interest on non-taxable securities		—		32		—		98
Other interest and dividend income		136		239		214		998
Total interest and dividend income		35,887		36,621		71,734		73,790

Interest expense:
Interest on deposits		2,302		5,805		5,022		14,498
Interest on FHLB borrowings		531		845		1,083		2,098
Interest on subordinated debentures		524		524		1,047		1,047
Total interest expense		3,357		7,174		7,152		17,643

Net interest and dividend income		32,530		29,447		64,582		56,147
Provision (credit) for loan losses		(4,286)		10,004		(4,195)		13,753

Net interest and dividend income, after provision (credit) for loan losses		36,816		19,443		68,777		42,394

Noninterest income:
Mortgage banking income:
Gain on sale of mortgage loans		14,262		30,862		39,064		43,140
Changes in mortgage servicing rights fair value		(2,552)		(1,111)		857		(5,498)
Other		4,075		4,049		8,590		6,392
Total mortgage banking income		15,785		33,800		48,511		44,034
Deposit account fees		4,546		2,969		8,398		6,900
Income on retirement plan annuities		106		103		210		204
Gain on sale and call of securities, net		—		8		—		2,533
Bank-owned life insurance income		508		554		1,001		1,105
Other income		758		1,143		1,392		2,439
Total noninterest income		21,703		38,577		59,512		57,215

Noninterest expense:
Compensation and benefits		25,146		27,469		52,600		48,654
Occupancy and equipment		4,702		4,152		9,958		8,715
Data processing		2,362		2,277		4,705		4,457
Loan expenses		1,250		2,702		3,685		3,955
Marketing		831		1,057		1,644		1,933
Deposit expenses		338		461		778		960
Postage and printing		418		435		819		931
Professional fees		1,487		1,518		3,070		2,746
Foreclosed and repossessed assets		(47)		13		(24)		138
Deposit insurance		332		279		652		550
Other expenses		1,779		3,414		3,513		5,898
Total noninterest expense		38,598		43,777		81,400		78,937

Income before income taxes		19,921		14,243		46,889		20,672

Income tax provision		5,645		3,668		13,221		5,373

Net income	$	14,276	$	10,575	$	33,668	$	15,299

Earnings per common share:
Basic	$	0.28	$	0.19	$	0.65	$	0.28
Diluted	$	0.27	$	0.19	$	0.64	$	0.28
Weighted average shares outstanding:
Basic		51,778,293		54,450,146		52,155,754		54,421,306
Diluted		52,650,071		54,450,146		52,823,354		54,421,306

The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Statements of Comprehensive Income (unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020


Net income	$	14,276	$	10,575	$	33,668	$	15,299
Other comprehensive income:

Unrealized gain/loss on cash flow hedge:
Unrealized holding (losses) gains		(363)		(1,613)		1,370		(1,613)
Reclassification adjustment for net losses (gains) included in net income		121		(149)		233		(149)
Net change in unrealized (losses) gains on derivatives in cash flow hedging instruments		(242)		(1,762)		1,603		(1,762)
Related tax effect		68		493		(448)		493
Net-of-tax amount		(174)		(1,269)		1,155		(1,269)

Unrealized gain/loss on securities available for sale:
Unrealized holding gains (losses)		1,493		(471)		(3,220)		5,547
Reclassification of unrealized gain on securities transferred to available for sale		—		—		—		522
Reclassification adjustment for net realized gains		—		(8)		—		(2,533)
Net unrealized gains (losses)		1,493		(479)		(3,220)		3,536
Related tax effect		(330)		387		709		(850)
Net-of-tax amount		1,163		(92)		(2,511)		2,686

Total other comprehensive income (loss)		989		(1,361)		(1,356)		1,417

Comprehensive income	$	15,265	$	9,214	$	32,312	$	16,716

The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,
(in thousands)

2020

2019

2020

2019

Net income

$
11,893

$
7,113

$
27,192

$
13,961
Other comprehensive income:

Unrealized gain/loss on cash flow hedge:

Unrealized holding gains (losses)

32

—

(1,581)

—
Reclassification adjustment for net losses (gains) included in net income

82

—

(67)

—
Net change in unrealized gains (losses) on derivatives in cash flow hedging instruments

114

—

(1,648)

—
Related tax effect

(32)

—

461

—
Net-of-tax amount

82

—

(1,187)

—

Unrealized gain/loss on securities available for sale:

Unrealized holding gains (losses)

(1,335)

609

4,212

6,780
Reclassification of unrealized gain on securities transferred to available for sale

—

—

522

—
Reclassification adjustment for net realized gains

—

(77)

(2,533)

(1,344)
Net unrealized gains (losses)

(1,335)

532

2,201

5,436
Related tax effect

132

(117)

(718)

(1,197)
Net-of-tax amount

(1,203)

415

1,483

4,239

Total other comprehensive income (loss)

(1,121)

415

296

4,239

Comprehensive income

$
10,772

$
7,528

$
27,488

$
18,200


										Accumulated
	Common Stock			Additional				Treasury		Other		Unearned		Total
	Outstanding			Paid-in		Retained		Stock,		Comprehensive		Compensation		Stockholders'
(in thousands, except share data)	Shares	Amount		Capital		Earnings		at Cost		Income (Loss)		- ESOP		Equity

Balance at March 31, 2020	54,418,021	$	584	$	461,616	$	242,080	$	(721)	$	4,258	$	(32,678)	$	675,139

Comprehensive income	—		—		—		10,575		—		(1,361)		—		9,214
Dividends declared of $0.03 per share	—		—		—		(1,623)		—		—		—		(1,623)
ESOP shares committed to be released (57,681 shares)	—		—		2		—		—		—		460		462
Share-based compensation expense	—		—		1,263		—		—		—		—		1,263

Balance at June 30, 2020	54,418,021	$	584	$	462,881	$	251,032	$	(721)	$	2,897	$	(32,218)	$	684,455


Balance at March 31, 2021	56,228,762	$	585	$	465,832	$	294,116	$	(31,460)	$	(160)	$	(30,840)	$	698,073

Comprehensive income (loss)	—		—		—		14,276		—		989		—		15,265
Dividends declared of $0.05 per share	—		—		—		(2,561)		—		—		—		(2,561)
ESOP shares committed to be released (57,681 shares)	—		—		373		—		—		—		460		833
Share-based compensation expense	—		—		989		—		—		—		—		989
Treasury stock purchased	(493,139)		—		—		—		(7,128)		—		—		(7,128)

Balance at June 30, 2021	55,735,623	$	585	$	467,194	$	305,831	$	(38,588)	$	829	$	(30,380)	$	705,471

~~The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements~~.

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

Accumulated

Common Stock

Additional

Treasury

Other

Unearned

Total

Outstanding

Paid-in

Retained

Stock,

Comprehensive

Compensation

Stockholders'
(in thousands, except share data)

Shares ⁽¹⁾

Amount

Capital

Earnings

at Cost

Income (Loss)

- ESOP

Equity

Balance at June 30, 2019

58,483,025

$
327

$
154,730

$
225,936

$
(1,548)

$
1,466

$
(9,793)

$
371,118

Corporate Reorganization:

Conversion of HarborOne Bancorp, Inc. (net of costs of $6.3 million)

8,760

257

303,854

—

—

—

—

304,111
Purchase of 2,482,945 shares by the ESOP

—

—

—

—

—

—

(24,830)

(24,830)
Treasury stock retired

—

—

(1,548)

—

1,548

—

—

—
Contribution of HarborOne Bancorp Mutual Bancshares

—

—

99

—

—

—

—

99
Comprehensive income

—

—

—

7,113

—

415

—

7,528
ESOP shares committed to be released (78,588 shares)

—

—

158

—

—

—

785

943
Restricted stock awards granted, net of awards forfeited

9,000

—

—

—

—

—

—

—
Share-based compensation expense

—

—

1,306

—

—

—

—

1,306
Treasury stock purchased

(71,201)

—

—

—

(721)

—

—

(721)

Balance at September 30, 2019

58,429,584

$
584

$
458,599

$
233,049

$
(721)

$
1,881

$
(33,838)

$
659,554

Balance at June 30, 2020

58,418,021

$
584

$
462,881

$
251,032

$
(721)

$
2,897

$
(32,218)

$
684,455

Comprehensive income

—

—

—

11,893

—

(1,121)

—

10,772
Dividends declared of $0.03 per share

—

—

—

(1,621)

—

—

—

(1,621)
ESOP shares committed to be released (57,680 shares)

—

—

33

—

—

—

459

492
Restricted stock awards forfeited

(8,679)

—

—

—

—

—

—

—
Share-based compensation expense

—

—

617

—

—

—

—

617
Treasury stock purchased

(66,878)

—

—

—

(612)

—

—

(612)

Balance at September 30, 2020

58,342,464

$
584

$
463,531

$
261,304

$
(1,333)

$
1,776

$
(31,759)

$
694,103

⁽¹⁾ Share amounts related to periods prior to the August 14, 2019 closing of the conversion offering have been restated to give retroactive recognition to the 1.795431 exchange ratio applied in the conversion offering (see Note 1).

~~(continued)~~

~~The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements~~

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Consolidated Statements of Changes in Stockholders’ Equity (unaudited)~~


										Accumulated															Accumulated
	Common Stock			Additional				Treasury		Other		Unearned		Total		Common Stock			Additional				Treasury		Other		Unearned		Total
	Outstanding			Paid-in		Retained		Stock,		Comprehensive		Compensation		Stockholders'		Outstanding			Paid-in		Retained		Stock,		Comprehensive		Compensation		Stockholders'
(in thousands, except share data)	Shares ⁽¹⁾	Amount		Capital		Earnings		at Cost		Income (Loss)		- ESOP		Equity		Shares	Amount		Capital		Earnings		at Cost		Income (Loss)		- ESOP		Equity

Balance at December 31, 2018	58,465,505	$	327	$	152,156	$	219,088	$	(1,548)	$	(2,358)	$	(10,091)	$	357,574

Corporate Reorganization:
Conversion of HarborOne Bancorp, Inc. (net of costs of $6.3 million)	8,760		257		303,854		—		—		—		—		304,111
Purchase of 2,482,945 shares by the ESOP	—		—		—		—		—		—		(24,830)		(24,830)
Treasury stock retired	—		—		(1,548)		—		1,548		—		—		—
Contributions of HarborOne Bancorp Mutual Bancshares	—		—		99		—		—		—		—		99
Comprehensive income	—		—		—		13,961		—		4,239		—		18,200
ESOP shares committed to be released (108,268 shares)	—		—		370		—		—		—		1,083		1,453
Restricted stock awards granted, net of awards forfeited	26,520		—		—		—		—		—		—		—
Share-based compensation expense	—		—		3,668		—		—		—		—		3,668
Treasury stock purchased	(71,201)		—		—		—		(721)		—		—		(721)

Balance at September 30, 2019	58,429,584	$	584	$	458,599	$	233,049	$	(721)	$	1,881	$	(33,838)	$	659,554


Balance at December 31, 2019	58,418,021	$	584	$	460,232	$	237,356	$	(721)	$	1,480	$	(33,137)	$	665,794	54,418,021	$	584	$	460,232	$	237,356	$	(721)	$	1,480	$	(33,137)	$	665,794

Comprehensive income	—		—		—		27,192		—		296		—		27,488	—		—		—		15,299		—		1,417		—		16,716
Dividends declared of $0.06 per share	—		—		—		(3,244)		—		—		—		(3,244)
ESOP shares committed to be released (173,042 shares)	—		—		156		—		—		—		1,378		1,534
Restricted stock awards forfeited	(8,679)		—		—		—		—		—		—		—
Dividends declared of $0.03 per share																—		—		—		(1,623)		—		—		—		(1,623)
ESOP shares committed to be released (115,362 shares)																—		—		123		—		—		—		919		1,042
Share-based compensation expense	—		—		3,143		—		—		—		—		3,143	—		—		2,526		—		—		—		—		2,526

Balance at June 30, 2020																54,418,021	$	584	$	462,881	$	251,032	$	(721)	$	2,897	$	(32,218)	$	684,455


Balance at December 31, 2020																57,205,458	$	584	$	464,176	$	277,312	$	(16,644)	$	2,185	$	(31,299)	$	696,314

Comprehensive income(loss)																—		—		—		33,668		—		(1,356)		—		32,312
Dividends declared of $0.10 per share																—		—		—		(5,149)		—		—		—		(5,149)
ESOP shares committed to be released (115,362 shares)																—		—		615		—		—		—		919		1,534
Restricted stock awards granted																188,377		—		—		—		—		—		—		—
Share-based compensation expense																—		—		1,761		—		—		—		—		1,761
Stock option exercised																62,840		1		642		—		—		—		—		643
Treasury stock purchased	(66,878)		—		—		—		(612)		—		—		(612)	(1,721,052)		—		—		—		(21,944)		—		—		(21,944)

Balance at September 30, 2020	58,342,464	$	584	$	463,531	$	261,304	$	(1,333)	$	1,776	$	(31,759)	$	694,103
Balance at June 30, 2021																55,735,623	$	585	$	467,194	$	305,831	$	(38,588)	$	829	$	(30,380)	$	705,471

⁽¹⁾ Share amounts related to periods prior to the August 14, 2019 closing of the conversion offering have been restated to give retroactive recognition to the 1.795431 exchange ratio applied in the conversion offering (see Note 1).

The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.

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HarborOne Bancorp, Inc.

Consolidated Statements of Cash Flows (unaudited)

Nine Months Ended September 30,
(in thousands)

2020

2019

Cash flows from operating activities:

Net income

$
27,192

$
13,961
Adjustments to reconcile net income to net cash used by operating activities:

Provision for loan losses

27,207

3,496
Net amortization of securities premiums/discounts

1,371

196
Proceeds from sale of loans

1,715,878

716,894
Loans originated for sale

(1,712,957)

(751,540)
Net amortization of net deferred loan costs/fees and premiums

984

2,152
Depreciation and amortization of premises and equipment

2,997

3,296
Change in mortgage servicing rights fair value

5,691

6,866
Mortgage servicing rights capitalized

(8,700)

(716)
Accretion of fair value adjustment on loans and deposits, net

(2,848)

(1,800)
Amortization of other intangible assets

1,341

1,897
Amortization of subordinated debt issuance costs

95

76
Gain on sale and call of securities, net

(2,533)

(1,344)
Net gains on mortgage loan sales, including fair value adjustments

(82,741)

(25,368)
Bank-owned life insurance income

(1,665)

(762)
Income on retirement plan annuities

(308)

(300)
Disposal of asset held for sale

8,536

—
Net loss on disposal of premises and equipment

101

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

57

(94)
ESOP expense

1,534

1,453
Share-based compensation expense

3,143

3,668
Change in other assets

(39,116)

(21,260)
Change in other liabilities

29,187

1,492
Net cash used by operating activities

(25,554)

(47,737)

Cash flows from investing activities:

Activity in securities available for sale:

Maturities, prepayments and calls

69,870

38,786
Purchases

(153,747)

(55,369)
Sales

67,586

28,391
Activity in securities held to maturity:

Maturities, prepayment and calls

432

17,525
Sales

4,759

—
Net redemption of FHLB stock

5,490

11,503
Participation-in loan purchases

(21,994)

(28,931)
Loan originations, net of principal payments

(322,973)

(100,226)
Proceeds from sale of other real estate owned and repossessed assets

855

2,145
Additions to property and equipment

(4,546)

(3,248)
Cash received in MHC merger

—

99
Net cash used by investing activities

(354,268)

(89,325)


	Six Months Ended June 30,
(in thousands)	2021		2020


Cash flows from operating activities:
Net income	$	33,668	$	15,299
Adjustments to reconcile net income to net cash used by operating activities:
Provision (credit) for loan losses		(4,195)		13,753
Net amortization of securities premiums/discounts		2,363		668
Proceeds from sale of loans		1,329,424		982,423
Loans originated for sale		(1,191,730)		(987,631)
Net (accretion) amortization of net deferred loan costs/fees and premiums		(903)		811
Depreciation and amortization of premises and equipment		2,353		1,985
Change in mortgage servicing rights fair value		(857)		5,498
Mortgage servicing rights capitalized		(10,265)		(4,475)
Accretion of fair value adjustment on loans and deposits, net		(2,189)		(1,466)
Amortization of other intangible assets		647		894
Amortization of subordinated debt issuance costs		63		63
Gain on sale and call of securities, net		—		(2,533)
Net gains on mortgage loan sales, including fair value adjustments		(32,968)		(43,140)
Bank-owned life insurance income		(1,001)		(1,105)
Income on retirement plan annuities		(210)		(204)
Net loss on disposal of premises and equipment		—		110
Net (gain) loss on sale and write-down of other real estate owned and repossessed assets		(9)		56
ESOP expense		1,534		1,042
Share-based compensation expense		1,761		2,526
Increase in operating lease right-of-use assets		(2,648)		—
Increase in operating lease liabilities		2,959		—
Change in other assets		16,923		(35,637)
Change in other liabilities		(22,475)		28,847
Net cash provided (used) by operating activities		122,244		(22,216)

Cash flows from investing activities:
Activity in securities available for sale:
Maturities, prepayments and calls		88,604		36,453
Purchases		(171,537)		(100,682)
Sales		—		67,574
Activity in securities held to maturity:
Maturities, prepayment and calls		—		432
Sales		—		4,759
Net redemption of FHLB stock		1,497		1,335
Participation-in loan purchases		(16,742)		(8,162)
Net loan payments (originations)		94,520		(295,427)
Proceeds from sale of other real estate owned and repossessed assets		864		595
Additions to property and equipment		(4,277)		(1,939)
Net cash used by investing activities		(7,071)		(295,062)

(continued)

The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.

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HarborOne Bancorp, Inc.

Consolidated Statements of Cash Flows (unaudited)

Nine Months Ended September 30,
(in thousands)

2020

2019



Cash flows from financing activities:

Net increase in deposits

422,436

238,708
Net change in short-term borrowed funds

(88,000)

(230,000)
Proceeds from other borrowed funds and subordinated debt

40,000

21,220
Repayment of other borrowed funds

(70,026)

(40,016)
Net change in mortgagors' escrow accounts

1,926

1,700
Purchase of shares by the ESOP

—

(24,830)
Treasury stock purchased

(612)

(721)
Net proceeds from sale of common stock

—

304,111
Net cash provided by financing activities

305,724

270,172

Net change in cash and cash equivalents

(74,098)

133,110

Cash and cash equivalents at beginning of period

211,616

105,521

Cash and cash equivalents at end of period

$
137,518

$
238,631

Supplemental cash flow information:

Interest paid on deposits

$
19,282

$
27,654
Interest paid on borrowed funds

5,146

7,531
Income taxes paid, net

13,040

2,341
Transfer of loans to other real estate owned and repossessed assets

1,093

1,680
Transfer of securities held to maturity to available for sale, fair value

22,051

—
Dividends declared

3,244

—


	Six Months Ended June 30,
(in thousands)	2021		2020

Cash flows from financing activities:
Net increase in deposits		181,464		365,406
Net change in short-term borrowed funds		(35,000)		17,000
Proceeds from other borrowed funds and subordinated debt		3,400		40,000
Repayment of other borrowed funds		(30,018)		(70,018)
Net change in mortgagors' escrow accounts		548		2,246
Proceeds from exercise of stock options		643		—
Treasury stock purchased		(21,944)		—
Dividends paid		(4,489)		—
Net cash provided by financing activities		94,604		354,634

Net change in cash and cash equivalents		209,777		37,356

Cash and cash equivalents at beginning of period		205,870		211,616

Cash and cash equivalents at end of period	$	415,647	$	248,972

Supplemental cash flow information:
Interest paid on deposits	$	5,026	$	14,808
Interest paid on borrowed funds		2,194		3,276
Income taxes paid, net		10,649		5,625
Transfer of loans to other real estate owned and repossessed assets		558		469
Transfer of securities held to maturity to available for sale, fair value		—		22,051
Dividends declared		5,149		1,623

Supplemental disclosure related to adoption of ASU 2016-02, detailed in Note 1:
ROU asset	$	23,189	$	—
Operating lease liabilities		24,370		—

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 year ended December 31, ~~2019~~2020 and ~~2018~~2019 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 and HarborOne Bank (the “Bank”); and the Bank’s wholly-owned subsidiaries, which consist of HarborOne Mortgage, LLC (“HarborOne Mortgage”), a passive investment corporation, and 2 security corporations. The passive investment corporation maintains and manages certain assets of the Bank. 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.

Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. These changes and reclassifications did not impact previously reported net income or comprehensive income.

~~Recent Events~~

Nature of Operations

The Company provides a variety of financial services to individuals and businesses through its 27 full-service branches in Massachusetts and Rhode Island, and commercial lending offices in each of Boston, Massachusetts and Providence, Rhode Island. HarborOne Mortgage maintains more than 30 offices in Massachusetts, Rhode Island, New Hampshire, and Maine and is licensed to lend in 6 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, home equity, and consumer loans. The Company also originates, sells and services residential mortgage loans through HarborOne Mortgage.

Risks and Uncertainties

~~On March 11, 2020,~~We continue to monitor the ~~World Health Organization declared~~impact of the ~~outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, and almost all public commerce and related business activities have been, to varying degrees, curtailed. The~~ COVID-19 pandemic ~~has caused economic~~on the regional economies in which we operate and ~~social disruption~~the long-term ramifications to our customers and operations. Within our markets, vaccinations are readily available, and widely accepted, infection rates are relatively low among the vaccinated population, and many restrictions on ~~an unprecedented scale. While some industries have been impacted more severely than others, all~~ businesses have been ~~impacted~~lifted. However, the lasting effects of government aid programs are relatively unknown as stimulus packages begin to ~~some degree,~~taper, and the outbreak has caused significant disruptions in the U.S. economy and adversely impacted a broad range of industries in which the Company’s customers operate and may impair their ability to fulfill their financial obligations to the Company. The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions.

~~Congress, the President, and the Board of Governors~~ultimate ramifications of the Federal Reserve System (the “Federal Reserve”) have taken several actions designed to cushion the economic fallout. Most notably, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”),business shutdowns that occurred as a ~~$2 trillion legislative package, was signed into law at the end~~result of ~~March 2020. The goal~~COVID-19 are uncertain in many sectors of the ~~CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors.~~economy. The ~~Federal Reserve also took actions to mitigate the economic~~potential impact of COVID-19 including cutting the federal funds rate 150 basis points, targeting a 0 to 25 basis points rate. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other legislative and regulatory relief efforts are expected to have a material impact on the Company’s operations.variants remains unknown at this time.

The fiscal stimulus and relief programs have been an effective mitigant to credit losses in the near ~~term;~~term and significant progress has been made in combating COVID-19; however, once these programs are discontinued, the severity of potential losses is uncertain and depends on numerous factors and future developments. ~~The~~And while macroeconomic conditions have stabilized as of June 30, 2021, if there is a resurgence in the virus, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows. Effects may include:

●

Net interest income could be reduced. In accordance with regulatory guidance, the Company ~~is actively working~~worked with borrowers impacted by the COVID-19 pandemic to defer payments. While interest will continue to be recognized in accordance with GAAP, should eventual credit losses on these deferments emerge, interest income would be negatively impacted. As of September 30, 2020, the Bank had 99 active payment deferrals on loans with a total principal balance of $100.0 million, primarily commercial real estate loans. Loans with a total principal balance of $253.3 million were out of the deferral period and paying the loan as agreed and

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

income would be negatively impacted. At June 30, 2021, $13.9 million in loans ~~with a total principal balance of $5.8 million~~ were ~~out of the~~in an active deferral period and $1.9 million with an expired deferral period were delinquent more than 30 days.

●

~~The provision for loan losses could increase.~~ Continued uncertainty regarding the severity and duration of the COVID-19 pandemic and the related economic effects ~~will~~on credit quality could continue to affect the accounting for loan losses. ~~It also~~Although credit quality has not been a severely impacted so far, it is possible that asset quality could worsen, and loan charge-offs ~~increase.~~increase as government aid expires or if new variants result in renewed business restrictions. The Company participated in the U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) providing loans to small businesses negatively impacted by the COVID-19 pandemic. PPP loans are fully guaranteed by the U.S. ~~government.~~government and approximately 99% of the first phase of PPP loans have been forgiven as of June 30, 2021.

●

Noninterest income could be reduced. Uncertainty regarding the severity and duration of the COVID-19 pandemic could cause further volatility in the financial markets. The COVID-19 pandemic and the measures taken to control its spread may disrupt the mortgage loan origination process. Mortgage banking revenues are dependent on mortgage origination volume and are sensitive to interest rates and the condition of housing markets.

●

Valuation and fair value measurement challenges may occur. ~~Management performed an interim impairment assessment on goodwill as a result of changes~~Changes in the macroeconomic environment resulting from the COVID-19 pandemic. The results of the interim impairment assessment indicated that the remaining fair value exceeded the carrying value for both reporting units. The COVID-19 pandemic could cause ~~further and sustained~~a decline in the Company’s stock price or ~~the occurrence of additional valuation~~other triggering events could occur that ~~could~~would cause management to perform a goodwill impairment test that may result in an impairment charge being recorded to ~~earnings.~~earnings for that period.

~~Conversion and Reorganization~~

On August 14, 2019, the Company completed a second step conversion offering (the “Offering”). Prior to the completion of the Offering, approximately 53% of the shares of common stock of the Company were owned by HarborOne Mutual Bancshares, a mutual holding company (the “MHC”). The Company sold 31,036,812 shares of common stock at $10.00 per share in the Offering, resulting in net cash proceeds of $304.1 million. In addition, each share of the Company common stock owned by shareholders other than the MHC prior to the Offering was exchanged for 1.795431 shares of Company common stock, for a total of 12,162,763 shares of Company common stock.

~~As a result~~Summary of ~~the Offering, all shares~~Significant Accounting Policies and per share information has been revised to reflect the 1.795431 exchange ratio. The revised financial information presented in this Quarterly Report on Form 10-Q is derived from the consolidated financial statements of the Company.

~~Depositors Insurance Fund and Share Insurance Fund~~.

The Bank’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (the “FDIC”), and deposits in excess of the FDIC insurance limits are insured by the Depositors Insurance Fund, a private, industry-sponsored insurance fund that insures all deposits above FDIC limits for Massachusetts-chartered savings banks. Until March 17, 2020, the Bank’s deposits in excess of the FDIC insurance limits were insured by the Share Insurance Fund of the Co-operative Central Bank, which insured the excess deposits of Massachusetts-chartered co-operative banks. On March 17, 2020, the Share Insurance Fund merged into the Depositors Insurance Fund. In connection with the closing of the merger, and by operation of law, the Bank converted from a Massachusetts-chartered co-operative bank to a Massachusetts-chartered savings bank. None of the Bank’s products or services were discontinued or changed as a result of the Bank’s charter conversion.

~~Nature of Operations~~

The Company provides a variety of financial services to individuals and businesses through its 26 full-service branches in Massachusetts and Rhode Island, and a commercial lending office in each of Boston, Massachusetts and

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Providence, Rhode Island. HarborOne Mortgage maintains more than 30 offices in Massachusetts, Rhode Island, New Hampshire, Maine, New Jersey and Florida and originates loans in 4 additional states.~~

~~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 based upon the level of estimated probable losses in the current loan portfolio. Loan losses are charged against the allowance when management believes the collectability of a loan balance is doubtful. 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, specific 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, commercial construction and commercial and industrial loans. Due to the lack of historical loss experience for our commercial real estate, commercial construction and commercial and industrial 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. 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 the 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.

Residential construction – 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 real estate – Commercial real estate loans 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

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~credit quality in this segment. Management obtains rent rolls annually and continually monitors the cash flows of these loans.~~

Commercial construction – 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.

Commercial and industrial – Commercial and industrial loans 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 – Consumer loans are generally secured by automobiles or unsecured, and repayment is dependent on the credit quality of the individual borrower.~~

~~Specific Reserves~~

The specific reserves relate to loans that are classified as impaired. Residential real estate and commercial 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 restructurings (“TDRs”), 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 specific 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.

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Earnings Per Share~~

Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations. The restricted stock awards are participating securities; therefore, unvested awards are included as common shares outstanding in the computation of basic earnings per share. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock option awards and are determined using the treasury stock method.

~~Recent~~Recently Adopted Accounting ~~Pronouncements~~Standards Updates (“ASU”)

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 September 30, 2020, there is no significant difference in the comparability of the financial statements as a result of this extended transition period.~~ The Company’s emerging growth company status is scheduled to end December 31, 2021 unless a triggering event occurs sooner.

~~In March~~Significant accounting policies in effect and disclosed within the Company’s most recent audited consolidated financial statements as of December 31, 2020 remain substantially unchanged with the exception of the accounting policy for leases as a result of adopting ASU 2016-02, Leases (Topic 842) and subsequent related updates (collectively ASU 2016-02) as described below.

The Company adopted ASU 2016-02 on January 1, 2021, which requires lessees to recognize most leases on their balance sheet. Lessor accounting is largely unchanged. ASU 2016-02 requires both quantitative and qualitative disclosures regarding key information about lease arrangements from both lessees and lessors. The Company elected the effective date transition method utilizing the adoption date as the first date of application of the revised guidance. As a result, prior period amounts have not been restated. Upon adoption, the Company elected certain transitional practical expedients offered through the guidance, including the “package of practical expedients” whereby it did not reassess (i) whether any expired or existing contracts contain leases, (ii) the lease classification of any expired or existing leases, and (iii) initial direct costs for any existing leases, which resulted in the Company not recognizing a cumulative effect adjustment to retained earnings. Management evaluated the leasing contracts and activities and developed methodologies and processes to estimate and account for the right-of-use (“ROU”) assets and lease liabilities for building leases based on the present value of future lease payments. On January 1, 2021, the Company recorded ROU assets, included in other assets, and lease liabilities, included in other liabilities, totaling $23.2 million and $24.4 million, respectively. The impact to capital ratios as a result of increased risk-weighted assets was immaterial. The adoption of this guidance did not result in a material change to lessee expense recognition.

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

The Company is committed to rent premises and equipment used in business operations under non-cancelable operating leases and determines if an arrangement meets the definition of a lease upon inception. Leases that transfer substantially all of the benefits and risks of ownership to the Company are classified as finance leases, while all others are classified as operating leases. At lease commencement, a lease liability and ROU asset are calculated and recognized on both types of leases. The lease liability is equal to the present value of the future minimum lease payments. The ROU asset is equal to the lease liability, plus any initial direct costs and prepaid lease payments, less any lessor incentives received. Operating lease ROU assets are included in other assets and finance lease ROU assets are included in premises and equipment, net. The Company’s leases do not provide an implicit interest rate; therefore, the Company used the appropriate Federal Home Loan Bank (“FHLB”) term rate commensurate with the underlying lease terms to determine the present value of operating lease liabilities. The lease term used in the calculation includes any options to extend that the Company is reasonably certain to exercise, determined on a lease-by-lease basis. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

At June 30, 2021, the Company had 0 finance lease ROU assets or lease liabilities. For operating leases, total lease cost is comprised of lease expense, short-term lease cost, and variable lease cost. Lease expense includes future minimum lease payments, which are recognized on a straight-line basis over the lease term, as well as common area maintenance charges, real estate taxes, insurance and other expenses, where applicable, which are expensed as incurred. Total lease cost for operating leases is recorded in occupancy and equipment noninterest expense. See Note 11, Operating Lease Right-of-Use Assets and Liabilities, for further information.

The Company also adopted the following ASU on January 1, 2021, which did not have a material impact on the Company’s Consolidated Financial Statements:

ASU 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting ~~Standards Board (“FASB”) issued Accounting Standards Update ("ASU")~~for Hedging Activities. This guidance provides better alignment of financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 also permitted the reclassification of eligible securities from the held-to-maturity classification to the available for sale classification. The Company did not reclassify investment securities from held to maturity to available for sale upon the original adoption of the amendments.

ASUs not yet Adopted

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. These provisions apply to contract modifications that reference ~~LIBOR~~the London InterBank Offered Rate (“LIBOR”) or another reference rate expected to be ~~discounted~~discontinued because of reference rate reform. Qualifying modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification would be considered “minor” so that any existing unamortized deferred loan origination fees and costs would carry forward and continue to be amortized. Qualifying modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for hedge accounting.

ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022, with adoption permitted as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected, the amendments must be applied prospectively for all eligible contract modifications. The Company has formed a cross functional working group and is currently evaluating the effect that this ASU will have on the Company’s consolidated financial statements.

ASU No. 2019-12 ~~“Income~~, Income Taxes (Topic 740) - Simplifying the Accounting for Income ~~Taxes” (“~~Taxes. The amendments in this ASU ~~2019-12”), was issued in December 2019~~are intended to simplify the accounting for income taxes. ASU 2019-12 is effective for public companies for fiscal years beginning after December 15, 2020, with early adoption permitted. For all other entities the guidance is effective for fiscal years beginning after December 15, 2021. Certain provisions under ASU 2019-12 require prospective application, some require modified retrospective application through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, while other provisions require retrospective application to all periods presented ~~in the consolidated financial statements upon adoption. The adoption of ASU 2019-12 is not expected to have a material impact on the Company’s consolidated financial statements.~~

~~In August 2017, FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities.~~ This guidance changes the recognition and presentation requirements of hedge accounting, including eliminating the requirement to separately measure and report hedge ineffectiveness and presenting all items that affect earnings in the same income statement line as the hedged item. This guidance also provides new alternatives for applying hedge accounting to additional hedging strategies, measuring the hedged item in fair value hedges of interest rate risk, reducing the complexity of applying hedge accounting by easing the requirements for effectiveness testing, hedge documentation and application of the critical terms match method, and reducing the risk of material error

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

~~corrections if a company applies~~in the ~~shortcut method inappropriately. This update is effective for fiscal years,~~consolidated financial statements upon adoption. The Company expects to adopt ASU 2019-12 on December 31, 2021 and interim periods within those fiscal years, beginning after December 15, 2018. For non-public entities, this ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The adoption of this standardit is not expected to have a material ~~effect~~impact on the Company’s ~~Consolidated Financial Statements.~~consolidated financial statements.

~~In June 2016, FASB issued~~ ASU 2016-13, Financial Instruments—Credit Losses (Topic 326)~~, commonly~~. Commonly referred to as “CECL,” ~~which~~this guidance 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, 2022, including interim periods within those fiscal years. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. With the passage of the ~~CARES~~Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), the option to delay CECL was provided until the earlier of the national health emergency being declared over or December 31, 2020. The Consolidated Appropriations Act passed on December 27, 2020 provided the option of postponing adoption of the standard until the earlier of the end of the national emergency declaration related to the COVID-19 pandemic or December 31, 2022. The Company continues to evaluate the impact of this ASU on the consolidated financial statements and disclosures. The Company has formed a cross functional working group and selected a third-party vendor to assist with the application of this ASU. The working group has an implementation plan which includes assessment and documentation of processes, internal controls, data sources and model development and documentation. The working group has met key milestones within the implementation plan and the Company ~~will~~expects to adopt the ASU ~~December 31, 2021 effective~~on January 1, ~~2021, upon the termination of its emerging growth company status.~~

~~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, 2020, and interim periods within those fiscal years beginning after December 15, 2021. 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 but no material impact to the Consolidated Statement of Income, for arrangements previously accounted for as operating leases.

2022.

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

2.	DEBT SECURITIES

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


			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized		Fair			Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value			Cost		Gains		Losses		Value

	(in thousands)									(in thousands)

September 30, 2020:
June 30, 2021:									June 30, 2021:
Securities available for sale
U.S. government and government-sponsored enterprise obligations	$	10,003	$	134	$	—	$	10,137		$	15,000	$	14	$	22	$	14,992
U.S. government agency and government-sponsored residential mortgage-backed securities		230,072		3,067		512		232,627			316,699		1,942		1,936		316,705
U.S. government-sponsored collateralized mortgage obligations		19,675		465		—		20,140			7,041		204		—		7,245
SBA asset-backed securities		16,458		946		—		17,404			14,226		680		—		14,906
Total securities available for sale	$	276,208	$	4,612	$	512	$	280,308		$	352,966	$	2,840	$	1,958	$	353,848

December 31, 2019:
December 31, 2020:									December 31, 2020:
Securities available for sale
U.S. government and government-sponsored enterprise obligations	$	14,994	$	210	$	—	$	15,204		$	5,002	$	93	$	—	$	5,095
U.S. government agency and government-sponsored residential mortgage-backed securities		163,982		1,456		265		165,173			234,819		3,113		305		237,627
U.S. government-sponsored collateralized mortgage obligations		26,137		243		7		26,373			16,326		330		—		16,656
SBA asset-backed securities		32,461		286		24		32,723			16,249		871		—		17,120
Total securities available for sale	$	237,574	$	2,195	$	296	$	239,473		$	272,396	$	4,407	$	305	$	276,498

Securities held to maturity
U.S. government agency and government-sponsored residential mortgage-backed securities	$	12,682	$	86	$	6	$	12,762
U.S. government-sponsored collateralized mortgage obligations		1,433		69		—		1,502
SBA asset-backed securities		5,308		124		—		5,432
Municipal bonds		6,949		282		—		7,231
Total securities held to maturity	$	26,372	$	561	$	6	$	26,927

In February 2020, with the intention to reduce credit risk in the investment portfolio and to support the Bank’s credit risk policy, the Bank executed the sale of 56 held-to-maturity investments. The securities had a total amortized cost of $4.5 million and a ~~$1.3 million~~$357,000 gain on sale was recorded during the three months ended March 31, 2020. As a result, the remaining held to maturity securities, with an amortized cost of $21.5 million and an unrealized gain of approximately $522,000, were transferred to the available for sale category at a fair value of $22.1 million.

NaN mortgage-backed securities with a combined fair value of ~~$48.9~~$27.4 million are pledged as collateral for interest rate swap agreements as of ~~September~~June 30, ~~2020~~2021 (see Note 10). NaN mortgage-backed securities with a combined fair value of ~~$15.7~~$40.3 million were pledged as collateral for interest rate swap agreements as of December 31, ~~2019.~~2020.

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

The amortized cost and fair value of debt securities by contractual maturity at ~~September~~June 30, ~~2020~~2021 is as follows:



	Available for Sale				Available for Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

	(in thousands)				(in thousands)

After 1 year through 5 years	$	5,000	$	5,012	$	—	$	—
After 5 years through 10 years		5,003		5,125		15,000		14,992
Over 10 years		—		—		—		—
		10,003		10,137		15,000		14,992

U.S. government agency and government-sponsored residential mortgage-backed securities		230,072		232,627		316,699		316,705
U.S. government-sponsored collateralized mortgage obligations		19,675		20,140		7,041		7,245
SBA asset-backed securities		16,458		17,404		14,226		14,906

Total	$	276,208	$	280,308	$	352,966	$	353,848

~~SBA asset-backed securities are~~ U.S. government-sponsored residential mortgage-backed securities, collateralized mortgage obligations and securities whose underlying assets are loans from the SBA ~~and~~ have stated maturities of 21 year to 30 years; however, it is expected that such securities will have shorter actual lives due to prepayments. U.S. government and government-sponsored enterprise obligations are callable at the discretion of the issuer. The U.S. government and government-sponsored enterprise obligations with a total fair value of ~~$10.1~~$15.0 million have a final ~~maturities ranging from 3 years to~~maturity of 8 years and a call ~~features ranging from 1 month~~feature of 2 months to ~~1 year.~~2 years. At June 30, 2021 there were 0 holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of shareholder equity.

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 September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019		2021		2020		2021		2020

		(in thousands)								(in thousands)

Sales
Proceeds	$	—	$	—	$	72,333	$	28,391	$	—	$	1,604	$	—	$	72,333
Gross gains		—		—		2,521		1,267		—		—		—		2,521
Gross losses		—		—		—		—		—		—		—		—

Calls
Proceeds	$	2,000	$	11,775	$	8,635	$	20,145	$	—	$	4,968	$	—	$	6,635
Gross gains		—		77		12		77		—		8		—		12
Gross losses		—		—		—		—		—		—		—		—

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Information pertaining to securities with gross unrealized losses at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 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					Less Than Twelve Months				Twelve Months and Over
	Gross				Gross					Gross				Gross
	Unrealized		Fair		Unrealized		Fair			Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value			Losses		Value		Losses		Value

	(in thousands)									(in thousands)

September 30, 2020:
June 30, 2021:									June 30, 2021:
Securities available for sale

U.S. government and government-sponsored enterprise obligations										$	22	$	9,978	$	—	$	—
U.S. government agency and government-sponsored residential mortgage-backed securities											1,811		136,292		125		11,060
										$	1,833	$	146,270	$	125	$	11,060

December 31, 2020:									December 31, 2020:
Securities available for sale

U.S. government agency and government-sponsored residential mortgage-backed securities	$	493	$	81,377	$	19	$	3,721		$	283	$	67,460	$	22	$	3,668


December 31, 2019:
Securities available for sale

U.S. government agency and government-sponsored residential mortgage-backed securities	$	147	$	47,343	$	118	$	7,986
U.S. government-sponsored collateralized mortgage obligations		1		884		6		795
SBA asset-backed securities		24		3,964		—		—
	$	172	$	52,191	$	124	$	8,781

Securities held to maturity

U.S. government agency and government-sponsored residential mortgage-backed securities	$	—	$	—	$	6	$	2,538

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 September~~As of June 30, ~~2020, 20~~2021, the Company’s security portfolio consisted of 114 debt securities, ~~with~~39 of which were in an ~~amortized cost of $85.6 million have~~unrealized loss position. The unrealized losses ~~with aggregate depreciation of 0.60% from~~are primarily related to the Company’s ~~amortized cost basis.~~ mortgage-backed securities and were issued by U.S. government-sponsored entities and agencies.

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 illiquidity, and not to credit quality, and because the Company does not ~~intend~~have the intent to sell ~~the investments~~these securities and it is ~~more~~ likely ~~than not~~ that ~~the Company~~it will not be required to sell the ~~investments~~securities before ~~recovery of~~ their ~~amortized cost basis, which may be maturity,~~anticipated recovery, the Company does not consider these ~~investments~~securities to be ~~OTTI~~other-than-temporarily impaired at ~~September~~June 30, ~~2020.~~2021.

3.	LOANS HELD FOR SALE

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


	September 30,		December 31,		June 30,		December 31,
	2020		2019		2021		2020

	(in thousands)				(in thousands)

Loans held for sale, fair value	$	190,373	$	110,552	$	103,886	$	208,612
Loans held for sale, contractual principal outstanding		181,746		107,472		100,354		198,984
Fair value less unpaid principal balance	$	8,627	$	3,080	$	3,532	$	9,628

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements (unaudited)~~

The Company has elected the fair value option for mortgage loans held for sale to better match changes in fair value of the loans with changes in the fair value of the forward sale commitment contracts used to economically hedge them. Changes in fair value of mortgage loans held for sale accounted for under the fair value option election amounted to ~~an increase~~a decrease of ~~$5.5~~$6.1 million in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 to ~~$8.6~~$3.5 million, compared to an increase of ~~$1.3~~$4.0 million in the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. These amounts are offset in earnings by the changes in fair value of forward sale

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

commitments. The changes in fair value are reported as a component of gain on sale of mortgage loans in the Unaudited Consolidated Statements of Income.

At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, there were 0 loans held for sale that were greater than 90 days past due.

LOANS

A summary of the balances of loans follows:


	September 30,		December 31,		June 30,		December 31,
	2020		2019		2021		2020

	(in thousands)				(in thousands)

Residential real estate:
One- to four-family	$	954,198	$	937,305	$	927,782	$	928,934
Second mortgages and equity lines of credit		150,315		155,716		134,688		145,672
Residential real estate construction		26,422		14,055		33,900		31,217
		1,130,935		1,107,076		1,096,370		1,105,823

Commercial:
Commercial real estate		1,380,071		1,168,412		1,561,873		1,551,265
Commercial construction		211,953		153,907		107,585		99,331
Commercial and industrial		480,129		306,282		467,479		464,393
Total commercial loans		2,072,153		1,628,601		2,136,937		2,114,989

Consumer loans:
Auto		303,598		424,592		179,135		265,266
Personal		9,145		11,289		7,295		8,564
Total consumer loans		312,743		435,881		186,430		273,830

Total loans		3,515,831		3,171,558		3,419,737		3,494,642
Allowance for loan losses		(49,223)		(24,060)		(51,273)		(55,395)
Loans, net	$	3,466,608	$	3,147,498	$	3,368,464	$	3,439,247

As of June 30, 2021 and December 31, 2020, the commercial and industrial loans include $105.2 million and $126.5 million, respectively, of PPP loans and $4.1 million and $2.7 million, respectively, of deferred fees on the PPP loans. PPP loans are fully guaranteed by the U.S. government.

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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company was servicing loans for participants ~~aggregating $260.5~~in the aggregate amount of $294.6 million and ~~$195.2~~$284.2 million, respectively.

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Acquired Loans

The loans ~~purchased from~~acquired in the merger with Coastway Bancorp, Inc. included $5.4 million in purchased credit impaired (“PCI”) loans. PCI loans were primarily residential real estate loans. The following table provides certain information pertaining to PCI loans:

September 30,

December 31,

2020

2019

(in thousands)

Outstanding balance

$
4,354

$
4,609

Carrying amount

$
4,133

$
4,378


	June 30,		December 31,
	2021		2020

	(in thousands)

Outstanding balance	$	3,982	$	4,307
Carrying amount	$	3,768	$	4,079

The following table summarizes activity in the accretable yield for PCI loans:

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

(in thousands)

Balance at beginning of period

$
145

$
169

$
149

$
185
Additions

—

—

—

—
Accretion

(3)

(5)

(7)

(7)
Reclassification from nonaccretable difference

—

—

—

(14)
Balance at end of period

$
142

$
164

$
142

$
164


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

	(in thousands)

Balance at beginning of period	$	138	$	147	$	141	$	149
Additions		—		—		—		—
Accretion		(2)		(2)		(5)		(4)
Reclassification from nonaccretable difference		—		—		—		—
Balance at end of period	$	136	$	145	$	136	$	145

The following is the activity in the allowance for loan losses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:

Residential

Commercial

Commercial

Commercial


Real Estate

Real Estate

Construction

and Industrial

Consumer

Unallocated

Total

(in thousands)

Balance at June 30, 2019

$
3,100

$
11,100

$
2,927

$
2,512

$
1,063

$
1,559

$
22,261

Provision (credit) for loan losses

1

739

(366)

34

113

368

889

Charge-offs

—

—

—

(43)

(216)

—

(259)

Recoveries

74

1

—

—

78

—

153

Balance at September 30, 2019

$
3,175

$
11,840

$
2,561

$
2,503

$
1,038

$
1,927

$
23,044

Balance at June 30, 2020

$
5,857

$
18,389

$
3,215

$
3,562

$
2,204

$
2,880

$
36,107

Provision (credit) for loan losses

1,721

7,771

962

1,617

643

740

13,454

Charge-offs

—

(62)

—

(213)

(140)

—

(415)

Recoveries

22

—

—

—

55

—

77

Balance at September 30, 2020

$
7,600

$
26,098

$
4,177

$
4,966

$
2,762

$
3,620

$
49,223


	Residential		Commercial		Commercial		Commercial
	Real Estate		Real Estate		Construction		and Industrial		Consumer		Unallocated		Total

	(in thousands)

Balance at March 31, 2020	$	3,177	$	14,642	$	2,522	$	2,740	$	1,484	$	1,824	$	26,389

Provision (credit) for loan losses		2,598		3,747		693		1,102		808		1,056		10,004
Charge-offs		(52)		—		—		(280)		(126)		—		(458)
Recoveries		134		—		—		—		38		—		172
Balance at June 30, 2020	$	5,857	$	18,389	$	3,215	$	3,562	$	2,204	$	2,880	$	36,107

Balance at March 31, 2021	$	7,269	$	34,987	$	2,237	$	6,627	$	2,064	$	2,200	$	55,384

Provision (credit) for loan losses		(1,984)		(1,984)		(300)		1,422		(1,239)		(201)		(4,286)
Charge-offs		—		(12)		—		—		(31)		—		(43)
Recoveries		149		—		—		10		59		—		218
Balance at June 30, 2021	$	5,434	$	32,991	$	1,937	$	8,059	$	853	$	1,999	$	51,273

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)


	Residential		Commercial		Commercial		Commercial
	Real Estate		Real Estate		Construction		and Industrial		Consumer		Unallocated		Total

	(in thousands)

Balance at December 31, 2019	$	3,178	$	12,875	$	2,526	$	2,977	$	1,010	$	1,494	$	24,060

Provision (credit) for loan losses		2,549		6,687		689		943		1,499		1,386		13,753
Charge-offs		(52)		(1,174)		—		(577)		(379)		—		(2,182)
Recoveries		182		1		—		219		74		—		476
Balance at June 30, 2020	$	5,857	$	18,389	$	3,215	$	3,562	$	2,204	$	2,880	$	36,107

Balance at December 31, 2020	$	7,419	$	34,765	$	1,955	$	5,311	$	2,475	$	3,470	$	55,395

Provision (credit) for loan losses		(2,205)		(1,766)		(18)		2,916		(1,651)		(1,471)		(4,195)
Charge-offs		—		(12)		—		(186)		(86)		—		(284)
Recoveries		220		4		—		18		115		—		357
Balance at June 30, 2021	$	5,434	$	32,991	$	1,937	$	8,059	$	853	$	1,999	$	51,273

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Allocation of the allowance to loan segments at June 30, 2021 and December 31, 2020 follows:


	Residential		Commercial		Commercial		Commercial
	Real Estate		Real Estate		Construction		and Industrial		Consumer		Unallocated		Total

	(in thousands)

June 30, 2021:
Loans:
Impaired loans	$	22,503	$	12,408	$	—	$	7,595	$	—			$	42,506
Non-impaired loans		1,073,867		1,549,465		107,585		459,884		186,430				3,377,231
Total loans	$	1,096,370	$	1,561,873	$	107,585	$	467,479	$	186,430			$	3,419,737
Allowance for loan losses:
Impaired loans	$	683	$	1,887	$	—	$	2,848	$	—	$	—	$	5,418
Non-impaired loans		4,751		31,104		1,937		5,211		853		1,999		45,855
Total allowance for loan losses	$	5,434	$	32,991	$	1,937	$	8,059	$	853	$	1,999	$	51,273


December 31, 2020:
Loans:
Impaired loans	$	24,384	$	12,513	$	—	$	9,359	$	—			$	46,256
Non-impaired loans		1,081,439		1,538,752		99,331		455,034		273,830				3,448,386
Total loans	$	1,105,823	$	1,551,265	$	99,331	$	464,393	$	273,830			$	3,494,642
Allowance for loan losses:
Impaired loans	$	802	$	1,845	$	—	$	31	$	—	$	—	$	2,678
Non-impaired loans		6,617		32,920		1,955		5,280		2,475		3,470		52,717
Total allowance for loan losses	$	7,419	$	34,765	$	1,955	$	5,311	$	2,475	$	3,470	$	55,395

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, 2021 and December 31, 2020:


					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, 2021
Residential real estate:
One- to four-family	$	192	$	2,170	$	4,808	$	7,170	$	11,172
Second mortgages and equity lines of credit		518		1		486		1,005		668
Commercial real estate		—		—		3,369		3,369		12,405
Commercial construction		—		—		—		—		—
Commercial and industrial		7		3,796		1,456		5,259		7,957
Consumer:
Auto		615		368		199		1,182		215
Personal		53		—		17		70		17
Total	$	1,385	$	6,335	$	10,335	$	18,055	$	32,434

December 31, 2020
Residential real estate:
One- to four-family	$	12,148	$	2,223	$	6,418	$	20,789	$	11,611
Second mortgages and equity lines of credit		460		46		433		939		834
Residential real estate construction		471		—		—		471		��
Commercial real estate		416		—		3,369		3,785		12,486
Commercial construction		—		—		—		—		—
Commercial and industrial		444		191		1,243		1,878		8,606
Consumer:
Auto		1,657		397		488		2,542		557
Personal		88		11		2		101		7
Total	$	15,684	$	2,868	$	11,953	$	30,505	$	34,101

At June 30, 2021 and December 31, 2020, there were 0 loans past due 90 days or more and still accruing.

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Residential

Commercial

Commercial

Commercial


Real Estate

Real Estate

Construction

and Industrial

Consumer

Unallocated

Total

(in thousands)

Balance at December 31, 2018

$
3,239

$
10,059

$
2,707

$
2,286

$
1,154

$
1,210

$
20,655

Provision (credit) for loan losses

(226)

1,775

(146)

1,035

341

717

3,496

Charge-offs

(136)

—

—

(833)

(660)

—

(1,629)

Recoveries

298

6

—

15

203

—

522

Balance at September 30, 2019

$
3,175

$
11,840

$
2,561

$
2,503

$
1,038

$
1,927

$
23,044

Balance at December 31, 2019

$
3,178

$
12,875

$
2,526

$
2,977

$
1,010

$
1,494

$
24,060

Provision (credit) for loan losses

4,270

14,458

1,651

2,560

2,142

2,126

27,207

Charge-offs

(52)

(1,236)

—

(790)

(519)

—

(2,597)

Recoveries

204

1

—

219

129

—

553

Balance at September 30, 2020

$
7,600

$
26,098

$
4,177

$
4,966

$
2,762

$
3,620

$
49,223

The following information pertains to impaired loans:


	June 30, 2021						December 31, 2020
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance

	(in thousands)

Impaired loans without a specific reserve:
Residential real estate	$	12,612	$	13,151	$	—	$	12,284	$	13,039	$	—
Commercial real estate		3,530		4,724		—		3,552		4,741		—
Commercial construction		—		—		—		—		—		—
Commercial and industrial		1,163		1,507		—		9,243		11,604		—
Total		17,305		19,382		—		25,079		29,384		—

Impaired loans with a specific reserve:
Residential real estate		9,891		10,157		683		12,100		12,355		802
Commercial real estate		8,878		8,962		1,887		8,961		8,961		1,845
Commercial construction		—		—		—		—		—		—
Commercial and industrial		6,432		7,485		2,848		116		181		31
Total		25,201		26,604		5,418		21,177		21,497		2,678

Total impaired loans	$	42,506	$	45,986	$	5,418	$	46,256	$	50,881	$	2,678


	Three Months Ended June 30,
	2021						2020
					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 real estate	$	22,268	$	247	$	54	$	25,241	$	253	$	196
Commercial real estate		12,455		63		63		3,668		1		1
Commercial construction		—		—		—		10,971		—		—
Commercial and industrial		7,834		16		16		7,765		—		—
Total	$	42,557	$	326	$	133	$	47,645	$	254	$	197

~~Allocation of the allowance to loan segments at September 30, 2020 and December 31, 2019 follows:~~

Residential

Commercial

Commercial

Commercial


Real Estate

Real Estate

Construction

and Industrial

Consumer

Unallocated

Total

(in thousands)

September 30, 2020:

Loans:

Impaired loans

$
28,061

$
4,943

$
10,971

$
10,089

$
—

$
54,064

Non-impaired loans

1,102,874

1,375,128

200,982

470,040

312,743

3,461,767

Total loans

$
1,130,935

$
1,380,071

$
211,953

$
480,129

$
312,743

$
3,515,831

Allowance for loan losses:

Impaired loans

$
950

$
—

$
251

$
611

$
—

$
—

$
1,812

Non-impaired loans

6,650

26,098

3,926

4,355

2,762

3,620

47,411

Total allowance for loan losses

$
7,600

$
26,098

$
4,177

$
4,966

$
2,762

$
3,620

$
49,223

December 31, 2019:

Loans:

Impaired loans

$
27,275

$
530

$
11,244

$
5,831

$
—

$
44,880

Non-impaired loans

1,079,801

1,167,882

142,663

300,451

435,881

3,126,678

Total loans

$
1,107,076

$
1,168,412

$
153,907

$
306,282

$
435,881

$
3,171,558

Allowance for loan losses:

Impaired loans

$
985

$
—

$
—

$
176

$
—

$
—

$
1,161

Non-impaired loans

2,193

12,875

2,526

2,801

1,010

1,494

22,899

Total allowance for loan losses

$
3,178

$
12,875

$
2,526

$
2,977

$
1,010

$
1,494

$
24,060

~~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 September 30, 2020 and December 31, 2019:~~


											Six Months Ended June 30,
											2021						2020
															Interest						Interest
					90 Days						Average		Interest		Income		Average		Interest		Income
	30-59 Days		60-89 Days		or More		Total		Loans on		Recorded		Income		Recognized		Recorded		Income		Recognized
	Past Due		Past Due		Past Due		Past Due		Non-accrual		Investment		Recognized		on Cash Basis		Investment		Recognized		on Cash Basis

	(in thousands)										(in thousands)

September 30, 2020
Residential real estate:
One- to four-family	$	595	$	2,114	$	4,697	$	7,406	$	11,925
Second mortgages and equity lines of credit		660		24		297		981		951
Residential real estate											$	22,973	$	543	$	159	$	25,919	$	575	$	518
Commercial real estate		—		3,183		4,943		8,126		4,943		12,474		65		65		2,622		1		1
Commercial construction		—		—		10,939		10,939		10,939		—		—		—		11,062		—		—
Commercial and industrial		1,725		4,643		1,564		7,932		10,078		8,342		136		136		7,120		7		7
Consumer:
Auto		819		380		923		2,122		1,150
Personal		31		49		2		82		41
Total	$	3,830	$	10,393	$	23,365	$	37,588	$	40,027	$	43,789	$	744	$	360	$	46,723	$	583	$	526

December 31, 2019
Residential real estate:
One- to four-family	$	9,364	$	5,622	$	5,668	$	20,654	$	10,610
Second mortgages and equity lines of credit		418		77		760		1,255		1,561
Commercial real estate		261		4,730		191		5,182		530
Commercial construction		—		—		1,960		1,960		11,244
Commercial and industrial		2,000		722		3,133		5,855		5,831
Consumer:
Auto		3,180		456		457		4,093		529
Personal		69		16		13		98		16
Total	$	15,292	$	11,623	$	12,182	$	39,097	$	30,321

~~At September 30, 2020 and December 31, 2019, there were 0 loans past due 90 days or more and still accruing.~~

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

~~The following information pertains to impaired loans:~~

September 30, 2020

December 31, 2019

Unpaid

Unpaid

Recorded

Principal

Related

Recorded

Principal

Related


Investment

Balance

Allowance

Investment

Balance

Allowance

(in thousands)

Impaired loans without a specific reserve:

Residential real estate

$
14,101

$
15,322

$
—

$
11,610

$
12,140

$
—

Commercial real estate

4,943

6,194

—

530

530

—

Commercial construction

—

—

—

11,244

11,244

—

Commercial and industrial

4,019

5,999

—

5,505

6,901

—

Total

23,063

27,515

—

28,889

30,815

—

Impaired loans with a specific reserve:

Residential real estate

13,960

14,308

950

15,665

16,218

985

Commercial construction

10,971

11,244

251

—

—

—

Commercial and industrial

6,070

6,287

611

326

326

176

Total

31,001

31,839

1,812

15,991

16,544

1,161

Total impaired loans

$
54,064

$
59,354

$
1,812

$
44,880

$
47,359

$
1,161

Three Months Ended September 30,

2020

2019

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 real estate

$
26,542

$
272

$
270

$
29,375

$
451

$
367
Commercial real estate

4,287

—

—

—

—

—
Commercial construction

10,971

—

—

5,622

—

—
Commercial and industrial

10,334

9

9

5,467

21

21
Total

$
52,134

$
281

$
279

$
40,464

$
472

$
388

Nine Months Ended September 30,

2020

2019

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 real estate

$
26,454

$
847

$
788

$
30,316

$
1,399

$
1,125
Commercial real estate

3,202

1

1

671

—

—
Commercial construction

11,039

—

—

3,748

—

—
Commercial and industrial

7,863

16

16

5,497

44

44
Total

$
48,558

$
864

$
805

$
40,232

$
1,443

$
1,169

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements (unaudited)~~

Interest income recognized and interest income recognized on a cash basis in the tables above represent interest income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, not for the time period designated as impaired. NaN additional funds are committed to be advanced in connection with impaired loans.

There were 0 material ~~TDR~~troubled debt restructuring (“TDR”) loan modifications for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

The recorded investment in TDRs was ~~$17.0~~$13.2 million and ~~$20.0~~$15.1 million at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Commercial TDRs totaled $2.2 million and $2.5 million ~~and $3.0 million~~ at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The remainder of the TDRs outstanding at the end of these periods were residential loans. Non-accrual TDRs totaled ~~$3.9~~$3.1 million and ~~$5.0~~$3.6 million at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Of these loans, ~~$2.5~~$2.2 million and ~~$3.0~~$2.5 million were non-accrual commercial TDRs at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

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 ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, there were 0 payment defaults on TDRs.

Credit Quality Information

The Company uses a ~~ten-grade~~10-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 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 on a risk adjusted basis, the ratings on all commercial real estate, construction and commercial loans. Semi-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.

2221

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

The following table presents the Company’s loans by risk rating at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


	September 30, 2020						December 31, 2019						June 30, 2021						December 31, 2020
	Commercial		Commercial		Commercial		Commercial		Commercial		Commercial		Commercial		Commercial		Commercial		Commercial		Commercial		Commercial
	Real Estate		Construction		and Industrial		Real Estate		Construction		and Industrial		Real Estate		Construction		and Industrial		Real Estate		Construction		and Industrial

	(in thousands)												(in thousands)

Loans rated 1 - 6	$	1,352,794	$	201,014	$	466,254	$	1,163,343	$	127,962	$	294,507	$	1,534,866	$	107,585	$	456,880	$	1,524,105	$	99,331	$	452,665
Loans rated 7		23,646		—		3,519		4,539		14,701		6,117		14,602		—		2,642		14,674		—		3,122
Loans rated 8		524		10,939		8,342		530		11,244		3,223		9,374		—		485		9,455		—		7,080
Loans rated 9		3,107		—		2,014		—		—		2,435		3,031		—		7,472		3,031		—		1,526
Loans rated 10		—		—		—		—		—		—		—		—		—		—		—		—
	$	1,380,071	$	211,953	$	480,129	$	1,168,412	$	153,907	$	306,282	$	1,561,873	$	107,585	$	467,479	$	1,551,265	$	99,331	$	464,393

5.	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 balance of mortgage loans serviced for others was ~~$2.65~~$3.67 billion and ~~$1.83~~$3.05 billion as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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, and default rates ~~cost to service, and contractual servicing fees~~. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the following weighted average assumptions were used in the calculation of fair value of MSRs:


	September 30,		December 31,		June 30,		December 31,
	2020		2019		2021		2020
Prepayment speed	15.90	%	12.43	%	10.80	%	14.30	%
Discount rate	9.26		9.34		9.20		9.23
Default rate	2.51		2.61		1.93		2.27

The following summarizes changes to MSRs for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020

	(in thousands)								(in thousands)

Balance, beginning of period	$	16,127	$	18,156	$	17,150	$	22,217	$	33,939	$	13,207	$	24,833	$	17,150
Additions		4,225		385		8,700		716		4,568		4,031		10,265		4,475
Changes in fair value due to:
Reductions from loans paid off during the period		(1,083)		(585)		(2,773)		(1,363)		(1,501)		(1,114)		(3,100)		(1,690)
Changes in valuation inputs or assumptions		890		(1,889)		(2,918)		(5,503)		(1,051)		3		3,957		(3,808)
Balance, end of period	$	20,159	$	16,067	$	20,159	$	16,067	$	35,955	$	16,127	$	35,955	$	16,127

Contractually specified servicing fees, net of subservicing expense, included in other mortgage banking income amounted to ~~$1.6~~$1.9 million and ~~$4.2~~$3.5 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, and ~~$1.3 million~~$997,000 and ~~$4.1~~$2.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively.

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

6.	GOODWILL AND INTANGIBLE ASSETS

As of ~~September~~June 30, ~~2020,~~2021, the Company had $69.8 million in goodwill, of which $59.0 million was allocated to the Bank reporting unit and $10.8 million was allocated to the HarborOne Mortgage reporting unit. The Company typically performs its goodwill impairment test during the fourth quarter of the year, unless certain indicators suggest earlier testing to be warranted. The Company determined that an interim impairment test was warranted due to the operational disruption and uncertainty associated with the COVID-19 pandemic. Accordingly, the Company performed impairment tests as of June 30, 2020 and determined that there was 0 impairment to the goodwill of either reporting unit, as the fair value of each reporting unit was in excess of its carrying value. Other intangible assets were $3.7 million and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company also considered the impact of the COVID-19 pandemic as it pertains to these intangible assets, and determined that there was 0 indication of impairment related to other intangible assets as of June 30, 2020. The Company determined that there was no triggering event that warranted an interim impairment test at ~~September~~June 30, ~~2020.~~2021.

7.	DEPOSITS

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


	September 30,		December 31,		June 30,		December 31,
	2020		2019		2021		2020

	(in thousands)				(in thousands)

NOW and demand deposit accounts	$	852,356	$	572,280	$	1,050,217	$	908,256
Regular savings and club accounts		912,017		626,685		1,123,123		998,994
Money market deposit accounts		815,644		856,830		832,006		866,661
Total non-certificate accounts		2,580,017		2,055,795		3,005,346		2,773,911

Term certificate accounts greater than $250,000		142,266		169,595		122,950		135,190
Term certificate accounts less than or equal to $250,000		526,614		636,343		459,644		497,108
Brokered deposits		116,991		81,140		100,000		100,000
Total certificate accounts		785,871		887,078		682,594		732,298
Total deposits	$	3,365,888	$	2,942,873	$	3,687,940	$	3,506,209

The Company has established a relationship to participate in a reciprocal deposit program with other financial institutions. The reciprocal deposit program provides access to FDIC-insured deposit products in aggregate amounts exceeding the current limits for depositors. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, total reciprocal deposits were ~~$107.8~~$45.0 million and ~~$277.9~~$104.9 million, respectively, consisting primarily of money market accounts.

A summary of certificate accounts by maturity at June 30, 2021 is as follows:


			Weighted
			Average
	Amount		Rate

	(dollars in thousands)

Within 1 year	$	593,842	0.56	%
Over 1 year to 2 years		58,012	0.98
Over 2 years to 3 years		4,855	1.28
Over 3 years to 4 years		23,585	1.02
Over 4 years to 5 years		2,667	0.71
Total certificate deposits		682,961	0.61	%
Less unaccreted acquisition discount		(367)
Total certificate deposits, net	$	682,594

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

~~A summary of certificate accounts by maturity at September 30, 2020 is as follows:~~

Weighted

Average

Amount

Rate

(dollars in thousands)

Within 1 year

$
720,786

1.25
%
Over 1 year to 2 years

45,648

1.78

Over 2 years to 3 years

13,174

1.96

Over 3 years to 4 years

5,737

1.16

Over 4 years to 5 years

1,326

0.97

Total certificate deposits

786,671

1.29
%
Less unaccreted acquisition discount

(800)

Total certificate deposits, net

$
785,871

8.BORROWED FUNDS

Borrowed funds at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 consist of Federal Home Loan Bank (“FHLB”) advances. Short-term advances were ~~$95.0~~$35.0 million with a weighted average rate of ~~0.43% at September 30, 2020. Short-term advances were $183.0 million with a weighted average rate of 1.80%~~0.42% at December 31, ~~2019.~~2020. There were 0 short-term advances at June 30, 2021. Long-term advances are summarized by maturity date below.


		September 30, 2020						December 31, 2019							June 30, 2021						December 31, 2020
		Amount by				Weighted		Amount by				Weighted			Amount by				Weighted		Amount by				Weighted
		Scheduled		Amount by		Average		Scheduled		Amount by		Average			Scheduled		Amount by		Average		Scheduled		Amount by		Average
		Maturity*		Call Date ⁽¹⁾		Rate ⁽²⁾		Maturity*		Call Date ⁽¹⁾		Rate ⁽²⁾			Maturity*		Call Date ⁽¹⁾		Rate ⁽²⁾		Maturity*		Call Date ⁽¹⁾		Rate ⁽²⁾

		(dollars in thousands)													(dollars in thousands)

Year ending December 31:
2020		$	27,000	$	107,000	3.01	%	$	87,000		137,000	2.25	%
2021			41,750		21,750	2.47			41,750		21,750	2.47			$	11,750	$	71,750	2.84	%	$	41,750		101,750	2.47	%
2022			—		—	—			10,000		—	1.73				0		—	—			0		—	—
2023			20,191		191	3.48			20,195		195	2.43				20,188		188	3.48			20,190		190	3.48
2024			10,000		10,000	1.68			10,000		10,000	1.68				13,400		13,400	1.39			10,000		10,000	1.68
2025 and thereafter			42,165		2,165	1.34			2,187		2,187	1.10
2025																40,987		987	1.32			40,987		987	1.32
2026 and thereafter																1,154		1,154	2.00			1,170		1,170	2.00
		$	141,106	$	141,106	2.32	%	$	171,132	$	171,132	2.16	%		$	87,479	$	87,479	2.04	%	$	114,097	$	114,097	2.16	%

* Includes an amortizing advance requiring monthly principal and interest payments.	* Includes an amortizing advance requiring monthly principal and interest payments.													* Includes an amortizing advance requiring monthly principal and interest payments.

⁽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.	⁽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.													⁽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.

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

The FHLB advances are secured by a blanket security agreement which requires the Bank to maintain certain qualifying assets as collateral, principally residential mortgage loans and certain multi-family and commercial real estate loans held in the Bank’s portfolio. The carrying value of the loans pledged as collateral for these borrowings totaled ~~$1.3~~$1.15 billion at ~~September~~June 30, ~~2020~~2021 and ~~$1.06~~$1.25 billion at December 31, ~~2019.~~2020. As of ~~September~~June 30, ~~2020,~~2021, the Company had ~~$660.7~~$764.1 million of available borrowing capacity with the FHLB.

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements (unaudited)~~

The Company also has additional borrowing capacity under a $25.0 million unsecured federal funds line with a correspondent bank and a secured line of credit with the Federal Reserve Bank of Boston secured by ~~59%~~62% of the carrying value of indirect auto and commercial loans with principal balances amounting to ~~$74.9~~$105.0 million and ~~$46.9~~$107.1 million at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. NaN amounts were outstanding under either line at ~~September~~June 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

As a participating lender in the PPP, the Company also has access to additional borrowing capacity through the Board of Governors of the Federal ~~Reserve’s~~Reserve System’s (the “Federal Reserve”) Paycheck Protection Program Liquidity Facility. Only loans issued under the PPP may be pledged as collateral.

On August 30, 2018, the Company issued $35.0 million in fixed-to-floating rate subordinated notes due 2028 (the “Notes”) in a private placement transaction to institutional accredited investors. The Notes bear interest at annual fixed rate of 5.625% until September 1, 2023 at which time the interest rate resets quarterly to an interest rate per annum equal to the three–month LIBOR plus 278 basis points. Interest is payable semi-annually on March 1 and September 1 each year through September 1, 2023 and quarterly thereafter. The Notes can be redeemed partially or in whole, prior to the maturity date beginning September 1, 2023 and on any scheduled interest payment date thereafter, at par. The Notes are carried on the Consolidated Balance Sheets net of unamortized issuance costs of $904,000 and $967,000 at June 30, 2021 and December 31, 2020, respectively, which are being amortized over the period to maturity date using the interest method. At June 30, 2021 and December 31, 2020, the Notes qualified as Tier 2 capital for regulatory capital purposes.

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

9.	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.

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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. The contract amounts represent credit risk.


	September 30,		December 31,		June 30,		December 31,
	2020		2019		2021		2020

	(in thousands)				(in thousands)

Commitments to grant residential real estate loans-HarborOne Mortgage	$	623,593	$	24,752	$	312,884	$	485,428
Commitments to grant other loans		103,213		74,114		99,976		53,714
Unadvanced funds on home equity lines of credit		173,775		157,867		198,700		178,432
Unadvanced funds on revolving lines of credit		167,971		147,047		195,880		169,907
Unadvanced funds on construction loans		131,797		112,158		131,107		127,776

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.

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

10.

DERIVATIVES

The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally to manage the Company’s interest rate risk. Additionally, , the Company enters into interest rate derivatives to accommodate the business requirements of its customers. All derivatives are recognized as either assets or liabilities on the balance sheet and are measured at fair value. The accounting for changes in the fair value of a derivative instrument depends upon whether or not it qualifies as a hedge for accounting purposes, and further, by the type of hedging relationship.

Interest Rate Swaps Designated as a Cashflow Hedge

As part of its interest rate risk management strategy, the Company utilizes interest rate swap agreements to help manage its interest rate risk positions. The notional amount of the interest rate swaps do not represent the amount exchanged by the parties. The exchange of cash flows is determined by reference to the notional amounts and the other terms of the interest rate swap agreements. The changes in fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income and subsequently reclassified to earnings when gains or losses are realized.

~~In the second quarter the Company executed an interest swap agreement designated as a cash flow hedge.~~ As of ~~September~~June 30, ~~2020,~~2021, the Company had 1 interest rate swap agreement with a notional amount of $100.0 million that was designated as a cash flow hedge of ~~certain short-term debt.~~certificates of deposits. The interest rate swap agreement has an average maturity of ~~4.5~~3.78 years, the current weighted average fixed rate paid is 0.67%, the weighted average 3-month LIBOR swap receive rate is ~~0.35%~~0.19%, and the fair value is ~~$1.6 million.~~$196,000. The Company expects approximately ~~$462,000~~$497,000 related to the cash flow hedge to be reclassified to interest expense, from other comprehensive income, in the next twelve months.

Derivative Loan Commitments

Mortgage loan commitments qualify as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. The Company enters into commitments to fund residential mortgage loans at specified times in the future, with the intention that these loans will subsequently be sold in the secondary market. A mortgage loan commitment binds the Company to lend funds to a potential borrower at a specified interest rate and within a specified period of time, generally up to 60 days after inception of the rate lock.

Outstanding derivative loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might decline from inception of 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 number 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.

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

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 ~~$48.9~~$27.4 million are pledged to secure the Company’s liability for the offsetting interest rate swaps (see Note 2). The interest rate swap notional amount 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 and shares in any interest rate swap losses incurred as a result of the commercial loan customers’ termination of a ~~loan level~~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.

Although the Company has determined that the majority of the inputs used to value its interest rate swaps and risk participation agreements fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with interest rate contracts and risk participation agreements utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has classified its derivative valuations in their entirety as Level 2.

The following tables presents the outstanding notional balances and fair values of outstanding derivative instruments:


			Assets			Liabilities					Assets			Liabilities
			Balance			Balance				��	Balance			Balance
	Notional		Sheet	Fair		Sheet	Fair		Notional		Sheet	Fair		Sheet	Fair
	Amount		Location	Value		Location	Value		Amount		Location	Value		Location	Value

		(in thousands)								(in thousands)

September 30, 2020:
June 30, 2021:
Derivatives designated as Hedging Instruments
Interest rate swaps	$	100,000	—	$	—	Other liabilities	$	1,648	$	100,000	Other assets	$	196	Other liabilities	$	—
Derivatives not designated as Hedging Instruments
Derivative loan commitments	$	623,593	Other assets	$	15,554	Other liabilities	$	77	$	312,884	Other assets	$	5,048	Other liabilities	$	47
Forward loan sale commitments		457,500	Other assets		193	Other liabilities		1,400		209,320	Other assets		86	Other liabilities		295
Interest rate swaps		869,700	Other assets		44,636	Other liabilities		44,636		829,685	Other assets		26,370	Other liabilities		26,370
Risk participation agreements		132,684	Other assets		—	Other liabilities		—		131,702	Other assets		—	Other liabilities		—
Total				$	60,383		$	47,761				$	31,700		$	26,712

December 31, 2019:
December 31, 2020:
Derivatives designated as Hedging Instruments
Interest rate swaps	$	—	—	$	—	—	$	—	$	100,000	—	$	—	Other liabilities	$	1,407
Derivatives not designated as Hedging Instruments
Derivative loan commitments	$	100,938	Other assets	$	1,385	Other liabilities	$	174	$	485,428	Other assets	$	12,623	Other liabilities	$	341
Forward loan sale commitments		88,000	Other assets		26	Other liabilities		158		356,500	Other assets		—	Other liabilities		2,204
Interest rate swaps		725,332	Other assets		15,092	Other liabilities		15,092		867,728	Other assets		39,320	Other liabilities		39,320
Risk participation agreements		134,346	Other assets		—	Other liabilities		—		132,379	Other assets		—	Other liabilities		—
Total				$	16,503		$	15,424				$	51,943		$	43,272

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

The following table presents the recorded net gains and losses pertaining to the Company’s derivative instruments:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020

	(in thousands)								(in thousands)
Derivatives designated as hedging instruments
Gain (loss) in OCI on derivatives (effective portion), net of tax	$	82	$	—	$	(1,187)	$	—	$	(174)	$	(1,269)	$	1,155	$	(1,269)
(Loss) gain reclassified from OCI into interest income or interest expense (effective portion)	$	(82)	$	—	$	67	$	—
Loss reclassified from OCI into interest income or interest expense (effective portion)									$	(121)	$	149	$	(233)	$	149

Derivatives not designated as hedging instruments
Changes in fair value of derivative loan commitments
Mortgage banking income	$	4,738	$	421	$	14,266	$	1,435	$	(1,868)	$	4,337	$	(7,281)	$	9,528
Changes in fair value of forward loan sale commitments
Mortgage banking income		755		782		(1,075)		449		(3,422)		1,842		1,995		(1,830)
Changes in fair value of interest rate swaps
Other income		—		—		—		—
Total	$	5,493	$	1,203	$	13,191	$	1,884	$	(5,290)	$	6,179	$	(5,286)	$	7,698

11.

OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES

Operating lease ROU assets, included in other assets, were $25.8 million at June 30, 2021.

Operating lease liabilities, included in other liabilities and accrued expenses, were $27.3 million at June 30, 2021. As of June 30, 2021 the Company does not have leases that have not yet commenced. At June 30, 2021 lease expiration dates ranged from 3 months to 36.6 years and have a weighted average remaining lease term of 17.2 years.

Future minimum lease payments under non-cancellable leases and a reconciliation to the amount recorded as operating lease liabilities as of June 30, 2021 and December 31, 2020 were as follows:


	June 30, 2021		December 31, 2020

	(in thousands)

2021	$	2,990	$	2,452
2022		2,896		2,239
2023		2,439		1,847
2024		2,076		1,644
2025		2,042		1,684
Thereafter		20,883		13,134
Total lease payments		33,326	$	23,000
Imputed interest		(5,997)
Total present value of operating lease liabilities	$	27,329

The weighted-average discount rate and remaining lease term for operating leases were as follows:


	June 30, 2021
Weighted-average discount rate		1.93	%
Weighted-average remaining lease term (years)		17.24

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $697,000 and $610,000, respectively, for the three months ended June 30, 2021 and 2020, and $1.4 million and $1.2 million, respectively, for the six months ended June 30, 2021 and 2020, respectively. Variable lease components, such as fair market value adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

The following table presents the components of total lease expense:


	Three Months Ended		Six Months Ended
	June 30, 2021		June 30, 2021

	(in thousands)

Lease Expense:
Operating lease expense	$	658	$	1,290
Short-term lease expense		29		70
Variable lease expense		10		19
Total lease expense	$	697	$	1,379

12.

STOCK-BASED COMPENSATION

Under the HarborOne, ~~Bancorp,~~ Inc. 2020 Equity Incentive Plan (the “2020 Equity Plan”), adopted on September 29, 2020, the Company may grant stock options, restricted stock awards, performance restricted stock units and other equity incentives to its directors, officers and employees. Total shares reserved for issuance under the 2020 Equity Plans are 4,500,000. The 2017 Stock Option and Incentive Plan (the “2017 Equity Plan” and together with the 2020 Equity Plan, the “Equity ~~Plan”~~Plans”), adopted on August 9, 2017, was discontinued upon the adoption of the 2020 Equity Plan, and as such, 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. Shareholders’ approvedonly award shares from the ~~HarborOne Bancorp, Inc.~~ 2020 Equity ~~Incentive Plan on September 29, 2020. No awards had been granted under the new plan as of September 30, 2020.~~Plan.

Expense related to awards granted to employees is recognized as compensation expense, and expense related to awards granted to directors is recognized as directors’ fees within noninterest expense. Total expense for the Equity ~~Plan~~Plans was ~~$617,000~~$989,000 and ~~$3.1~~$1.8 million, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, and $1.3 million and ~~$3.7~~$2.5 million, respectively, for the three and ~~nine~~six months ended ~~2019, respectively.~~June 30, 2020.

Share amounts related to periods prior to the date of the closing of the Offering on August 14, 2019 have been restated to give retroactive recognition to the 1.795431 exchange ratio applied in the Offering.

Stock Options

Stock options are generally granted with the exercise price equal to the market price of the Company’s common stock at the date of the grant with vesting periods ranging from 1 to 3 years and have 10-year contractual terms.

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:

●

Volatility is based on peer group volatility due to lack of sufficient trading history for the Company.

●

Expected life represents the period of time that the option is expected to be outstanding, taking into account the contractual term and the vesting period.

●

Expected dividend yield is based on the Company’s history and expectation of dividend payouts.

●

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period equivalent to the expected life of the option.

During the ~~nine~~three and six months ended ~~September~~June 30, ~~2020,~~2021, the Company made no awards of nonqualified options to purchase shares of common stock.

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

A summary of the status of the Company’s stock option grants for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, is presented in the table below:


	Outstanding								Nonvested				Outstanding								Nonvested
					Weighted												Weighted
					Average						Weighted						Average						Weighted
			Weighted		Remaining		Aggregate				Average				Weighted		Remaining		Aggregate				Average
	Stock Option		Average		Contractual		Intrinsic		Stock Option		Grant Date		Stock Option		Average		Contractual		Intrinsic		Stock Option		Grant Date
	Awards		Exercise Price		Term (years)		Value		Awards		Fair Value		Awards		Exercise Price		Term (years)		Value		Awards		Fair Value

Balance at January 1, 2020		2,169,243	$	9.87						1,196,545	$	2.66
Balance at January 1, 2021														2,106,403	$	9.86						473,445	$	2.55
Granted		—		—						—		—		—		—						—		—
Exercised														(62,840)		10.23						—		—
Vested		—		—						(609,968)		2.72		—		—						(176,165)		2.47
Forfeited		(20,948)		10.23						(20,948)		2.82		—		—						—		—
Expired		—		—						—		—		—		—						—		—
Balance at September 30, 2020		2,148,295	$	9.87		7.33	$	—		565,629	$	2.59
Exercisable at September 30, 2020		1,582,663	$	10.07		6.96	$	—
Balance at June 30, 2021														2,043,563	$	9.85		6.75	$	—		297,280	$	2.60
Exercisable at June 30, 2021														1,746,283	$	9.94		6.60	$	—
Unrecognized cost inclusive of directors' awards	$	991,000											$	437,425
Weighted average remaining recognition period (years)		1.37												0.66

Restricted Stock and Performance Restricted Stock Units

Shares issued upon vesting may be either authorized but unissued shares or reacquired shares held by the Company. Any shares not issued because vesting requirements are not met will again be available for issuance under the plan. The fair market value of shares awarded, based on the market price at the date of grant, is unearned compensation to be amortized over the applicable vesting period.

Performance restricted stock units vest based on a combination of performance and service requirements. The number of performance restricted stock units granted reflects the target number able to be earned under a given award. Non-vested performance restricted stock unit compensation expense is based on the most recent performance assumption available and is adjusted as assumptions change.

The following table presents the activity in non-vested restricted stock awards under the Equity Plans for the six months ended June 30, 2021:


	Restricted		Weighted Average
	Stock Awards		Grant Price

Non-vested stock awards at January 1, 2021		384,692	$	9.33
Vested		(9,530)		9.80
Granted		188,377		11.95
Forfeited		(2,000)		9.24
Non-vested stock awards at June 30, 2021		561,539	$	10.20
Unrecognized cost inclusive of directors' awards	$	4,149,176
Weighted average remaining recognition period (years)		1.84

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

The following table presents the activity in non-vested performance restricted stock units under the 2020 Equity Plan for the ~~nine~~six months ended ~~September~~June 30, ~~2020:~~2021:


	Restricted		Weighted Average		Performance		Weighted Average
	Stock Awards		Grant Price		Restricted Stock Units		Grant Price

Non-vested stock awards at January 1, 2020		333,765	$	10.20
Non-vested performance restricted stock units at January 1, 2021						—	$	—
Vested		(293,688)		10.22		—		—
Granted		—		—		85,066		11.95
Forfeited		(8,679)		10.23		—		—
Non-vested stock awards at September 30, 2020		31,398	$	10.00
Unrecognized cost inclusive of directors' awards	$	256,000
Non-vested performance restricted stock units at June 30, 2021						85,066	$	11.95
Unrecognized cost					$	903,487
Weighted average remaining recognition period (years)		1.62				2.67

~~12.~~13.MINIMUM REGULATORY CAPITAL REQUIREMENTS

The Company and Bank are subject to various regulatory capital requirements administered by the Federal Reserve and 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, common equity 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%

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements (unaudited)~~

and a total capital ratio of 8.0%. In addition, a Tier 1 leverage ratio of 4.0% is required. Additionally, the capital rules require a bank holding company to maintain 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, 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 ~~September~~June 30, ~~2020,~~2021, 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 ~~September~~June 30, ~~2020~~2021 also exceeded the minimum capital requirements, including the currently applicable capital conservation buffer of 2.5%.

~~The Company’s and the Bank’s actual regulatory capital ratios as of September 30, 2020 and December 31, 2019 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.

September 30, 2020

Common equity Tier 1 capital to risk-weighted assets

$
619,098

17.6
%

$
157,971

4.5
%

N/A

N/A

Tier 1 capital to risk-weighted assets

619,098

17.6

210,627

6.0

N/A

N/A

Total capital to risk-weighted assets

698,045

19.9

280,837

8.0

N/A

N/A

Tier 1 capital to average assets

619,098

14.5

171,035

4.0

N/A

N/A

December 31, 2019

Common equity Tier 1 capital to risk-weighted assets

$
590,122

18.7
%

$
142,048

4.5
%

N/A

N/A

Tier 1 capital to risk-weighted assets

590,122

18.7

189,397

6.0

N/A

N/A

Total capital to risk-weighted assets

649,182

20.6

252,529

8.0

N/A

N/A

Tier 1 capital to average assets

590,122

15.3

154,659

4.0

N/A

N/A

HarborOne Bank

September 30, 2020

Common equity Tier 1 capital to risk-weighted assets

$
486,565

13.9
%

$
157,958

4.5
%

$
228,162

6.5
%
Tier 1 capital to risk-weighted assets

486,565

13.9

210,611

6.0

280,815

8.0

Total capital to risk-weighted assets

530,508

15.1

280,815

8.0

351,018

10.0

Tier 1 capital to average assets

486,565

11.4

170,933

4.0

213,666

5.0

December 31, 2019

Common equity Tier 1 capital to risk-weighted assets

$
453,707

14.4
%

$
142,053

4.5
%

$
205,188

6.5
%
Tier 1 capital to risk-weighted assets

453,707

14.4

189,404

6.0

252,539

8.0

Total capital to risk-weighted assets

477,767

15.1

252,539

8.0

315,674

10.0

Tier 1 capital to average assets

453,707

12.2

149,272

4.0

186,591

5.0

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~13.~~~~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 income (loss), included in stockholders’ equity, are as follows:~~

September 30,

December 31,

2020

2019

(in thousands)

Cash flow hedge:

Net unrealized loss

$
(1,648)

$
—

Related tax effect

461

—

Total accumulated other comprehensive loss

$
(1,187)

$
—

Securities available for sale:

Net unrealized gain

$
4,100

$
1,899

Related tax effect

(1,137)

(419)

Total accumulated other comprehensive income

$
2,963

$
1,480

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, 2021 and December 31, 2020 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, 2021
Common equity Tier 1 capital to risk-weighted assets	$	632,138	18.1	%	$	157,137	4.5	%		N/A	N/A
Tier 1 capital to risk-weighted assets		632,138	18.1			209,516	6.0			N/A	N/A
Total capital to risk-weighted assets		710,881	20.4			279,354	8.0			N/A	N/A
Tier 1 capital to average assets		632,138	14.0			181,198	4.0			N/A	N/A

December 31, 2020
Common equity Tier 1 capital to risk-weighted assets	$	621,153	17.7	%	$	158,050	4.5	%		N/A	N/A
Tier 1 capital to risk-weighted assets		621,153	17.7			210,733	6.0			N/A	N/A
Total capital to risk-weighted assets		700,197	19.9			280,978	8.0			N/A	N/A
Tier 1 capital to average assets		621,153	14.5			171,578	4.0			N/A	N/A

HarborOne Bank
June 30, 2021
Common equity Tier 1 capital to risk-weighted assets	$	545,120	15.6	%	$	157,193	4.5	%	$	227,057	6.5	%
Tier 1 capital to risk-weighted assets		545,120	15.6			209,591	6.0			279,454	8.0
Total capital to risk-weighted assets		588,878	16.9			279,454	8.0			349,318	10.0
Tier 1 capital to average assets		545,120	12.0			181,071	4.0			226,338	5.0

December 31, 2020
Common equity Tier 1 capital to risk-weighted assets	$	506,822	14.4	%	$	158,081	4.5	%	$	228,339	6.5	%
Tier 1 capital to risk-weighted assets		506,822	14.4			210,775	6.0			281,033	8.0
Total capital to risk-weighted assets		550,875	15.7			281,033	8.0			351,291	10.0
Tier 1 capital to average assets		506,822	11.8			171,501	4.0			214,377	5.0

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

14.COMPREHENSIVE INCOME (LOSS)

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


	June 30,		December 31,
	2021		2020

	(in thousands)

Cash flow hedge:
Net unrealized gain (loss)	$	196	$	(1,407)
Related tax effect		(54)		394
Total accumulated other comprehensive income (loss)	$	142	$	(1,013)

Securities available for sale:
Net unrealized gain	$	882	$	4,102
Related tax effect		(195)		(904)
Total accumulated other comprehensive income	$	687	$	3,198

The following tables present changes in accumulated other comprehensive income (loss) by component for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended September 30,								Three Months Ended June 30,
	2020						2019		2021						2020

	Available		Cash				Available		Available		Cash				Available		Cash
	for Sale		Flow				for Sale		for Sale		Flow				for Sale		Flow
	Securities		Hedge		Total		Securities		Securities		Hedge		Total		Securities		Hedge		Total

	(in thousands)								(in thousands)

Balance at beginning of period	$	4,166	$	(1,269)	$	2,897	$	1,466	$	(476)	$	316	$	(160)	$	4,258	$	—	$	4,258

Other comprehensive income (loss) before reclassifications		(1,335)		32		(1,303)		609		1,493		(363)		1,130		(471)		(1,613)		(2,084)
Amounts reclassified to accumulated other comprehensive income for transfer of securities to available for sale										—		—		—		—		—		—
Amounts reclassified from accumulated other comprehensive income (loss)		—		82		82		(77)		—		121		121		(8)		(149)		(157)
Net current period other comprehensive income (loss)		(1,335)		114		(1,221)		532		1,493		(242)		1,251		(479)		(1,762)		(2,241)
Related tax effect		132		(32)		100		(117)		(330)		68		(262)		387		493		880
Balance at end of period	$	2,963	$	(1,187)	$	1,776	$	1,881	$	687	$	142	$	829	$	4,166	$	(1,269)	$	2,897

Nine Months Ended September 30,

2020

2019

Available

Cash

Available

for Sale

Flow

for Sale

Securities

Hedge

Total

Securities

(in thousands)

Balance at beginning of period

$
1,480

$
—

$
1,480

$
(2,358)

Other comprehensive income (loss) before reclassifications

4,212

(1,581)

2,631

6,780
Amounts reclassified to accumulated other comprehensive income for transfer of securities to available for sale

522

—

522

(1,344)
Amounts reclassified from accumulated other comprehensive income (loss)

(2,533)

(67)

(2,600)

—
Net current period other comprehensive income (loss)

2,201

(1,648)

553

5,436
Related tax effect

(718)

461

(257)

(1,197)
Balance at end of period

$
2,963

$
(1,187)

$
1,776

$
1,881

~~14.~~

~~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.

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)


	Six Months Ended June 30,
	2021						2020

	Available		Cash				Available		Cash
	for Sale		Flow				for Sale		Flow
	Securities		Hedge		Total		Securities		Hedge		Total

	(in thousands)

Balance at beginning of period	$	3,198	$	(1,013)	$	2,185	$	1,480	$	—	$	1,480

Other comprehensive income (loss) before reclassifications		(3,220)		1,370		(1,850)		5,547		(1,613)		3,934
Amounts reclassified to accumulated other comprehensive income for transfer of securities to available for sale		—		—		—		522		—		522
Amounts reclassified from accumulated other comprehensive income (loss)		—		233		233		(2,533)		(149)		(2,682)
Net current period other comprehensive income (loss)		(3,220)		1,603		(1,617)		3,536		(1,762)		1,774
Related tax effect		709		(448)		261		(850)		493		(357)
Balance at end of period	$	687	$	142	$	829	$	4,166	$	(1,269)	$	2,897

15.

FAIR VALUE OF ASSETS AND LIABILITIES

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

•Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

•Level 2 – Significant other 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.

•Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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.~~

Debt Securities - ~~All fair value measurements~~Available for sale debt securities are ~~obtained from a third-party pricing service and are not adjusted by management. Securities measured~~recorded at fair value ~~in Level 1 are based~~ on a recurring basis. When available, the Company uses 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.

~~FHLB stock~~ ~~- FHLB stock has restrictions placed on its transferability. As a result,~~to determine the fair value of ~~FHLB stock was~~debt securities; such items are classified as Level 1. There were 0 Level 1 securities held at June 30, 2021 and December 31, 2020.

Level 2 debt securities are traded less frequently than exchange-traded instruments. The fair value of these securities is determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category includes obligations of U.S. government-sponsored enterprises, including mortgage-backed securities, individual name issuer trust preferred debt securities and corporate bonds.

Debt securities not ~~practicable to determine.~~actively traded whose fair value is determined through the use of cash flows utilizing inputs that are unobservable are classified as Level 3. There were 0 Level 3 securities held at June 30, 2021 and December 31, 2020.

Loans held for sale - ~~Fair values are~~The fair value of mortgage loans held for sale is estimated based on ~~prevailing~~current market prices for similar ~~commitments.~~ loans in the secondary market and therefore are classified as Level 2 assets. There were 0 mortgage loans held for sale 90 days or more past due as of June 30, 2021 and December 31, 2020.

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Collateral Dependent Impaired Loans - The fair value of collateral dependent loans that are deemed to be impaired is determined based upon the fair value of the underlying collateral. Such collateral primarily consists of real estate and, to a lesser extent, other business assets. For collateral dependent loans for which repayment is dependent on the sale of the collateral, management adjusts the fair value for estimated costs to sell. For collateral dependent loans for which repayment is dependent on the operation of the collateral, such as accruing troubled debt restructured loans, estimated costs to sell are not incorporated into the measurement. Management may also adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values resulting from its knowledge of the property. Internal valuations are utilized to determine the fair value of other business assets. Collateral dependent impaired loans are categorized as Level 3.

~~Loans~~ ~~- Fair values~~Appraisals for ~~mortgage loans and other~~collateral-dependent impaired 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 comparable salesperformed by certified general appraisers (for commercial properties) or ~~recent appraisals, adjusted for selling costs~~certified residential appraisers (for residential properties) whose qualifications and ~~other expenses.~~licenses have been reviewed and verified by the Company.

~~Retirement plan annuities~~ ~~- The carrying~~Once received, the Company reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value ~~of the annuities are based on their contract values which approximate fair value.~~in comparison with independent data sources such as recent market data or industry-wide statistics.

MSRs - 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.~~

Interest ~~Rate Swap~~rate swap designated as a cashflow ~~hedge-~~hedge - The Company works directly with a ~~third party~~third-party vendor to provide periodic valuations for its interest rate risk management agreements to determine fair value of its interest rate swaps executed for interest rate risk management. The vendor utilizes standard valuation methodologies applicable to interest rate derivatives based on readily observable market data and are therefore considered Level 2 valuations.

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 loan based on the Company’s internal cost analysis that is not observable. The weighted average pull-through rate for derivative loan commitments was approximately ~~73%~~87% and ~~85%~~76% at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

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

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements (unaudited)~~

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~~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 is 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 0 transfers during the periods presented.

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								Total
	Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3		Fair Value

	(in thousands)								(in thousands)

September 30, 2020
June 30, 2021
Assets

Securities available for sale									$	—	$	353,848	$	—	$	353,848
Loans held for sale										—		103,886		—		103,886
Mortgage servicing rights										—		35,955		—		35,955
Derivative loan commitments										—		—		5,048		5,048
Forward loan sale commitments										—		—		86		86
Interest rate management agreements										—		196		—		196
Interest rate swaps										—		26,370		—		26,370
									$	—	$	520,255	$	5,134	$	525,389
Liabilities

Derivative loan commitments									$	—	$	—	$	47	$	47
Forward loan sale commitments										—		—		295		295
Interest rate management agreements										—		—		—		—
Interest rate swaps										—		26,370		—		26,370
									$	—	$	26,370	$	342	$	26,712

December 31, 2020
Assets

Securities available for sale	$	—	$	280,308	$	—	$	280,308	$	—	$	276,498	$	—	$	276,498
Loans held for sale		—		190,373		—		190,373		—		208,612		—		208,612
Mortgage servicing rights		—		20,159		—		20,159		—		24,833		—		24,833
Derivative loan commitments		—		—		15,554		15,554		—		—		12,623		12,623
Forward loan sale commitments		—		—		193		193		—		—		—		—
Interest rate swaps		—		44,636		—		44,636		—		39,320		—		39,320
	$	—	$	535,476	$	15,747	$	551,223	$	—	$	549,263	$	12,623	$	561,886
Liabilities										��

Derivative loan commitments	$	—	$	—	$	77	$	77	$	—	$	—	$	341	$	341
Forward loan sale commitments		—		—		1,400		1,400		—		—		2,204		2,204
Interest rate management agreements		—		1,648		—		1,648		—		1,407		—		1,407
Interest rate swaps		—		44,636		—		44,636		—		39,320		—		39,320
	$	—	$	46,284	$	1,477	$	47,761	$	—	$	40,727	$	2,545	$	43,272

December 31, 2019
Assets

Securities available for sale	$	—	$	239,473	$	—	$	239,473
Loans held for sale		—		110,552		—		110,552
Mortgage servicing rights		—		17,150		—		17,150
Derivative loan commitments		—		—		1,385		1,385
Forward loan sale commitments		—		—		26		26
Interest rate swaps		—		15,092		—		15,092
	$	—	$	382,267	$	1,411	$	383,678
Liabilities

Derivative loan commitments	$	—	$	—	$	174	$	174
Forward loan sale commitments		—		—		158		158
Interest rate swaps		—		15,092		—		15,092
	$	—	$	15,092	$	332	$	15,424

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

The table below presents, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the changes in Level 3 assets and liabilities that are measured at fair value on a recurring basis.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020

	(in thousands)								(in thousands)

Assets: Derivative and Forward Loan Sale Commitments:

Balance at beginning of period	$	10,844	$	2,494	$	1,411	$	1,261	$	10,225	$	8,078	$	12,623	$	1,411

Total gains included in net income ⁽¹⁾		4,903		468		14,336		1,701
Total gains (losses) included in net income ⁽¹⁾										(5,091)		2,766		(7,489)		9,433
Balance at end of period	$	15,747	$	2,962	$	15,747	$	2,962	$	5,134	$	10,844	$	5,134	$	10,844

Changes in unrealized gains relating to instruments at period end	$	15,747	$	2,962	$	15,747	$	2,962	$	5,134	$	10,844	$	5,134	$	10,844


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020

		(in thousands)									(in thousands)

Liabilities: Derivative and Forward Loan Sale Commitments:

Balance at beginning of period		$	(2,067)	$	(1,182)	$	(332)	$	(630)		$	(143)	$	(5,480)	$	(2,545)	$	(332)

Total gains (losses) included in net income ⁽¹⁾			590		736		(1,145)		184			(199)		3,413		2,203		(1,735)
Balance at end of period		$	(1,477)	$	(446)	$	(1,477)	$	(446)		$	(342)	$	(2,067)	$	(342)	$	(2,067)

Changes in unrealized losses relating to instruments at period end		$	(1,477)	$	(446)	$	(1,477)	$	(446)		$	(342)	$	(2,067)	$	(342)	$	(2,067)

⁽¹⁾ Included in mortgage banking income on the Consolidated Statements of Net Income.	⁽¹⁾ Included in mortgage banking income on the Consolidated Statements of Net Income.									⁽¹⁾ Included in mortgage banking income on the Consolidated Statements of Net Income.

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 0 liabilities measured at fair value on a non-recurring basis at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related individual assets.


	September 30, 2020						December 31, 2019						June 30, 2021						December 31, 2020
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3

	(in thousands)												(in thousands)

Asset held for sale	$	—	$	—	$	—	$	—	$	—	$	8,536
Impaired loans:
Residential		—		—		4,246		—		—		2,272	$	—	$	—	$	273	$	—	$	—	$	919
Commercial		—		—		20,476		—		—		1,606		—		—		6,505		—		—		7,242
Other real estate owned and repossessed assets		—		—		898		—		—		719		—		—		298		—		—		595
	$	—	$	—	$	25,620	$	—	$	—	$	13,133	$	—	$	—	$	7,076	$	—	$	—	$	8,756

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Losses on fully charged off loans are not included in the table.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020

	(in thousands)								(in thousands)

Impaired loans
Residential	$	103	$	26	$	369	$	58	$	—	$	584	$	5	$	581
Commercial		644		181		2,654		193
Commercial real estate										42		—		42		—
Commercial and industrial										1,475		449		2,830		449
Other real estate owned and repossessed assets		2		21		58		88		2		—		24		55
	$	749	$	228	$	3,081	$	339	$	1,519	$	1,033	$	2,901	$	1,085

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 are not recorded 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.

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

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.


	September 30, 2020										June 30, 2021
	Carrying		Fair Value								Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total		Amount		Level 1		Level 2		Level 3		Total

	(in thousands)										(in thousands)

Financial assets:
Cash and cash equivalents	$	137,518	$	137,518	$	—	$	—	$	137,518	$	415,647	$	415,647	$	—	$	—	$	415,647
Securities available for sale		280,308		—		280,308		—		280,308		353,848		—		353,848		—		353,848
Federal Home Loan Bank stock		11,631		N/A		N/A		N/A		N/A		7,241		N/A		N/A		N/A		N/A
Loans held for sale		190,373		—		190,373		—		190,373		103,886		—		103,886		—		103,886
Loans, net		3,466,608		—		—		3,509,251		3,509,251		3,368,464		—		—		3,411,370		3,411,370
Retirement plan annuities		13,641		—		—		13,641		13,641		13,957		—		—		13,957		13,957
Accrued interest receivable		12,504		—		12,504		—		12,504		11,058		—		11,058		—		11,058

Financial liabilities:
Deposits		3,365,888		—		—		3,369,131		3,369,131		3,687,940		—		—		3,691,290		3,691,290
Borrowed funds		236,106		—		239,842		—		239,842		87,479		—		89,402		—		89,402
Subordinated debt		34,002		—		—		35,291		35,291		34,096		—		—		33,363		33,363
Mortgagors' escrow accounts		7,979		—		—		7,979		7,979		8,284		—		—		8,284		8,284
Accrued interest payable		1,001		—		1,001		—		1,001		917		—		917		—		917

Derivative loan commitments:
Assets		15,554		—		—		15,554		15,554		5,048		—		—		5,048		5,048
Liabilities		77		—		—		77		77		47		—		—		47		47

Interest rate management agreements:
Assets												196		—		196		—		196
Liabilities		1,648		—		—		—		—		—		—		—		—		—

Interest rate swap agreements:
Assets		44,636		—		44,636		—		44,636		26,370		—		26,370		—		26,370
Liabilities		44,636		—		44,636		—		44,636		26,370		—		26,370		—		26,370

Forward loan sale commitments:
Assets		193		—		—		193		193		86		—		—		86		86
Liabilities		1,400		—		—		1,400		1,400		295		—		—		295		295

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

December 31, 2019

Carrying

Fair Value


Amount

Level 1

Level 2

Level 3

Total

(in thousands)

Financial assets:

Cash and cash equivalents

$
211,616

$
211,616

$
—

$
—

$
211,616

Securities available for sale

239,473

—

239,473

—

239,473

Securities held to maturity

26,372

—

26,927

—

26,927

Federal Home Loan Bank stock

17,121

N/A

N/A

N/A

N/A

Loans held for sale

110,552

—

110,552

—

110,552

Loans, net

3,147,498

—

—

3,176,442

3,176,442

Retirement plan annuities

13,333

—

—

13,333

13,333

Accrued interest receivable

9,807

—

9,807

—

9,807

Financial liabilities:

Deposits

2,942,873

—

—

2,943,899

2,943,899

Borrowed funds

354,132

—

354,881

—

354,881

Subordinated debt

33,907

—

—

34,619

34,619

Mortgagors' escrow accounts

6,053

—

—

6,053

6,053

Accrued interest payable

1,669

—

1,669

—

1,669

Derivative loan commitments:

Assets

1,385

—

—

1,385

1,385

Liabilities

174

—

—

174

174

Interest rate swap agreements:

Assets

15,092

—

15,092

—

15,092

Liabilities

15,092

—

15,092

—

15,092

Forward loan sale commitments:

Assets

26

—

—

26

26

Liabilities

158

—

—

158

158


	December 31, 2020
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total

	(in thousands)

Financial assets:
Cash and cash equivalents	$	205,870	$	205,870	$	—	$	—	$	205,870
Securities available for sale		276,498		—		276,498		—		276,498
Federal Home Loan Bank stock		8,738		N/A		N/A		N/A		N/A
Loans held for sale		208,612		—		208,612		—		208,612
Loans, net		3,439,247		—		—		3,473,751		3,473,751
Retirement plan annuities		13,747		—		—		13,747		13,747
Accrued interest receivable		11,874		—		11,874		—		11,874

Financial liabilities:
Deposits		3,506,209		—		—		3,509,996		3,509,996
Borrowed funds		149,097		—		152,373		—		152,373
Subordinated debt		34,033		—		—		34,799		34,799
Mortgagors' escrow accounts		7,736		—		—		7,736		7,736
Accrued interest payable		1,262		—		1,262		—		1,262

Derivative loan commitments:
Assets		12,623		—		—		12,623		12,623
Liabilities		341		—		—		341		341

Interest rate management agreements:
Liabilities		1,407		—		1,407		—		1,407

Interest rate swap agreements:
Assets		39,320		—		39,320		—		39,320
Liabilities		39,320		—		39,320		—		39,320

Forward loan sale commitments:
Assets		—		—		—		—		—
Liabilities		2,204		—		—		2,204		2,204

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

~~15.~~16.

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. ~~Unvested~~Non-vested restricted shares that are participating securities ~~and~~are included in the computation of basic earnings per share. 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.~~

The following table presents earnings per common share.


	Three Months Ended June 30,
	2021		2020

Net income available to common stockholders (in thousands)	$	14,276	$	10,575

Average number of common shares outstanding		55,515,445		58,418,021
Less: Average unallocated ESOP shares		(3,737,152)		(3,967,875)
Weighted average number of common shares outstanding used to calculate basic earnings per common share		51,778,293		54,450,146
Dilutive effect of share-based compensation		871,778		—
Weighted average number of common shares outstanding used to calculate diluted earnings per common share		52,650,071		54,450,146

Earnings per common share:
Basic	$	0.28	$	0.19
Diluted	$	0.27	$	0.19

Three Months Ended September 30,

2020

2019

Net income applicable to common stock (in thousands)

$
11,893

$
7,113

Average number of common shares outstanding

58,375,742

58,453,259
Less: Average unallocated ESOP shares

(3,910,403)

(2,814,525)
Average number of common shares outstanding used to calculate basic earnings per common share

54,465,339

55,638,734
Common stock equivalents

—

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

54,465,339

55,638,734

Earnings per common share:

Basic

$
0.22

$
0.13
Diluted

$
0.22

$
0.13

Nine Months Ended September 30,

2020

2019

Net income available to common stockholders (in thousands)

$
27,192

$
13,961

Average number of common shares outstanding

58,403,825

58,461,953
Less: Average unallocated ESOP shares

(3,967,735)

(1,606,023)
Weighted average number of common shares outstanding used to calculate basic earnings per common share

54,436,090

56,855,930
Weighted average number of common shares outstanding used to calculate diluted earnings per common share

54,436,090

56,855,930

Earnings per common share:

Basic

$
0.50

$
0.25
Diluted

$
0.50

$
0.25

Share amounts related to periods prior to the August 14, 2019 closing of the conversion offering have been restated to give retroactive recognition to the 1.795431 exchange ratio applied in the conversion offering.


	Six Months Ended June 30,
	2021		2020

Net income available to common stockholders (in thousands)	$	33,668	$	15,299

Average number of common shares outstanding		55,921,587		58,418,021
Less: Average unallocated ESOP shares		(3,765,833)		(3,996,715)
Weighted average number of common shares outstanding used to calculate basic earnings per common share		52,155,754		54,421,306
Dilutive effect of share-based compensation		667,600		—
Weighted average number of common shares outstanding used to calculate diluted earnings per common share		52,823,354		54,421,306

Earnings per common share:
Basic	$	0.65	$	0.28
Diluted	$	0.64	$	0.28

Stock options for ~~2,148,295 and 2,240,307~~2,169,243 shares of common stock for the three and ~~nine~~six months ended ~~September~~June 30, 2020 ~~and 2019, respectively,~~ were not considered in computing diluted earnings per share because they were antidilutive.

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

~~16.~~17.

REVENUE RECOGNITION

Revenue from contracts with customers in the scope of Accounting Standards Codification (“ASC”) (“Topic 606”) is measured based on the consideration specified in the contract with a customer and excludes amounts collected on behalf of third parties. The Company recognizes revenue from contracts with customers when it satisfies its performance obligations.

The Company’s performance obligations are generally satisfied as services are rendered and can either be satisfied at a point in time or over time. Unsatisfied performance obligations at the report date are not material to our consolidated financial statements.

In certain cases, other parties are involved with providing services to our customers. If the Company is a principal in the transaction (providing services itself or through a third party on its behalf), revenues are reported based on the gross consideration received from the customer and any related expenses are reported gross in noninterest expense. If the Company is an agent in the transaction (referring to another party to provide services), the Company reports its net fee or commission retained as revenue.

The Company recognizes revenue that is transactional in nature and such revenue is earned at a point in time. Revenue that is recognized at a point in time includes card interchange fees (fee income related to debit card transactions), ATM fees, wire transfer fees, overdraft charge fees, and stop-payment and returned check fees. Additionally, revenue is collected from loan fees, such as letters of credit, line renewal fees and application fees. Such revenue is derived from transactional information and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer’s transaction.

~~17.~~18.

SEGMENT REPORTING

The Company has 2 reportable segments: HarborOne Bank and HarborOne Mortgage. Revenue from HarborOne Bank consists primarily of interest earned on loans and investment securities and service charges on deposit accounts. Revenue from HarborOne 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.

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Information about the reportable segments and reconciliation to the unaudited interim Consolidated Financial Statements at ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 and for the three and ~~nine~~six months then ended is presented in the tables below.


	Three Months Ended September 30, 2020										Three Months Ended June 30, 2021
	HarborOne		HarborOne		HarborOne						HarborOne		HarborOne		HarborOne
	Bank		Mortgage		Bancorp, Inc.		Eliminations		Consolidated		Bank		Mortgage		Bancorp, Inc.		Eliminations		Consolidated

	(in thousands)										(in thousands)


Net interest and dividend income (expense)	$	30,599	$	1,000	$	(430)	$	—	$	31,169	$	32,134	$	855	$	(459)	$	—	$	32,530
Provision for loan losses		13,454		—		—		—		13,454
Net interest and dividend income (loss), after provision for loan losses		17,145		1,000		(430)		—		17,715
Provision (credit) for loan losses												(4,286)		—		—		—		(4,286)
Net interest and dividend income (loss), after provision (credit) for loan losses												36,420		855		(459)		—		36,816
Mortgage banking income:
Gain on sale of mortgage loans		—		34,055		—		—		34,055		—		14,262		—		—		14,262
Intersegment gain (loss)		(645)		645		—		—		—		(910)		910		—		—		—
Changes in mortgage servicing rights fair value		(354)		161		—		—		(193)		(419)		(2,133)		—		—		(2,552)
Other		334		3,947		—		—		4,281		276		3,799		—		—		4,075
Total mortgage banking income (loss)		(665)		38,808		—		—		38,143		(1,053)		16,838		—		—		15,785
Other noninterest income (loss)		6,326		(8)		—		—		6,318
Other noninterest income												5,898		20		—		—		5,918
Total noninterest income		5,661		38,800		—		—		44,461		4,845		16,858		—		—		21,703
Noninterest expense		26,300		19,156		266		—		45,722		24,128		14,101		369		—		38,598
Income (loss) before income taxes		(3,494)		20,644		(696)		—		16,454		17,137		3,612		(828)		—		19,921
Provision (benefit) for income taxes		571		4,550		(560)		—		4,561		4,863		1,013		(231)		—		5,645
Net income (loss)	$	(4,065)	$	16,094	$	(136)	$	—	$	11,893	$	12,274	$	2,599	$	(597)	$	—	$	14,276


	Nine Months Ended September 30, 2020										Six Months Ended June 30, 2021
	HarborOne		HarborOne		HarborOne						HarborOne			HarborOne		HarborOne
	Bank		Mortgage		Bancorp, Inc.		Eliminations		Consolidated		Bank			Mortgage		Bancorp, Inc.		Eliminations		Consolidated

	(in thousands)										(in thousands)


Net interest and dividend income (expense)	$	86,248	$	2,020	$	(952)	$	—	$	87,316	$	63,382		$	2,105	$	(905)	$	—	$	64,582
Provision for loan losses		27,207		—		—		—		27,207
Net interest and dividend income (loss), after provision for loan losses		59,041		2,020		(952)		—		60,109
Provision (credit) for loan losses												(4,195)			—		—		—		(4,195)
Net interest and dividend income (loss), after provision (credit) for loan losses												67,577			2,105		(905)		—		68,777
Mortgage banking income:
Gain on sale of mortgage loans		—		77,195		—		—		77,195		—			39,064		—		—		39,064
Intersegment gain (loss)		(2,444)		2,444		—		—		—		(1,572)			1,572		—		—		—
Changes in mortgage servicing rights fair value		(2,014)		(3,677)		—		—		(5,691)		(133)	��		990		—		—		857
Other		1,031		9,931		—		—		10,962		576			8,014		—		—		8,590
Total mortgage banking income (loss)		(3,427)		85,893		—		—		82,466		(1,129)			49,640		—		—		48,511
Other noninterest income (loss)		19,640		(141)		—		—		19,499
Other noninterest income												10,989			12		—		—		11,001
Total noninterest income		16,213		85,752		—		—		101,965		9,860			49,652		—		—		59,512
Noninterest expense		75,806		48,235		907		—		124,948		48,591			32,158		651		—		81,400
Income (loss) before income taxes		(552)		39,537		(1,859)		—		37,126		28,846			19,599		(1,556)		—		46,889
Provision (benefit) for income taxes		2,199		8,667		(932)		—		9,934		8,298			5,346		(423)		—		13,221
Net income (loss)	$	(2,751)	$	30,870	$	(927)	$	—	$	27,192	$	20,548		$	14,253	$	(1,133)	$	—	$	33,668

Total assets at period end	$	4,404,842	$	280,983	$	729,838	$	(987,344)	$	4,428,319	$	4,631,734		$	233,818	$	743,544	$	(992,674)	$	4,616,422
Goodwill at period end	$	59,042	$	10,760	$	—	$	—	$	69,802	$	59,042		$	10,760	$	—	$	—	$	69,802

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)


	Three Months Ended June 30, 2020

	HarborOne		HarborOne		HarborOne
	Bank		Mortgage		Bancorp, Inc.		Eliminations		Consolidated

	(in thousands)


Net interest and dividend income (expense)	$	29,139	$	739	$	(431)	$	—	$	29,447
Provision for loan losses		10,004		—		—		—		10,004
Net interest and dividend income (loss), after provision for loan losses		19,135		739		(431)		—		19,443
Mortgage banking income:
Gain on sale of mortgage loans		—		30,862		—		—		30,862
Intersegment gain (loss)		(1,399)		1,399		—		—		—
Changes in mortgage servicing rights fair value		(490)		(621)		—		—		(1,111)
Other		346		3,703		—		—		4,049
Total mortgage banking income (loss)		(1,543)		35,343		—		—		33,800
Other noninterest income (loss)		4,788		(11)		—		—		4,777
Total noninterest income		3,245		35,332		—		—		38,577
Noninterest expense		25,218		18,212		347		—		43,777
Income (loss) before income taxes		(2,838)		17,859		(778)		—		14,243
Provision (benefit) for income taxes		27		3,878		(237)		—		3,668
Net income (loss)	$	(2,865)	$	13,981	$	(541)	$	—	$	10,575

Three Months Ended September 30, 2019

HarborOne

HarborOne

HarborOne


Bank

Mortgage

Bancorp, Inc.

Eliminations

Consolidated

(in thousands)

Net interest and dividend income

$
27,855

$
285

$
(155)

$
—

$
27,985
Provision for loan losses

889

—

—

—

889
Net interest and dividend income, after provision for loan losses

26,966

285

(155)

—

27,096
Mortgage banking income:

Gain on sale of mortgage loans

—

11,015

—

—

11,015
Intersegment gain (loss)

(393)

393

—

—

—
Changes in mortgage servicing rights fair value

(591)

(1,883)

—

—

(2,474)
Other

369

2,595

—

—

2,964
Total mortgage banking income

(615)

12,120

—

—

11,505
Other noninterest income

5,772

(4)

—

—

5,768
Total noninterest income

5,157

12,116

—

—

17,273
Noninterest expense

24,405

11,227

571

—

36,203
Income (loss) before income taxes

7,718

1,174

(726)

—

8,166
Provision (benefit) for income taxes

1,019

171

(137)

—

1,053
Net income (loss)

$
6,699

$
1,003

$
(589)

$
—

$
7,113


	Nine Months Ended September 30, 2019										Six Months Ended June 30, 2020

	HarborOne		HarborOne		HarborOne						HarborOne		HarborOne		HarborOne
	Bank		Mortgage		Bancorp Inc.		Eliminations		Consolidated		Bank		Mortgage		Bancorp Inc.		Eliminations		Consolidated

	(in thousands)										(in thousands)

Net interest and dividend income (expense)	$	81,296	$	604	$	(1,172)	$	—	$	80,728	$	55,649	$	1,020	$	(522)	$	—	$	56,147
Provision for loan losses		3,496		—		—		—		3,496		13,753		—		—		—		13,753
Net interest and dividend income (loss), after provision for loan losses		77,800		604		(1,172)		—		77,232		41,896		1,020		(522)		—		42,394
Mortgage banking income:
Gain on sale of mortgage loans		1		24,085		—		—		24,086		—		43,140		—		—		43,140
Intersegment gain (loss)		(866)		866		—		—		—		(1,799)		1,799		—		—		—
Changes in mortgage servicing rights fair value		(1,599)		(5,267)		—		—		(6,866)		(1,660)		(3,838)		—		—		(5,498)
Other		1,127		6,315		—		—		7,442		697		5,695		—		—		6,392
Total mortgage banking income (loss)		(1,337)		25,999		—		—		24,662		(2,762)		46,796		—		—		44,034
Other noninterest income (loss)		18,191		(20)		—		—		18,171		13,314		(133)		—		—		13,181
Total noninterest income		16,854		25,979		—		—		42,833		10,552		46,663		—		—		57,215
Noninterest expense		74,527		27,496		1,853		—		103,876		49,506		28,790		641		—		78,937
Income (loss) before income taxes		20,127		(913)		(3,025)		—		16,189		2,942		18,893		(1,163)		—		20,672
Provision (benefit) for income taxes		3,267		(256)		(783)		—		2,228		1,628		4,117		(372)		—		5,373
Net income (loss)	$	16,860	$	(657)	$	(2,242)	$	—	$	13,961	$	1,314	$	14,776	$	(791)	$	—	$	15,299

Total assets at period end	$	3,821,671	$	152,800	$	693,851	$	(719,302)	$	3,949,020	$	4,451,114	$	233,138	$	721,153	$	(940,499)	$	4,464,906
Goodwill at period end	$	58,875	$	10,760	$	—	$	—	$	69,635	$	59,042	$	10,760	$	—	$	—	$	69,802

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 ~~September~~June 30, ~~2020,~~2021, and our results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020. 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 the impact of the COVID-19 pandemic; 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 herein under the section captioned “Risk Factors”; the negative impacts and disruptions of the COVID-19 pandemic and measures taken to contain its spread on our employees, customers, business operations, credit quality, financial position, liquidity and results of operations; ~~the length and extent of the economic contraction as a result of the COVID-19 pandemic; continued deterioration~~changes in ~~employment levels and other~~ general business and economic conditions on a national basis and in the local markets in which the Company operates; changes in customer behavior; the possibility that future credit losses, loan defaults and charge-off rates are higher than expected due to changes in economic assumptions or adverse economic developments; turbulence in the capital and debt markets; changes in interest rates; decreases in the value of securities and other assets; decreases in deposit levels necessitating increased borrowing to fund loans and investments; competitive pressures from other financial institutions; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics; changes in regulation; reputational risks relating to the Company’s participation in the U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) and other pandemic-related legislative and regulatory initiatives and programs; changes in accounting standards and practices; the risk that goodwill and intangibles recorded in our financial statements will become impaired; risks related to the implementation of acquisitions, dispositions, and restructurings, including the risk that acquisitions may not produce results at levels or within time frames originally anticipated; the risk that we may not be successful in the implementation of our business strategy; changes in assumptions used in making such forward-looking statements; and the other risks and uncertainties detailed in the Company’s Annual Report on Form 10-K and updated in this Quarterly Reports on Form 10-Q and other filings submitted to the Securities and Exchange Commission. 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.

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.

COVID-19 Update

~~The~~Significant progress has been made to combat the outbreak of COVID-19; however, the global pandemic has adversely impacted a broad range of industries in which the Company’s customers operate and could still impair their ability to fulfill their financial obligations to the Company. While it appears conditions are trending in a positive direction as of June 30, 2021, the COVID-19 pandemic is a highly unusual, unprecedented and evolving public health and economic crisis that may have a significant adverse impact on the economy, the banking industry and the Company in future fiscal periods, all subject to a high degree of uncertainty.

~~On March 27, 2020,~~The Company continues to take significant steps to protect the ~~Coronavirus Aid, Relief,~~health and ~~Economic Security Act (the “CARES Act”) was enacted~~well-being of its employees and customers and to ~~address the economic effects of the~~assist customers who have been impacted by COVID-19 ~~pandemic.~~

~~Paycheck Protection Program~~~~. The CARES Act appropriated $349 billion for “paycheck protection loans” through the PPP. The amount appropriated was subsequently increased~~including providing drive-up and appointment banking, continued access to ~~$659 billion. Loans under the PPP that meet SBA requirements may be forgiven in certain circumstances, and are 100% guaranteed by the SBA. As of September 30, 2020, the Bank had originated 1,071~~ PPP loans ~~totaling approximately $153.0 million. PPP loans are fully guaranteed by the U.S. government, have an initial term of up to five years~~ and earn interest at rate of 1%. We currently expect a significant portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of September 30, 2020, there was $4.0 million in deferred processing fee income that will be recognized over the life of the loan. The average authorized loan size is $150,000 and the aggregate number of jobs positively impacted is approximately 15,000. In conjunction with the PPP, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) has created a lending facility for qualified financial institutions. The Paycheck Protection Program Liquidity Facility will extend credit to depository institutions with a term equal to the term of the pledged collateral at an interest rate of 0.35%. Only loans issued under the PPP can be pledged as collateral to access the facility.

~~Troubled Debt Restructuring Relief.~~ From March 1, 2020 through the earlier of December 31, 2020 or 60 days after the termination date of the national emergency declared by the President on March 13, 2020 concerning the COVID–19 outbreak, a financial institution may elect to suspend the requirements under accounting principles generally accepted in the U.S. for loan modifications related to the COVID–19 pandemic that would otherwise be categorized as a troubled debt restructured (“TDR”), including impairment accounting. This TDR relief is applicable for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. Financial institutions are required to maintain records of the volume of loans involved in modifications to which TDR relief is applicable.

In connection with the COVID-19 pandemic, the Company instituted a payment deferral program for certain commercial, mortgage and consumer loans. Most initial deferrals were for a 90-day period and none were greater than 180 days. Deferrals under this program began to expire in the third quarter of 2020. The following table provides the principal balance of loans with payment deferrals and ~~the current status of the deferral agreement as of September 30, 2020.~~

% Active

deferrals to

Total

Total

Deferrals expired and

Deferrals expired &

Total

outstanding

outstanding

(dollars in thousands)

paying

delinquent

Active deferrals

deferrals

loans

loans

#

$


#

$


#

$






Commercial real estate

50

$
146,926

4

$
4,679

14

$
80,153

$
231,758

$
1,380,071

5.8
%
Commercial and industrial

80

39,123

1

254

12

5,341

44,718

480,129

1.1

Commercial construction

1

12,711

—

—

—

—

12,711

211,953

—

One- to Four family

129

41,389

1

452

36

13,567

55,408

954,198

1.4

Second mortgages and equity lines of credit

16

1,038

1

50

3

156

1,244

150,315

0.1

Residential construction

—

—

—

—

—

—

—

26,422

—

Consumer

504

12,127

23

361

34

772

13,260

312,743

0.2

780

$
253,314

30

$
5,796

99

$
99,989

$
359,099

$
3,515,831

2.8
%

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Management’s Discussion and Analysis~~

~~Company Impact and Response~~

~~Our~~forbearance to commercial and consumer banking products and services are offered primarily in Southeastern New England, where individual and governmental responses to the COVID-19 pandemic have led to a broad curtailment of economic activity beginning in March 2020. We have been able to continue serving our customers through online banking, drive-up teller windows and in our branch offices by appointment only. We implemented work from home protocols for non-branch staff without any degradation to customer service or operations.customers. The Company’s COVID-19 response team continues to monitor the local impact of COVID-19 in order to anticipate and respond to developments quickly and decisively. As of ~~September~~June 30, ~~2020,~~2021, we do not anticipate significant challenges to our ability to maintain our systems and controls and do not currently face any material resource constraints. The Company maintains access to multiple sources of liquidity. IfHowever, if an extended recession caused large numbers of the Company’s deposit customers to withdraw their funds, the Company may become more reliant on volatile or more expensive sources of funding.

We provided access to the PPP to both our existing customers and new customers, to ensure small businesses in the communities we serve have access to this important lifeline for their businesses. During the second quarter of 2021 we originated $4.0 million in PPP loans with processing fees of $345,000 and processed forgiveness on $63.1 million loans. We have processed forgiveness for approximately 95% of the PPP loans that the Bank originated in 2020, with a forgiveness rate above 99%. As of June 30, 2021, PPP loans amounted to $105.2 million and there was $4.1 million in deferred processing fee income that will be recognized over the life of the loans.

We are also working with commercial loan customers that may need payment deferrals or other accommodations to keep their loans out of default through the COVID-19 pandemic. As of June 30, 2021, we have three active payment deferrals on commercial loans with a total principal balance of $11.0 million, or 0.5%, of total commercial loans, all of which are loans included in an at-risk sector. As of June 30, 2021, 96.2% of the commercial deferrals have expired and the borrower is making payments as agreed, 0.1% of the commercial deferrals have expired and the borrower is delinquent, and 3.7% are in active deferral period. The active commercial deferrals are scheduled to expire during 2021. We are no longer providing deferrals under the CARES Act but continue to consider accommodations in the normal course of business.

The residential loan and consumer loan portfolios have not experienced significant credit quality deterioration as of June 30, 2021; however, the continuing impact and uncertain nature of the COVID-19 pandemic may result in increases in delinquencies, charge-offs and loan modifications in these portfolios through the remainder of 2021. As of June 30, 2021, we had eight active payment deferrals on residential mortgage loans with a total principal balance of $2.9 million, or 0.3% of total residential loans. As of June 30, 2021 89.8% of the deferrals have expired and are paying as agreed, 3.3% have expired and are delinquent and 6.9% are in active deferral periods. We had three active payment deferrals on consumer loans with a total principal balance of $22,000, and 96.2% of the consumer loan deferrals have expired and are paying as agreed. Requests for additional extensions on residential mortgage loans and consumer loans were not significant as of June 30, 2021.

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

In connection with the COVID-19 pandemic, the Company instituted a payment deferral program for certain commercial, mortgage and consumer loans. Most initial deferrals were for a 90-day period and generally not greater than 180 days. The following table provides the principal balance of loans with payment deferrals and the current status of the deferral agreement as of June 30, 2021.


															% Active
															deferrals to
													Total		Total
	Deferrals expired and			Deferrals expired &							Total		outstanding		outstanding
(dollars in thousands)	paying			delinquent			Active deferrals				deferrals		loans		loans
	#		$	#		$	#			$

Commercial real estate	78	$	245,180	—	$	—	3	��	$	11,005	$	256,185	$	1,561,873	0.7	%
Commercial and industrial	111		41,731	2		261	—			—		41,992		467,479	—
Commercial construction	—		—	—		—	—			—		—		107,585	—
Total commercial loans	189		286,911	2		261	3			11,005		298,177		2,136,937	0.5

One- to Four family	315		36,332	6		1,372	8			2,871		40,575		927,782	0.3
Home Equity	20		929	—		—	—			—		929		134,688	—
Residential construction	—		—	—		—	—			—		—		33,900	—
Total residential real estate	335		37,261	6		1,372	8			2,871		41,504		1,096,370	0.3

Consumer	789		8,144	12		301	3			22		8,467		186,430	0.0

Total loans	1,313	$	332,316	20	$	1,934	14		$	13,898	$	348,148	$	3,419,737	0.4	%


	Active deferrals expiring by quarter
(dollars in thousands)	9/30/2021		12/31/2021		Total

Commercial real estate	$	3,265	$	7,740	$	11,005
Commercial and industrial		—		—		—
Commercial construction		—		—		—
Total commercial loans	$	3,265	$	7,740	$	11,005

One- to Four family	$	2,658	$	213	$	2,871
Home equity		—		—		—
Residential construction		—		—		—
Total residential real estate	$	2,658	$	213	$	2,871

Consumer	$	10	$	12	$	22

Total loans	$	5,933	$	7,965	$	13,898

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Management continues to evaluate our loan portfolio, particularly the commercial loan portfolio, in light of ~~the expected decrease in~~current economic ~~activity,~~conditions, the mitigating effects of government stimulus, and loan modification efforts designed to limit the long-term impacts of the COVID-19 pandemic. Our commercial loan portfolio is diversified across many sectors and is largely secured by commercial real estate loans, which make up ~~66.6%~~73.1% of the total commercial loan portfolio. ~~Initial assessments of the impact of the COVID-19 pandemic on the commercial loan portfolio have been focused on sectors that have experienced a direct impact.~~ Management ~~has~~initially identified six sectors as the most susceptible to ~~immediate~~ increased credit ~~risk:~~risk as a result of the COVID-19 pandemic: retail, office space, hotels, health and social services, restaurants, and recreation. In the second quarter of 2021, as part of ongoing monitoring of the at-risk sectors, management determined that the health and social services sector no longer presents an additional risk from the impact of the COVID-19 pandemic. As the COVID-19 pandemic has abated, borrowers in this sector have returned to pre-pandemic revenue and profitability levels. Health and social services operations supported by first-round PPP loans have a 100% forgiveness rate. Further, over the last eight quarters, the sector has experienced a positive migration in obligor risk ratings and no watch or substandard credits, and delinquency in the sector is currently zero. The total loan portfolio of the ~~six~~remaining five commercial sectors identified as at risk totaled ~~$945.2~~$764.7 million, which represents ~~45.6%~~35.8% of the commercial loan portfolio. The ~~at risk~~five currently identified at-risk sectors include ~~$707.6~~$646.6 million in commercial real estate loans, ~~$185.9~~$77.2 million in commercial and industrial loans, and ~~$51.7~~$40.9 million in commercial construction loans. Non-performing loans included in the at-risk sectors amounted to $12.5 million at June 30, 2021, of which $12.2 million was included in the hotels sector.

At Risk Sectors

Percent

Health

Total

at risk








and Social





at risk

Total

sector

Retail

Office

Hotel

Services

Restaurants

Recreation

sectors

loans

to total

(dollars in thousands)

Commercial real estate

$
217,768

$
197,087

$
171,009

$
96,586

$
10,161

$
15,015

$
707,626

$
1,380,071

51.3
%
Commercial and industrial

31,806

16,162

2,683

91,277

36,414

7,521

185,863

480,129

38.7

Commercial construction

12,116

768

20,106

107

9,566

9,044

51,707

211,953

24.4

Total

$
261,690

$
214,017

$
193,798

$
187,970

$
56,141

$
31,580

$
945,196

$
2,072,153

45.6
%
Percent to total commercial loans

12.6
%

10.3
%

9.4
%

9.1
%

2.7
%

1.5
%

45.6
%

Outstanding principal balance of:

Original commercial deferrals

$
46,121

$
13,320

$
112,242

$
13,761

$
13,424

$
15,623

$
214,491

$
289,187

74.2
%
Active deferrals

$
20,899

$
77

$
46,044

$
882

$
1,253

$
—

$
69,155

$
99,990

69.2
%
PPP loans

$
6,891

$
—

$
548

$
41,475

$
8,983

$
2,715

$
60,612

$
148,979

40.7
%
Nonaccrual loans

$
520

$
—

$
4,815

$
395

$
16

$
9,162

$
14,908

$
25,960

57.4
%


	At Risk Sectors
															Percent
											Total				at risk
											at risk		Total		sector
	Retail		Office		Hotel		Restaurants		Recreation		sectors		loans		to total

	(dollars in thousands)

Commercial real estate	$	221,445	$	194,240	$	201,158	$	15,074	$	14,653	$	646,570	$	1,561,873		41.4	%
Commercial and industrial		26,799		15,467		2,113		28,605		4,191		77,175		467,479		16.5
Commercial construction		16,341		854		8,833		14,878		—		40,906		107,585		38.0
Total	$	264,585	$	210,561	$	212,104	$	58,557	$	18,844	$	764,651	$	2,136,937		35.8	%

Outstanding principal, active commercial deferrals	$	—	$	—		7,740	$	3,265	$	—	$	11,005	$	2,136,937		0.5	%
Outstanding principal, expired and delinquent commercial deferrals	$	—	$	—		254	$	—	$	—	$	254	$	2,136,937		0.0	%
PPP loans, net of fees	$	477	$	—		87	$	1,764	$	94	$	2,422	$	101,114		2.4	%
Nonaccrual loans	$	387	$	—		12,154	$	4	$	—	$	12,545	$	32,434		38.7	%

As of ~~September~~June 30, ~~2020,~~2021, the retail sector was ~~$261.7~~$264.6 million, or ~~12.6%~~12.4%, of total commercial loans, and included ~~$217.8~~$221.4 million in commercial real estate loans, ~~$31.8~~$26.8 million in commercial and industrial loans, and ~~$12.1~~$16.3 million in commercial construction loans. PPP loans included in this sector totaled $477,000. There are no active deferrals for loans in this sector and expired deferrals are paying as expected. We originated $5.4 million loans during the second quarter that are within the retail sector.

As of June 30, 2021, the office space sector was $210.6 million, or 9.9%, of total commercial loans, and included $194.2 million in commercial real estate loans, $15.5 million in commercial and industrial loans, and $854,000 in commercial construction loans. There are no active deferrals for loans and expired deferrals are paying as expected. No PPP loans were originated in this sector. We originated $5.0 million loans during the second quarter that are within the office space sector.

As of June 30, 2021, the hotel sector was $212.1 million, or 9.9%, of total commercial loans, and included $201.2 million in commercial real estate loans, $2.1 million in commercial and industrial loans, and $8.8 million in commercial construction loans. PPP loans included in the sector totaled ~~$6.9 million. We have provided~~$87,000. Active deferrals for loans in this sector ~~with~~had outstanding principal balances of ~~$46.1 million. We originated $16.3~~$7.7 million and one loan with an outstanding principal balance of $254,000 had an expired deferral period and is greater than 30 days delinquent. At June 30, 2021, nonperforming loans ~~during~~included in the ~~third~~hotel

4748

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

sector amount to $12.2 million. One of the non-accrual loans amounted to $9.0 million with a deferral period that expired in the second quarter of 2021; however, it was determined in the fourth quarter of 2020 that ~~are within~~weaknesses in the ~~retail sector.~~borrower’s credit warranted a downgrade to substandard and nonaccrual status. A specific reserve of $1.8 million has been allocated to this loan. The ~~new loans are supported~~Bank is receiving payments of interest only on its pro rata share of the loan in accordance with a forbearance agreement, in part through a non-revolving line of credit provided solely by ~~leases to retail space largely insulated from~~ the ~~pandemic, such as drug stores and grocery stores.~~lead bank.

As of ~~September~~June 30, ~~2020,~~2021, the ~~office~~restaurant sector ~~was $214.0~~amounted to $58.6 million, or ~~10.3%~~2.7%, of total commercial loans, ~~and included $197.1~~including $1.8 million in ~~commercial real estate loans, $16.2 million in commercial and industrial loans, and $768,000 in commercial construction~~PPP loans. We provided deferrals for loans in the sector with outstanding principal balances of $13.3 million. No PPP loans were originated in this sector. We originated $619,000 in loans during the third quarter that are within the office sector.

As of September 30, 2020, the hotel sector was $193.8 million, or 9.4% of total commercial loans, and included $171.0 million in commercial real estate loans, $2.7 million in commercial and industrial loans, and $20.1 million in commercial construction loans. PPP loans included in the sector totaled $548,000. We have providedActive deferrals for loans in this sector ~~with~~had outstanding principal balances of $112.2 million, $61.3 million that have expired deferral periods and are paying as agreed, and $4.9 million that have expired deferral periods and are greater than 30 days delinquent. In addition, we have provided other short-term relief through our payment deferral program for certain commercial, mortgage, and consumer loans as described above for loans in this sector with outstanding principal balances of $7.7$3.3 million. ~~At September 30, 2020, nonperforming loans included in the hotel~~The recreation sector amounted to ~~$4.8 million. The increase from the second quarter reflects one loan totaling $1.4 million that is on nonaccrual and for which we subsequently entered into a deferral agreement.~~

~~The health and social services sector amounted to $188.0~~$18.8 million, or ~~9.1%~~0.9%, of total commercial loans, ~~as of September 30, 2020 and included $96.6 million~~including $94,000 in ~~commercial real estate loans, $91.3 million in commercial and industrial loans, and $107,000 in commercial construction~~PPP loans. ~~PPP loans included in the sector totaled $41.5 million, and we have provided~~There are no active deferrals for loans in this sector ~~with outstanding principal balances of $13.8 million. We originated $12.7 million loans during the third quarter that~~and expired deferrals are ~~within this sector.~~paying as expected.

As of September 30, 2020, the restaurant sector amounted to $56.1 million, or 2.7% of total commercial loans, including $9.0 million in PPP loans. We provided deferrals for loans in this sector with outstanding principal balances of $13.4 million. The recreation sector amounted to $31.6 million, or 1.5% of total commercial loans, including $2.7 million in PPP loans. We provided deferrals for loans in this sector with outstanding principal balances of $15.6 million. Included in the recreation sector is a $9.2 million nonaccrual loan with an allocated reserve of $254,000 secured by a recreational facility for which credit deterioration began prior to the COVID-19 pandemic.

The loan portfolio has not experienced significant credit quality deterioration as of ~~September~~June 30, ~~2020,~~2021; however, the continuing impact and uncertain nature of the COVID-19 pandemic may result in increases in delinquencies, charge-offs and loan modifications in these portfolios through the remainder of the year. Continued uncertainty regarding the severity and duration of the COVID-19 pandemic and related economic effects ~~will~~may continue to impact the magnitude of loan loss provisions and allowance for loan losses.

While interest and fees will continue to accrue on short term deferrals, the breadth of the economic impact may affect our borrowers’ ability to repay in future periods. Should eventual credit losses on these deferred payments emerge, interest income and fees in future periods could be negatively impacted.

~~Management performed an interim impairment assessment~~

The impact of the pandemic on ~~goodwill as a result of changes in~~ the ~~macroeconomic environment resulting from the COVID-19 pandemic during the second quarter. The~~Company’s business, financial condition, results of ~~the interim impairment assessment indicated that the remaining fair value exceeded the carrying value for both reporting units.~~operations and its customers has not been fully manifested. The ~~COVID-19 pandemic could cause further~~fiscal stimulus and ~~sustained decline in the Company’s stock price or the occurrence of additional valuation triggering events that could result in an impairment charge~~relief programs may have only delayed material adverse financial impact to ~~earnings.~~

~~Conversion and Reorganization~~

~~On August 14, 2019,~~ the Company, ~~completed a second step conversion offering (the “Offering”). Prior to~~and once the ~~completion~~stimulus programs have been exhausted, the Company may experience these impact. The impacts will be contingent upon the possible resurgence of the ~~Offering, approximately 53%~~virus, including new strains, offset by the success of the ~~shares~~vaccine and its distribution and the ability of ~~common stock of~~customers and businesses to return to their pre-pandemic routines. We anticipate continued economic uncertainty and volatility, which may have a future adverse financial impact on the ~~Company were owned by HarborOne~~

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Management’s Discussion and Analysis~~

Mutual Bancshares, a mutual holding company (the “MHC”). The Company sold 31,036,812 shares of common stock at $10.00 per share in the Offering, resulting in net cash proceeds of $304.1 million. In addition, each share of the Company common stock owned by shareholders other than the MHC prior to the Offering was exchanged for 1.795431 shares of Company common stock, for a total of 12,162,763 shares of Company common stock.

As a result of the Offering, all shares and per share information has been revised to reflect the 1.795431 exchange ratio. The revised financial information presented in this Form 10-Q is derived from the consolidated financial statements of the Company.

~~Business Combination~~

On October 5, 2018, the Company completed the acquisition of Coastway Bancorp, Inc. (“Coastway”), the holding company of Coastway Community Bank, in an all cash transaction valued at approximately $125.6 million.

Comparison of Financial Condition at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020

Total Assets. Total assets increased ~~$369.4~~$132.8 million, or ~~9.1%~~3.0%, to ~~$4.43~~$4.62 billion at ~~September~~June 30, ~~2020~~2021 from ~~$4.06~~$4.48 billion at December 31, ~~2019.~~2020. The increase primarily reflects an increase of ~~$319.1~~$200.2 million in ~~net loans,~~short-term investments, a ~~$79.8~~$77.4 million increase in securities available for sale partially offset by a $104.7 million decrease in loans held for sale and a ~~$36.2 million increase in other assets partially offset by a $74.1~~$70.8 million decrease in cash and cash equivalents. The increase in other assets reflects a $29.5 million increase unrealized gain in back-to-back commercial loan swap contracts with a corresponding increase in other liabilities and a $14.3 million increase in derivative loan commitments as a result of the increase in residential real estate mortgage originations. net loans.

Cash and Cash Equivalents. Cash and cash equivalents ~~decreased $74.1~~increased $209.8 million to ~~$137.5~~$415.6 million at ~~September~~June 30, ~~2020~~2021 from ~~$211.6~~$205.9 million at December 31, ~~2019 as excess cash was used~~2020 primarily due to ~~pay down~~an increase in short-term ~~FHLB borrowings.~~investments.

Loans Held for Sale. Loans held for sale at ~~September~~June 30, ~~2020~~2021 were ~~$190.4~~$103.9 million, ~~an increase~~a decrease of ~~$79.8~~$104.7 million from ~~$110.6~~$208.6 million at December 31, ~~2019, reflecting strong~~2020, as residential mortgage loan demand ~~continuing into the third quarter of 2020.~~decreased primarily due to a decrease in refinancing activity.

Loans, net. At ~~September~~June 30, ~~2020,~~2021, net loans were ~~$3.47~~$3.37 billion, ~~an increase~~a decrease of ~~$319.1~~$70.8 million, or ~~10.1%~~2.06%, from ~~$3.15~~$3.44 billion at December 31, ~~2019,~~ 2020,primarily due to ~~an increase~~decreases in consumer loans of $87.4 million and residential real estate loans of $9.5 million, partially offset by increases in commercial real estate loans of $10.6 million, commercial construction loans of $8.3 million and commercial and industrial loans ~~commercial construction loans, one- to four-family residential real estate loans, and residential construction loans partially offset by a decrease in consumer loans and home equity lines~~ of credit and second mortgage loans. Total commercial loans at September 30, 2020 were $2.07 billion, an increase of $443.6 million, or 27.2%, from $1.63 billion at December 31, 2019. The increase is due to$3.1 million. Excluding the ~~origination of $152.6 million~~change in PPP loans, commercial and ~~also reflects our business strategy to increase commercial lending. Residential real estate~~industrial loans increased ~~$23.9 million, or 2.2%, and consumer loans decreased $123.1 million, or 28.3%. The Bank has purchased $292.7 million in loans from HarborOne Mortgage in 2020.~~$25.8 million. The allowance for loan losses was ~~$49.2~~$51.3 million at ~~September~~June 30, ~~2020~~2021 and ~~$24.1~~$55.4 million at December 31, ~~2019,~~2020, the decrease primarily reflecting the $4.3 million reversal of loan loss provision ~~for loan losses recorded for~~in the ~~impact~~second quarter of ~~the COVID-19 pandemic.~~2021.

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

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

September 30, 2020

December 31, 2019


Amount

Percent


    Amount

Percent


(dollars in thousands)

Residential real estate:

One- to four-family

$
954,198

27.1
%

$
937,305

29.5
%
Second mortgages and equity lines of credit

150,315

4.3

155,716

4.9

Residential construction

26,422

0.8

14,055

0.4

Total residential real estate

1,130,935

32.2

1,107,076

34.8

Commercial:

Commercial real estate

1,380,071

39.3

1,168,412

36.8

Commercial construction

211,953

6.0

153,907

4.9

Commercial and industrial

480,129

13.7

306,282

9.7

Total commercial loans

2,072,153

58.9

1,628,601

51.4

Consumer:

Auto

29,870

0.8

49,686

1.6

Auto lease loans

273,728

7.8

374,906

11.8

Personal

9,145

0.3

11,289

0.4

Total consumer

312,743

8.9

435,881

13.8

Total loans

3,515,831

100.0
%

3,171,558

100.0
%
Allowance for loan losses

(49,223)

(24,060)

Loans, net

$
3,466,608

$
3,147,498


	June 30, 2021				December 31, 2020
	Amount		Percent		Amount		Percent

	(dollars in thousands)

Residential real estate:
One- to four-family	$	927,782	27.1	%	$	928,934	26.6	%
Second mortgages and equity lines of credit		134,688	3.9			145,672	4.2
Residential construction		33,900	1.0			31,217	0.9
Total residential real estate		1,096,370	32.0			1,105,823	31.7
Commercial:
Commercial real estate		1,561,873	45.7			1,551,265	44.4
Commercial construction		107,585	3.2			99,331	2.8
Commercial and industrial		467,479	13.7			464,393	13.3
Total commercial loans		2,136,937	62.6			2,114,989	60.5
Consumer:
Auto		18,464	0.5			25,134	0.7
Auto lease loans		160,671	4.7			240,132	6.9
Personal		7,295	0.2			8,564	0.2
Total consumer		186,430	5.4			273,830	7.8
Total loans		3,419,737	100.0	%		3,494,642	100.0	%
Allowance for loan losses		(51,273)				(55,395)
Loans, net	$	3,368,464			$	3,439,247

Securities. Total investment securities at ~~September~~June 30, ~~2020~~2021 were ~~$280.3~~$353.8 million, an increase of ~~$14.5~~$77.4 million, or ~~5.4%~~2.8%, from ~~$265.8~~$276.5 million at December 31, ~~2019.~~2020. In the first quarter of 2020, with intention to reduce credit risk in the investment portfolio, held to maturity securities were sold and as a result the remaining held to maturity securities were transferred to the available for sale category. ~~As of September~~For the six months ended June 30, ~~2020, there were $72.3 million in sales of investment securities with a gain of $2.5 million and~~2021, purchases ~~of $153.7~~amounted to $161.5 million in U.S. government agency mortgage-backed ~~securities.~~securities and $10.0 million U.S. government obligations. The following table provides the composition of our securities available for sale ~~and held to maturity~~ at the dates indicated:

September 30, 2020

December 31, 2019

Amortized

Fair

Amortized

Fair


Cost

Value

Cost

Value

(in thousands)

Securities available for sale:

Debt securities:

U.S. government and government-sponsored enterprise obligations

$
10,003

$
10,137

$
14,994

$
15,204

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

249,747

252,767

190,119

191,546

SBA asset-backed securities

16,458

17,404

32,461

32,723

Municipal bonds

—

—

—

—

Total securities available for sale

$
276,208

$
280,308

$
237,574

$
239,473

Securities held to maturity:

Debt securities:

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

$
—

$
—

$
14,115

$
14,264

SBA asset-backed securities

—

—

5,308

5,432

Other bonds and obligations:

State and political subdivisions

—

—

6,949

7,231

Total securities held to maturity

$
—

$
—

$
26,372

$
26,927


	June 30, 2021				December 31, 2020
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

	(in thousands)

Securities available for sale:
Debt securities:
U.S. government and government-sponsored enterprise obligations	$	15,000	$	14,992	$	5,002	$	5,095
U.S. government agency and government-sponsored mortgage-backed and collateralized mortgage obligations		323,740		323,950		251,145		254,283
SBA asset-backed securities		14,226		14,906		16,249		17,120
Total securities available for sale	$	352,966	$	353,848	$	272,396	$	276,498

Mortgage servicing rights. Mortgage servicing rights (“MSRs”) are created as a result of our mortgage banking origination activities and accounted for at fair value. At ~~September~~June 30, ~~2020,~~2021, we serviced mortgage loans for others with an aggregate outstanding principal balance of ~~$2.65~~$3.67 billion. Total MSRs were ~~$20.2~~$36.0 million at ~~September~~June 30, ~~2020~~2021 and ~~$17.2~~$24.8 million at December 31, ~~2019.~~2020.

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Management’s Discussion and Analysis~~

Management has made the strategic decision not to hedge mortgage servicing assets at present. Therefore, any future declines in interest rates would likely cause decreases in the fair value of the MSRs, and a corresponding decrease in earnings, whereas increases in interest rates would result in increases in fair value, and a corresponding increase in earnings. MSRs recorded in the second half of 2020 may be less sensitive to falling rates in the future as they were originated in a low mortgage rate environment. Management may choose to hedge the mortgage servicing assets in the future or limit the balance of MSRs by selling them or selling loans with the servicing released.

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Deposits. Deposits increased ~~$423.0~~$181.7 million, or ~~14.4%~~5.2%, to ~~$3.37~~$3.69 billion at ~~September~~June 30, ~~2020~~2021 from ~~$2.94~~$3.51 billion at December 31, ~~2019.~~2020. The following table sets forth information concerning the composition of deposits:

September 30,

December 31,

Increase (Decrease)

2020

2019

Dollars

Percent

(dollars in thousands)

Noninterest-bearing deposits

$
650,336

$
406,403

$
243,933

60.0
%
NOW accounts

201,707

165,790

35,917

21.7

Regular savings

912,017

620,705

291,312

46.9

Money market accounts

567,561

575,881

(8,320)

(1.4)

Term certificate accounts

650,728

785,005

(134,277)

(17.1)

Consumer and business deposits

2,982,349

2,553,784

428,565

16.8

Municipal deposits

254,441

286,932

(32,491)

(11.3)

Wholesale deposits

129,098

102,157

26,941

26.4

Total deposits

$
3,365,888

$
2,942,873

$
423,015

14.4
%

Reciprocal deposits

$
107,793

$
277,874

$
(170,081)

(61.2)
%


	June 30,		December 31,		Increase (Decrease)
	2021		2020		Dollars		Percent

	(dollars in thousands)

Noninterest-bearing deposits	$	800,118	$	689,672	$	110,446		16.0	%
NOW accounts		249,949		218,526		31,423		14.4
Regular savings		1,123,123		998,994		124,129		12.4
Money market accounts		535,962		550,834		(14,872)		(2.7)
Term certificate accounts		566,312		614,884		(48,572)		(7.9)
Consumer and business deposits		3,275,464		3,072,910		202,554		6.6
Municipal deposits		302,256		321,938		(19,682)		(6.1)
Wholesale deposits		110,220		111,361		(1,141)		(1.0)
Total deposits	$	3,687,940	$	3,506,209	$	181,731		5.2	%

Reciprocal deposits	$	45,012	$	104,946	$	(59,934)		(57.1)	%

The growth in deposits was driven by an increase of ~~$428.6~~$202.6 million in consumer and business ~~deposits and a $26.9 million increase in wholesale deposits, partially offset by a $32.5 million decrease in municipal~~ deposits. Consumer and business deposit growth was primarily a response to marketing and promotions of retail products and customers maintaining liquidity due to market uncertainty as a result of the COVID-19 pandemic. At ~~September~~June 30, ~~2020,~~2021, wholesale deposits included brokered deposits of ~~$117.0~~$100.0 million and ~~$12.1~~$10.2 million in certificates of deposits from institutional investors. We participate in a reciprocal deposit program that provides access to FDIC-insured deposit products in aggregate amounts exceeding the current limits for depositors. Total deposits included ~~$107.8~~$45.0 million in reciprocal ~~deposits, including $4.9 million in municipal~~ deposits. The wholesale deposits provide a channel for the Company to seek additional funding outside the Company’s core market.

Borrowings. Total borrowings from the FHLB decreased ~~$118.0~~$61.6 million, or ~~33.3%~~41.3%, to ~~$236.1~~$87.5 million at ~~September~~June 30, ~~2020~~2021 from ~~$354.1~~$149.1 million at December 31, ~~2019 as excess funds were utilized to pay down FHLB borrowings.~~2020.

Stockholders’ equity. Total stockholders’ equity was ~~$694.1~~$705.5 million at ~~September~~June 30, ~~2020~~2021, compared to ~~$665.8~~$696.3 million at December 31, ~~2019.~~2020. During the second quarter, the Company completed a share repurchase program adopted September 3, 2020 to repurchase up to 2,920,900 shares of the Company’s common stock at an average cost of $11.32 per share. The Company adopted a second share repurchase program on April 16, 2021 to repurchase up to 2,790,903 shares of the Company’s common stock, or approximately 5% of the Company’s outstanding shares. The Company repurchased 418,452 shares at an average cost of $14.41 per share through June 30, 2021, under the second share repurchase program.

Comparison of Results of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020

HarborOne Bancorp, Inc. Consolidated

Overview. Consolidated net income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$11.9~~$14.3 million and ~~$27.2~~$33.7 million, respectively, compared to net income of ~~$7.1~~$10.6 million and ~~$14.0~~$15.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively.

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Management’s Discussion and Analysis~~

Average Balances and Yields. The following table sets 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 has been adjusted to a fully taxable-equivalent basis using a federal tax rate of 21%. 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.

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis


	Three Months Ended June 30,
	2021							2020
	Average							Average
	Outstanding					Yield/		Outstanding					Yield/
	Balance			Interest		Cost		Balance			Interest		Cost

	(dollars in thousands)

Interest-earning assets:
Investment securities ⁽¹⁾	$	325,205		$	793	0.98	%	$	240,025		$	1,430	2.40	%
Other interest-earning assets		397,979			136	0.14			222,840			239	0.43
Loans held for sale		115,240			852	2.97			119,047			988	3.34
Loans
Commercial loans ⁽²⁾		2,152,105			22,079	4.11			1,872,349			18,196	3.91
Residential real estate loans⁽²⁾		1,064,481			9,747	3.67			1,123,896			11,811	4.23
Consumer loans ⁽²⁾		205,856			2,280	4.44			372,929			3,963	4.27
Total loans		3,422,442			34,106	4.00			3,369,174			33,970	4.06
Total interest-earning assets		4,260,866			35,887	3.38			3,951,086			36,627	3.73
Noninterest-earning assets		339,438							334,452
Total assets	$	4,600,304						$	4,285,538
Interest-bearing liabilities:
Savings accounts	$	1,118,494			461	0.17		$	842,560			834	0.40
NOW accounts		231,075			41	0.07			187,560			33	0.07
Money market accounts		853,586			417	0.20			826,939			1,207	0.59
Certificates of deposit		589,964			1,229	0.84			730,756			3,472	1.91
Brokered deposits		100,000			154	0.62			66,701			259	1.56
Total interest-bearing deposits		2,893,119			2,302	0.32			2,654,516			5,805	0.88
FHLB advances		96,823			531	2.20			258,679			845	1.31
Subordinated debentures		34,080			524	6.17			33,951			524	6.21
Total borrowings		130,903			1,055	3.23			292,630			1,369	1.88
Total interest-bearing liabilities		3,024,022			3,357	0.45			2,947,146			7,174	0.98
Noninterest-bearing liabilities:
Noninterest-bearing deposits		784,521							585,715
Other noninterest-bearing liabilities		88,577							72,808
Total liabilities		3,897,120							3,605,669
Total equity		703,184							679,869
Total liabilities and equity	$	4,600,304						$	4,285,538
Tax equivalent net interest income					32,530							29,453
Tax equivalent interest rate spread ⁽³⁾						2.93	%						2.75	%
Less: tax equivalent adjustment					—							6
Net interest income as reported				$	32,530						$	29,447
Net interest-earning assets ⁽⁴⁾	$	1,236,844						$	1,003,940
Net interest margin ⁽⁵⁾						3.06	%						3.00	%
Tax equivalent effect						—							—
Net interest margin on a fully tax equivalent basis						3.06	%						3.00	%
Ratio of interest-earning assets to interest-bearing liabilities		140.90	%						134.06	%

Supplemental information:
Total deposits, including demand deposits	$	3,677,640		$	2,302			$	3,240,231		$	5,805
Cost of total deposits						0.25	%						0.72	%
Total funding liabilities, including demand deposits	$	3,808,543		$	3,357			$	3,532,861		$	7,174
Cost of total funding liabilities						0.35	%						0.82	%


⁽¹⁾ 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 21%. The yield on investments before tax equivalent adjustments was 2.40% for the quarter ended June 30, 2020.
⁽²⁾ Includes nonaccruing loan balances and interest received on such loans.
⁽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.

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Three Months Ended September 30,

2020

2019

Average

Average

Outstanding

Yield/

Outstanding

Yield/


Balance

Interest

Cost

Balance

Interest

Cost


(dollars in thousands)

Interest-earning assets:

Investment securities ⁽¹⁾

$
269,477

$
1,319

1.95
%
$
224,379

$
1,562

2.76
%
Other interest-earning assets

121,384

175

0.57

185,063

1,211

2.59

Loans held for sale

139,418

1,060

3.02

74,327

747

3.99

Loans

Commercial loans ⁽²⁾

2,017,492

19,066

3.76

1,511,487

18,797

4.93

Residential real estate loans⁽²⁾

1,135,947

11,833

4.14

1,119,742

12,704

4.50

Consumer loans ⁽²⁾

333,623

3,597

4.29

454,837

4,729

4.13

Total loans

3,487,062

34,496

3.94

3,086,066

36,230

4.66

Total interest-earning assets

4,017,341

37,050

3.67

3,569,835

39,750

4.42

Noninterest-earning assets

333,444

278,976

Total assets

$
4,350,785

$
3,848,811

Interest-bearing liabilities:

Savings accounts

$
897,751

589

0.26

$
564,040

902

0.63

NOW accounts

199,982

39

0.08

139,773

26

0.07

Money market accounts

825,732

745

0.36

879,694

3,417

1.54

Certificates of deposit

684,002

2,895

1.68

831,262

5,016

2.39

Brokered deposits

139,887

252

0.72

98,278

611

2.47

Total interest-bearing deposits

2,747,354

4,520

0.65

2,513,047

9,972

1.57

FHLB advances

149,750

835

2.22

213,578

1,249

2.32

Subordinated debentures

33,983

524

6.13

33,858

524

6.14

Total borrowings

183,733

1,359

2.94

247,436

1,773

2.84

Total interest-bearing liabilities

2,931,087

5,879

0.80

2,760,483

11,745

1.69

Noninterest-bearing liabilities:

Noninterest-bearing deposits

641,353

515,612

Other noninterest-bearing liabilities

89,319

52,357

Total liabilities

3,661,759

3,328,452

Total equity

689,026

520,359

Total liabilities and equity

$
4,350,785

$
3,848,811

Tax equivalent net interest income

31,171

28,005

Tax equivalent interest rate spread ⁽³⁾

2.87
%

2.73
%
Less: tax equivalent adjustment

2

20

Net interest income as reported

$
31,169

$
27,985

Net interest-earning assets ⁽⁴⁾

$
1,086,254

$
809,352

Net interest margin ⁽⁵⁾

3.09
%

3.11
%
Tax equivalent effect

—

—

Net interest margin on a fully tax equivalent basis

3.09
%

3.11
%
Ratio of interest-earning assets to interest-bearing liabilities

137.06
%

129.32
%

Supplemental information:

Total deposits, including demand deposits

$
3,388,707

$
4,520

$
3,028,659

$
9,972

Cost of total deposits

0.53
%

1.31
%
Total funding liabilities, including demand deposits

$
3,572,440

$
5,879

$
3,276,095

$
11,745

Cost of total funding liabilities

0.65
%

1.42
%

⁽¹⁾ 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 21%. The yield on investments before tax equivalent adjustments was 1.95% and 2.73% for the quarters ended September 30, 2020 and 2019, respectively.

⁽²⁾ Includes nonaccruing loan balances and interest received on such loans.

⁽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.


	Six Months Ended June 30,
	2021							2020
	Average							Average
	Outstanding					Yield/		Outstanding					Yield/
	Balance			Interest		Cost		Balance			Interest		Cost

	(dollars in thousands)

Interest-earning assets:
Investment securities ⁽¹⁾		298,430			1,378	0.93			257,828			3,252	2.54
Other interest-earning assets		289,853			214	0.15			204,730			998	0.98
Loans held for sale		154,117			2,176	2.85			90,297			1,565	3.48
Loans
Commercial loans ⁽²⁾		2,156,566			42,859	4.01			1,760,008			36,319	4.15
Residential real estate loans⁽²⁾		1,074,332			20,087	3.77			1,112,036			23,355	4.22
Consumer loans ⁽²⁾		229,304			5,020	4.41			394,123			8,321	4.25
Total loans		3,460,202			67,966	3.96			3,266,167			67,995	4.19
Total interest-earning assets		4,202,602			71,734	3.44			3,819,022			73,810	3.89
Noninterest-earning assets		403,990							324,323
Total assets	$	4,606,592						$	4,143,345
Interest-bearing liabilities:
Savings accounts	$	1,088,822			998	0.18		$	764,295			2,132	0.56
NOW accounts		221,731			78	0.07			173,130			64	0.07
Money market accounts		857,530			977	0.23			831,048			3,790	0.92
Certificates of deposit		598,977			2,673	0.90			762,819			7,829	2.06
Brokered deposits		100,000			296	0.60			79,445			683	1.73
Total interest-bearing deposits		2,867,060			5,022	0.35			2,610,737			14,498	1.12
FHLB advances		99,588			1,083	2.19			249,990			2,098	1.69
Subordinated debentures		34,063			1,047	6.20			33,935			1,047	6.20
Total borrowings		133,651			2,130	3.21			283,925			3,145	2.23
Total interest-bearing liabilities		3,000,711			7,152	0.48			2,894,662			17,643	1.23
Noninterest-bearing liabilities:
Noninterest-bearing deposits		745,613							502,668
Other noninterest-bearing liabilities		155,640							70,261
Total liabilities		3,901,964							3,467,591
Total equity		704,628							675,754
Total liabilities and equity	$	4,606,592						$	4,143,345
Tax equivalent net interest income					64,582							56,167
Tax equivalent interest rate spread ⁽³⁾						2.96	%						2.66	%
Less: tax equivalent adjustment					—							20
Net interest income as reported				$	64,582						$	56,147
Net interest-earning assets ⁽⁴⁾	$	1,201,891						$	924,360
Net interest margin ⁽⁵⁾						3.10	%						2.96	%
Tax equivalent effect						—							—
Net interest margin on a fully tax equivalent basis						3.10	%						2.96	%
Ratio of interest-earning assets to interest-bearing liabilities		140.05	%						131.93	%

Supplemental information:
Total deposits, including demand deposits	$	3,612,673		$	5,022			$	3,113,405		$	14,498
Cost of total deposits						0.28	%						0.94	%
Total funding liabilities, including demand deposits	$	3,746,324		$	7,152			$	3,397,330		$	17,643
Cost of total funding liabilities						0.38	%						1.04	%


⁽¹⁾ 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 21%. The yield on investments before tax equivalent adjustments was 2.52% for the six months ended June 30, 2020, respectively.
⁽²⁾ Includes nonaccruing loan balances and interest received on such loans.
⁽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.

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Management’s Discussion and Analysis~~

Nine Months Ended September 30,

2020

2019

Average

Average

Outstanding

Yield/

Outstanding

Yield/


Balance

Interest

Cost

Balance

Interest

Cost


(dollars in thousands)

Interest-earning assets:

Investment securities ⁽¹⁾

261,740

4,571

2.33

247,782

5,328

2.87

Other interest-earning assets

176,745

1,173

0.89

83,803

2,142

3.42

Loans held for sale

106,790

2,625

3.28

50,771

1,647

4.34

Loans

Commercial loans ⁽²⁾

1,846,462

55,385

4.01

1,447,128

54,855

5.07

Residential real estate loans⁽²⁾

1,120,065

35,188

4.20

1,119,185

37,175

4.44

Consumer loans ⁽²⁾

373,809

11,918

4.26

466,669

14,003

4.01

Total loans

3,340,336

102,491

4.10

3,032,982

106,033

4.67

Total interest-earning assets

3,885,611

110,860

3.81

3,415,338

115,150

4.51

Noninterest-earning assets

327,385

264,336

Total assets

$
4,212,996

$
3,679,674

Interest-bearing liabilities:

Savings accounts

$
809,106

2,721

0.45

$
526,078

1,830

0.47

NOW accounts

182,146

103

0.08

138,957

76

0.07

Money market accounts

829,263

4,535

0.73

849,254

9,561

1.51

Certificates of deposit

736,355

10,724

1.95

811,052

14,155

2.33

Brokered deposits

99,739

935

1.25

107,243

1,955

2.44

Total interest-bearing deposits

2,656,609

19,018

0.96

2,432,584

27,577

1.52

FHLB advances

216,333

2,933

1.81

298,643

5,203

2.33

Subordinated debentures

33,951

1,571

6.18

33,835

1,553

6.14

Total borrowings

250,284

4,504

2.40

332,478

6,756

2.72

Total interest-bearing liabilities

2,906,893

23,522

1.08

2,765,062

34,333

1.66

Noninterest-bearing liabilities:

Noninterest-bearing deposits

549,233

446,970

Other noninterest-bearing liabilities

76,660

51,252

Total liabilities

3,532,786

3,263,284

Total equity

680,210

416,390

Total liabilities and equity

$
4,212,996

$
3,679,674

Tax equivalent net interest income

87,338

80,817

Tax equivalent interest rate spread ⁽³⁾

2.73
%

2.85
%
Less: tax equivalent adjustment

22

89

Net interest income as reported

$
87,316

$
80,728

Net interest-earning assets ⁽⁴⁾

$
978,718

$
650,276

Net interest margin ⁽⁵⁾

3.00
%

3.16
%
Tax equivalent effect

—

—

Net interest margin on a fully tax equivalent basis

3.00
%

3.16
%
Ratio of interest-earning assets to interest-bearing liabilities

133.67
%

123.52
%

Supplemental information:

Total deposits, including demand deposits

$
3,205,842

$
19,018

$
2,879,554

$
27,577

Cost of total deposits

0.79
%

1.28
%
Total funding liabilities, including demand deposits

$
3,456,126

$
23,522

$
3,212,032

$
34,333

Cost of total funding liabilities

0.91
%

1.43
%

⁽¹⁾ 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 21%. The yield on investments before tax equivalent adjustments was 2.32% and 2.83% for the nine months ended September 30, 2020 and 2019, respectively.

⁽²⁾ Includes nonaccruing loan balances and interest received on such loans.

⁽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.

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 September 30,

Nine Months Ended September 30,

2020 v. 2019

2020 v. 2019

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:

Investment securities
$
272

$
(515)

$
(243)

$
289

$
(1,046)

$
(757)
Other interest-earning assets

(317)

(719)

(1,036)

1,327

(2,296)

(969)
Loans held for sale

527

(214)

313

1,460

(482)

978
Loans

Commercial loans

5,373

(5,104)

269

13,477

(12,947)

530
Residential real estate loans

238

(1,109)

(871)

283

(2,270)

(1,987)
Consumer loans

(1,145)

13

(1,132)

(2,492)

407

(2,085)
Total loans

4,466

(6,200)

(1,734)

11,268

(14,810)

(3,542)
Total interest-earning assets

4,948

(7,648)

(2,700)

14,344

(18,634)

(4,290)
Interest-bearing liabilities:

Savings accounts

373

(686)

(313)

969

(78)

891
NOW accounts

20

(7)

13

42

(15)

27
Money market accounts

(166)

(2,506)

(2,672)

(220)

(4,806)

(5,026)
Certificates of deposit

(789)

(1,332)

(2,121)

(1,172)

(2,259)

(3,431)
Brokered deposit

187

(546)

(359)

(128)

(892)

(1,020)
Total interest-bearing deposits

(375)

(5,077)

(5,452)

(509)

(8,050)

(8,559)
FHLB advances

(361)

(53)

(414)

(1,256)

(1,014)

(2,270)
Subordinated debentures

—

—

—

5

13

18
Total borrowings

(361)

(53)

(414)

(1,251)

(1,001)

(2,252)
Total interest-bearing liabilities

(736)

(5,130)

(5,866)

(1,760)

(9,051)

(10,811)
Change in net interest income
$
5,684

$
(2,518)

$
3,166

$
16,104

$
(9,583)

$
6,521


	Three Months Ended June 30,						Six Months Ended June 30,
	2021 v. 2020						2021 v. 2020
	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:
Investment securities	$	399	$	(1,036)	$	(637)	$	451	$	(2,325)	$	(1,874)
Other interest-earning assets		121		(224)		(103)		302		(1,086)		(784)
Loans held for sale		(31)		(105)		(136)		943		(332)		611
Loans
Commercial loans		2,674		1,209		3,883		8,253		(1,713)		6,540
Residential real estate loans		(588)		(1,476)		(2,064)		(787)		(2,481)		(3,268)
Consumer loans		(1,715)		32		(1,683)		(3,345)		44		(3,301)
Total loans		371		(235)		136		4,121		(4,150)		(29)
Total interest-earning assets		860		(1,600)		(740)		5,817		(7,893)		(2,076)
Interest-bearing liabilities:
Savings accounts		219		(592)		(373)		675		(1,809)		(1,134)
NOW accounts		8		—		8		14		—		14
Money market accounts		38		(828)		(790)		118		(2,931)		(2,813)
Certificates of deposit		(572)		(1,671)		(2,243)		(1,422)		(3,734)		(5,156)
Brokered deposit		95		(200)		(105)		145		(532)		(387)
Total interest-bearing deposits		(212)		(3,291)		(3,503)		(470)		(9,006)		(9,476)
FHLB advances		(359)		45		(314)		(1,017)		2		(1,015)
Subordinated debentures		1		(1)		—		—		—		—
Total borrowings		(358)		44		(314)		(1,017)		2		(1,015)
Total interest-bearing liabilities		(570)		(3,247)		(3,817)		(1,487)		(9,004)		(10,491)
Change in net interest income	$	1,430	$	1,647	$	3,077	$	7,304	$	1,111	$	8,415

5554

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Interest and Dividend Income. Interest and dividend income on a tax equivalent basis decreased ~~$2.7 million,~~$740,000, or ~~6.8%~~2.0%, to ~~$37.1~~$35.9 million for the three months ended ~~September~~June 30, ~~2020,~~2021, compared to ~~$39.8~~$36.6 million for the three months ended ~~September~~June 30, ~~2019.~~2020. All adjustable rate products were negatively impacted by the Federal Reserve cuts to the federal funds rate, and although loan origination volume ~~was~~remains strong, lower rates on loan originations also negatively impacted interest and dividend income. For the three months ended ~~September~~June 30, ~~2020,~~2021, the ~~primary~~ components of the decrease were a ~~$1.7 million~~$637,000 decrease investment income, a $136,000 decrease in interest on ~~total~~ loans ~~a $243,000 decrease investment income~~held for sale, and a ~~$1.0 million~~$103,000 decrease in interest on other interest earning assets, partially offset by a ~~$313,000~~$136,000 increase in interest on ~~loans held for sale.~~loans. The ~~increase in interest~~yield on ~~loans held for sale reflected a higher average balance due to residential real estate mortgage loan demand.~~investment securities decreased 142 basis points. The ~~decrease~~increase in interest income on loans reflected the 72$53.3 million, or 1.6%, increase in the average total loan balance, partially offset by a 6 basis points decrease in the average yield on ~~loans, partially offset by the $401.0 million, or 13.0% increase in the average total loan balance.~~loans. Commercial loans were the primary driver of the average balance growth and residential real estate loans were the primary driver of the decrease in yield ~~decrease.~~. Loan interest income for the three months ended June 30, 2021 included $1.0 million in accretion income from the fair value discount on loans acquired from Coastway Bancorp, Inc., as compared to $1.3 million for the three months ended June 30, 2020. Loan interest income for the three months ended June 30, 2021 also includes $1.3 million in recognition of origination fees on the PPP loans as compared to $518,000 for the three months ended June 30, 2020. The decrease in interest on loans held for sale reflected a lower average balance due to a decrease in residential real estate mortgage loan demand.

Compared to the first ~~nine~~six months of ~~2019,~~2020, interest and dividend income decreased ~~$4.3~~$2.1 million, or ~~3.7%~~2.8%, reflecting ~~similar trends as discussed~~a $1.9 million decrease in ~~the quarter over quarter results. Average loans increased $307.4 million, or 10.1%~~investment income, a $784,000 decrease in other interest-earning assets income, and a $29,000 decrease in total loan income, partially offset by a 57$611,000 increase in income from loans held for sale. Average investments increased $40.6 million, however, the yield decreased 161 basis points, primarily as a result of accelerated amortization of premiums on mortgage-backed securities. The average of other interest-bearing assets increased $85.1 million, offset by a 83 basis point decrease in ~~the yield resulting in a $3.5 million~~yield. The decrease in ~~interest income on loans. Average loans held for sale increased $56.0 million, or 110.3% partially~~loan yield was largely offset by ~~a 106 basis point decrease in yield resulting in a $978,000~~the increase in ~~interest income loans held for sale.~~the average balances.

Interest Expense. Interest expense decreased ~~$5.9~~$3.8 million, or ~~49.9%~~53.2%, to ~~$5.9~~$3.4 million for the three months ended ~~September~~June 30, ~~2020~~2021 from ~~$11.7~~$7.2 million for the three months ended ~~September~~June 30, ~~2019.~~2020. The decrease resulted from a ~~$5.5~~$3.5 million decrease in interest expense on deposits and a ~~$414,000~~$314,000 decrease in interest expense on FHLB borrowings. The decrease in interest expense on deposits reflected a ~~92 basis~~56-basis point decrease in the cost of ~~interest bearing~~interest-bearing deposits, partially offset by ~~$234.3~~$238.6 million, or ~~9.3%~~9.0%, increase in the average balance of interest-bearing deposits. ~~Increases in the average balances were driven by organic growth.~~ The ~~decrease in~~ cost of ~~interest-bearing deposits~~deposit funds was ~~driven~~significantly impacted by ~~rate decreases primarily in money market and certificate of deposit products~~falling rates and the ~~resulting shift in balances~~deposit mix, as customers moved to ~~the savings product.~~more liquid options. The average balance of savings accounts increased ~~$333.7~~$275.9 million, or ~~59.2%~~32.7%, and the average cost of savings accounts decreased 3723 basis points. The cost of money market deposits decreased ~~118~~39 basis points to ~~0.36%~~0.20% for the three months ended ~~September~~June 30, ~~2020~~2021 compared to the three months ended ~~September~~June 30, ~~2019~~2020, and the average balance ~~decreased 6.1%~~increased 3.2%. Average certificates of deposit decreased by ~~$147.3~~$140.8 million, or ~~17.7%~~19.3%, and the cost of certificates of deposits was ~~1.68%~~0.62% for the ~~third~~second quarter of ~~2020~~2021 compared to ~~2.39%~~1.91% for the ~~third~~second quarter of ~~2019.~~2020. The decrease in interest expense on FHLB advances resulted from a ~~10 basis~~$161.9 million, or 62.6% decrease in average balances partially offset by a 89-basis point ~~decrease~~increase in the cost of FHLB ~~advances and a $63.8 million, or 29.9%, decrease in average balances.~~advances.

Compared to the first ~~nine~~six months of ~~2019,~~2020, interest expense decreased ~~$10.8~~$10.5 million, or ~~31.5%~~59.5%, to ~~$23.5~~$7.2 million from ~~$34.3~~$17.6 million reflecting similar trends discussed in the quarter over quarter results. Average interest bearing deposits increased ~~$224.0~~$256.3 million, or ~~9.2%~~9.8%, and the cost of interest-bearing deposits decreased 5677 basis points year over year. The decrease in interest expense on FHLB borrowings is due to the average balance decrease of $150.4 million, or 60.2%, partially offset by a 5250 basis point ~~decrease~~increase in the cost of borrowed ~~funds and the average balance decrease of $82.3 million, or 27.6%.~~funds.

Net Interest and Dividend Income. Net interest and dividend income on a tax equivalent basis increased ~~$3.2~~$3.1 million, or ~~11.3%~~10.4%, to ~~$31.2~~$32.5 million for the three months ended ~~September~~June 30, ~~2020~~2021 from ~~$28.0~~$29.5 million for the three months ended ~~September~~June 30, ~~2019,~~2020, primarily as a result of deposit account repricing and commercial loan growth. The tax equivalent net interest spread increased 1418 basis points to ~~2.87%~~2.93% for the three months ended ~~September~~June 30, ~~2020~~2021 from ~~2.73%~~2.75% for the three months ended ~~September~~June 30, ~~2019,~~2020, and net interest margin on a tax equivalent basis ~~decreased 2~~increased 6 basis points to ~~3.09%~~3.06% for the three months ended ~~September~~June 30, ~~2020~~2021 from ~~3.11%~~3.00% for three months ended ~~September~~June 30, ~~2019.~~2020.

Compared to the first ~~nine~~six months of ~~2019,~~2020, net interest and dividend income ~~on a tax equivalent basis~~ increased ~~$6.5~~$8.4 million, or ~~8.1%~~15.0%, to ~~$87.3~~$64.6 million from ~~$80.8~~$56.2 million. The tax equivalent net interest spread ~~decreased 12~~increased 30 basis points to ~~2.73%~~2.96% for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 from ~~2.85%~~2.66% for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, and net interest margin on a tax equivalent ~~basis decreased by 16 basis points to 3.00% for the nine months ended September 30, 2020 from 3.16% for the nine months ended September 30, 2019.~~

5655

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

basis also increased by 14 basis points to 3.10% for the six months ended June 30, 2021 from 2.96% for the six months ended June 30, 2020.

Income Tax Provision. The provision for income taxes and effective tax rate for the three months ended ~~September~~June 30, ~~2020~~2021 was ~~$4.6~~$5.6 million and ~~27.7%~~28.3%, respectively, compared to ~~$1.1~~$3.7 million and ~~12.9%~~25.8%, respectively, for the three months ended ~~September~~June 30, 2019. Income tax expense for the quarter ended September 30, 2019 was impacted by the 2015 federal tax refund of $1.3 million and the 2015 Massachusetts state tax refund of $39,700 recognized in the quarter.2020.

The provision for income taxes and effective tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$9.9~~$13.2 million and ~~26.8%~~28.2%, respectively, compared to ~~$2.2~~$5.4 million and ~~13.8%~~26.0%, respectively, for the ~~nine~~six months ended ~~September~~June 30, 2019. Income tax expense for the nine months ended September 30, 2019 was impacted by the 2015 tax refunds noted above, the 2013 federal tax refund of $603,000 and the 2013 Massachusetts state tax refund of $211,000 recognized in the second quarter of 2019 and the 2014 Massachusetts state refund of $320,000 recognized in the first quarter of 2019. The refunds were a result of previously amended returns filed for those years. 2020.

Segments. The Company has two reportable segments: HarborOne Bank and HarborOne Mortgage. Revenue from HarborOne Bank consists primarily of interest earned on loans and investment securities and service charges on deposit accounts. Revenue from HarborOne Mortgage is comprised of interest earned on loans and fees received as a result of the residential mortgage origination, sale and servicing process. Residential real estate portfolio loans are originated by HarborOne Mortgage and purchased by the Bank.

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

The table below shows the results of operations for the Company’s segments, HarborOne Bank and HarborOne Mortgage, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, and the increase or decrease in those results:

HarborOne Bank

HarborOne Mortgage

Three Months Ended

Three Months Ended

September 30,

Increase (Decrease)

September 30,

Increase (Decrease)


2020

2019

Dollars

Percent

2020

2019

Dollars

Percent


(dollars in thousands)

Net interest and dividend income

$
30,599

$
27,855

$
2,744

9.9
%
$
1,000

$
285

$
715

250.9
%
Provision for loan losses

13,454

889

12,565

1,413.4

—

—

—

—

Net interest and dividend income, after provision for loan losses

17,145

26,966

(9,821)

(36.4)

1,000

285

715

250.9

Mortgage banking income:

Gain on sale of mortgage loans

—

—

—

—

34,055

11,015

23,040

209.2

Intersegment gain (loss)

(645)

(393)

(252)

(64.1)

645

393

252

64.1

Changes in mortgage servicing rights fair value

(354)

(591)

237

40.1

161

(1,883)

2,044

108.6

Other

334

369

(35)

(9.5)

3,947

2,595

1,352

52.1

Total mortgage banking income (loss)

(665)

(615)

(50)

(8.1)

38,808

12,120

26,688

220.2

Other noninterest income (loss)

6,326

5,772

554

9.6

(8)

(4)

(4)

(100.0)

Total noninterest income

5,661

5,157

504

9.8

38,800

12,116

26,684

220.2

Noninterest expense

26,300

24,405

1,895

7.8

19,156

11,227

7,929

70.6

Income (loss) before income taxes

(3,494)

7,718

(11,212)

(145.3)

20,644

1,174

19,470

NM

Provision (benefit) for income taxes

571

1,019

(448)

(44.0)

4,550

171

4,379

NM

Net income (loss)

$
(4,065)

$
6,699

$
(10,764)

(160.7)
%
$
16,094

$
1,003

$
15,091

NM
%


	��	HarborOne Bank								HarborOne Mortgage
		Three Months Ended								Three Months Ended
		June 30,				Increase (Decrease)				June 30,				Increase (Decrease)
		2021		2020		Dollars		Percent		2021		2020		Dollars		Percent

		(dollars in thousands)

Net interest and dividend income		$	32,134	$	29,139	$	2,995	10.3	%	$	855	$	739	$	116	15.7	%
Provision (credit) for loan losses			(4,286)		10,004		(14,290)	(142.8)			—		—		—	—
Net interest and dividend income, after provision (credit) for loan losses			36,420		19,135		17,285	90.3			855		739		116	15.7
Mortgage banking income:
Gain on sale of mortgage loans			—		—		—	—			14,262		30,862		(16,600)	(53.8)
Intersegment gain (loss)			(910)		(1,399)		489	35.0			910		1,399		(489)	(35.0)
Changes in mortgage servicing rights fair value			(419)		(490)		71	14.5			(2,133)		(621)		(1,512)	(243.5)
Other			276		346		(70)	(20.2)			3,799		3,703		96	2.6
Total mortgage banking income (loss)			(1,053)		(1,543)		490	31.8			16,838		35,343		(18,505)	(52.4)
Other noninterest income (loss)			5,898		4,788		1,110	23.2			20		(11)		31	281.8
Total noninterest income			4,845		3,245		1,600	49.3			16,858		35,332		(18,474)	(52.3)
Noninterest expense			24,128		25,218		(1,090)	(4.3)			14,101		18,212		(4,111)	(22.6)
Income (loss) before income taxes			17,137		(2,838)		19,975	703.8			3,612		17,859		(14,247)	(79.8)
Provision (benefit) for income taxes			4,863		27		4,836	NM			1,013		3,878		(2,865)	(73.9)
Net income (loss)		$	12,274	$	(2,865)	$	15,139	528.4	%	$	2,599	$	13,981	$	(11,382)	(81.4)	%


	HarborOne Bank								HarborOne Mortgage
	Six Months Ended								Six Months Ended
	June 30,				Increase (Decrease)				June 30,				Increase (Decrease)
	2021		2020		Dollars		Percent		2021		2020		Dollars		Percent

	(dollars in thousands)


Net interest and dividend income	$	63,382	$	55,649	$	7,733	13.9	%	$	2,105	$	1,020	$	1,085	106.4	%
Provision (credit) for loan losses		(4,195)		13,753		(17,948)	(130.5)			—		—		—	—
Net interest and dividend income, after provision (credit) for loan losses		67,577		41,896		25,681	61.3			2,105		1,020		1,085	106.4
Mortgage banking income:
Gain on sale of mortgage loans		—		—		—	—			39,064		43,140		(4,076)	(9.4)
Intersegment gain (loss)		(1,572)		(1,799)		227	12.6			1,572		1,799		(227)	(12.6)
Changes in mortgage servicing rights fair value		(133)		(1,660)		1,527	92.0			990		(3,838)		4,828	125.8
Other		576		697		(121)	(17.4)			8,014		5,695		2,319	40.7
Total mortgage banking income (loss)		(1,129)		(2,762)		1,633	59.1			49,640		46,796		2,844	6.1
Other noninterest income (loss)		10,989		13,314		(2,325)	(17.5)			12		(133)		145	109.0
Total noninterest income		9,860		10,552		(692)	(6.6)			49,652		46,663		2,989	6.4
Noninterest expense		48,591		49,506		(915)	(1.8)			32,158		28,790		3,368	11.7
Income before income taxes		28,846		2,942		25,904	880.5			19,599		18,893		706	3.7
Provision for income taxes		8,298		1,628		6,670	409.7			5,346		4,117		1,229	29.9
Net income	$	20,548	$	1,314	$	19,234	1,463.8	%	$	14,253	$	14,776	$	(523)	(3.5)	%

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

HarborOne Bank

HarborOne Mortgage

Nine Months Ended

Nine Months Ended

September 30,

Increase (Decrease)

September 30,

Increase (Decrease)


2020

2019

Dollars

Percent

2020

2019

Dollars

Percent

(dollars in thousands)

Net interest and dividend income

$
86,248

$
81,296

$
4,952

6.1
%
$
2,020

$
604

$
1,416

234.4
%
Provision for loan losses

27,207

3,496

23,711

678.2

—

—

—

—

Net interest and dividend income, after provision for loan losses

59,041

77,800

(18,759)

(24.1)

2,020

604

1,416

234.4

Mortgage banking income:

Gain on sale of mortgage loans

—

1

(1)

(100.0)

77,195

24,085

53,110

220.5

Intersegment gain (loss)

(2,444)

(866)

(1,578)

(182.2)

2,444

866

1,578

182.2

Changes in mortgage servicing rights fair value

(2,014)

(1,599)

(415)

(26.0)

(3,677)

(5,267)

1,590

30.2

Other

1,031

1,127

(96)

(8.5)

9,931

6,315

3,616

57.3

Total mortgage banking income (loss)

(3,427)

(1,337)

(2,090)

(156.3)

85,893

25,999

59,894

230.4

Other noninterest income (loss)

19,640

18,191

1,449

8.0

(141)

(20)

(121)

(605.0)

Total noninterest income

16,213

16,854

(641)

(3.8)

85,752

25,979

59,773

230.1

Noninterest expense

75,806

74,527

1,279

1.7

48,235

27,496

20,739

75.4

Income (loss) before income taxes

(552)

20,127

(20,679)

(102.7)

39,537

(913)

40,450

NM

Provision (benefit) for income taxes

2,199

3,267

(1,068)

(32.7)

8,667

(256)

8,923

NM

Net income (loss)

$
(2,751)

$
16,860

$
(19,611)

(116.3)
%
$
30,870

$
(657)

$
31,527

NM
%

HarborOne Bank Segment

Results of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020

Net Income. The Bank’s net income ~~decreased~~increased by ~~$10.8~~$15.1 million to ~~a net loss of $4.1~~$12.3 million for the three months ended ~~September~~June 30, ~~2020~~2021 compared to a net ~~income~~loss of ~~$6.7~~$2.9 million for the three months ended ~~September~~June 30, ~~2019.~~2020. Pre-tax ~~loss~~income was ~~$3.5~~$17.1 million for the three months ended ~~September~~June 30, ~~2020, an $11.2~~2021, a $20.0 million ~~decrease~~increase from the three months ended ~~September~~June 30, ~~2019.~~2020. The ~~decrease~~increase in pre-tax income reflects ~~an increase of $12.6~~a $14.3 million decrease in the provision for loan losses, an increase of $3.0 million in net interest and dividend income, a $1.6 million increase in noninterest income, and a ~~$1.9~~$1.1 million decrease in noninterest expense. The provision for income taxes increased $4.8 million.

Compared to the first six months of 2020, the Bank’s net income for the six months ended June 30, 2021 increased $19.2 million to $20.5 million from $1.3 million. Pre-tax income increased $25.9 million, or 880.5%, due to a $17.9 million decrease in provision for loan losses, a $7.7 million increase in net interest and dividend income and a $915,000 decrease in noninterest expense partially offset by a ~~$2.7 million increase in net interest income and a $504,000 increase~~$692,000 decrease in noninterest income. The provision for income taxes ~~decreased $448,000.~~

Compared to the first nine months of 2019, the Bank’s net income for the nine months ended September 30, 2020 decreased $19.6 million to a net loss of $2.8 million from $16.9 million. Pre-tax income decreased $20.7 million, or 102.7%, due to a $23.7 million increase in provision for loan losses, a $1.3 million increase in noninterest expense, and a $641,000 million decrease in noninterest income partially offset by a $5.0 million increase in net interest and dividend income. The provision for income taxes decreased $1.1increased $6.7 million.

Provision for Loan Losses. The ~~provision for loan losses for the three and nine months ended September 30, 2020 was $13.5 million and $27.2 million, respectively, compared to~~Bank recorded a reversal of provision for loan losses of ~~$889,000~~$4.3 million and ~~$3.5~~$4.2 million for three and six months ended June 30, 2021, respectively, as compared to a provision for loan losses of $10.0 million and $13.8 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. Changes in the provision for loan losses are 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.

The provision for loan losses for the ~~three~~quarter ended June 30, 2021 included adjustments for our quarterly analysis of our historical and ~~nine months~~peer loss experience rates, commercial real estate loan growth, an increase of general reserve allocation of 5 basis points on jumbo residential mortgage loans, and a $1.5 million specific reserve on one commercial credit. Positive economic and pandemic trends also resulted in a $6.4 million negative provision for COVID-19. The provision for loan losses for the quarter ended ~~September~~June 30, 2020 ~~includes~~included adjustments for our quarterly analysis of our historical and peer loss experience rates, commercial real estate loan growth, and ~~replenishment driven by charge off activity. The three and nine months ended September 30, 2020 also include $10.7~~a $5.7 million ~~and $17.9 million, respectively of~~ provision directly related to the estimate of inherent losses resulting from the impact of the COVID-19 pandemic. ~~The provision for loan losses for the three and nine months ended September 30, 2019 primarily reflected commercial real estate loan growth.~~

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Management’s Discussion and Analysis~~

In estimating the provision for the COVID-19 pandemic, management considered economic factors, including unemployment rates and the interest rate environment, the volume and dollar amount of requests for payment deferrals, and the loan risk profile of each loan ~~type,~~type. Positive economic trends, vaccination rates, and ifCOVID-19 cases, low delinquency levels, and status of deferred loans resulted in management reducing provisions related to the ~~loans were purchased.~~COVID-19 pandemic in the second quarter of 2021 with a reversal of provision of $6.4 million. There was no additional provisions provided for the COVID-19 pandemic for the first quarter of 2021. The additional provisions provided to each loan category for the ~~quarter ranged from 26 to 55 basis points and~~three months ended June 30, 2020 amounted to allocations of ~~$2.5~~$1.6 million to the residential real estate portfolio, ~~$7.0~~$3.2 million to the commercial portfolio and ~~$1.2 million~~$935,000 to the consumer ~~portfolio.~~portfolio

Net recoveries were $175,000 and $73,000 for the three and six months ended June 30, 2021 compared to net charge-offs ~~were $338,000~~of $286,000 and ~~$2.0~~$1.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020 compared to $106,000 and $1.1 million for the three and nine months ended September 30, 2019.~~ 2020.Net ~~charge-offs~~recoveries to average loans outstanding on an annualized basis for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 were ~~0.04%~~0.02% and ~~0.08%~~less than 0.01%, respectively, compared to ~~0.01%~~net charge-offs to average loans outstanding of 0.03% and ~~0.05%~~0.10% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019.~~ 2020.The 2020 year-to-date charge-offs includes a $1.2 million commercial real estate charge-off on a loan acquired from Coastway, secured by a hotel property, in the amount of $3.1 million and whose credit deterioration was unrelated to the COVID-19 pandemic.At ~~September~~June 30, ~~2020,~~2021, nonperforming assets were ~~$40.9~~$32.7 million and nonperforming assets to total assets were ~~0.93%~~0.71% as compared to ~~$27.9~~$38.6 million and ~~0.71%~~0.86%, respectively, at ~~September~~June 30, 2019. The increase in nonperforming assets was primarily due to commercial real estate loans and commercial and industrial loans. As of September 30, 2020, the increase in nonperforming loans was not primarily a result of the COVID-19 pandemic.2020.

~~Noninterest Income.~~ Total noninterest income was $5.7 million and $16.2 million for the three and nine months ended September 30, 2020, respectively, compared to $5.2 million and $16.9 million for the respective prior year periods. The following table sets forth the components of noninterest income:

Three Months Ended September 30,

Increase (Decrease)

2020

2019

Dollars

Percent

(dollars in thousands)

Intersegment loss

(645)

(393)

(252)

(64.1)

Secondary market loan servicing fees, net of guarantee fees

334

369

(35)

(9.5)

Changes in mortgage servicing rights fair value

(354)

(591)

237

40.1

Total mortgage banking income

(665)

(615)

(50)

(8.1)
%
Interchange fees

2,384

2,100

284

13.5

Other deposit account fees

1,067

2,086

(1,019)

(48.8)

Income on retirement plan annuities

105

104

1

1.0

Gain on sale and call of securities

—

77

(77)

(100.0)

Bank-owned life insurance income

560

256

304

118.8

Swap fee income

119

858

(739)

(86.1)

Other

2,091

291

1,800

618.6

Total noninterest income

$
5,661

$
5,157

$
504

9.8
%

Nine Months Ended September 30,

Increase (Decrease)

2020

2019

Dollars

Percent

(dollars in thousands)

Gain on sale of mortgage loans

$
—

$
1

$
(1)

(100.0)
%
Intersegment loss

(2,444)

(866)

(1,578)

(182.2)

Secondary market loan servicing fees, net of guarantee fees

1,031

1,127

(96)

(8.5)

Changes in mortgage servicing rights fair value

(2,014)

(1,599)

(415)

(26.0)

Total mortgage banking income

(3,427)

(1,337)

(2,090)

(156.3)
%
Interchange fees

6,560

6,194

366

5.9

Other deposit account fees

3,791

5,826

(2,035)

(34.9)

Income on retirement plan annuities

309

300

9

3.0

Gain on sale and call of securities

2,533

1,344

1,189

88.5

Bank-owned life insurance income

1,665

762

903

118.5

Swap fee income

1,261

2,218

(957)

(43.1)

Other

3,521

1,547

1,974

127.6

Total noninterest income

$
16,213

$
16,854

$
(641)

(3.8)
%

5958

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Noninterest Income. Total noninterest income was $4.8 million and $9.9 million for the three and six months ended June 30, 2021 compared to $3.2 million and $10.6 million for the respective prior year periods. The following table sets forth the components of noninterest income:


	Three Months Ended June 30,				Increase (Decrease)
	2021		2020		Dollars		Percent

	(dollars in thousands)

Intersegment loss	$	(910)	$	(1,399)	$	489		35.0	%
Secondary market loan servicing fees, net of guarantee fees		276		346		(70)		(20.2)
Changes in mortgage servicing rights fair value		(419)		(490)		71		14.5
Total mortgage banking loss		(1,053)		(1,543)		490		31.8	%
Interchange fees		2,741		2,183		558		25.6
Other deposit account fees		1,805		786		1,019		129.6
Income on retirement plan annuities		106		103		3		2.9
Gain on sale and call of securities		—		8		(8)		(100.0)
Bank-owned life insurance income		508		554		(46)		(8.3)
Swap fee income		—		731		(731)		(100.0)
Other		738		423		315		74.5
Total noninterest income	$	4,845	$	3,245	$	1,600		49.3	%


	Six Months Ended June 30,				Increase (Decrease)
	2021		2020		Dollars		Percent

	(dollars in thousands)

Intersegment loss	$	(1,572)	$	(1,799)	$	227		12.6	%
Secondary market loan servicing fees, net of guarantee fees		576		697		(121)		(17.4)
Changes in mortgage servicing rights fair value		(133)		(1,660)		1,527		92.0
Total mortgage banking loss		(1,129)		(2,762)		1,633		59.1	%
Interchange fees		5,151		4,176		975		23.3
Other deposit account fees		3,247		2,724		523		19.2
Income on retirement plan annuities		210		204		6		2.9
Gain on sale and call of securities		—		2,533		(2,533)		(100.0)
Bank-owned life insurance income		1,001		1,105		(104)		(9.4)
Swap fee income		295		1,142		(847)		(74.2)
Other		1,085		1,430		(345)		(24.1)
Total noninterest income	$	9,860	$	10,552	$	(692)		(6.6)	%

The primary reasons for the variances within the noninterest income categories shown in the preceding table are noted below:

●	The Bank records an intersegment loss on loans purchased from HarborOne Mortgage that is offset in consolidation. The Bank has purchased ~~$292.7~~$198.6 million residential mortgage loans from HarborOne Mortgage during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

●

The change in the MSR fair value ~~reflects accelerated amortization due to mortgage loan payoffs and~~is consistent with the ~~123 basis point decrease~~change in the 10-year Treasury Constant Maturity ~~rate over the nine months ended September 30, 2020.~~rate. As interest rates ~~fall,~~rise and prepayment speeds ~~tend to increase and~~decrease, MSR fair value ~~decreases.~~ tends to increase. Conversely, when interest rates fall and prepayment speeds increase, MSR fair value tends to decrease. The 10-year Treasury Constant Maturity rate decreased 29 basis points for the three months ended June 30, 2021, negatively impacting the fair value of the mortgage servicing rights, resulting in a $112,000 negative fair value adjustment. Additionally, residential mortgage loan payoffs resulted in MSRs decreasing $307,000 for the three months ended June 30, 2021.

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

of $528,000. The year-to-date fair value increase was offset by residential loan payoffs that resulted in a $660,000 decrease in MSRs.

During the three and six months ended June 30, 2020, the 10-year Treasury Constant Maturity rate decreased 4 basis points and 126 basis points, respectively. The fair value decrease and the decrease as a result of residential mortgage loan payoffs for the three and six months ended June 30, 2020 totaled $490,000 and $1.7 million, respectively.

●	The ~~decrease~~increase in interchange fess and other deposit account fees reflects ~~waived fees~~an increase in ~~response to~~ customer ~~needs related to the~~transaction activity as COVID-19 pandemic restrictions lifted and the reinstatement of the Bank’s normal deposit account fee schedule.

●	Swap fee income is collected and recorded at the time the swap contract is entered into and therefore income fluctuates as a function of the swap agreements entered into in a period.

●	The decrease in gain on sale of securities is the result of the sale of securities in the first quarter of 2020 with proceeds of ~~$74.0~~$71.0 million.

●

The quarter-over-quarter increase in ~~bank-owned life insurance~~other income is due to a ~~$41.4 million increase~~Corporate Capital Distribution from the NCUA of $256,000. The Corporate Capital Distribution is a partial return of a write-off required to be recorded by Coastway when it was a credit union. The year-over-year decrease in other income is due to a $551,000 VISA incentive fee for debit card volume recorded in the ~~balance~~first quarter of ~~bank-owned life insurance.~~

●	~~Other income includes $1.6 million in income from the sale of VISA B shares held in the investment portfolio.~~2020.

~~Noninterest Expense.~~ Total noninterest expense was $26.3 million and $75.8 million for the three and nine months ended September 30, 2020, respectively, compared to $24.4 million and $74.5 million for the respective prior year periods. The following table sets forth the components of noninterest expense:

Three Months Ended September 30,

Increase (Decrease)

2020

2019

Dollars

Percent

(dollars in thousands)

Compensation and benefits

$
15,313

$
14,767

$
546

3.7
%
Occupancy and equipment

3,774

3,421

353

10.3

Data processing expenses

2,071

2,110

(39)

(1.8)

Loan expenses

350

423

(73)

(17.3)

Marketing

747

711

36

5.1

Deposit expenses

476

405

71

17.5

Postage and printing

391

381

10

2.6

Professional fees

1,009

586

423

72.2

Foreclosed and repossessed assets

27

42

(15)

(35.7)

Deposit insurance

309

(225)

534

237.3

Other expenses

1,833

1,784

49

2.7

Total noninterest expense

$
26,300

$
24,405

$
1,895

7.8
%

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Noninterest Expense. Total noninterest expense was $24.1 million and $48.6 million for the three and six months ended June 30, 2021, respectively, compared to $25.2 million and $49.5 million for the respective prior year periods. The following table sets forth the components of noninterest expense:

Nine Months Ended September 30,

Increase (Decrease)

2020

2019

Dollars

Percent

(dollars in thousands)

Compensation and benefits

$
41,863

$
42,600

$
(737)

(1.7)
%
Occupancy and equipment

10,843

10,802

41

0.4

Data processing expenses

6,377

6,230

147

2.4

Loan expenses

849

1,282

(433)

(33.8)

Marketing

2,552

2,666

(114)

(4.3)

Deposit expenses

1,436

1,189

247

20.8

Postage and printing

1,248

1,206

42

3.5

Professional fees

3,120

2,205

915

41.5

Foreclosed and repossessed assets

165

(34)

199

585.3

Deposit insurance

859

1,030

(171)

(16.6)

Other expenses

6,494

5,351

1,143

21.4

Total noninterest expense

$
75,806

$
74,527

$
1,279

1.7
%


	Three Months Ended June 30,				Increase (Decrease)
	2021		2020		Dollars		Percent

	(dollars in thousands)

Compensation and benefits	$	13,765	$	13,254	$	511		3.9	%
Occupancy and equipment		3,839		3,298		541		16.4
Data processing expenses		2,210		2,189		21		1.0
Loan expenses		175		317		(142)		(44.8)
Marketing		782		1,010		(228)		(22.6)
Deposit expenses		338		461		(123)		(26.7)
Postage and printing		370		404		(34)		(8.4)
Professional fees		955		1,207		(252)		(20.9)
Foreclosed and repossessed assets		(47)		13		(60)		(461.5)
Deposit insurance		332		279		53		19.0
Other expenses		1,409		2,786		(1,377)		(49.4)
Total noninterest expense	$	24,128	$	25,218	$	(1,090)		(4.3)	%


	Six Months Ended June 30,				Increase (Decrease)
	2021		2020		Dollars		Percent

	(dollars in thousands)

Compensation and benefits	$	26,928	$	26,550	$	378		1.4	%
Occupancy and equipment		8,226		7,069		1,157		16.4
Data processing expenses		4,451		4,306		145		3.4
Loan expenses		605		499		106		21.2
Marketing		1,539		1,805		(266)		(14.7)
Deposit expenses		778		960		(182)		(19.0)
Postage and printing		724		857		(133)		(15.5)
Professional fees		1,885		2,111		(226)		(10.7)
Foreclosed and repossessed assets		(24)		138		(162)		(117.4)
Deposit insurance		652		550		102		18.5
Other expenses		2,827		4,661		(1,834)		(39.3)
Total noninterest expense	$	48,591	$	49,506	$	(915)		(1.8)	%

The primary reasons for the significant variances within the noninterest expense categories shown in the preceding table are noted below:

●

The increase in compensation and benefits ~~for the three and nine months ended September 30, 2020~~ primarily reflects ~~timing of accruals for incentive programs. The 2020 results also include $522,000~~merit increases and an increase in ~~severance payments as a result of the staff realignment that was undertaken in the third quarter.~~

●	~~Fluctuations in professional expenses are generally~~ESOP expense due to ~~timing and can fluctuate due~~the increase in share price as compared to ~~strategic efforts.~~the prior periods.

●

The ~~quarter over quarter~~ increase in ~~deposit insurance~~occupancy expense reflects ~~FDIC assessment credit awards recorded in the quarter ended September 30, 2019~~increases related to building maintenance and ~~no such awards in 2020. The year over year decrease in deposit insurance reflects the reduction in assessment rate due to improved capital ratios as a result of the Offering.~~software related expense.

●

~~Other~~The decrease in other expenses is due to a $1.2 million and $1.5 million decrease in COVID-19 pandemic expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020 include $71,000 and $1.8 million, respectively, in COVID-19 pandemic expenses partially offset by a decrease in core deposit intangible amortization of $170,000 and $511,000 during those periods.COVID-19 pandemic expense includes costs for personnel, cleaning and other initiatives to support our employees and customers.~~2021.

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

HarborOne Mortgage Segment

Results of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020

Net Income. HarborOne Mortgage recorded net income of ~~$16.1~~$2.6 million and ~~$30.9~~$14.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, respectively,~~2021 as compared to net income of ~~$1.0~~$14.0 million and ~~a net loss of $657,000~~$14.8 million for the ~~respective~~ prior year periods. HarborOne Mortgage segment’s results are heavily impacted by prevailing rates, refinancing activity and home sales.

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Management’s Discussion and Analysis~~

Noninterest Income. Total noninterest income was ~~$38.8~~$16.9 million and ~~$85.8~~$49.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, as compared to ~~$12.1~~$35.4 million and ~~$26.0~~$47.1 million for the respective prior year periods. Noninterest income is primarily from mortgage banking income for which the following table provides further detail:

Three Months Ended September 30,

Increase (Decrease)

2020

2019

Dollars

Percent

(dollars in thousands)

Gain on sale of mortgage loans

$
34,055

$
11,015

$
23,040

209.2
%
Intersegment gain

645

393

252

64.1

Processing, underwriting and closing fees

2,964

1,705

1,259

73.8

Secondary market loan servicing fees net of guarantee fees

983

890

93

10.4

Changes in mortgage servicing rights fair value

161

(1,883)

2,044

108.6

Total mortgage banking income

$
38,808

$
12,120

$
26,688

220.2
%

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

$
4,073

$
268

$
3,805

1,419.8
%
Change in 10-year Treasury Constant Maturity rate in basis points

3

(32)


	Three Months Ended June 30,				Increase (Decrease)
	2021		2020		Dollars		Percent

	(dollars in thousands)

Gain on sale of mortgage loans	$	14,262	$	30,862	$	(16,600)		(53.8)	%
Intersegment gain		910		1,399		(489)		(35.0)
Processing, underwriting and closing fees		2,281		3,094		(813)		(26.3)
Secondary market loan servicing fees net of guarantee fees		1,518		609		909		149.3
Changes in mortgage servicing rights fair value		(2,133)		(621)		(1,512)		(243.5)
Total mortgage banking income	$	16,838	$	35,343	$	(18,505)		(52.4)	%

Originated mortgage servicing rights included in gain on sale of mortgage loans	$	4,568	$	3,813	$	755		19.8	%
Change in 10-year Treasury Constant Maturity rate in basis points		(29)		(4)

Nine Months Ended September 30,

Increase (Decrease)

2020

2019

Dollars

Percent

(dollars in thousands)

Gain on sale of mortgage loans

$
77,195

$
24,085

$
53,110

220.5
%
Intersegment gain

2,444

866

1,578

182.2

Processing, underwriting and closing fees

7,490

3,677

3,813

103.7

Secondary market loan servicing fees net of guarantee fees

2,441

2,638

(197)

(7.5)

Changes in mortgage servicing rights fair value

(3,677)

(5,267)

1,590

30.2

Total mortgage banking income

$
85,893

$
25,999

$
59,894

230.4
%

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

$
8,164

$
564

$
7,600

1,347.5
%
Change in 10-year Treasury Constant Maturity rate in basis points

(123)

(101)


	Six Months Ended June 30,				Increase (Decrease)
	2021		2020		Dollars		Percent

	(dollars in thousands)

Gain on sale of mortgage loans	$	39,064	$	43,140	$	(4,076)		(9.4)	%
Intersegment gain		1,572		1,799		(227)		(12.6)
Processing, underwriting and closing fees		5,173		4,526		647		14.3
Secondary market loan servicing fees net of guarantee fees		2,841		1,169		1,672		143.0
Changes in mortgage servicing rights fair value		990		(3,838)		4,828		125.8
Total mortgage banking income	$	49,640	$	46,796	$	2,844		6.1	%

Originated mortgage servicing rights included in gain on sale of mortgage loans	$	10,246	$	4,091	$	6,155		150.5	%
Change in 10-year Treasury Constant Maturity rate in basis points		52		(126)

The primary reasons for the significant variances in the noninterest income category shown in the preceding table are noted below:

●

The change in the MSR fair value is consistent with the change in the 10-year Treasury Constant Maturity rate. As interest rates rise and prepayment speeds decrease, MSR fair value tends to increase. Conversely, when interest rates fall and prepayment speeds increase, ~~and resulting in a decrease in~~ MSR fair ~~value.~~value tends to decrease. The ~~Federal Reserve cuts to the federal funds rate resulted in the~~ 10-year Treasury Constant Maturity rate ~~decreasing 123~~decreased 29 basis points for the ~~nine~~three months ended ~~September~~June 30, ~~2020,~~2021, negatively impacting the fair value of the mortgage servicing ~~rights. Residential~~rights, resulting in a $939,000 negative fair value adjustment. Additionally, residential mortgage loan payoffs ~~also~~ resulted in ~~accelerated amortization of~~ MSRs ~~of $823,000 and $2.1~~decreasing $1.2 million for the three ~~and nine~~ months ended ~~September~~June 30, ~~2020, respectively.~~2021.

●	The gain on sale of mortgages and processing, underwriting and closing fees increased as residential mortgage originations increased primarily as a result of falling mortgage rates and a strong real estate market during the three and nine months ended September 30, 2020.

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Conversely, during the six months ended June 30, 2021, the 10-year Treasury Constant Maturity rate increased 52 basis points from year end 2020 and positively impacted the fair value of the mortgage servicing rights in the amount of $3.4 million. The year-to-date fair value increase was offset by residential loan payoffs that resulted in a $2.4 million decrease in MSRs.

●	Quarter-over-quarter the gain on sale of mortgages and processing, underwriting and closing fees decreased as loan closings decreased due to a decrease in refinancing activity. Year-over-year the gain on mortgage sales decreased as gain-on-sale margins narrowed in 2021.

●	The increase in the secondary market loan servicing fee net of guarantee fees reflects the increase in serviced mortgage loans from $2.27 billion at June 30, 2020 to $3.66 billion at June 30, 2021.

The following table provides additional loan production detail:

Three Months Ended September 30,

2020

2019

Loan

Loan

Amount

% of Total

Amount

% of Total

(dollars in thousands)

Product Type

Conventional

$
626,010

79.3
%

$
333,728

78.2
%
Government

49,678

6.3

71,158

16.7

State Housing Agency

23,839

3.0

5,486

1.3

Jumbo

89,360

11.3

15,755

3.7

Seconds

185

0.0

293

0.1

Total

$
789,072

100.0
%

$
426,420

100.0
%

Purpose

Purchase

$
361,821

45.9
%

$
233,988

54.9
%
Refinance

415,738

52.7

187,460

43.9

Construction

11,513

1.5

4,972

1.2

Total

$
789,072

100.0
%

$
426,420

100.0
%


	Three Months Ended June 30,
	2021				2020
	Loan					Loan
	Amount		% of Total			Amount		% of Total

	(dollars in thousands)

Product Type
Conventional	$	438,498	68.6	%		$	612,763	71.5	%
Government		43,041	6.8				31,235	3.7
State Housing Agency		19,764	3.1				19,463	2.3
Jumbo		137,366	21.5				192,897	22.5
Seconds		145	0.0				157	—
Total	$	638,814	100.0	%		$	856,515	100.0	%

Purpose
Purchase	$	298,162	46.7	%		$	233,041	27.2	%
Refinance		331,055	51.8				608,777	71.1
Construction		9,597	1.5				14,697	1.7
Total	$	638,814	100.0	%		$	856,515	100.0	%

Nine Months Ended September 30,

2020

2019

Loan

Loan

Amount

% of Total

Amount

% of Total

(dollars in thousands)

Product Type

Conventional

$
1,497,146

74.8
%

$
602,750

67.6
%
Government

116,642

5.8

147,164

16.5

State Housing Agency

57,065

2.9

39,492

4.4

Jumbo

329,658

16.5

102,252

11.5

Seconds

457

0.0

363

—

Total

$
2,000,968

100.0
%

$
892,021

100.0
%

Purpose

Purchase

$
738,555

36.9
%

$
580,669

65.1
%
Refinance

1,229,841

61.5

299,578

33.6

Construction

32,572

1.6

11,774

1.3

Total

$
2,000,968

100.0
%

$
892,021

100.0
%


	Six Months Ended June 30,
	2021				2020
	Loan				Loan
	Amount		% of Total		Amount		% of Total

	(dollars in thousands)

Product Type
Conventional	$	1,015,158	72.6	%	$	871,136	71.9	%
Government		91,703	6.6			66,964	5.5
State Housing Agency		35,053	2.5			33,226	2.8
Jumbo		256,820	18.3			240,298	19.8
Seconds		264	0.0			272	—
Total	$	1,398,998	99.9	%	$	1,211,896	100.0	%

Purpose
Purchase	$	520,088	37.2	%	$	376,734	31.1	%
Refinance		863,689	61.7			814,103	67.2
Construction		15,221	1.1			21,059	1.7
Total	$	1,398,998	100.0	%	$	1,211,896	100.0	%

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Noninterest Expense. Total noninterest expense was ~~$19.2~~$14.1 million and ~~$48.2~~$32.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to ~~$11.2~~$18.3 million and ~~$27.5~~$29.1 million for the ~~prior~~respective ,prior year periods. The following tables set forth the components of noninterest expense:

Three Months Ended September 30,

Increase (Decrease)

2020

2019

Dollars

Percent

(dollars in thousands)

Compensation and benefits

$
14,680

$
8,561

$
6,119

71.5
%
Occupancy and equipment

792

732

60

8.2

Data processing expenses

48

86

(38)

(44.2)

Loan expenses

2,839

1,281

1,558

121.6

Marketing

70

88

(18)

(20.5)

Postage and printing

31

37

(6)

(16.2)

Professional fees

309

266

43

16.2

Other expenses

387

176

211

119.9

Total noninterest expense

$
19,156

$
11,227

$
7,929

70.6
%


	Three Months Ended June 30,				Increase (Decrease)
	2021		2020		Dollars		Percent

	(dollars in thousands)

Compensation and benefits	$	11,376	$	14,317	$	(2,941)		(20.5)	%
Occupancy and equipment		805		838		(33)		(3.9)
Data processing expenses		128		88		40		45.5
Loan expenses		1,075		2,385		(1,310)		(54.9)
Marketing		49		47		2		4.3
Postage and printing		31		30		1		3.3
Professional fees		452		299		153		51.2
Other expenses		185		208		(23)		(11.1)
Total noninterest expense	$	14,101	$	18,212	$	(4,111)		(22.6)	%

Nine Months Ended September 30,

Increase (Decrease)

2020

2019

Dollars

Percent

(dollars in thousands)

Compensation and benefits

$
37,092

$
20,557

$
16,535

80.4
%
Occupancy and equipment

2,406

2,183

223

10.2

Data processing expenses

200

211

(11)

(5.2)

Loan expenses

6,584

3,027

3,557

117.5

Marketing

198

268

(70)

(26.1)

Postage and printing

101

114

(13)

(11.4)

Professional fees

870

684

186

27.2

Other expenses

784

452

332

73.5

Total noninterest expense

$
48,235

$
27,496

$
20,739

75.4
%


	Six Months Ended June 30,				Increase (Decrease)
	2021		2020		Dollars		Percent

	(dollars in thousands)

Compensation and benefits	$	25,638	$	22,412	$	3,226		14.4	%
Occupancy and equipment		1,612		1,614		(2)		(0.1)
Data processing expenses		222		152		70		46.1
Loan expenses		3,080		3,456		(376)		(10.9)
Marketing		105		128		(23)		(18.0)
Postage and printing		69		70		(1)		(1.4)
Professional fees		1,061		561		500		89.1
Other expenses		371		397		(26)		(6.5)
Total noninterest expense	$	32,158	$	28,790	$	3,368		11.7	%

The primary reasons for the significant variances within the noninterest expense categories shown in the preceding table are noted below:

●	~~Compensation~~The quarter to date and year to date changes in compensation and benefits ~~increased for the three and nine months ended September 30, 2020~~ primarily ~~reflecting~~reflects commission expense consistent with the changes in mortgage origination volumes.

●	Loan expense primarily is for expenses to originate loans and is generally consistent with mortgage origination volumes. The decrease year over year despite an increase in year over year closings reflects a decrease in the recourse reserve rate in 2021 as compared to 2020.

●	Professional fees increase primarily reflects expenses for outsourced quality control services and mortgage consulting services.

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 TDRs, at the dates indicated. We did not have any accruing loans past due 90 days or more at the dates presented.

September 30,

December 31,


2020

2019

(dollars in thousands)

Nonaccrual loans:

Residential real estate:



One- to four-family

$
11,925

$
10,610

Second mortgages and equity lines of credit

951

1,561

Commercial real estate

4,943

530

Commercial construction

10,939

11,244

Commercial and industrial

10,078

5,831

Consumer

1,191

545

Total nonaccrual loans ⁽¹⁾

40,027

30,321

Other real estate owned and repossessed assets:

One- to four-family residential real estate owned

297

298

Other repossessed assets

601

421

Total nonperforming assets

40,925

31,040

Performing troubled debt restructurings

13,280

15,104

Total nonperforming assets and performing troubled debt restructurings

$
54,205

$
46,144

Total nonperforming loans to total loans ⁽²⁾

1.14
%

0.96
%
Total nonperforming assets and performing troubled debt restructurings to total assets

1.22
%

1.14
%
Total nonperforming assets to total assets

0.93
%

0.76
%

⁽¹⁾ $3.7 million and $5.0 million of troubled debt restructurings are included in total nonaccrual loans at September 30, 2020 and December 31, 2019 respectively

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


	June 30,			December 31,
	2021			2020

	(dollars in thousands)

Nonaccrual loans:
Residential real estate:
One- to four-family	$	11,172		$	11,611
Second mortgages and equity lines of credit		668			834
Commercial real estate		12,405			12,486
Commercial construction		—			—
Commercial and industrial		7,957			8,606
Consumer		232			564
Total nonaccrual loans ⁽¹⁾		32,434			34,101
Other real estate owned and repossessed assets:
One- to four-family residential real estate owned		297			297
Other repossessed assets		—			298
Total nonperforming assets		32,731			34,696
Performing troubled debt restructurings		10,185			11,652
Total nonperforming assets and performing troubled debt restructurings	$	42,916		$	46,348

Total nonperforming loans to total loans ⁽²⁾		0.95	%		0.98	%
Total nonperforming assets and performing troubled debt restructurings to total assets		0.93	%		1.03	%
Total nonperforming assets to total assets		0.71	%		0.77	%

⁽¹⁾ $3.2 million and $3.6 million of troubled debt restructurings are included in total nonaccrual loans at June 30, 2021 and December 31, 2020 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 ~~and nine~~ months ended in ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, amounted to ~~$281,000~~$326,000 and ~~$472,000,~~$254,000, respectively. Income related to impaired loans included in interest income for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, amounted to ~~$864,000~~$744,000 and ~~$1.4 million, respectively~~ $583,000, 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:

September 30, 2020

December 31, 2019

(in thousands)

Classified loans:

Substandard

$
19,805

$
14,997
Doubtful

5,121

2,435
Loss

—

—
Total classified loans

24,926

17,432
Special mention

27,165

25,357
Total criticized loans

$
52,091

$
42,789


	June 30, 2021		December 31, 2020

	(in thousands)

Classified loans:
Substandard	$	9,859	$	16,535
Doubtful		10,503		4,557
Loss		—		—
Total classified loans		20,362		21,092
Special mention		17,244		17,796
Total criticized loans	$	37,606	$	38,888

None of the special mention assets at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were on nonaccrual.

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

At ~~September~~June 30, 2021, our allowance for loan losses was $51.3 million, or 1.50% of total loans and 158.1% of nonperforming loans. At December 31, 2020, our allowance for loan losses was ~~$49.2~~$55.4 million, or ~~1.40%~~1.59% of total loans and ~~122.97%~~162.4% of nonperforming loans. At December 31, 2019, our allowance for loan losses was $24.1 million, or 0.76% of total loans and 79.35% of nonperforming loans. Total loans is net of an $9.6 million fair value discount on loans acquired from Coastway. Nonperforming loans at ~~September~~June 30, ~~2020~~2021 were ~~$38.1~~$32.4 million, or ~~1.10%~~0.95% of total loans, compared to ~~$30.3~~$34.1 million, or ~~0.96%~~0.98% of total loans, at December 31, ~~2019.~~2020. 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,~~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:

September 30, 2020

December 31, 2019

% 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

$
6,414

13.03
%
27.14
%

$
2,606

10.83
%
29.44
%

Second mortgages and equity lines of credit

1,014

2.06

4.28

551

2.29

4.88

Residential construction

172

0.35

0.75

21

0.09

0.44

Commercial real estate

26,098

53.02

39.25

12,875

53.51

37.03

Commercial construction

4,177

8.49

6.03

2,526

10.50

4.86

Commercial and industrial

4,966

10.09

13.66

2,977

12.37

9.67

Consumer

2,762

5.61

8.90

1,010

4.20

13.68

Total general and allocated allowance

45,603

92.65

100.00
%

22,566

93.79

100.00
%

Unallocated

3,620

7.35

1,494

6.21

Total

$
49,223

100.00
%

$
24,060

100.00
%


	June 30, 2021						December 31, 2020
			% 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	$	4,598	8.97	%	27.10	%	$	6,152	11.11	%	26.58	%
Second mortgages and equity lines of credit		698	1.36		3.90			1,072	1.93		4.17
Residential construction		138	0.27		1.00			195	0.35		0.89
Commercial real estate		32,991	64.34		45.70			34,765	62.76		44.39
Commercial construction		1,937	3.78		3.20			1,955	3.53		2.84
Commercial and industrial		8,059	15.72		13.70			5,311	9.59		13.29
Consumer		853	1.66		5.40			2,475	4.47		7.84
Total general and allocated allowance		49,274	96.10		100.00	%	��	51,925	93.74		100.00	%
Unallocated		1,999	3.90					3,470	6.26
Total	$	51,273	100.00	%			$	55,395	100.00	%

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 September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

(dollars in thousands)

Allowance at beginning of period
$
36,107

$
22,261

$
24,060

$
20,655

Provision for loan losses

13,454

889

27,207

3,496

Charge offs:

Residential real estate:

One- to four-family

—

—

(52)

(20)

Second mortgages and equity lines of credit

—

—

—

(116)

Commercial Real Estate

(62)

—

(1,236)

—

Commercial and industrial

(213)

(43)

(790)

(833)

Consumer

(140)

(216)

(519)

(660)

Total charge-offs

(415)

(259)

(2,597)

(1,629)

Recoveries:

Residential real estate:

One- to four-family

13

15

156

195

Second mortgages and equity lines of credit

9

59

48

103

Commercial real estate

—

1

1

6

Commercial and industrial

—

—

219

15

Consumer

55

78

129

203

Total recoveries

77

153

553

522

Net charge-offs

(338)

(106)

(2,044)

(1,107)

Allowance at end of period
$
49,223

$
23,044

$
49,223

$
23,044

Total loans outstanding at end of period
$
3,515,831

$
3,106,472

$
3,515,831

$
3,106,472

Average loans outstanding
$
3,487,062

$
3,086,066

$
3,340,336

$
3,032,982

Allowance for loan losses as a percent of total loans outstanding at end of period

1.40
%

0.74
%

1.40
%

0.74
%
Annualized net loans charged off as a percent of average loans outstanding

0.04
%

0.01
%

0.08
%

0.05
%
Allowance for loan losses to nonperforming loans at end of period

122.97
%

83.58
%

122.97
%

83.58
%


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020

	(dollars in thousands)

Allowance at beginning of period	$	55,384		$	26,389		$	55,395		$	24,060
Provision (credit) for loan losses		(4,286)			10,004			(4,195)			13,753
Charge offs:
Residential real estate:
One- to four-family		—			(52)			—			(52)
Second mortgages and equity lines of credit		—			—			—			—
Commercial Real Estate		(12)			—			(12)			(1,174)
Commercial and industrial		—			(280)			(186)			(577)
Consumer		(31)			(126)			(86)			(379)
Total charge-offs		(43)			(458)			(284)			(2,182)

Recoveries:
Residential real estate:
One- to four-family		118			129			144			143
Second mortgages and equity lines of credit		31			5			76			39
Commercial real estate		—			—			4			1
Commercial and industrial		10			—			18			219
Consumer		59			38			115			74
Total recoveries		218			172			357			476
Net (charge-offs) recoveries		175			(286)			73			(1,706)
Allowance at end of period	$	51,273		$	36,107		$	51,273		$	36,107
Total loans outstanding at end of period	$	3,419,737		$	3,474,022		$	3,419,737		$	3,474,022
Average loans outstanding	$	3,422,442		$	3,369,174		$	3,460,202		$	3,266,167
Allowance for loan losses as a percent of total loans outstanding at end of period		1.50	%		1.04	%		1.50	%		1.04	%
Annualized net loans charged off as a percent of average loans outstanding		(0.02)	%		0.03	%		(0.00)	%		0.10	%
Allowance for loan losses to nonperforming loans at end of period		158.08	%		94.86	%		158.08	%		94.86	%

We recorded a reversal of provision for loan losses of ~~$13.5~~$4.3 million and ~~$889,000~~$4.2 million for the three and six months ended ~~September~~June 30, ~~2020~~2021, respectively, compared to provision of $10.0 million and ~~2019, respectively. For~~$13.8 million for the ~~nine~~three and six months ended ~~September~~June 30, 2020, ~~and 2019, we recorded a provision for loan losses of $27.2 million and $3.5 million,~~ respectively. Changes in the provision for loan losses are based on management’s assessment of loan portfolio growth and composition changes, ~~analysis of~~ historical ~~and peer loss rates,~~charge-off trends, and ongoing evaluation of credit quality and current economic conditions.

The provision for loan losses for the quarter ended ~~September~~June 30, 2021 included adjustments for our quarterly analysis of our historical and peer loss experience rates, commercial real estate loan growth, an increase of general reserve allocation of 5 basis points on jumbo residential mortgage loans, and a $1.5 million specific reserve on one commercial credit. Positive economic and pandemic trends also resulted in a $6.4 million negative provision for COVID-19. The provision for loan losses for the quarter ended June 30, 2020 includes adjustments for our quarterly analysis of our historical and peer loss experience rates, commercial real estate loan growth, and a ~~$10.7~~$5.7 million provision directly related to the estimate of inherent losses resulting from the impact of the COVID-19 pandemic. ~~The provisions for loan losses for the three and nine months ended September 30, 2019 primarily reflected commercial real estate loan growth.~~

~~Net charge-offs totaled $338,000~~In estimating the ~~quarter ended September 30, 2020, or 0.04%, of average loans outstanding on an annualized basis, compared to $106,000, or 0.01% of average loans outstanding~~provision for the quarter ended September 30, 2019. Nonperforming assets were $40.9 million at September 30, 2020 compared to $31.0 million at December 31, 2019 and $27.9 million at September 30, 2019. Nonperforming assets as a percentage of total assets were 0.93% at September 30, 2020, 0.76% at December 31, 2019 and 0.71% at September 30, 2019. The increase in nonperforming assets from the prior year quarter was primarily in the commercial loan portfolio. While it is clear that the COVID-19 pandemic, ~~had,~~management considered economic factors, including unemployment rates and ~~will continue~~the interest rate environment, the volume and dollar amount of requests for payment deferrals, and the loan risk profile of each loan type. Positive economic trends, vaccination rates, and COVID-19 cases, low delinquency levels, and status of deferred loans resulted in management reducing provisions related to ~~have,~~the COVID-19 pandemic in the second quarter of 2021 with a ~~significant economic impact,~~reversal of provision of $6.4 million. There was no additional provisions provided for the ~~ultimate effect on our loan portfolio is uncertain.~~COVID-19 pandemic for the first quarter of 2021. During the first six months of 2020, additional provisions provided for the COVID-19 pandemic amounted to $7.2 million.

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Net recoveries totaled $175,000 and $73,000 for the three and six months ended June 30, 2021. Net charge-offs totaled $286,000, or 0.03% of average loans outstanding on an annualized basis and $1.7 million, or 0.10% of average loans outstanding on an annualized basis, for the three and six months ended June 30, 2020.

Credit quality performance has remained strong with total nonperforming assets of $32.7 million at June 30, 2021, compared to $38.6 million at June 30, 2020. Nonperforming assets as a percentage of total assets were 0.71% at June 30, 2021 and 0.86% at June 30, 2020.

Management of Market Risk

Net Interest Income Analysis. The Company 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.

The table below sets forth, as of ~~September~~June 30, ~~2020,~~2021, the net interest income simulation results that estimate the impact of interest rate changes on the Company’s estimated net interest income over one year:

September 30, 2020

Change in Net Interest Income
Changes in Interest Rates

Year One
(basis points) ⁽¹⁾

(% change from year one base)
+300

6.8
%
(100)

(7.0)
%

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


June 30, 2021
	Change in Net Interest Income
Changes in Interest Rates	Year One
(basis points) ⁽¹⁾	(% change from year one base)
+300	14.0	%
-100	(10.6)	%

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

Economic Value of Equity Analysis. The Company 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 ~~September~~June 30, ~~2020,~~2021, the estimated changes in the EVE that would result from an instantaneous parallel shift in interest rates. Computations of prospective effects of hypothetical interest rate changes are

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

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

At September 30, 2020

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

$
769,112

$
76,710

11.1
%
18.4
%
2.9
0

692,402

—

—

15.5

—
- 100

576,092

(116,310)

(16.8)

12.7

(2.8)

⁽¹⁾ Assumes instantaneous parallel changes in interest rates.
⁽²⁾ EVE Ratio represents EVE divided by the economic value of assets.


At June 30, 2021
							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	$	822,720	$	14,080	1.7	%	19.2	%	1.8
+ 200		879,300		70,660	8.7		19.8		2.4
+ 100		876,875		68,235	8.4		19.2		1.8
0		808,640		—	—		17.4		—
- 100		668,304		(140,337)	(17.4)		14.1		(3.3)

⁽¹⁾ Assumes instantaneous parallel changes in interest rates.
⁽²⁾ EVE Ratio represents EVE divided by the economic value of assets.

~~Table of Contents~~

~~HarborOne Bancorp, Inc.~~

~~Management’s Discussion and Analysis~~

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.

The objective of our liquidity risk management process is to manage cash flow and liquidity in an effort to provide continuous access to sufficient, reasonably priced funds. Funding requirements are impacted by loan originations and refinancings, deposit balance changes, liability issuances and settlements, and off-balance sheet funding commitments. We consider and comply with various regulatory guidelines regarding required liquidity levels and periodically monitor our liquidity position in light of the changing economic environment and customer activity. Based on periodic liquidity assessments, we may alter our asset, liability, and off-balance sheet positions. Management regularly adjusts our investments in liquid assets based upon an assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and securities, and (iv) the objectives of our interest rate risk and investment policies.

We have access to immediate liquid resources in the form of cash which is primarily on deposit with the Federal Reserve Bank of Boston (“FRB”). Potential sources of liquidity also include investment securities in our available-for-sale securities portfolio and our ability to sell loans in the secondary market. Our core deposits have historically provided us with a long-term source of stable and relatively lower cost source of funding. Additional funding is available through the issuance of long-term debt or equity.

~~Our cash flows are composed~~Maturities and payments on outstanding loans and investment securities also provide a steady flow of ~~three primary classifications: cash flows~~funds. Liquidity is further enhanced by our ability to pledge loans to access secured borrowings from ~~operating activities, investing activities~~the FHLB and ~~financing activities. Net cash used by operating activities was $25.6~~FRB. As of June 30, 2021, we had additional borrowing capacity of $764.1 million from the FHLB and ~~$47.7~~$65.4 million ~~for~~from the ~~nine months ended September 30, 2020 and 2019, respectively. Net cash used by investing activities was $354.3~~FRB based on the amount of collateral pledged. We also have additional borrowing capacity under a $25.0 million for the nine months ended September 30, 2020 and consists primarily of disbursements for loan originations and the purchase of securities. For the nine months ended September 30, 2019, net cash used by investing activities was $89.3 million. Net cash asunsecured federal funds line with a result of financing activities, consisting primarily of the activity in deposit accounts and FHLB advances and results from our strategy of managing growth and cash flows to preserve capital ratios and reduce expenses. Net cash provided by financing activities was $305.7 million and $270.2 million for the nine months ended September 30, 2020 and 2019, respectively.correspondent bank.

We continued our focus on maintaining a strong liquidity position throughout the first six months of 2021. As of ~~September~~June 30, ~~2020, we have not experienced any signs~~2021, cash and cash equivalents were $415.6 million, the carrying value of ~~stress in~~ our ~~liquidity position~~available-for-sale investment securities was $353.8 million, and total deposits were $3.69 billion as ~~a result~~ of ~~the COVID-19 pandemic or otherwise. Management plans to continually monitor liquidity in future periods for signs of stress resulting from the COVID-19 pandemic.~~June 30, 2021.

The Company and the Bank are subject to various regulatory capital requirements. At ~~September~~June 30, ~~2020,~~2021, the Company and the Bank exceeded all regulatory capital requirements and were considered “well capitalized” under regulatory guidelines. See Note 13 to our unaudited interim Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Off-Balance Sheet Arrangements, Credit Commitments, and Contractual Obligations

At ~~September~~June 30, ~~2020,~~2021, we had outstanding commitments to originate loans of ~~$726.8~~$412.9 million and unadvanced funds on loans of ~~$473.5~~$525.7 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 ~~September~~June 30, ~~2020~~2021 totaled ~~$720.8~~$593.8 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.

~~Off-Balance Sheet Arrangements~~

There are no other 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 10 toof the unaudited interim Consolidated Financial ~~Statements.~~Statements included in Part I, item I of this Form 10-Q.

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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 Quarterly Report on 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 ~~September~~June 30, ~~2020.~~2021. 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 ~~September~~June 30, ~~2020,~~2021, 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

~~This section supplements and updates certain of~~There have been no material changes in the ~~information found under Part I, Item 1A. “Risk Factors” of our~~Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 13, 2020 (“Annual Report”) and Part II. Item 1A “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 (the “Second Quarter 10-Q”), based on information currently known to us and recent developments since the date of the Second Quarter 10-Q. The matters discussed below should be read in conjunction with the risks described in Part I. Item 1A. “Risk Factors” of our Annual Report and Part II. Item 1A “Risk Factors” or our Second Quarter 10-Q. However, the risks and uncertainties that we face are not limited to those described below and those set forth in the Annual Report and Second Quarter 10-Q. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities, particularly in light of the fast-changing nature of the COVID-19 pandemic, containment measures and the related impacts to economic and operating conditions.2020.

The COVID-19 pandemic, and the measures taken to control its spread, will continue to adversely impact our employees, customers, business operations and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted.

The COVID-19 pandemic has impacted and is likely to continue to impact the national economy and the regional and local markets in which we operate, lower equity market valuations, create significant volatility and disruption in capital and debt markets, and increase unemployment levels. Our business operations may be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. We are subject to heightened cybersecurity, information security and operational risks as a result of work-from-home arrangements that we have put in place for our employees. Federal Reserve actions to combat the economic contraction caused by the COVID-19 pandemic, including the reduction of the target federal funds rate and quantitative easing programs, could, if prolonged, adversely affect our net interest income and margins, and our profitability. The continued closures of many businesses and the institution of social distancing, shelter in place and stay home orders in the states and communities we serve, have reduced business activity and financial transactions. Government policies and directives relating to the pandemic response are subject to change as the effects and spread of the COVID-19 pandemic continue to evolve. It is unclear whether any COVID-19 pandemic-related businesses losses that we or our customers may suffer will be recovered by existing insurance policies. Changes in customer behavior due to worsening business and economic conditions or legislative or regulatory initiatives may impact the demand for our products and services, which could adversely affect our revenue. Increases in deposit balances due, among other things, to government stimulus and relief programs could adversely affect our financial performance if we are unable to successfully lend or invest those funds. The measures we have taken to aid our customers, including short-term loan payment deferments, may be insufficient to help our customers who have been negatively impacted by the economic fallout from the COVID-19 pandemic. Loans that are currently in deferral status may become nonperforming loans. Pandemic-related delays in our ability to execute appraisals of collateral securing impaired loans may add uncertainty about the adequacy of our allowance for credit losses. Because of adverse economic and market conditions, we may be required to increase our provision for loan losses expense, or recognize impairments on the securities we hold. While the COVID-19 pandemic negatively impacted our results of operations for the first nine months of 2020, the extent to which the COVID-19 pandemic will continue to impact our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic, as well as further actions we may take as may be required by government authorities or that we determine is in the best interests of our employees and customers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the pandemic.

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Our participation in the SBA’s PPP may expose us to reputational harm, increased litigation risk, as well as the risk that the SBA may not fund some or all of the guarantees associated with PPP loans.

As of September 30, 2020, we have originated 1,071 loans aggregating $152.9 million through the PPP. Lenders participating in the PPP have faced increased public scrutiny about their loan application process and procedures, and the nature and type of the borrowers receiving PPP loans. We depend on our reputation as a trusted and responsible financial services company to compete effectively in the communities that we serve, and any negative public or customer response to, or any litigation or claims that might arise out of, our participation in the PPP and any other legislative or regulatory initiatives and programs that may be enacted in response to the COVID-19 pandemic, could adversely impact our business. Other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP, and we may be subject to the same or similar litigation, in addition to litigation in connection with our processing of PPP loan forgiveness applications. In addition, if the SBA determines that there is a deficiency in the manner in which a PPP loan was originated, funded, or serviced by us, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.

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

a)	Unregistered Sales of Equity Securities. None

b)	Use of Proceeds. None

c)	Repurchase of Equity Securities. ~~None.~~


	Issuer Purchases of Equity Securities

	Total Number
	of Shares		Average Price
Index	Purchased		Paid Per Share
April 1 to April 30, 2021		53,601	$	13.51
May 1 to May 31, 2021		212,050		14.74
June 1 to June 30, 2021		227,488		14.41
Total		493,139	$	14.45

During the second quarter of 2021, the Company completed a share repurchase program adopted September 3, 2020 to repurchase 2,920,900 shares of the Company’s common stock at an average cost of $11.32 per share. The Company adopted a second share repurchase program on April 16, 2021 to repurchase up to 2,790,903 shares of the Company’s common stock, or approximately 5% of the Company’s outstanding shares. The Company repurchased 418,452 shares at an average cost of $14.41 per share through June 30, 2021, under the second share repurchase program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

On November 4, 2020, the Board of Directors of the Company approved the entry by the Company into indemnification agreements (each, an “Indemnification Agreement” and, collectively, the “Indemnification Agreements”) with each of its directors, as well as Chief Executive Office James W. Blake, President and Chief Operating Officer Joseph F. Casey, Chief Financial Officer Linda H. Simmons, Chief Lending Officer H. Scott Sanborn, and General Counsel Inez H. Friedman-Boyce (each, an “Indemnitee”).

The Indemnification Agreements clarify and supplement the indemnification rights and obligations of each Indemnitee and Company already included in the Company’s articles of organization. Under the terms of the Indemnification Agreements, subject to certain exceptions specified in the Indemnification Agreements, the Company will indemnify each Indemnitee to the fullest extent permitted by Massachusetts law in the event the Indemnitee becomes subject to or a participant in certain claims or proceedings as a result of the Indemnitee’s service as a director or executive officer. The Company will also, subject to certain exceptions and repayment conditions, advance to the Indemnitee specified indemnifiable expenses incurred in connection with such claims or proceedings.

The foregoing description of the Indemnification Agreements is qualified in its entirety by reference to the form of Indemnification Agreement, which is attached as Exhibit 10.2 to this Quarterly Report on Form 10-Q and incorporated herein by reference.None.

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ITEM 6. EXHIBITS

The exhibits listed in the Exhibit Index are included in, or incorporated by reference into, this Quarterly Report on Form 10-Q.

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EXHIBIT INDEX

The following exhibits are included in this Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2020~~2021 (and are numbered in accordance with Item 601 of Regulation S-K):


Exhibit No.		Description

~~10.1~~†		~~HarborOne Bancorp, Inc. 2020 Equity Incentive Plan~~ ~~(incorporated by reference to Exhibit 10.1 to Form 8-K filed with the Securities and Exchange Commission on October 1, 2020)~~
10.2*		~~Form of Indemnification Agreement~~
~~10.3~~†		~~Form of Restricted Stock Award Agreement under the HarborOne Bancorp, Inc. 2020 Equity Incentive Plan~~ ~~(incorporated by reference to Exhibit 10.2 to Form S-8 filed with the Securities and Exchange Commission on October 5, 2020)~~
~~10.4~~†		~~Form of Non-Qualified Stock Option Award Agreement for Non-Employee Directors under the HarborOne Bancorp, Inc. 2020 Equity Incentive Plan~~ ~~(incorporated by reference to Exhibit 10.3 to Form S-8 filed with the Securities and Exchange Commission on October 5, 2020)~~
~~10.5~~†		~~Form of Non-Qualified Stock Option Award Agreement for Employees under the HarborOne Bancorp, Inc. 2020 Equity Incentive Plan~~ ~~(incorporated by reference to Exhibit 10.4 to Form S-8 filed with the Securities and Exchange Commission on October 5, 2020)~~
~~10.6~~†		~~Form of Incentive Stock Option Agreement under the HarborOne Bancorp, Inc. 2020 Equity Incentive Plan~~ ~~(incorporated by reference to Exhibit 10.5 to Form S-8 filed with the Securities and Exchange Commission on October 5, 2020)~~
~~10.7~~†		~~Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under the HarborOne Bancorp, Inc. 2020 Equity Incentive Plan~~ ~~(incorporated by reference to Exhibit 10.6 to Form S-8 filed with the Securities and Exchange Commission on October 5, 2020)~~
~~10.8~~†		~~Form of Restricted Stock Unit Award Agreement for Employees under the HarborOne Bancorp, Inc. 2020 Equity Incentive Plan~~ ~~(incorporated by reference to Exhibit 10.7 to Form S-8 filed with the Securities and Exchange Commission on October 5, 2020)~~
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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, (ii) the Consolidated Statements of Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 (iii) the Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, (iv) the Consolidated Statements of Changes in Stockholders’ Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, (v) the Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, and (vi) the Notes to the unaudited Consolidated Financial Statements.
104		Cover Page Interactive Data File (formatted in Inline XBRL and included in Exhibit 101)

*Filed herewith

**Furnished herewith

† Management contract or compensation plan or arrangement.

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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: ~~November 6, 2020~~August 5, 2021	By:	/s/ James W. Blake
		James W. Blake
		Chief Executive Officer and Director (Principal Executive Officer)

Date: ~~November 6, 2020~~August 5, 2021	By:	/s/ Linda H. Simmons
		Linda H. Simmons
		Executive Vice President and Chief Financial Officer (Principal Accounting and Financial Officer)


	At Risk Sectors
																								Percent
										Health									Total					at risk
										and Social									at risk			Total		sector
	Retail			Office			Hotel			Services			Restaurants			Recreation			sectors			loans		to total

	(dollars in thousands)
Commercial real estate	$	217,768		$	197,087		$	171,009		$	96,586		$	10,161		$	15,015		$	707,626		$	1,380,071	51.3	%
Commercial and industrial		31,806			16,162			2,683			91,277			36,414			7,521			185,863			480,129	38.7
Commercial construction		12,116			768			20,106			107			9,566			9,044			51,707			211,953	24.4
Total	$	261,690		$	214,017		$	193,798		$	187,970		$	56,141		$	31,580		$	945,196		$	2,072,153	45.6	%
Percent to total commercial loans		12.6	%		10.3	%		9.4	%		9.1	%		2.7	%		1.5	%		45.6	%

Outstanding principal balance of:
Original commercial deferrals	$	46,121		$	13,320		$	112,242		$	13,761		$	13,424		$	15,623		$	214,491		$	289,187	74.2	%
Active deferrals	$	20,899		$	77		$	46,044		$	882		$	1,253		$	—		$	69,155		$	99,990	69.2	%
PPP loans	$	6,891		$	—		$	548		$	41,475		$	8,983		$	2,715		$	60,612		$	148,979	40.7	%
Nonaccrual loans	$	520		$	—		$	4,815		$	395		$	16		$	9,162		$	14,908		$	25,960	57.4	%


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020 v. 2019						2020 v. 2019
	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:
Investment securities	$	272	$	(515)	$	(243)	$	289	$	(1,046)	$	(757)
Other interest-earning assets		(317)		(719)		(1,036)		1,327		(2,296)		(969)
Loans held for sale		527		(214)		313		1,460		(482)		978
Loans
Commercial loans		5,373		(5,104)		269		13,477		(12,947)		530
Residential real estate loans		238		(1,109)		(871)		283		(2,270)		(1,987)
Consumer loans		(1,145)		13		(1,132)		(2,492)		407		(2,085)
Total loans		4,466		(6,200)		(1,734)		11,268		(14,810)		(3,542)
Total interest-earning assets		4,948		(7,648)		(2,700)		14,344		(18,634)		(4,290)
Interest-bearing liabilities:
Savings accounts		373		(686)		(313)		969		(78)		891
NOW accounts		20		(7)		13		42		(15)		27
Money market accounts		(166)		(2,506)		(2,672)		(220)		(4,806)		(5,026)
Certificates of deposit		(789)		(1,332)		(2,121)		(1,172)		(2,259)		(3,431)
Brokered deposit		187		(546)		(359)		(128)		(892)		(1,020)
Total interest-bearing deposits		(375)		(5,077)		(5,452)		(509)		(8,050)		(8,559)
FHLB advances		(361)		(53)		(414)		(1,256)		(1,014)		(2,270)
Subordinated debentures		—		—		—		5		13		18
Total borrowings		(361)		(53)		(414)		(1,251)		(1,001)		(2,252)
Total interest-bearing liabilities		(736)		(5,130)		(5,866)		(1,760)		(9,051)		(10,811)
Change in net interest income	$	5,684	$	(2,518)	$	3,166	$	16,104	$	(9,583)	$	6,521


	HarborOne Bank								HarborOne Mortgage
	Nine Months Ended								Nine Months Ended
	September 30,				Increase (Decrease)				September 30,				Increase (Decrease)
	2020		2019		Dollars		Percent		2020		2019		Dollars		Percent

	(dollars in thousands)


Net interest and dividend income	$	86,248	$	81,296	$	4,952	6.1	%	$	2,020	$	604	$	1,416	234.4	%
Provision for loan losses		27,207		3,496		23,711	678.2			—		—		—	—
Net interest and dividend income, after provision for loan losses		59,041		77,800		(18,759)	(24.1)			2,020		604		1,416	234.4
Mortgage banking income:
Gain on sale of mortgage loans		—		1		(1)	(100.0)			77,195		24,085		53,110	220.5
Intersegment gain (loss)		(2,444)		(866)		(1,578)	(182.2)			2,444		866		1,578	182.2
Changes in mortgage servicing rights fair value		(2,014)		(1,599)		(415)	(26.0)			(3,677)		(5,267)		1,590	30.2
Other		1,031		1,127		(96)	(8.5)			9,931		6,315		3,616	57.3
Total mortgage banking income (loss)		(3,427)		(1,337)		(2,090)	(156.3)			85,893		25,999		59,894	230.4
Other noninterest income (loss)		19,640		18,191		1,449	8.0			(141)		(20)		(121)	(605.0)
Total noninterest income		16,213		16,854		(641)	(3.8)			85,752		25,979		59,773	230.1
Noninterest expense		75,806		74,527		1,279	1.7			48,235		27,496		20,739	75.4
Income (loss) before income taxes		(552)		20,127		(20,679)	(102.7)			39,537		(913)		40,450	NM
Provision (benefit) for income taxes		2,199		3,267		(1,068)	(32.7)			8,667		(256)		8,923	NM
Net income (loss)	$	(2,751)	$	16,860	$	(19,611)	(116.3)	%	$	30,870	$	(657)	$	31,527	NM	%


At September 30, 2020
							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	$	769,112	$	76,710	11.1	%	18.4	%	2.9
0		692,402		—	—		15.5		—
- 100		576,092		(116,310)	(16.8)		12.7		(2.8)

⁽¹⁾ Assumes instantaneous parallel changes in interest rates.
⁽²⁾ EVE Ratio represents EVE divided by the economic value of assets.