HarborOne Bancorp, Inc. Announces 2023 Third Quarter Earnings

HarborOne Bancorp, Inc. (the "Company" or "HarborOne") (NASDAQ:HONE), the holding company for HarborOne Bank (the "Bank"), announced net income of $8.4 million, or $0.20 per diluted share, for the third quarter of 2023, compared to net income of $7.5 million, or $0.17 per diluted share, for the preceding quarter and net income of $13.8 million, or $0.30 per diluted share, for the same period last year.

Selected Financial Highlights:

• Deposit growth, excluding brokered deposits, of $160.5 million, or 4.0%, on a linked-quarter basis.
• Reduced noninterest expense 7.5% as compared to the prior year third quarter.
• Loan growth of $24.7 million, or 0.5%, on a linked-quarter basis.
• Commenced sixth share repurchase program.

"As many of our competitors struggled with deposit contraction, we grew the average balance of customer deposits at a 14.7% annualized pace in Q3. This strong deposit growth allowed the pay-down of over $167 million in wholesale funds during the quarter," said Joseph F. Casey, President and CEO. "Additionally, we expect to redeem $35 million in subordinated debt on December 1, 2023, which carries a current annualized expense rate of 8.45%. And we continue to return shareholder value, commencing a sixth stock buyback plan in Q3, purchasing $6.4 million of HarborOne shares at an average cost of $9.81 per share."

Net Interest Income

The Company's net interest and dividend income was $31.1 million for the quarter ended September 30, 2023, compared to $32.1 million for the quarter ended June 30, 2023, and $39.3 million for the quarter ended September 30, 2022. The tax equivalent interest rate spread and net interest margin were 1.70% and 2.34%, respectively, for the quarter ended September 30, 2023, compared to 1.89% and 2.45%, respectively, for the quarter ended June 30, 2023, and 3.30% and 3.47%, respectively, for the quarter ended September 30, 2022.

On a linked-quarter basis, the decreases in net interest and dividend income, tax equivalent interest rate spread, and net interest margin primarily reflect a higher cost of funding, partially offset by increased loan balances and yields, with liability repricing outpacing assets. While the yield on interest-earning assets increased 11 basis points from the preceding quarter, the cost of interest-bearing liabilities increased 30 basis points, in a competitive deposit pricing market.

The $8.3 million decrease in net interest and dividend income from the prior year quarter reflects an increase of $26.9 million, or 514.2%, in total interest expense, partially offset by an increase of $18.6 million, or 41.8%, in total interest and dividend income. The changes reflect rate and volume changes in both interest-bearing assets and liabilities. The cost of interest-bearing liabilities increased 241 basis points, while the average balance increased $880.8 million, and the yield on interest-earning assets increased 81 basis points, while the average balance increased $808.0 million.

Noninterest Income

Total noninterest income decreased $1.1 million, or 8.4%, to $11.6 million for the quarter ended September 30, 2023, from $12.7 million for the quarter ended June 30, 2023. Persistent low inventory of for-sale residential real estate and rising mortgage interest rates continued to impact the results of HarborOne Mortgage, LLC ("HarborOne Mortgage") with gain on loan sales of $2.7 million from mortgage loan closings of $157.6 million for the quarter ended September 30, 2023, compared to $3.3 million in gain on sales from mortgage loan closings of $172.2 million in the preceding quarter.

The increase in the fair value of mortgage servicing rights ("MSR") for the three months ended September 30, 2023 was $770,000, as compared to an increase of $915,000 in the fair value of MSR for the three months ended June 30, 2023. The valuation was positively impacted by key benchmark mortgage rates, which were partially offset by the impact of MSR price caps used in the valuation model. The impact on the MSR of principal payments on the underlying mortgages was $645,000 and $479,000 for the quarters ended September 30, 2023 and June 30, 2023, respectively.

Total noninterest income decreased $2.6 million, or 18.6%, compared to the quarter ended September 30, 2022, primarily due to a $3.0 million, or 36.9%, decrease in mortgage banking income. The prior year quarter also reflected a $1.8 million increase in the fair value of MSR. The impact of rising interest rates on the fair value of MSR diminishes as the valuations reach multiple caps.

Noninterest Expense

Total noninterest expenses were at $31.9 million for the quarter ended September 30, 2023, as compared to $31.7 million for the quarter ended June 30, 2023. Compensation and benefits increased $479,000, primarily reflecting increased incentive accruals partially offset by decreased salary and payroll tax expense. Occupancy and equipment expense decreased $203,000, reflecting recent cost saving measures. HarborOne Mortgage continues to enact cost saving measures and executed a reduction in force in the third quarter with an annual cost savings of $564,000.

Total noninterest expenses decreased $2.6 million, or 7.5%, from the quarter ended September 30, 2022. Compensation and benefits decreased $2.3 million, primarily reflecting decreased mortgage origination commission and incentive accruals, and occupancy and equipment expense decreased $399,000. These decreases were partially offset by a $647,000 increase in deposit insurance expense.

Asset Quality and Allowance for Credit Losses

Total nonperforming assets were $18.8 million at September 30, 2023, compared to $20.2 million at June 30, 2023 and $23.4 million at September 30, 2022. Nonperforming assets as a percentage of total assets were 0.33% at September 30, 2023, 0.36% at June 30, 2023, and 0.47% at September 30, 2022.

The Company recorded a reversal of provision for credit losses of $113,000 for the quarter ended September 30, 2023, reflecting a $586,000 reversal of provision for unfunded commitments, partially offset by a $474,000 provision for loan credit losses, primarily for loan growth. Net recoveries totaled $18,000 and $799,000 for the quarters ended September 30, 2023 and 2022, respectively. Net charge-offs totaled $2.7 million, or 0.23% of average loans outstanding on an annualized basis, for the quarter ended June 30, 2023.

The allowance for credit losses ("ACL") on loans was $48.3 million, or 1.02% of total loans, at September 30, 2023, compared to $47.8 million, or 1.02% of total loans, at June 30, 2023 and $44.6 million, or 1.06% of total loans, at September 30, 2022. The ACL on unfunded commitments, included in other liabilities on the unaudited Consolidated Balance Sheets, amounted to $4.2 million at September 30, 2023 as compared to $4.8 million at June 30, 2023 and $5.5 million at September 30, 2022.

Management continues to closely monitor the loan portfolio for signs of deterioration in light of speculation that commercial real estate values may deteriorate as the market adjusts to higher vacancies and interest rates. The commercial real estate portfolio is centered in New England, with approximately 75% of the portfolio secured by property located in Massachusetts and Rhode Island. Approximately 60% of the commercial real estate loans are fixed-rate loans with, in the opinion of management, limited near-term maturity risk.

Management also continues to monitor certain sectors within the commercial real estate segment that may be particularly susceptible to increased credit risk as a result of trends that were precipitated by the COVID-19 pandemic and may be exacerbated by current economic conditions. This includes business-oriented hotels, non-anchored retail space, and metro office space. As of September 30, 2023, business-oriented hotels loans included 13 loans with a total outstanding balance of $114.4 million, non-anchored retail space loans included 30 loans with a total outstanding balance of $40.4 million, and metro office space loans included two loans with a total outstanding balance of $12.0 million. As of September 30, 2023, there was one metro office space loan with a carrying value of $7.0 million that was rated doubtful and on nonaccrual and one business-oriented hotel credit with a carrying value of $1.7 million that was rated substandard and on nonaccrual. The other loans in these groups were performing in accordance with their terms.

Balance Sheet

Total assets were flat, at $5.66 billion as of September 30, 2023 and June 30, 2023, as an increase of $24.7 million in total loans was offset by decreases in investments and Federal Home Loan Bank ("FHLB") stock.

Available-for-sale securities were $271.1 million and $292.0 million at September 30, 2023 and June 30, 2023, respectively. The unrealized loss on securities available for sale increased to $81.3 million as of September 30, 2023, as compared to $66.5 million of unrealized losses as of June 30, 2023. Securities held to maturity were $19.8 million, or 0.3%, of total assets, with a fair value of $18.7 million.

Loans increased $24.7 million, or 0.5%, to $4.72 billion at September 30, 2023, from $4.70 billion at June 30, 2023. The increase in loans for the three months ended September 30, 2023 was primarily due to increases in commercial real estate loans of $63.2 million and residential real estate loans of $5.2 million, partially offset by decreases in commercial construction loans of $37.7 million, commercial and industrial loans of $2.9 million, and consumer loans of $3.2 million. Management continues to seek prudent commercial lending opportunities to deepen relationships with existing customers and develop new relationships with strong borrowers.

Total deposits were $4.41 billion at September 30, 2023 and $4.29 billion at June 30, 2023. Compared to the prior quarter, non-certificate accounts increased $44.2 million and term certificate accounts increased $116.3 million, as competitive rate specials attracted deposits during the quarter. Brokered deposits decreased $38.1 million. As of September 30, 2023, FDIC-insured deposits were approximately 66% of total deposits, including Bank subsidiary deposits. Including Depositors Insurance Fund ("DIF"), excess insurance coverage that remains available until February 24, 2024, insured deposits are approximately 85% of total deposits, including Bank subsidiary deposits. Although the Bank exited the DIF as of February 24, 2023, insurance remains in place for funds on deposit as of that date for one year or until maturity for term certificates.

FHLB borrowings decreased $129.1 million to $475.5 million at September 30, 2023 from $604.6 million at June 30, 2023. As of September 30, 2023, the Bank had $1.28 billion in available borrowing capacity across multiple relationships. Additionally, on October 19, 2023, the Company notified holders of its subordinated debt that the Company had exercised its option to redeem the debt effective December 1, 2023. The current interest rate on the $35.0 million outstanding subordinated notes is 8.45%.

Total stockholders' equity was $584.6 million at September 30, 2023, compared to $595.5 million at June 30, 2023 and $611.4 million at September 30, 2022. Stockholders' equity decreased 1.8% when compared to the prior quarter, as earnings were offset by share repurchases. The Company commenced a sixth share repurchase program during the third quarter of 2023, repurchasing 652,523 shares at an average price of $9.93, including $0.10 per share of excise tax, during the three months ended September 30, 2023. The tangible-common-equity-to-tangible-assets ratio⁽¹⁾ was 9.17% at September 30, 2023, 9.38% at June 30, 2023, and 10.97% at September 30, 2022. At September 30, 2023, the Company and the Bank had strong capital positions, exceeded all regulatory capital requirements, and are considered well-capitalized.

About HarborOne Bancorp, Inc.

HarborOne Bancorp, Inc. is the holding company for HarborOne Bank, a Massachusetts-chartered trust company. HarborOne Bank serves the financial needs of consumers, businesses, and municipalities throughout Eastern Massachusetts and Rhode Island through a network of 30 full-service banking centers located in Massachusetts and Rhode Island, and commercial lending offices in Boston, Massachusetts and Providence, Rhode Island. HarborOne Bank also provides a range of educational resources through "HarborOne U," with free digital content, webinars, and recordings for small business and personal financial education. HarborOne Mortgage, LLC, a subsidiary of HarborOne Bank, provides mortgage lending services throughout New England and other states.

⁽¹⁾ This non-GAAP ratio is total stockholders equity less goodwill and intangible assets to total assets less goodwill and intangible assets.

Forward Looking Statements

Certain statements herein constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We may also make forward-looking statements in other documents we file with the Securities and Exchange Commission ("SEC"), in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees. Such statements may be identified by words such as "believes," "will," "would," "expects," "project," "may," "could," "developments," "strategic," "launching," "opportunities," "anticipates," "estimates," "intends," "plans," "targets" and similar expressions. These statements are based upon the current beliefs and expectations of the Company's management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements as a result of numerous factors. Factors that could cause such differences to exist include, but are not limited to, changes in general business and economic conditions (including inflation and concerns about inflation) on a national basis and in the local markets in which the Company operates, including changes that adversely affect borrowers' ability to service and repay the Company's loans; changes in customer behavior; ongoing turbulence in the capital and debt markets and the impact of such conditions on the Company's business activities; changes in interest rates; increases in loan default and charge-off rates; decreases in the value of securities in the Company's investment portfolio; fluctuations in real estate values; the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions, customer behavior or adverse economic developments; the adequacy of loan loss reserves; decreases in deposit levels necessitating increased borrowing to fund loans and investments; competitive pressures from other financial institutions; acquisitions may not produce results at levels or within time frames originally anticipated; cybersecurity incidents, fraud, natural disasters, war, terrorism, civil unrest, and future pandemics; changes in regulation; changes in accounting standards and practices; the risk that goodwill and intangibles recorded in the Company's financial statements will become impaired; demand for loans in the Company's market area; the Company's ability to attract and maintain deposits; risks related to the implementation of acquisitions, dispositions, and restructurings; the risk that the Company may not be successful in the implementation of its business strategy; changes in assumptions used in making such forward-looking statements and the risk factors described in the Annual Report on Form 10‑K and Quarterly Reports on Form 10‑Q as filed with the SEC, which are available at the SEC's website, www.sec.gov. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, HarborOne's actual results could differ materially from those discussed. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. The Company disclaims any obligation to publicly update or revise any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes, except as required by law.

Use of Non-GAAP Measures

In addition to results presented in accordance with generally accepted accounting principles ("GAAP"), this press release contains certain non-GAAP financial measures. The Company's management believes that the supplemental non-GAAP information, which consists of the efficiency ratio, tangible common equity to tangible assets ratio and tangible book value per share, is utilized by regulators and market analysts to evaluate a company's financial condition and therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.