HarborOne Bancorp, Inc. Announces 2024 First Quarter Results

HarborOne Bancorp, Inc. (the "Company" or "HarborOne") (NASDAQ:HONE), the holding company for HarborOne Bank (the "Bank"), announced net income of $7.3 million, or $0.17 per diluted share, for the first quarter of 2024, compared to a net loss of $7.1 million, or $0.17 per diluted share for the preceding quarter, and net income of $7.3 million, or $0.16 per diluted share for the same period last year. Excluding the HarborOne Mortgage, LLC ("HarborOne Mortgage") goodwill impairment charge of $10.8 million recorded in the fourth quarter of 2023, included in noninterest expense, net income and diluted earnings per share for the quarter ended December 31, 2023 were $3.7 million and $0.09, respectively.⁽¹⁾

Selected Financial Highlights:

• Strong asset quality; nonperforming loans as a percentage of total loans were 0.25% compared to 0.37% last quarter.
• Increased noninterest income 20.6% on a linked-quarter basis.
• Reduced noninterest expense 2.2% on a linked-quarter basis, excluding the goodwill impairment recorded in 2023.
• Loan growth of $26.4 million, or 2.2% annualized.
• Continued share repurchase program, repurchasing 558,900 shares at an average cost of $10.40 per share, totaling $5.8 million.
• Returned $3.4 million of capital to shareholders via dividends and increased quarterly dividend by 6.7%.

"In this uncertain interest rate environment, our team remains laser focused on expense management and moderate commercial loan growth that brings operational deposits to the Bank," said Joseph F. Casey, President and CEO. "This quarter was the first quarter since the second quarter of 2022 where the yield on interest-earning assets increased more than the cost of interest-bearing liabilities. I am pleased with our improved earnings this quarter and with our ability to return $9.2 million to shareholders through the cash dividend, which increased 6.7%, and through the continuation of our stock buybacks."

Net Interest Income

The Company's net interest and dividend income was $30.6 million for the quarter ended March 31, 2024, compared to $29.7 million for the quarter ended December 31, 2023, and $34.4 million for the quarter ended March 31, 2023. The tax equivalent interest rate spread and net interest margin were 1.62% and 2.25%, respectively, for the quarter ended March 31, 2024, compared to 1.56% and 2.23%, respectively, for the quarter ended December 31, 2023, and 2.28% and 2.78%, respectively, for the quarter ended March 31, 2023. The fourth quarter results included interest expense of $620,000 for the remaining unamortized issuance cost on the Company's $35 million subordinated notes redeemed in the fourth quarter of 2023.

On a linked-quarter basis, the increase in the margin, spread and net interest and dividend income reflects average interest-earning assets increasing $172.8 million and the yield on interest-earning assets increasing 10 basis points while average interest-bearing liabilities increased $207.6 million and the cost of these liabilities increased 4 basis points. The cost of interest-bearing deposits, excluding brokered, decreased 2 basis points, driven by disciplined pricing in a competitive deposit market.

The $3.8 million decrease in net interest and dividend income from the prior year quarter reflects an increase of $14.8 million, or 68.6%, in total interest expense, partially offset by an increase of $11.0 million, or 19.6%, in total interest and dividend income. The cost of interest-bearing liabilities increased 106 basis points, while the average balance increased $521.3 million, and the yield on interest-earning assets increased 40 basis points, while the average balance increased $451.9 million.

Noninterest Income

Total noninterest income improved $1.8 million, or 20.6%, to $10.7 million for the quarter ended March 31, 2024, from $8.9 million for the quarter ended December 31, 2023. The change was primarily driven by an increase in the mortgage servicing rights ("MSR") valuation for the three months ended March 31, 2024 of $628,000, compared to a decrease of $3.1 million in the MSR valuation for the three months ended December 31, 2023. The MSR valuation was positively impacted by key benchmark interest rates used in the valuation model, which increased from the prior quarter. The impact on the MSR valuation of principal payments on the underlying mortgages was $353,000 and $487,000 for the quarters ended, March 31, 2024 and December 31, 2023, respectively. During the first quarter of 2024, HarborOne Mortgage executed a hedge to partially mitigate potential MSR valuation losses in a declining rate environment. As a result, the MSR valuation gain was partially offset by a $221,000 hedging loss in the quarter.

Persistent low inventory of for-sale residential real estate and elevated mortgage interest rates continued to impact the results of HarborOne Mortgage, with gain on loan sales of $2.0 million from mortgage loan closings of $102.1 million for the quarter ended March 31, 2024, compared to $2.2 million from mortgage loan closings of $124.2 million on a linked-quarter basis. Slightly higher gain-on-sale margins partially offset seasonally lower production volume. Mortgage loan closings for the quarter ended March 31, 2023 were $125.6 million with a gain on loan sales of $2.2 million.

Total noninterest income for the quarter ended December 31, 2023 included a $305,000 gain on sale of a former bank branch, and $582,000 recognized on a Bank-owned life insurance ("BOLI") surrender and exchange strategy. BOLI income was offset by a $464,000 corresponding tax impact included in the provision for income taxes and a modified endowment contract charge included in noninterest expense. The quarter ended March 31, 2024 had no such income.

Total noninterest income increased $2.1 million, or 23.6%, compared to the quarter ended March 31, 2023, primarily due to a $1.6 million, or 58.0%, increase in mortgage banking income. The prior year quarter reflected a $1.3 million decrease in the MSR valuation.

Noninterest Expense

Total noninterest expense decreased $11.5 million, or 26.5%, to $31.8 million for the quarter ended March 31, 2024, from $43.2 million for the quarter ended December 31, 2023. Excluding the one-time $10.8 million goodwill impairment charge from the fourth quarter results, noninterest expenses decreased $704,000 on a linked-quarter basis. Compensation and benefits expenses decreased $1.6 million as the fourth quarter of 2023 included catch-up accrual adjustments for incentives and certain benefits. The fourth quarter of 2023 also included $118,000 in severance expense for a reduction in force at HarborOne Mortgage. Loan expense increased $688,000, as the fourth quarter of 2023 included a $629,000 reversal of repurchase reserve at HarborOne Mortgage based on updated assumptions used to determine the estimate.

Total noninterest expense increased $241,000, or 0.8%, compared to the prior year quarter of $31.5 million. Deposit insurance expense increased $654,000 partially offset by a $365,000 decrease in marketing expense.

Asset Quality and Allowance for Credit Losses

Total nonperforming assets were $12.2 million at March 31, 2024, compared to $17.6 million at December 31, 2023 and $12.3 million at March 31, 2023. Nonperforming assets as a percentage of total assets were 0.21% at March 31, 2024, 0.31% at December 31, 2023, and 0.22% at March 31, 2023. During the first quarter of 2024, a single credit included in the metro office space loan segment with a carrying value of $5.7 million, considered nonperforming in the prior quarter, was paid with a partial recovery of $99,000.

The Company recorded a $168,000 negative provision for credit losses for the quarter ended March 31, 2024. The provision for loan credit losses was $338,000, offset by a negative provision of $506,000 for unfunded commitments. The provision for credit losses for the quarter ended December 31, 2023 was $644,000, a result of a provision for loan credit losses of $970,000 partially offset by a $326,000 negative provision for unfunded commitments. The Company recorded a provision for credit losses of $1.9 million for the quarter ended March 31, 2023, a result of a provision for loan credit losses of $1.7 million and a $119,000 provision for unfunded commitments. Net charge-offs totaled $125,000, or 0.01%, of average loans outstanding on an annualized basis, for the quarter ended March 31, 2024. Net charge-offs totaled $1.3 million, or 0.11%, of average loans outstanding on an annualized basis, for the quarter ended December 31, 2023, and net recoveries totaled $11,000 for the quarter ended March 31, 2023. Loan credit loss provisioning primarily reflects replenishment of the allowance for credit losses ("ACL") on loans due to charge-offs and loan growth.

The ACL on loans was $48.2 million, or 1.01% of total loans, at March 31, 2024, compared to $48.0 million, or 1.01% of total loans, at December 31, 2023 and $47.0 million, or 1.02% of total loans, at March 31, 2023. The ACL on unfunded commitments, included in other liabilities on the unaudited Consolidated Balance Sheets, amounted to $3.4 million at March 31, 2024, compared to $3.9 million at December 31, 2023 and $5.0 million at March 31, 2023.

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. As of March 31, 2024 commercial loans rated "watch" amounted to $67.9 million, compared to $30.6 million at December 31, 2023. Loans are rated "watch" at the point when there are signs of potential weakness. Approximately 41% of the increase is due to one credit included in the office category. Management performs comprehensive reviews and works proactively with creditworthy borrowers facing financial distress and implements prudent workouts and accommodations to improve the Bank's prospects of contractual repayment.

Three sub-sectors that Management identified as potentially more susceptible to weakness includes business-oriented hotels, non-anchored retail space, and metro office space. As of March 31, 2024, business-oriented hotels loans included 14 loans with a total outstanding balance of $122.0 million, non-anchored retail space loans included 28 loans with a total outstanding balance of $44.6 million, and metro office space loans included one loan with a total outstanding balance of $5.1 million. There is one business-oriented hotel credit with a carrying value of $1.8 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 increased $194.3 million, or 3.4%, to $5.86 billion at March 31, 2024, from $5.67 billion at December 31, 2023. The linked-quarter increase primarily reflects an increase in cash and cash equivalents.

Available-for-sale securities were $291.0 million and $290.2 million at March 31, 2024 and December 31, 2023, respectively. The unrealized loss on securities available for sale increased to $66.9 million as of March 31, 2024, as compared to $62.0 million of unrealized losses as of December 31, 2023. Securities held to maturity were flat at $19.7 million, or 0.3% of total assets, at March 31, 2024.

Loans increased $26.4 million, or 0.6%, to $4.78 billion at March 31, 2024, from $4.75 billion at December 31, 2023. The linked-quarter increase was primarily due to increases in commercial construction loans of $26.4 million, commercial real estate loans of $12.0 million, and commercial and industrial loans of $4.8 million, partially offset by decreases in residential mortgage loans of $14.0 million and consumer loans of $2.7 million.

Total deposits were $4.39 billion at March 31, 2024 and December 31, 2023. Compared to the prior quarter, non-certificate accounts decreased $43.5 million and term certificate accounts decreased $11.1 million, as a competitive rate environment continued to pressure deposit growth. Brokered deposits increased $61.3 million. As of March 31, 2024, FDIC-insured deposits were approximately 73% of total deposits, including Bank subsidiary deposits.

FHLB borrowings increased $10.9 million to $579.4 million at March 31, 2024 from $568.5 million at December 31, 2023. The Bank borrowed $175.0 million under the Bank Term Funding Program during the first quarter of 2024. As of March 31, 2024, the Bank had $921.1 million in available borrowing capacity across multiple relationships.

Total stockholders' equity was $577.7 million at March 31, 2024, compared to $583.8 million at December 31, 2023. Stockholders' equity decreased 1.0% when compared to the prior quarter, as net income was offset by share repurchases and an increase in unrealized loss on available-for-sale securities. As of March 31, 2024, the Company's sixth share repurchase program, commenced in the third quarter of 2023, is ongoing with 1,781,950 shares repurchased since commencement, at an average price of $10.15, including $0.10 per share of excise tax. The tangible-common-equity-to-tangible-assets ratio⁽²⁾ was 8.92% at March 31, 2024, 9.33% at December 31, 2023, and 9.60% at March 31, 2023. At March 31, 2024, the Company and the Bank had strong capital positions, exceeding all regulatory capital requirements, and are considered well-capitalized.

⁽¹⁾ These non-GAAP measures are net loss less goodwill impairment and net loss less goodwill impairment to weighted average shares outstanding on a diluted basis.

⁽²⁾ This non-GAAP ratio is total stockholders' equity less goodwill and intangible assets to total assets less goodwill and intangible assets.

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.

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 interest rates; changes in customer behavior; ongoing turbulence in the capital and debt markets and the impact of such conditions on the Company's business activities; 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 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 income statement results excluding the goodwill impairment charge, total adjusted noninterest expense excluding the goodwill impairment charge, diluted earnings per share excluding the goodwill impairment charge, Return on average assets (ROAA), excluding the goodwill impairment charge, Return on average equity (ROAE), excluding goodwill impairment charge, the efficiency ratio, efficiency ratio excluding the goodwill impairment charge, 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.