BROCKTON, Mass.–(BUSINESS WIRE)–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.
HarborOne Bancorp, Inc.
Consolidated Balance Sheet Trend
(Unaudited)
September 30,
June 30,
March 31,
December 31,
September 30,
(in thousands)
2023
2023
2023
2022
2022
Assets
Cash and due from banks
$
38,573
$
43,525
$
38,989
$
39,712
$
39,910
Short-term investments
208,211
209,326
210,765
58,305
46,044
Total cash and cash equivalents
246,784
252,851
249,754
98,017
85,954
Securities available for sale, at fair value
271,078
292,012
303,059
301,149
304,852
Securities held to maturity, at amortized cost
19,795
19,839
19,838
19,949
15,000
Federal Home Loan Bank stock, at cost
23,378
27,123
23,589
20,071
15,973
Asset held for sale
966
966
—
—
—
Loans held for sale, at fair value
17,796
20,949
13,956
18,544
18,805
Loans:
Commercial real estate
2,349,886
2,286,688
2,286,727
2,250,344
2,041,905
Commercial construction
191,224
228,902
212,689
199,311
185,062
Commercial and industrial
450,547
453,422
423,036
424,275
397,112
Total commercial loans
2,991,657
2,969,012
2,922,452
2,873,930
2,624,079
Residential real estate
1,706,950
1,701,766
1,667,934
1,634,319
1,520,809
Consumer
24,247
27,425
32,246
41,421
52,466
Loans
4,722,854
4,698,203
4,622,632
4,549,670
4,197,354
Less: Allowance for credit losses on loans
(48,312)
(47,821)
(46,994)
(45,236)
(44,621)
Net loans
4,674,542
4,650,382
4,575,638
4,504,434
4,152,733
Mortgage servicing rights, at fair value
49,201
48,176
47,080
48,138
49,861
Goodwill
69,802
69,802
69,802
69,802
69,802
Other intangible assets
1,704
1,893
2,082
2,272
2,461
Other assets
289,341
275,261
268,060
277,169
272,202
Total assets
$
5,664,387
$
5,659,254
$
5,572,858
$
5,359,545
$
4,987,643
Liabilities and Stockholders’ Equity
Deposits:
Demand deposit accounts
$
708,847
$
717,572
$
726,548
$
762,576
$
795,945
NOW accounts
289,141
286,956
287,376
297,692
308,191
Regular savings and club accounts
1,324,635
1,390,906
1,455,318
1,468,172
1,289,825
Money market deposit accounts
951,128
834,120
796,008
861,704
889,517
Term certificate accounts
859,266
742,931
653,553
497,975
484,936
Brokered deposits
276,941
315,003
322,927
301,380
114,696
Total deposits
4,409,958
4,287,488
4,241,730
4,189,499
3,883,110
FHLB borrowings
475,470
604,568
590,665
400,675
345,684
Subordinated debt
34,380
34,348
34,317
34,285
34,254
Other liabilities and accrued expenses
159,945
137,318
106,352
118,110
113,225
Total liabilities
5,079,753
5,063,722
4,973,064
4,742,569
4,376,273
Common stock
597
597
597
596
593
Additional paid-in capital
485,144
484,544
483,831
483,031
480,617
Unearned compensation – ESOP
(26,245)
(26,704)
(27,164)
(27,623)
(28,083)
Retained earnings
369,930
364,709
360,454
356,438
350,049
Treasury stock
(187,803)
(181,324)
(175,514)
(148,384)
(143,125)
Accumulated other comprehensive loss
(56,989)
(46,290)
(42,410)
(47,082)
(48,681)
Total stockholders’ equity
584,634
595,532
599,794
616,976
611,370
Total liabilities and stockholders’ equity
$
5,664,387
$
5,659,254
$
5,572,858
$
5,359,545
$
4,987,643
HarborOne Bancorp, Inc.
Consolidated Statements of Net Income – Trend
(Unaudited)
Quarters Ended
September 30,
June 30,
March 31,
December 31,
September 30,
(in thousands, except share data)
2023
2023
2023
2022
2022
Interest and dividend income:
Interest and fees on loans
$
58,124
$
55,504
$
52,771
$
49,177
$
42,065
Interest on loans held for sale
370
326
286
334
377
Interest on securities
2,003
2,035
2,079
2,045
1,971
Other interest and dividend income
2,667
2,935
803
359
143
Total interest and dividend income
63,164
60,800
55,939
51,915
44,556
Interest expense:
Interest on deposits
25,039
20,062
15,913
8,499
3,491
Interest on FHLB and FRB borrowings
6,439
8,114
5,105
3,703
1,209
Interest on subordinated debentures
606
524
523
524
524
Total interest expense
32,084
28,700
21,541
12,726
5,224
Net interest and dividend income
31,080
32,100
34,398
39,189
39,332
Provision (benefit) for credit losses
(113)
3,283
1,866
2,108
668
Net interest and dividend income, after provision for credit losses
31,193
28,817
32,532
37,081
38,664
Noninterest income:
Mortgage banking income:
Gain on sale of mortgage loans
2,704
3,300
2,224
2,301
3,809
Changes in mortgage servicing rights fair value
125
436
(1,692)
(2,631)
1,816
Other
2,270
2,312
2,216
2,325
2,453
Total mortgage banking income
5,099
6,048
2,748
1,995
8,078
Deposit account fees
5,133
5,012
4,733
5,031
4,870
Income on retirement plan annuities
146
128
119
118
119
Bank-owned life insurance income
531
511
500
501
503
Other income
689
963
590
2,255
675
Total noninterest income
11,598
12,662
8,690
9,900
14,245
Noninterest expenses:
Compensation and benefits
18,699
18,220
17,799
20,104
20,991
Occupancy and equipment
4,430
4,633
5,040
4,935
4,829
Data processing
2,548
2,403
2,346
2,359
2,311
Loan expense
385
417
313
169
355
Marketing
794
925
1,181
862
850
Professional fees
1,374
1,114
1,501
1,446
1,457
Deposit insurance
1,004
1,176
510
385
357
Other expenses
2,638
2,837
2,819
4,384
3,323
Total noninterest expenses
31,872
31,725
31,509
34,644
34,473
Income before income taxes
10,919
9,754
9,713
12,337
18,436
Income tax provision
2,507
2,275
2,416
2,760
4,678
Net income
$
8,412
$
7,479
$
7,297
$
9,577
$
13,758
Earnings per common share:
Basic
$
0.20
$
0.17
$
0.16
$
0.21
$
0.30
Diluted
$
0.20
$
0.17
$
0.16
$
0.21
$
0.30
Weighted average shares outstanding:
Basic
42,876,893
43,063,507
44,857,224
45,321,491
45,830,737
Diluted
42,983,477
43,133,455
45,284,240
45,861,658
46,420,527
Contacts
Joseph F. Casey, President and Chief Executive Officer
(508) 895-1312
jcasey@harborone.com