HarborOne Bancorp, Inc. (the “Company” or “HarborOne”) (NASDAQ: HONE), the holding company for HarborOne Bank (the “Bank”), announced net income of $3.9 million, or $0.10 per diluted share, for the third quarter of 2024, compared to a net income of $7.3 million, or $0.18 per diluted share for the preceding quarter, and net income of $8.4 million, or $0.20 per diluted share for the same period last year. Net income for the nine months ended September 30, 2024 was $18.5 million, or $0.45 per diluted share, compared to $23.2 million, or $0.53 per diluted share for the same period in 2023. The third quarter of 2024 includes a credit loss provision of $5.9 million, primarily as a result of a suburban office commercial real estate credit.

Selected Quarterly Financial Highlights:

• Loan growth of $40.3 million, or 3.3% annualized.
• Client deposit growth of $89.5 million, or 8.8% annualized.
• Net interest margin improvement to 2.33% from 2.29% on a linked-quarter basis.
• Share repurchases of 347,670 at an average cost of $12.23 per share.

“I am pleased to see continued margin expansion coupled with an almost $90 million increase in client deposits. Our balance sheet is positioned for margin improvement from declining cost of funds enabled by lower market interest rates,” said Joseph F. Casey, President and CEO.

Net Interest Income

Net interest and dividend income was $31.9 million for the quarter ended September 30, 2024, compared to $31.4 million for the quarter ended June 30, 2024, and $31.1 million for the quarter ended September 30, 2023. Net interest margin was 2.33% for the quarter ended September 30, 2024, compared to 2.29% for the quarter ended June 30, 2024, and 2.32% for the quarter ended September 30, 2023.

On a linked-quarter basis, the increase in net interest income and net interest margin primarily reflects the utilization of excess cash to pay down higher-cost borrowings. Also impacting margin, the yield on loans increased 7 basis points and the average balance increased $54.9 million, while the cost of deposits, excluding brokered, increased 13 basis points and the average balance of deposits excluding brokered increased $82.0 million. Average checking account balances increased $18.7 million and average certificates of deposits increased $97.3 million on a linked-quarter basis.

The $813,000 increase in net interest and dividend income from the prior year quarter reflects an increase of $5.9 million, or 9.3%, in total interest and dividend income, partially offset by an increase of $5.1 million, or 15.8%, in total interest expense. The total cost of funding liabilities increased 32 basis points, while the average balance increased $161.2 million, and the yield on interest-earning assets increased 33 basis points, while the average balance increased $139.8 million.

Noninterest Income

Total noninterest income decreased $1.4 million, or 11.3%, to $10.6 million for the quarter ended September 30, 2024, from $11.9 million for the quarter ended June 30, 2024. HarborOne Mortgage, LLC (“HarborOne Mortgage”) realized a $3.8 million gain on loan sales from mortgage closings of $209.5 million for the quarter ended September 30, 2024, compared to $3.1 million from mortgage loan closings of $173.0 million on a linked-quarter basis. Mortgage loan closings for the quarter ended September 30, 2023 were $157.6 million with a gain on loan sales of $2.7 million. Despite a drop in mortgage rates, the rate-locked pipeline was down $8.7 million on a linked-quarter basis as for-sale inventory continues to constrain loan demand.

The mortgage servicing rights (“MSR”) valuation declined $2.6 million for the three months ended September 30, 2024, compared to a decrease of $1.1 million in the MSR valuation for the three months ended June 30, 2024, as key benchmark interest rates used in the valuation model decreased from the prior quarter. The impact on the MSR valuation of principal payments on the underlying mortgages was $690,000 and $545,000 for the quarters ended September 30, 2024 and June 30, 2024, respectively. During the first quarter of 2024, HarborOne Mortgage executed an economic hedge to partially mitigate potential MSR valuation losses in a declining rate environment. For the three months ended September 30, 2024 the hedging gain was $845,000, compared to a $280,000 hedging loss for the three months ended June 30, 2024.

The prior quarter noninterest income included a $1.8 million gain on the sale-leaseback of a banking center in downtown Brockton and a $1.0 million loss on the sale of $17.5 million of available-for-sale securities, and no such items occurred in the quarter ended September 30, 2024.

Total noninterest income decreased $1.0 million, or 8.9%, compared to the quarter ended September 30, 2023, primarily due to a $1.6 million, or 31.3%, decrease in mortgage banking income as the $1.0 million improvement on the gain on sale of mortgage loans was offset by the loss on the MSR valuation. The prior year quarter reflected a $125,000 increase in the MSR valuation. The decrease in mortgage banking income was partially offset by improved earnings on the bank-owned life insurance and an increase in deposit account fees.

Noninterest Expense

Total noninterest expense decreased $876,000 or 2.6%, to $32.3 million for the quarter ended September 30, 2024, from $33.1 million for the quarter ended June 30, 2024. The primary driver was a $819,000 decrease in marketing expense. In the prior quarter, marketing expense included a $675,000 contribution for the bargain purchase price on the sale-leaseback noted above. Compensation and benefits expenses decreased $425,000 due to accrual adjustments for 2024 management incentives partially offset by increased commission on mortgage originations.

Total noninterest expense increased $396,000, or 1.2%, compared to the prior year quarter of $31.9 million. The primary driver was a $414,000 increase in other expenses due to an increase in cloud computing expenses and deposit expenses.

Provision for Income Taxes

The effective tax rate for the three and nine months ended September 30, 2024 was 8.53% and 21.3%. The effective tax rate for the three months ended June 30, 2024 was 23.28%. The decrease on a linked quarter basis reflects a discrete tax benefit as a result of the filing of amended tax returns to properly reflect tax exempt interest.

Asset Quality and Allowance for Credit Losses

Total nonperforming assets were $28.4 million at September 30, 2024, compared to $9.8 million at June 30, 2024 and $18.8 million at September 30, 2023. Nonperforming assets as a percentage of total assets were 0.49% at September 30, 2024, 0.17% at June 30, 2024, and 0.33% at September 30, 2023. The third quarter 2024 increase is primarily a result of a single, $17.2 million credit, collateralized by suburban office space, that required a $4.7 million specific reserve allocation and is on nonaccrual status.

The Company recorded a $5.9 million provision for credit losses for the quarter ended September 30, 2024. The provision for loan credit losses was $5.0 million, and the provision for unfunded commitments was $855,000. The provision for loan credit losses was primarily due to the specific reserve allocation noted above and provisioning for commercial loan growth, partially offset by improved qualitative factor adjustments for residential real estate mortgages as consumer metrics considered in the model improved. For the quarter ended June 30, 2024, a provision for credit losses of $615,000 was recorded, a result of a provision for loan credit losses of $1.1 million partially offset by a $534,000 negative provision for unfunded commitments. The Company recorded a negative provision for credit losses of $113,000 for the quarter ended September 30, 2023. The ACL on loans was $54.0 million, or 1.11% of total loans, at September 30, 2024, compared to $49.1 million, or 1.02% of total loans, at June 30, 2024 and $48.3 million, or 1.02% of total loans, at September 30, 2023. The ACL on unfunded commitments, included in other liabilities on the unaudited Consolidated Balance Sheets, amounted to $3.7 million at September 30, 2024, compared to $2.9 million at June 30, 2024 and $4.2 million at September 30, 2023.

Net charge-offs totaled $182,000, or 0.02%, of average loans outstanding on an annualized basis, for the quarter ended September 30, 2024, $195,000, or 0.02% of average loans outstanding on an annualized basis, for the quarter ended June 30, 2024, and net recoveries of $18,000 for the quarter ended September 30, 2023.

As of September 30, 2024 and June 30, 2024, classified commercial loans amounted to $57.5 million and $1.7 million, respectively. The increase in classified loans on a linked quarter basis includes an increase of $48.0 million in commercial real estate loans, primarily from three credits included in the office sector that totaled to $37.0 million with a $5.2 million specific reserve allocation. Management continues to perform comprehensive reviews and works proactively with creditworthy borrowers facing financial stress to implement prudent accommodations to improve the Bank’s prospects of contractual repayment.

Balance Sheet

Total assets decreased $11.1 million, or 0.2%, to $5.78 billion at September 30, 2024, from $5.79 billion at June 30, 2024. The linked-quarter decrease primarily reflects a decrease in cash and cash equivalents and other assets, partially offset by loan growth.

Available-for-sale securities increased $7.7 million to $276.8 million at September 30, 2024 from $269.1 million at June 30, 2024. The unrealized loss on securities available for sale decreased to $52.2 million as of September 30, 2024, as compared to $65.3 million of unrealized losses as of June 30, 2024. Securities held to maturity were $19.6 million at September 30, 2024.

Loans increased $40.3 million, or 0.8%, to $4.88 billion at September 30, 2024, from $4.84 billion at June 30, 2024. The linked-quarter increase was primarily due to increases in commercial and industrial loans of $50.9 million, commercial construction loans of $36.5 million, and $13.2 million of residential mortgage loans, partially offset by a decrease of $59.7 million in commercial real estate loans.

Total deposits increased $77.9 million to $4.54 billion at September 30, 2024 from $4.46 billion at June 30, 2024. Compared to the prior quarter, non-certificate accounts increased $11.1 million and term certificate accounts increased $78.4 million, as a competitive rate environment continued to pressure deposit mix and rates. Brokered deposits decreased $11.6 million. As of September 30, 2024, FDIC-insured deposits were approximately 74% of total deposits, including Bank subsidiary deposits.

Borrowed funds decreased $80.0 million to $539.4 million at September 30, 2024 from $619.4 million at June 30, 2024, as excess liquidity was used to paydown high rate borrowings. As of September 30, 2024, the Bank had $1.27 billion in available borrowing capacity across multiple relationships.

Total stockholders’ equity was $584.2 million at September 30, 2024, compared to $577.3 million at June 30, 2024. Stockholders’ equity increased 1.2% when compared to the prior quarter, as unrealized losses on available-for-sale securities decreased and net income was offset by share repurchases and dividends. The Company continues to implement and execute share repurchase programs, repurchasing 1,501,523 shares at an average price of $10.76, including $0.10 per share of excise tax, during the nine months ended September 30, 2024. The tangible-common-equity-to-tangible-assets ratio⁽¹⁾ was 9.17% at September 30, 2024, 9.03% at June 30, 2024, and 9.17% at September 30, 2023. At September 30, 2024, the Company and the Bank had strong capital positions, exceeding 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.

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; 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 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, are 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.