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 $0.16 per diluted share, for the first quarter of 2023, compared to net income of $9.6 million, or $0.21 per diluted share, for the preceding quarter and net income of $12.3 million, or $0.25 per diluted share, for the same period last year.

Selected Financial Highlights:

• Recent Company-wide cost savings measures and organizational efficiencies will provide approximately $4.1 million in annual cost savings; a branch closure and a branch relocation will provide additional long-term expense savings.
• Returned $3.3 million of capital to shareholders via dividends and increased quarterly dividend by 7%.
• Continued share repurchase program returning $26.8 million to shareholders, representing 2.0 million shares.
• Disciplined underwriting continues to provide strong credit quality, with nonperforming loans to total loans of 0.27% compared to 0.32% on a linked-quarter basis.
• Loan growth of $73.0 million, or 1.6%, and deposit growth of $52.2 million, or 1.2%, on a linked-quarter basis.

“While significant challenges presented themselves in Q1, I have tremendous confidence in our ability to manage through the current environment. Our excellent credit quality, strong capital position, and deposit growth provide the foundation for that confidence,” said Joseph F. Casey, President and CEO. “Our team remains highly focused on ensuring stability in our deposit base. The Company has been proactive in reducing expenses at both HarborOne Mortgage and the Bank and will continue to look for additional opportunities. Our resilience and strategic discipline position us well to drive long-term value for our shareholders.”

Net Interest Income

The Company’s net interest and dividend income was $34.4 million for the quarter ended March 31, 2023, compared to $39.2 million for the quarter ended December 31, 2022, and $33.3 million for the quarter ended March 31, 2022. The tax equivalent interest rate spread and net interest margin were 2.28% and 2.78%, respectively, for the quarter ended March 31, 2023, compared to 2.88% and 3.23%, respectively, for the quarter ended December 31, 2022, and 3.12% and 3.21%, respectively, for the quarter ended March 31, 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 an increase in interest-bearing liabilities, with higher cost of funding, partially offset by increased loan balances and yields with liability repricing outpacing assets. The cost of funds was 188 basis points for the quarter ended March 31, 2023, compared to 114 basis points for the preceding quarter.

The $1.1 million increase in net interest and dividend income from the prior year quarter reflects an increase of $20.3 million, or 57.1%, in total interest and dividend income and an increase of $19.2 million, or 823.7%, in total interest expense. The changes reflect rate and volume changes in both interest-bearing assets and liabilities. The yield on interest-earning assets increased 108 basis points, while the average balance increased $849.7 million, and the cost of interest-bearing liabilities increased 192 basis points, while the average balance increased $887.5 million.

Noninterest Income

Total noninterest income decreased $1.2 million, or 12.2%, to $8.7 million for the quarter ended March 31, 2023, from $9.9 million for the quarter ended December 31, 2022. Mortgage loan closings for the quarter ended March 31, 2023 were $125.6 million with a gain on loan sales of $2.2 million, compared to $222.4 million in mortgage closings and $2.3 million in gain on sales for the preceding quarter as higher gain-on-sale margins help offset the seasonal loss in production volume. Deposit account fees were $4.7 million for the quarter ended March 31, 2023, compared to $5.0 million for the quarter ended December 31, 2022. Other income for the quarter ended March 31, 2023 decreased $1.7 million, primarily reflecting a $1.1 million decrease in swap fee income.

The decrease in the fair value of mortgage servicing rights for the three months ended March 31, 2023 was $1.3 million, as compared to a decrease of $2.1 million in the fair value of mortgage servicing rights for the three months ended December 31, 2022. The valuation was negatively impacted by key benchmark mortgage rates used in the valuation. The impact of principal payments on the underlying mortgages on the mortgage servicing rights was $371,000 and $570,000 for the quarters ended March 31, 2023 and December 31, 2022, respectively.

Total noninterest income decreased $10.4 million, or 54.4%, compared to the quarter ended March 31, 2022, primarily due to a $10.4 million, or 79.1%, decrease in mortgage banking income, driven by the decrease in loan demand as a result of interest rate increases. The prior year quarter also reflected a $6.1 million increase in the fair value of mortgage servicing rights.

Noninterest Expense

Total noninterest expenses were $31.5 million for the quarter ended March 31, 2023, a decrease of $3.1 million, or 9.0%, from the quarter ended December 31, 2022. Compensation and benefits decreased $2.3 million primarily reflecting decreased mortgage origination commission and incentive accruals. Other expenses decreased $1.6 million, or 35.7% for the quarter ended March 31 2023, primarily as a result of a legal settlement accrued for in the fourth quarter of 2022.

Total noninterest expenses decreased $3.3 million, or 9.5%, from the quarter ended March 31, 2022. Compensation and benefits decreased $2.9 million primarily reflecting decreased mortgage origination commission and incentive accruals.

During the quarter, management evaluated potential cost saving measures across the Company. This resulted in a reduction in force at HarborOne Mortgage, LLC (“HarborOne Mortgage”) during the first quarter with an expected annual cost savings of $1.2 million and recognized severance expense of $249,000. During the second quarter of 2023 the Bank took further cost savings measures and organizational efficiencies with an estimated annual savings of $2.9 million and will recognize severance expense of $452,000. Additionally, the Bank sought and obtained regulatory approval in 2023 to close one branch and relocate another branch that will both provide additional long-term expense savings.

Income Tax Provision

The effective tax rate for the quarter ended March 31, 2023 was 24.9% compared to 22.4% for the quarter ended December 31, 2022. The 2022 effective tax rate was impacted by a tax benefit recorded for Industrial Revenue Bonds and a reserve release upon the expiration of the statute of limitations.

Asset Quality and Allowance for Credit Losses

Disciplined underwriting and active loan management continues to result in strong credit quality performance. Total nonperforming assets improved to $12.3 million at March 31, 2023, compared to $14.8 million at December 31, 2022 and $26.1 million at March 31, 2022. Nonperforming assets as a percentage of total assets were 0.22% at March 31, 2023, 0.28% at December 31, 2022, and 0.57% at March 31, 2022. During 2022, two large commercial credits were resolved, reducing nonperforming assets significantly.

The provision for funded loan credit losses for the quarter ended March 31, 2023 was $1.7 million and reflects provisioning for loan growth and increased economic uncertainty. Net recoveries totaled $11,000 for the quarter ended March 31, 2023. Net charge-offs totaled $2.1 million, or 0.19% of average loans outstanding on an annualized basis, for the quarter ended December 31, 2022, and net charge-offs totaled $2.7 million, or 0.30% of average loans outstanding on an annualized basis, for the quarter ended March 31, 2022.

The allowance for credit losses (“ACL”) was $47.0 million, or 1.02% of total loans, at March 31, 2023, compared to $45.2 million, or 0.99% of total loans, at December 31, 2022 and $41.8 million, or 1.12% of total loans, at March 31, 2022. The ACL on unfunded commitments, included in other liabilities on the unaudited Consolidated Balance Sheets, amounted to $5.0 million at March 31, 2023 as compared to $4.9 million at December 31, 2022 and $3.8 million at March 31, 2022.

We believe that we are well positioned to withstand any downturn in the credit cycle should one materialize. We continue to closely monitor our loan portfolio for signs of deterioration. Management is focused on commercial real estate in light of speculation that commercial real estate values may deteriorate as the market adjusts to higher vacancies and rates. Our commercial real estate portfolio is centered in New England with approximately 75% in Massachusetts and Rhode Island. Approximately 60% of commercial real estate loans are fixed-rate loans with limited near-term maturity risk.

Management has also identified 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 March 31, 2023, business-oriented hotels loans included 12 loans with a total outstanding balance of $85.3 million, non-anchored retail space loans included 28 loans with a total outstanding balance of $40.2 million, and metro office space loans included two loans with a total outstanding balance of $14.8 million. As of March 31, 2023, there was one business-oriented hotel credit with a carrying value of $1.9 million that was rated substandard and on nonaccrual. This credit was provided a principal deferral in the third quarter of 2022. The other loans in these groups were performing in accordance with their terms.

Balance Sheet

Total assets increased $213.3 million, or 4.0%, to $5.57 billion at March 31, 2023, from $5.36 billion at December 31, 2022. The increase primarily reflects an increase of $152.5 million in short-term investments and a $73.0 million increase in loans. The increase in short-term investments reflects management’s pro-active liquidity-enhancing measures in response to financial industry concerns.

Available for sale securities were $303.1 million and $301.1 million at March 31, 2023 and December 31, 2022, respectively. The unrealized loss on securities available for sale decreased to $61.2 million as of March 31, 2023, as compared to $68.3 million of unrealized losses as of December 31, 2022. Securities held to maturity were $19.8 million, or 0.4% of total assets, with a fair value of $19.3 million.

Loans increased $73.0 million, or 1.6%, to $4.62 billion at March 31, 2023, from $4.55 billion at December 31, 2022. The increase in loans for the three months ended March 31, 2023 was primarily due to increases in commercial real estate loans of $36.4 million, commercial construction loans of $13.4 million, and residential real estate loans of $33.6 million, partially offset by decreases in commercial and industrial loans of $1.2 million and consumer loans of $9.2 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 $4.24 billion at March 31, 2023 and $4.19 billion at December 31, 2022. Compared to the prior quarter, non-certificate accounts decreased $124.9 million, term certificate accounts increased $155.6 million, and brokered deposits increased $21.5 million. As of March 31, 2023, FDIC-insured deposits exceeded 70% of total deposits. Including Depositors Insurance Fund (“DIF”) excess insurance coverage that remains available until February 24, 2024, insured deposits are approximately 100% of total deposits. The Bank exited the DIF as of February 24, 2023; however, insurance remains in place for funds on deposit as of that date for one year or until maturity for term certificates, if that is a later date.

FHLB borrowings increased $190.0 million to $590.7 million at March 31, 2023 from $400.7 million at December 31, 2022. At March 31, 2023, FHLB borrowings were primarily short-term borrowings as the Bank utilized available credit to enhance liquidity. As of March 31, 2023, the Bank had $677.6 million in available borrowing capacity across multiple relationships.

Total stockholders’ equity was $599.8 million at March 31, 2023, compared to $617.0 million at December 31, 2022 and $649.1 million at March 31, 2022. Stockholders’ equity decreased 2.8% when compared to the prior quarter, as earnings were offset by share repurchases. The Company repurchased 2,033,192 shares at an average price of $13.19, including $0.13 per share of excise tax, during the three months ended March 31, 2023. A share repurchase program that commenced in the first quarter of 2023 is expected to be completed in the second quarter of 2023. Due to recent market volatility and increased economic uncertainty, share repurchase activity is expected to be reduced in the second quarter of 2023 compared to recent prior quarters. The tangible-common-equity-to-tangible-assets ratio was 9.60% at March 31, 2023, 10.31% at December 31, 2022, and 12.75% at March 31, 2022. At March 31, 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 31 full-service branches located in Massachusetts and Rhode Island, and a commercial lending office in each of Boston, Massachusetts and Providence, Rhode Island. HarborOne Bank also provides a range of educational services through “HarborOne U,” with classes on small business, financial literacy and personal enrichment at two campuses located adjacent to our Brockton and Mansfield locations. HarborOne Mortgage, LLC, a subsidiary of HarborOne Bank, is a full-service mortgage lender with 24 offices in Maine, Massachusetts, New Jersey, Rhode Island, and New Hampshire, and is licensed to lend in six additional 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 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.