HarborOne Bancorp, Inc. Announces 2020 Third Quarter Earnings

·28-min read

HarborOne Bancorp, Inc. (the "Company" or "HarborOne") (NASDAQ: HONE), the holding company for HarborOne Bank (the "Bank"), announced net income of $11.9 million, or $0.22 per basic and diluted share, for the third quarter of 2020, compared to $10.6 million, or $0.19 per basic and diluted share, for the preceding quarter and $7.1 million, or $0.13 per basic and diluted share, for the same period last year. For the nine months ended September 30, 2020, net income was $27.2 million, or $0.50 per basic and diluted share, compared to $14.0 million, or $0.25 per basic and diluted share, for the same period last year. The three and nine months ended September 30, 2020 reflect charges of $10.7 million and $17.9 million, respectively, to the provision for loan losses and $71,000 and $1.8 million, respectively, to non-interest expense related to the COVID-19 pandemic.

Selected Third Quarter Financial Highlights:

  • Net income tops $11.8 million, while building the allowance for loan loss to 1.40% of loans

  • Return on average assets was 1.09% and return on average equity was 6.90%

  • Net interest margin expands 9 basis points to 3.09%

  • Historic levels of residential real estate mortgage originations resulting in mortgage banking income of $38.1 million

  • Commercial loan growth of $104.3 million, or 5.3%

  • Cost of funds continue to decline with marked improvement in deposit mix

  • Adopted and received regulatory approval for a share repurchase program

"We’re extremely proud to announce the best quarterly financial performance in our history," said James Blake, CEO. "The responsiveness and extraordinary commitment of the entire team to remain ‘open for business’ despite the extreme challenges is something we’re particularly proud of. The outstanding performance of HarborOne Mortgage, continued commercial loan growth, and expanded margins are a result of that commitment." Added Joe Casey, President and COO: "We remain focused on keeping customers and staff safe and healthy, which has quickly become a fundamental aspect of running the business. Through it all, we’re really excited about our newest branch opening in Quincy, Massachusetts on October 19, and we’re full steam ahead to open our new South Boston location in Q1’21."

Net Interest Income
The Company’s net interest and dividend income was $31.2 million for the quarter ended September 30, 2020, up $1.7 million, or 5.8%, from $29.4 million for the quarter ended June 30, 2020 and up $3.2 million, or 11.4%, from $28.0 million for the quarter ended September 30, 2019. The tax equivalent interest rate spread and net interest margin were 2.87% and 3.09%, respectively, for the quarter ended September 30, 2020, compared to 2.75% and 3.00%, respectively, for the quarter ended June 30, 2020, and 2.73% and 3.11%, respectively, for the quarter ended September 30, 2019. Margin improvement has largely been driven by the decrease in deposit rates. It is expected that interest rates will remain low and that the economic environment will continue to be volatile as the impact of the COVID-19 pandemic is realized.

The components of the quarter over quarter increase in net interest and dividend income reflected a decrease of $1.3 million, or 18.1%, in total interest expense and an increase of $427,000, or 1.2%, in total interest and dividend income. The decrease in total interest expense primarily reflected a decrease in interest rates, resulting in a 23 basis point decrease in the cost of interest-bearing deposits. The mix of deposits continues to shift as customers move to more liquid options. The average balance of certificates of deposit accounts decreased quarter over quarter by $46.8 million, while the savings account average balance increased $55.2 million from the preceding quarter. Average FHLB advances decreased $108.9 million as the need for short-term borrowed funds diminished, and the cost of borrowed funds increased 90 basis points, resulting in a decrease of $10,000 in interest expense on FHLB borrowings. An interest rate swap agreement with a notional amount of $100.0 million, designated as a cash flow hedge of certain LIBOR-based liabilities, provided a $94,000 gain that was offset against brokered deposits for the quarter ended September 30, 2020 and a $149,000 gain that was offset against FHLB interest expense for the preceding quarter. The increase in total interest and dividend income primarily reflected an increase of $66.3 million in average earning assets offset by a decrease in rates. The yield on loans was 3.94% for the quarter ended September 30, 2020, down from 4.06% for the quarter ended June 30, 2020. As adjustable rate loans repriced and new loans came on at lower rates, the yield on commercial loans decreased 15 basis points and the yield on residential real estate loans decreased 8 basis points. Interest on loans in the third quarter included $1.6 million in accretion income from the fair value discount on loans acquired from Coastway Bancorp, Inc. ("Coastway") and $140,000 in prepayment penalties on commercial loans. Accretion income and prepayment penalties in the previous quarter were $1.3 million and $18,000, respectively. The increase in accretion income reflects increased loan payoffs due to low mortgage loan rates.

The increase in net interest and dividend income from the prior year quarter reflected a decrease of $5.9 million, or 49.9%, in total interest expense, partially offset by a $2.7 million, or 6.8%, decrease in total interest and dividend income. The decreases reflect offsetting rate and volume changes in both interest-bearing assets and liabilities. The cost of interest-bearing liabilities decreased 89 basis points while the average balance increased $170.6 million. The yield on interest-earning assets decreased 75 basis points while the average balance increased $447.5 million

Noninterest Income
Total noninterest income increased $5.9 million, or 15.1%, to $44.5 million for the quarter ended September 30, 2020, from $38.6 million for the quarter ended June 30, 2020. Record breaking mortgage demand spurred by low mortgage rates continued to provide higher than usual mortgage origination activity and other mortgage banking income for HarborOne Mortgage, LLC. The $789.1 million in mortgage loan closings resulted in a gain on loan sales of $34.1 million for the quarter ended September 30, 2020 as compared to $30.9 million for the preceding quarter. Other mortgage banking income increased $171,000. Residential mortgage loan payoffs resulted in accelerated amortization of mortgage servicing rights in the amount of $1.1 million for the three months ended September 30, 2020 unchanged from June 30, 2020. The 10-year Treasury Constant Maturity rate increased 3 basis points in the third quarter of 2020, resulting in an $890,000 increase in fair value of mortgage servicing rights, and has remained fairly flat since its first quarter 122 basis point drop from year-end 2019. The fair value of the mortgage servicing rights decreased $2.9 million for the nine months ended September 30, 2020. The low mortgage interest rate environment spurred increased purchase and refinance activity in the first nine months of the year, continuing into the fourth quarter of 2020 with a locked residential mortgage pipeline at September 30, 2020 of $623.6 million; however, seasonality, economic uncertainty and increased unemployment rates may have a negative impact on mortgage loan originations in the future. Other income for the quarter ended September 30, 2020 includes $1.6 million in income from the sale of VISA B shares held in the investment portfolio and was partially offset by a $612,000 decrease in swap fee income as compared to the preceding quarter.

Total noninterest income increased $27.2 million, or 157.4%, as compared to the quarter ended September 30, 2019, primarily due to a $26.6 million, or 231.5%, increase in mortgage banking income. Mortgage banking income increased compared to the same period last year, due to the increase in mortgage origination volume. Mortgage originations increased primarily as a result of lower residential mortgage interest rates and increased refinancing volume. The income from the sale of the VISA B shares noted above was offset by a $739,000 decrease in swap fee income as compared to the quarter ended September 30, 2019. Bank-owned life insurance income increased $304,000 due to a $41.4 million increase in bank-owned life insurance from September 30, 2019 to September 30, 2020.

Noninterest Expense
Total noninterest expenses were $45.7 million for the quarter ended September 30, 2020, an increase of $1.9 million, or 4.3%, from the quarter ended June 30, 2020, primarily driven by a $2.4 million increase in compensation and benefits, a $426,000 increase in loan expense, and a $429,000 increase in occupancy and equipment expenses. The increases were partially offset by a decrease of $914,000 in other expenses. The increase in compensation and benefits reflects timing of accruals for incentive programs and severance payments as a result of the staff realignment. The decrease in other expenses reflects a $1.3 million decrease in COVID-19 pandemic-related expenses. For the three months ended September 30, 2020, the expenses amounted to $71,000 compared to $1.4 million in the preceding quarter. Due to the uncertain nature of the COVID-19 pandemic, we may have elevated expenses in the future for personnel, cleaning and other initiatives to support our employees and customers.

Total noninterest expenses increased $9.5 million, or 26.3%, from the quarter ended September 30, 2019. Compensation and benefits increased $6.6 million, loan expenses increased $1.5 million professional fees increased $569,000, and deposit insurance expense increased $535,000. The increase in compensation and benefits and loan expense primarily reflected the increased volume of residential real estate mortgage originations. The increase in professional fees reflects fluctuations in services. The increase in deposit insurance as compared to the prior year reflects FDIC assessment credit awards that were recorded in the quarter ended September 30, 2019. No such awards have been recorded in 2020.

Income Tax Provision
The effective tax rate was 27.7% for the quarter ended September 30, 2020, compared to 25.8% for the quarter ended June 30, 2020 and 12.9% for the quarter ended September 30, 2019. The effective tax rate for the quarter ended September 30, 2019 included a 2015 federal tax refund of $1.3 million and a 2015 Massachusetts state tax refund of $39,700.

Provision for Loan Losses and Asset Quality
The Company recorded a provision for loan losses of $13.5 million for the quarter ended September 30, 2020, compared to $10.0 million for the quarter ended June 30, 2020 and $889,000 for the quarter ended September 30, 2019. The allowance for loan losses was $49.2 million, or 1.40%, of total loans at September 30, 2020, compared to $36.1 million, or 1.04%, of total loans at June 30, 2020 and $23.0 million, or 0.74%, of total loans at September 30, 2019. Changes in the provision for loan losses are based on management’s assessment of loan portfolio growth and composition changes, historical charge-off trends, and ongoing evaluation of credit quality and current economic conditions.

The provision for loan losses for the quarter ended September 30, 2020 included adjustments for our quarterly analysis of our historical and peer loss experience rates, commercial real estate loan growth, and a $10.7 million provision directly related to the estimate of inherent losses resulting from the impact of the COVID-19 pandemic. The provision for loan losses for the quarter ended June 30, 2020 included adjustments for our quarterly analysis of our historical and peer loss experience rates, commercial real estate loan growth, and a $5.7 million provision directly related to the estimate of inherent losses resulting from the impact of the COVID-19 pandemic. The provision for loan losses for the quarter ended September 30, 2019 primarily reflected commercial real estate loan growth.

In estimating the provision for the COVID-19 pandemic, management considered economic factors, including unemployment rates and the interest rate environment, the volume and dollar amount of requests for payment deferrals, the loan risk profile of each loan type, and whether the loans were purchased. The additional provisions provided to each category for the three months ended September 30, 2020 ranged from 26 to 55 basis points and amounted to allocations of $2.5 million to the residential real estate portfolio, $7.0 million to the commercial portfolio, and $1.2 million to the consumer portfolio.

Management continues to evaluate our loan portfolio, particularly the commercial loan portfolio, in light of the expected decrease in economic activity, the mitigating effects of government stimulus, and loan modification efforts designed to limit the long term impacts of the COVID-19 pandemic. Our commercial loan portfolio is diversified across many sectors and is largely secured by commercial real estate loans, which make up 66.6% of the total commercial loan portfolio. Initial assessments of the impact of the COVID-19 pandemic on the commercial loan portfolio have been focused on sectors that have experienced a direct impact. Management has identified six sectors as the most susceptible to immediate increased credit risk: retail, office space, hotels, health and social services, restaurants, and recreation. The total loan portfolio of the six commercial sectors identified as at risk totaled $945.2 million, which represents 45.6% of the commercial loan portfolio. The at risk sectors include $707.6 million in commercial real estate loans, $185.9 million in commercial and industrial loans, and $51.7 million in commercial construction loans.

As of September 30, 2020, the retail sector was $261.7 million, or 12.6% of total commercial loans and included $217.8 million in commercial real estate loans, $31.8 million in commercial and industrial loans, and $12.1 million in commercial construction loans. U.S. Small Business Administration’s Paycheck Protection Program loans included in the sector totaled $6.9 million. We have provided deferrals for loans in this sector with outstanding principal balances of $46.1 million. We originated $16.3 million loans during the third quarter that are within the retail sector. The new loans are supported by leases to retail space largely insulated from the pandemic, such as drug stores and grocery stores.

As of September 30, 2020, the office sector was $214.0 million, or 10.3% of total commercial loans, and included $197.1 million in commercial real estate loans, $16.2 million in commercial and industrial loans, and $768,000 in commercial construction loans. We provided deferrals for loans in the sector with outstanding principal balances of $13.3 million. No Paycheck Protection Program loans were originated in this sector. We originated $619,000 loans during the third quarter that are within the office sector.

As of September 30, 2020, the hotel sector was $193.8 million, or 9.4% of total commercial loans, and included $171.0 million in commercial real estate loans, $2.7 million in commercial and industrial loans, and $20.1 million in commercial construction loans. Paycheck Protection Program loans included in the sector totaled $548,000. We have provided deferrals for loans in this sector with outstanding principal balances of $112.2 million, $61.3 million that have expired deferral periods and are paying as agreed, and $4.9 million that have expired deferral periods and are greater than 30 days delinquent. In addition, we have provided other short-term relief for loans in this sector with outstanding principal balances of $7.7 million. At September 30, 2020, nonperforming loans included in the hotel sector amount to $4.8 million. The increase from the second quarter reflects one loan that amounted to $1.4 million that is on nonaccrual and subsequently executed a deferral agreement.

The health and social services sector amounted to $188.0 million, or 9.1% of total commercial loans, as of September 30, 2020 and included $96.6 million in commercial real estate loans, $91.3 million in commercial and industrial loans, and $107,000 in commercial construction loans. Paycheck Protection Program loans included in the sector totaled $41.5 million, and we have provided deferrals for loans in this sector with outstanding principal balances of $13.8 million. We originated $12.7 million loans during the third quarter that are within this sector.

As of September 30, 2020, the restaurant sector amounted to $56.1 million, or 2.7% of total commercial loans, including $9.0 million in Paycheck Protection Program loans. We provided deferrals for loans in this sector with outstanding principal balances of $13.4 million. The recreation sector amounted to $31.6 million, or 1.5% of total commercial loans, including $2.7 million in Paycheck Protection Program loans. We provided deferrals for loans in this sector with outstanding principal balances of $15.6 million. Included in the recreation sector is a $9.2 million nonaccrual loan with an allocated reserve of $254,000 secured by a recreational facility for which credit deterioration began prior to the COVID-19 pandemic.

We provided access to the Paycheck Protection Program to both our existing customers and new customers, to ensure small businesses in our communities have access to this important lifeline for their businesses. As of September 30, 2020, Paycheck Protection Program loans amounted to $153.0 million. As of September 30, 2020, there was $4.0 million in deferred processing fee income that will be recognized over the life of the loans.

We are also working with commercial loan customers that may need payment deferrals or other accommodations to keep their loans out of default through the COVID-19 pandemic. As of September 30, 2020, we have provided 162 payment deferrals on commercial loans with a total principal balance of $289.2 million, or 14.0%, of total commercial loans, of which $214.4 million are loans included in an at risk sector. As of September 30, 2020, 68.7% of the commercial deferrals have expired and the borrower is making payments as agreed, 1.7% of the commercial deferrals have expired and the borrower is delinquent, and 29.6% are in active deferral period. The majority of active commercial deferrals expire during the fourth quarter. Requests for additional deferrals or new deferrals are immaterial at September 30, 2020.

The residential loan and consumer loan portfolios have not experienced significant credit quality deterioration as of September 30, 2020; however, the continuing impact and uncertain nature of the COVID-19 pandemic may result in increases in delinquencies, charge-offs and loan modifications in these portfolios through the remainder of the year. As of September 30, 2020, we had provided 186 payment deferrals on residential mortgage loans with a total principal balance of $56.7 million, or 5.0% of total residential loans, of which 74.9% of the deferrals have expired and are paying as agreed and 24.2% are in active deferral periods. We had 561 payment deferrals on consumer loans with a total principal balance of $13.3 million, or 4.2%, of total consumer loans, of which 91.4% of the deferrals have expired and are paying as agreed. Requests for additional extensions on residential mortgage loans and consumer loans were not significant as of September 30, 2020.

Net charge offs totaled $338,000 for the quarter ended September 30, 2020, or 0.04% of average loans outstanding on an annualized basis, compared to $286,000, or 0.03% of average loans outstanding on an annualized basis, for the quarter ended June 30, 2020 and $106,000, or 0.01% of average loans outstanding on an annualized basis, for the quarter ended September 30, 2019.

Total nonperforming assets were $41.0 million at September 30, 2020, compared to $38.6 million at June 30, 2020 and $27.9 million at September 30, 2019. Nonperforming assets as a percentage of total assets were 0.93% at September 30, 2020, 0.86% at June 30, 2020, and 0.71% at September 30, 2019. The increase from the preceding quarter is primarily due to a commercial loan that amounted to $1.4 million and a net increase in nonperforming residential real estate loans of $1.4 million. The increase in nonperforming assets from the prior year quarter was primarily in the commercial loan portfolio.

Balance Sheet
Total assets decreased $36.6 million, or 0.8%, to $4.43 billion at September 30, 2020 from $4.46 billion at June 30, 2020. The decrease primarily reflects a decrease of $110.3 million in short-term investments partially offset by a $28.7 million increase in net loans and $31.5 million increase in loans held for sale. Additionally, an asset held for sale at June 30, 2020 of $8.5 million closed in the third quarter.

Net loans increased $28.7 million, or 0.8%, to $3.47 billion at September 30, 2020 from $3.44 billion at June 30, 2020. The net increase in loans for the three months ended September 30, 2020 was primarily due to increases in commercial real estate loans of $62.9 million, commercial and industrial loans of $23.9 million, and commercial construction loans of $17.4 million, partially offset by a decrease in consumer loans of $41.8 million and a $20.7 million decrease in residential real estate loans. Loans held for sale increased $31.5 million, or 19.8%, to $190.4 million at September 30, 2020, from $158.9 million at June 30, 2020.

Total deposits increased $57.2 million, or 1.7%, to $3.37 billion at September 30, 2020 from $3.31 billion at June 30, 2020. Compared to the prior quarter, non-certificate accounts increased $29.2 million and term certificate accounts increased $28.0 million. FHLB borrowings decreased $105.0 million, or 52.5%, to $236.1 million at September 30, 2020 from $341.1 million at June 30, 2020.

Total stockholders’ equity was $694.1 million at September 30, 2020 compared to $684.4 million at June 30, 2020 and $659.6 million at September 30, 2019. The tangible common equity to tangible assets ratio was 14.23% at September 30, 2020, 13.88% at June 30, 2020, and 15.06% at September 30, 2019. At September 30, 2020, the Company and the Bank had strong capital positions and exceeded all regulatory capital requirements.

About HarborOne Bancorp, Inc.
HarborOne Bancorp, Inc. is the holding company for HarborOne Bank, a Massachusetts-chartered savings bank. HarborOne Bank serves the financial needs of consumers, businesses, and municipalities throughout Eastern Massachusetts and Rhode Island through a network of 26 full-service branches located in Massachusetts and Rhode Island, one limited service branch and a commercial lending office in each of Boston, Massachusetts and Providence, Rhode Island. The 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 more than 30 offices in Massachusetts, Rhode Island, New Hampshire, Maine, New Jersey and Florida and is licensed to lend in four 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. 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, the negative impacts and disruptions of the COVID-19 pandemic and the measures taken to contain its spread on our employees, customers, business operations, credit quality, financial position, liquidity and results of operations; the length and extent of economic contraction as a result of the COVID-19 pandemic; the effects of continued deterioration in employment levels, general business and economic conditions 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; 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; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters, and future pandemics; changes in regulation; reputational risk relating to the Company’s participation in the Paycheck Protection Program and other pandemic-related legislative and regulatory initiatives and programs; 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 Securities and Exchange Commission (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 Bancorp, Inc.’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 tax equivalent basis for yields, 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)

2020

2020

2020

2019

2019

Assets

Cash and due from banks

$

29,180

$

30,355

$

35,264

$

24,464

$

27,758

Short-term investments

108,338

218,617

200,156

187,152

210,873

Total cash and cash equivalents

137,518

248,972

235,420

211,616

238,631

Securities available for sale, at fair value

280,308

262,710

249,789

239,473

204,133

Securities held to maturity, at amortized cost

26,372

27,099

Federal Home Loan Bank stock, at cost

11,631

15,786

13,530

17,121

13,466

Asset held for sale

8,536

8,536

8,536

Loans held for sale, at fair value

190,373

158,898

118,316

110,552

102,121

Loans:

Commercial real estate

1,380,071

1,317,145

1,211,435

1,168,412

1,083,997

Commercial construction

211,953

194,549

160,993

153,907

160,549

Commercial and industrial

480,129

456,192

317,559

306,282

298,652

Total commercial loans

2,072,153

1,967,886

1,689,987

1,628,601

1,543,198

Residential real estate

1,130,935

1,151,606

1,102,639

1,107,076

1,120,185

Consumer

312,743

354,530

391,244

435,881

448,881

Loans

3,515,831

3,474,022

3,183,870

3,171,558

3,112,264

Less: Allowance for loan losses

(49,223

)

(36,107

)

(26,389

)

(24,060

)

(23,044

)

Net loans

3,466,608

3,437,915

3,157,481

3,147,498

3,089,220

Mortgage servicing rights, at fair value

20,159

16,127

13,207

17,150

16,067

Goodwill

69,802

69,802

69,802

69,802

69,635

Other intangible assets

4,694

5,141

5,588

6,035

6,482

Other assets

247,226

241,019

229,537

204,766

182,166

Total assets

$

4,428,319

$

4,464,906

$

4,101,206

$

4,058,921

$

3,949,020

Liabilities and Stockholders' Equity

Deposits:

Demand deposit accounts

$

650,336

$

642,971

$

439,793

$

406,403

$

446,433

NOW accounts

202,020

199,400

174,971

165,877

143,547

Regular savings and club accounts

912,017

876,753

744,564

626,685

585,327

Money market deposit accounts

815,644

831,653

809,622

856,830

875,804

Term certificate accounts

785,871

757,897

852,274

887,078

873,397

Total deposits

3,365,888

3,308,674

3,021,224

2,942,873

2,924,508

Short-term borrowed funds

95,000

200,000

104,000

183,000

60,000

Long-term borrowed funds

141,106

141,114

181,123

171,132

211,140

Subordinated debt

34,002

33,970

33,938

33,907

33,875

Other liabilities and accrued expenses

98,220

96,693

85,782

62,215

59,943

Total liabilities

3,734,216

3,780,451

3,426,067

3,393,127

3,289,466

Common stock

584

584

584

584

584

Additional paid-in capital

463,531

462,881

461,616

460,232

458,599

Unearned compensation - ESOP

(31,759

)

(32,218

)

(32,678

)

(33,137

)

(33,838

)

Retained earnings

261,304

251,032

242,080

237,356

233,049

Treasury stock

(1,333

)

(721

)

(721

)

(721

)

(721

)

Accumulated other comprehensive income

1,776

2,897

4,258

1,480

1,881

Total stockholders' equity

694,103

684,455

675,139

665,794

659,554

Total liabilities and stockholders' equity

$

4,428,319

$

4,464,906

$

4,101,206

$

4,058,921

$

3,949,020

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)

2020

2020

2020

2019

2019

Interest and dividend income:

Interest and fees on loans

$

34,496

$

33,970

$

34,025

$

36,195

$

36,230

Interest on loans held for sale

1,060

988

577

1,120

747

Interest on securities

1,317

1,424

1,808

1,580

1,542

Other interest and dividend income

175

239

759

828

1,211

Total interest and dividend income

37,048

36,621

37,169

39,723

39,730

Interest expense:

Interest on deposits

4,520

5,805

8,693

9,480

9,972

Interest on FHLB borrowings

835

845

1,253

1,385

1,249

Interest on subordinated debentures

524

524

523

524

524

Total interest expense

5,879

7,174

10,469

11,389

11,745

Net interest and dividend income

31,169

29,447

26,700

28,334

27,985

Provision for loan losses

13,454

10,004

3,749

1,251

889

Net interest and dividend income, after provision for loan losses

17,715

19,443

22,951

27,083

27,096

Noninterest income:

Mortgage banking income:

Gain on sale of mortgage loans

34,055

30,862

12,278

9,471

11,015

Changes in mortgage servicing rights fair value

(193

)

(1,111

)

(4,387

)

625

(2,474

)

Other

4,281

4,110

2,571

2,894

2,964

Total mortgage banking income

38,143

33,861

10,462

12,990

11,505

Deposit account fees

3,451

2,969

3,931

4,274

4,186

Income on retirement plan annuities

104

103

101

102

104

Loss on asset held for sale

(482

)

Gain on sale and call of securities, net

8

2,525

77

Bank-owned life insurance income

560

554

551

343

256

Other income

2,203

1,143

1,296

912

1,145

Total noninterest income

44,461

38,638

18,866

18,139

17,273

Noninterest expenses:

Compensation and benefits

29,839

27,469

21,185

23,719

23,238

Occupancy and equipment

4,581

4,152

4,563

4,366

4,171

Data processing

2,119

2,277

2,180

2,251

2,196

Loan expense

3,189

2,763

1,481

1,893

1,704

Marketing

817

1,057

876

771

799

Professional fees

1,458

1,518

1,228

2,470

889

Deposit insurance

310

279

271

5

(225

)

...

Other expenses

3,409

4,323

3,604

3,260

3,431

Total noninterest expenses

45,722

43,838

35,388

38,735

36,203

Income before income taxes

16,454

14,243

6,429

6,487

8,166

Income tax provision

4,561

3,668

1,705

2,180

1,053

Net income

$

11,893

$

10,575

$

4,724

$

4,307

$

7,113

Earnings per common share:

Basic

$

0.22

$

0.19

$

0.09

$

0.08

$

0.13

Diluted

$

0.22

$

0.19

$

0.09

$

0.08

$

0.13

Weighted average shares outstanding:

Basic

54,465,339

54,450,146

54,392,465

54,208,629

55,638,734

Diluted

54,465,339

54,450,146

54,392,465

54,209,182

55,638,734

HarborOne Bancorp, Inc.
Consolidated Statements of Net Income
(Unaudited)

For the Nine Months Ended September 30,

(dollars in thousands, except share data)

2020

2019

$ Change

% Change

Interest and dividend income:

Interest and fees on loans

$

102,491

$

106,033

$

(3,542

)

(3.3

)%

Interest on loans held for sale

2,625

1,647

978

59.4

Interest on securities

4,549

5,239

(690

)

(13.2

)

Other interest and dividend income

1,173

2,142

(969

)

(45.2

)

Total interest and dividend income

110,838

115,061

(4,223

)

(3.7

)

Interest expense:

Interest on deposits

19,018

27,577

(8,559

)

(31.0

)

Interest on FHLB borrowings

2,933

5,203

(2,270

)

(43.6

)

Interest on subordinated debentures

1,571

1,553

18

1.2

Total interest expense

23,522

34,333

(10,811

)

(31.5

)

Net interest and dividend income

87,316

80,728

6,588

8.2

Provision for loan losses

27,207

3,496

23,711

678.2

Net interest and dividend income, after provision for loan losses

60,109

77,232

(17,123

)

(22.2

)

Noninterest income:

Mortgage banking income:

Gain on sale of mortgage loans

77,195

24,086

53,109

220.5

Changes in mortgage servicing rights fair value

(5,691

)

(6,866

)

1,175

17.1

Other

10,962

7,442

3,520

47.3

Total mortgage banking income

82,466

24,662

57,804

234.4

Deposit account fees

10,351

12,020

(1,669

)

(13.9

)

Income on retirement plan annuities

308

300

8

2.7

Gain on sale and call of securities, net

2,533

1,344

1,189

100.0

Bank-owned life insurance income

1,665

762

903

118.5

Other income

4,642

3,745

897

24.0

Total noninterest income

101,965

42,833

59,132

138.1

Noninterest expenses:

Compensation and benefits

78,493

63,068

15,425

24.5

Occupancy and equipment

13,296

13,030

266

2.0

Data processing

6,576

6,441

135

2.1

Loan expense

7,433

4,309

3,124

72.5

Marketing

2,750

2,934

(184

)

(6.3

)

Professional fees

4,204

3,219

985

30.6

Deposit insurance

860

1,030

(170

)

(16.5

)

Other expenses

11,336

9,845

1,491

15.1

Total noninterest expenses

124,948

103,876

21,072

20.3

Income before income taxes

37,126

16,189

20,937

129.3

Income tax provision

9,934

2,228

7,706

345.9

Net income

$

27,192

$

13,961

$

13,231

94.8

%

Earnings per common share:

Basic

$

0.50

$

0.25

Diluted

$

0.50

$

0.25

Weighted average shares outstanding:

Basic

54,436,090

56,855,930

Diluted

54,436,090

56,855,930

HarborOne Bancorp, Inc.
Average Balances / Yields
(Unaudited)

Quarters Ended

September 30, 2020

June 30, 2020

September 30, 2019

Average
Outstanding
Balance

Interest

Yield/
Cost (6)

Average
Outstanding
Balance

Interest

Yield/
Cost (6)

Average
Outstanding
Balance

Interest

Yield/
Cost (6)

(dollars in thousands)

Interest-earning assets:

Investment securities (1)

$

269,477

$

1,319

1.95

%

$

240,025

$

1,430

2.40

%

$

224,379

$

1,562

2.76

%

Other interest-earning assets

121,384

175

0.57

222,840

239

0.43

185,063

1,211

2.59

Loans held for sale

139,418

1,060

3.02

119,047

988

3.34

74,327

747

3.99

Loans

Commercial loans (2)

2,017,492

19,066

3.76

1,872,349

18,196

3.91

1,511,487

18,797

4.93

Residential real estate loans (2)

1,135,947

11,833

4.14

1,123,896

11,811

4.23

1,119,742

12,704

4.50

Consumer loans (2)

333,623

3,597

4.29

372,929

3,963

4.27

454,837

4,729

4.13

Total loans

3,487,062

34,496

3.94

3,369,174

33,970

4.06

3,086,066

36,230

4.66

Total interest-earning assets

4,017,341

37,050

3.67

3,951,086

36,627

3.73

3,569,835

39,750

4.42

Noninterest-earning assets

333,444

334,452

278,976

Total assets

$

4,350,785

$

4,285,538

$

3,848,811

Interest-bearing liabilities:

Savings accounts

$

897,751

589

0.26

$

842,560

834

0.40

$

564,040

902

0.63

NOW accounts

199,982

39

0.08

187,560

33

0.07

139,773

26

0.07

Money market accounts

825,732

745

0.36

826,939

1,207

0.59

879,694

3,417

1.54

Certificates of deposit

684,002

2,895

1.68

730,756

3,472

1.91

831,262

5,016

2.39

Brokered deposits

139,887

252

0.72

66,701

259

1.56

98,278

611

2.47

Total interest-bearing deposits

2,747,354

4,520

0.65

2,654,516

5,805

0.88

2,513,047

9,972

1.57

FHLB advances

149,750

835

2.22

258,679

845

1.31

213,578

1,249

2.32

Subordinated debentures

33,983

524

6.13

33,951

524

6.21

33,858

524

6.14

Total borrowings

183,733

1,359

2.94

292,630

1,369

1.88

247,436

1,773

2.84

Total interest-bearing liabilities

2,931,087

5,879

0.80

2,947,146

7,174

0.98

2,760,483

11,745

1.69

Noninterest-bearing liabilities:

Noninterest-bearing deposits

641,353

585,715

515,612

Other noninterest-bearing liabilities

89,319

72,808

52,357

Total liabilities

3,661,759

3,605,669

3,328,452

Total equity

689,026

679,869

520,359

Total liabilities and equity

$

4,350,785

$

4,285,538

$

3,848,811

Tax equivalent net interest income

31,171

29,453

28,005

Tax equivalent interest rate spread (3)

2.87

%

2.75

%

2.73

%

Less: tax equivalent adjustment

2

6

20

Net interest income as reported

$

31,169

$

29,447

$

27,985

Net interest-earning assets (4)

$

1,086,254

$

1,003,940

$

809,352

Net interest margin (5)

3.09

%

3.00

%

3.11

%

Tax equivalent effect

Net interest margin on a fully tax equivalent basis

3.09

%

3.00

%

3.11

%

Average interest-earning assets to average interest-bearing liabilities

137.06

%

134.06

%

129.32

%

Supplemental information:

Total deposits, including demand deposits

$

3,388,707

$

4,520

$

3,240,231

$

5,805

$

3,028,659

$

9,972

Cost of total deposits

0.53

%

0.72

%

1.31

%

Total funding liabilities, including demand deposits

$

3,572,440

$

5,879

$

3,532,861

$

7,174

$

3,276,095

$

11,745

Cost of total funding liabilities

0.65

%

0.82

%

1.42

%

(1) Includes securities available for sale and securities held to maturity. Interest income from tax exempt securities is computed on a taxable equivalent basis using a tax rate of 21% for the quarters presented. The yield on investments before tax equivalent adjustments for the quarters presented were 1.95%, 2.40%, and 2.73%, respectively.

(2) Includes nonaccruing loan balances and interest received on such loans.

(3) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(4) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(5) Net interest margin represents net interest income divided by average total interest-earning assets.

(6) Annualized.

HarborOne Bancorp, Inc.
Average Balances / Yields
(Unaudited)

Years Ended

September 30, 2020

September 30, 2019

Average

Average

Outstanding

Yield/

Outstanding

Yield/

Balance

Interest

Cost

Balance

Interest

Cost

(dollars in thousands)

Interest-earning assets:

Investment securities (1)

$

261,740

$

4,571

2.33

%

$

247,782

$

5,328

2.87

%

Other interest-earning assets

176,745

1,173

0.89

83,803

2,142

3.42

Loans held for sale

106,790

2,625

3.28

50,771

1,647

4.34

Loans

Commercial loans (2)

1,846,462

55,385

4.01

1,447,128

54,855

5.07

Residential real estate loans (2)

1,120,065

35,188

4.20

1,119,185

37,175

4.44

Consumer loans (2)

373,809

11,918

4.26

466,669

14,003

4.01

Total loans

3,340,336

102,491

4.10

3,032,982

106,033

4.67

Total interest-earning assets

3,885,611

110,860

3.81

3,415,338

115,150

4.51

Noninterest-earning assets

327,385

264,336

Total assets

$

4,212,996

$

3,679,674

Interest-bearing liabilities:

Savings accounts

$

809,106

2,721

0.45

$

526,078

1,830

0.47

NOW accounts

182,146

103

0.08

138,957

76

0.07

Money market accounts

829,263

4,535

0.73

849,254

9,561

1.51

Certificates of deposit

736,355

10,724

1.95

811,052

14,155

2.33

Brokered deposits

99,739

935

1.25

107,243

1,955

2.44

Total interest-bearing deposits

2,656,609

19,018

0.96

2,432,584

27,577

1.52

FHLB advances

216,333

2,933

1.81

298,643

5,203

2.33

Subordinated debentures

33,951

1,571

6.18

33,835

1,553

6.14

Total borrowings

250,284

4,504

2.40

332,478

6,756

2.72

Total interest-bearing liabilities

2,906,893

23,522

1.08

2,765,062

34,333

1.66

Noninterest-bearing liabilities:

Noninterest-bearing deposits

549,233

446,970

Other noninterest-bearing liabilities

76,660

51,252

Total liabilities

3,532,786

3,263,284

Total equity

680,210

416,390

Total liabilities and equity

$

4,212,996

$

3,679,674

Tax equivalent net interest income

87,338

80,817

Tax equivalent interest rate spread (3)

2.73

%

2.85

%

Less: tax equivalent adjustment

22

89

Net interest income as reported

$

87,316

$

80,728

Net interest-earning assets (4)

$

978,718

$

650,276

Net interest margin (5)

3.00

%

3.16

%

Tax equivalent effect

Net interest margin on a fully tax equivalent basis

3.00

%

3.16

%

Average interest-earning assets to average interest-bearing liabilities

133.67

%

123.52

%

Supplemental information:

Total deposits, including demand deposits

$

3,205,842

$

19,018

$

2,879,554

$

27,577

Cost of total deposits

0.79

%

1.28

%

Total funding liabilities, including demand deposits

$

3,456,126

$

23,522

$

3,212,032

$

34,333

Cost of total funding liabilities

0.91

%

1.43

%

(1) Includes securities available for sale and securities held to maturity. Interest income from tax exempt securities is computed on a tax equivalent basis using a tax rate of 21%. The yield on investments before tax equivalent adjustments was 2.32% and 2.83% for the nine months ended September 30, 2020 and 2019, respectively.

(2) Includes nonaccruing loan balances and interest received on such loans.

(3) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(4) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(5) Net interest margin represents net interest income divided by average total interest-earning assets.

HarborOne Bancorp, Inc.
Average Balances and Yield Trend
(Unaudited)

Average Balances - Trend - Quarters Ended

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

September 30, 2019

(in thousands)

Interest-earning assets:

Investment securities (1)

$

269,477

$

240,025

$

275,632

$

236,828

$

224,379

Other interest-earning assets

121,384

222,840

186,619

159,211

185,063

Loans held for sale

139,418

119,047

61,548

115,699

74,327

Loans

Commercial loans (2)

2,017,492

1,872,349

1,647,667

1,591,188

1,511,487

Residential real estate loans (2)

1,135,947

1,123,896

1,100,177

1,105,025

1,119,742

Consumer loans (2)

333,623

372,929

415,317

442,689

454,837

Total loans

3,487,062

3,369,174

3,163,161

3,138,902

3,086,066

Total interest-earning assets

4,017,341

3,951,086

3,686,960

3,650,640

3,569,835

Noninterest-earning assets

333,444

334,452

314,193

288,558

278,976

Total assets

$

4,350,785

$

4,285,538

$

4,001,153

$

3,939,198

$

3,848,811

Interest-bearing liabilities:

Savings accounts

$

897,751

$

842,560

$

686,031

$

616,008

$

564,040

NOW accounts

199,982

187,560

158,702

142,505

139,773

Money market accounts

825,732

826,939

835,154

867,066

879,694

Certificates of deposit

684,002

730,756

794,883

811,199

831,262

Brokered deposits

139,887

66,701

92,189

69,035

98,278

Total interest-bearing deposits

2,747,354

2,654,516

2,566,959

2,505,813

2,513,047

FHLB advances

149,750

258,679

241,302

249,102

213,578

Subordinated debentures

33,983

33,951

33,919

33,887

33,858

Total borrowings

183,733

292,630

275,221

282,989

247,436

Total interest-bearing liabilities

2,931,087

2,947,146

2,842,180

2,788,802

2,760,483

Noninterest-bearing liabilities:

Noninterest-bearing deposits

641,353

585,715

419,620

433,478

515,612

Other noninterest-bearing liabilities

89,319

72,808

67,714

54,022

52,357

Total liabilities

3,661,759

3,605,669

3,329,514

3,276,302

3,328,452

Total equity

689,026

679,869

671,639

662,896

520,359

Total liabilities and equity

$

4,350,785

$

4,285,538

$

4,001,153

$

3,939,198

$

3,848,811

Annualized Yield Trend - Quarters Ended

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

September 30, 2019

Interest-earning assets:

Investment securities (1)

1.95

%

2.40

%

2.66

%

2.67

%

2.76

%

Other interest-earning assets

0.57

%

0.43

%

1.64

%

2.06

%

2.59

%

Loans held for sale

3.02

%

3.34

%

3.77

%

3.84

%

3.99

%

Commercial loans (2)

3.76

%

3.91

%

4.42

%

4.79

%

4.93

%

Residential real estate loans (2)

4.14

%

4.23

%

4.22

%

4.41

%

4.50

%

Consumer loans (2)

4.29

%

4.27

%

4.22

%

4.20

%

4.13

%

Total loans

3.94

%

4.06

%

4.33

%

4.58

%

4.66

%

Total interest-earning assets

3.67

%

3.73

%

4.06

%

4.32

%

4.42

%

Interest-bearing liabilities:

Savings accounts

0.26

%

0.40

%

0.76

%

0.77

%

0.63

%

NOW accounts

0.08

%

0.07

%

0.08

%

0.08

%

0.07

%

Money market accounts

0.36

%

0.59

%

1.24

%

1.42

%

1.54

%

Certificates of deposit

1.68

%

1.91

%

2.20

%

2.31

%

2.39

%

Brokered deposits

0.72

%

1.56

%

1.85

%

2.39

%

2.47

%

Total interest-bearing deposits

0.65

%

0.88

%

1.36

%

1.50

%

1.57

%

FHLB advances

2.22

%

1.31

%

2.09

%

2.21

%

2.32

%

Subordinated debentures

6.13

%

6.21

%

6.20

%

6.13

%

6.14

%

Total borrowings

2.94

%

1.88

%

2.60

%

2.68

%

2.84

%

Total interest-bearing liabilities

0.80

%

0.98

%

1.48

%

1.62

%

1.69

%

(1) Includes securities available for sale and securities held to maturity.

(2) Includes nonaccruing loan balances and interest received on such loans.

HarborOne Bancorp, Inc.
Selected Financial Highlights
(Unaudited)

Quarters Ended

September 30,

June 30,

March 31,

December 31,

September 30,

Performance Ratios (annualized):

2020

2020

2020

2019

2019

(dollars in thousands)

Return on average assets (ROAA)

1.09

%

0.99

%

0.47

%

0.44

%

0.74

%

Return on average equity (ROAE)

6.90

%

6.22

%

2.81

%

2.60

%

5.47

%

Total noninterest expense

$

45,722

$

43,838

$

35,388

$

38,735

$

36,203

Less: Amortization of other intangible assets

447

447

447

448

617

Total adjusted noninterest expense

$

45,275

$

43,391

$

34,941

$

38,287

$

35,586

Net interest and dividend income

$

31,169

$

29,447

$

26,700

$

28,334

$

27,985

Total noninterest income

44,461

38,638

18,866

18,139

17,273

Total revenue

$

75,630

$

68,085

$

45,566

$

46,473

$

45,258

Efficiency ratio (1)

59.86

%

63.73

%

76.68

%

82.39

%

78.63

%

(1) This non-GAAP measure represents adjusted noninterest expense divided by total revenue

At or for the Quarters Ended

September 30,

June 30,

March 31,

December 31,

September 30,

Asset Quality

2020