HarborOne Bancorp(HONE) - 2025 Q1 - Quarterly Report

Glossary of Acronyms and Terms Summary of Acronyms and Terms This section provides a list of common acronyms and terms used in HarborOne Bancorp, Inc.'s financial reporting to aid in understanding the document - The glossary defines key terms such as ACL (Allowance for Credit Losses), ASU (Accounting Standards Update), Bank (HarborOne Bank), Company (HarborOne Bancorp, Inc.), CRE (Commercial real estate), EPS (Earnings Per Share), ESOP (Employee Stock Ownership Plan), FASB (Federal Accounting Standards Board), FDIC (Federal Deposit Insurance Corporation), FHLB (Federal Home Loan Bank), GAAP (Accounting principles generally accepted in the United States of America), MSRs (Mortgage servicing rights), ROU (Right-of-use), SBA (U.S. Small Business Administration), and SEC (U.S. Securities and Exchange Commission)[9] PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements This section presents the unaudited interim consolidated financial statements of HarborOne Bancorp, Inc. for the period ended March 31, 2025, including balance sheets, income statements, comprehensive income statements, changes in stockholders' equity, and cash flow statements, along with detailed notes on significant accounting policies and financial instrument specifics Consolidated Balance Sheets The Consolidated Balance Sheets show a slight decrease in total assets and liabilities from December 31, 2024, to March 31, 2025, with notable changes in loans, allowance for credit losses, deposits, and borrowings Balance Sheet Summary | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | Total assets | $5,700,330 | $5,753,133 | $(52,803) | -0.92% | | Loans, net | $4,771,710 | $4,796,398 | $(24,688) | -0.51% | | Allowance for credit losses on loans | $(49,323) | $(56,101) | $6,778 | -12.08% | | Total deposits | $4,618,721 | $4,550,753 | $67,968 | 1.49% | | Borrowings | $399,547 | $516,555 | $(117,008) | -22.65% | | Total stockholders' equity | $575,967 | $575,011 | $956 | 0.17% | Consolidated Statements of Income Net income for the three months ended March 31, 2025, decreased compared to the same period in 2024, primarily due to a higher provision for credit losses and lower noninterest income, despite an increase in net interest and dividend income Income Statement Summary | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Total interest and dividend income | $64,439 | $66,904 | $(2,465) | -3.68% | | Total interest expense | $32,970 | $36,322 | $(3,352) | -9.23% | | Net interest and dividend income | $31,469 | $30,582 | $887 | 2.90% | | Provision for credit (benefits) losses | $1,385 | $(168) | $1,553 | -924.40% | | Total noninterest income | $9,891 | $10,741 | $(850) | -7.91% | | Total noninterest expense | $32,850 | $31,750 | $1,100 | 3.46% | | Net income | $5,500 | $7,300 | $(1,800) | -24.66% | | Basic Earnings per common share | $0.14 | $0.17 | $(0.03) | -17.65% | | Diluted Earnings per common share | $0.14 | $0.17 | $(0.03) | -17.65% | Consolidated Statements of Comprehensive Income (Loss) Comprehensive income significantly increased for the three months ended March 31, 2025, primarily driven by an unrealized gain on securities available for sale, offsetting a decrease in net income Comprehensive Income Summary | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Net income | $5,500 | $7,300 | $(1,800) | -24.66% | | Net change in unrealized losses on derivatives in cashflow hedging instruments (net-of-tax) | $(708) | $(369) | $(339) | 91.87% | | Unrealized holding gains (losses) on securities available for sale (net-of-tax) | $4,939 | $(4,592) | $9,531 | -207.56% | | Total other comprehensive income (loss) | $4,231 | $(4,982) | $9,213 | -184.92% | | Comprehensive income | $9,731 | $2,318 | $7,413 | 319.80% | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity saw a modest increase from December 31, 2024, to March 31, 2025, driven by comprehensive income and ESOP share releases, partially offset by dividends and treasury stock purchases Stockholders' Equity Changes | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Total stockholders' equity | $575,967 | $575,011 | $956 | | Comprehensive income | $9,731 | N/A | N/A | | Dividends declared ($0.09 per share) | $(3,651) | N/A | N/A | | Treasury stock purchased | $(6,378) | N/A | N/A | Consolidated Statements of Cash Flows Operating cash flows increased significantly, while investing activities shifted from a net use to a net provision of cash, and financing activities resulted in a net use of cash for the three months ended March 31, 2025, compared to the prior year Cash Flow Summary | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | | Net cash provided by operating activities | $23,362 | $14,974 | $8,388 | | Net cash provided by (used in) investing activities | $33,194 | $(33,148) | $66,342 | | Net cash (used in) provided by financing activities | $(57,135) | $184,265 | $(241,400) | | Net change in cash and cash equivalents | $(579) | $166,091 | $(166,670) | | Cash and cash equivalents at end of period | $230,492 | $393,441 | $(162,949) | Notes to Consolidated Financial Statements The notes provide detailed disclosures on the Company's accounting policies, financial instruments, and other significant financial information, including the recently announced merger, debt securities, loans, deposits, borrowings, derivatives, and regulatory capital requirements Note 1. Summary of Significant Accounting Policies This note outlines the basis of presentation for the unaudited interim consolidated financial statements, the Company's nature of operations, and details the recently announced merger agreement with Eastern Bankshares, Inc., including the consideration and closing conditions - On April 24, 2025, HarborOne Bancorp, Inc. entered into a Merger Agreement with Eastern Bankshares, Inc. and Eastern Bank. Eastern will acquire HarborOne Bancorp, Inc. and HarborOne Bank[26] - HarborOne shareholders will receive, at their election, either 0.765 shares of Eastern common stock or $12.00 in cash per share, subject to allocation procedures ensuring 75%-85% stock consideration[26] - The merger is subject to regulatory and shareholder approvals and is anticipated to close in Q4 2025, with a potential deferral option for Eastern until February 20, 2026[28] - The Company provides financial services through 30 full-service branches in Massachusetts and Rhode Island, and its HarborOne Mortgage subsidiary operates in multiple states[29] Note 2. Debt Securities The Company's debt securities portfolio, comprising available-for-sale and held-to-maturity categories, primarily consists of U.S. government and agency obligations. While there are significant gross unrealized losses, mainly due to interest rate changes, management does not believe these represent credit loss impairments due to government guarantees and no intent to sell before recovery Debt Securities Portfolio | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------------------------- | :----------------------------- | :------------------------------- | | Total securities available for sale (Fair Value) | $265,644 | $263,904 | | Total securities held to maturity (Amortized Cost) | $19,211 | $19,627 | | Gross Unrealized Losses (Available for Sale) | $59,092 | $65,264 | | Gross Unrealized Losses (Held to Maturity) | $144 | $342 | - As of March 31, 2025, 101 out of 112 debt securities were in an unrealized loss position, primarily due to changes in interest rates, not credit quality, for U.S. government-sponsored enterprises and agencies[38] - No Allowance for Credit Losses (ACL) was recorded for debt securities as management expects to recover the entire amortized cost basis and does not intend to sell these securities before maturity[40][41] Note 3. Loans Held for Sale Loans held for sale decreased significantly from December 31, 2024, to March 31, 2025, reflecting reduced loan production. The Company uses the fair value option for these loans to match changes with hedging contracts, and no loans were past due Loans Held for Sale Data | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :---------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | Loans held for sale, fair value | $19,304 | $36,768 | $(17,464) | -47.50% | | Loans held for sale, contractual principal outstanding | $18,837 | $36,205 | $(17,368) | -47.97% | | Fair value less unpaid principal balance | $467 | $563 | $(96) | -17.05% | - The Company elected the fair value option for mortgage loans held for sale to better match changes in fair value with forward sale commitment contracts used for economic hedging[42] - There were no loans held for sale that were greater than 90 days past due at March 31, 2025, or December 31, 2024[43] Note 4. Loans and Allowance for Credit Losses Total loans decreased slightly, with commercial construction and residential real estate loans declining, while commercial and industrial loans increased. The Allowance for Credit Losses (ACL) on loans decreased, primarily due to charge-offs and specific reserve adjustments, with non-accrual loans showing mixed trends across categories Loan Portfolio Composition | Loan Category | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | Commercial real estate | $2,272,480 | $2,280,309 | $(7,829) | -0.34% | | Commercial construction | $216,013 | $252,691 | $(36,678) | -14.52% | | Commercial and industrial | $627,480 | $594,453 | $33,027 | 5.56% | | One- to four-family | $1,487,942 | $1,506,571 | $(18,629) | -1.24% | | Total loans before basis adjustment | $4,820,466 | $4,852,419 | $(31,953) | -0.66% | | Allowance for credit losses on loans | $(49,323) | $(56,101) | $6,778 | -12.08% | Allowance for Credit Losses Activity | ACL Activity | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Balance at beginning of period | $56,101 | $47,972 | | Charge-offs | $(8,716) | $(277) | | Recoveries | $47 | $152 | | Provision | $1,891 | $338 | | Balance at end of period | $49,323 | $48,185 | Non-accrual Loans by Category | Non-accrual Loans | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Commercial real estate | $8,610 | $16,836 | | Commercial and industrial | $10,538 | $2,204 | | One- to four-family | $10,764 | $9,545 | | Total non-accrual loans | $30,902 | $29,463 | - The Company uses a ten-grade internal loan rating system for commercial loans, with ratings 1-6 as 'pass', 7 as 'special mention', 8 as 'substandard', 9 as 'doubtful', and 10 as 'uncollectible'[56][57][58] Note 5. Mortgage Loan Servicing Mortgage Servicing Rights (MSRs) decreased from December 31, 2024, to March 31, 2025, primarily due to a negative fair value mark and reductions from loan payoffs, despite new originations. Fair value is determined using independent third-party valuations based on prepayment speeds, discount rates, and default rates Mortgage Servicing Rights (MSRs) Data | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Unpaid principal balance of mortgage loans serviced for others | $3,310,000 | $3,360,000 | | Total MSRs, at fair value | $42,620 | $44,500 | | Prepayment speed | 7.90% | 7.67% | | Discount rate | 9.92% | 9.97% | | Default rate | 1.85% | 1.83% | - Changes in MSR fair value for the three months ended March 31, 2025, included additions of $53,000, reductions from loan payoffs of $782,000, and a negative fair value mark of $1,151,000[65] Note 6. Goodwill and Other Intangible Assets Goodwill remained stable at $59.0 million, with no impairment identified as of March 31, 2025, following a qualitative assessment triggered by the merger agreement. Other intangible assets also showed no impairment Goodwill and Intangible Assets | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Goodwill | $59,042 | $59,042 | | Other intangible assets | $568 | $757 | - Management considered the merger agreement a triggering event under ASC 350 and performed an interim qualitative assessment, concluding that impairment was not more likely than not at March 31, 2025[68] Note 7. Deposits Total deposits increased from December 31, 2024, to March 31, 2025, driven by growth in non-certificate accounts, particularly NOW and money market accounts, while brokered and municipal deposits decreased. A significant portion of certificate accounts mature within one year Deposit Composition by Type | Deposit Type | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | NOW and demand deposit accounts | $1,043,930 | $988,984 | $54,946 | 5.56% | | Money market deposit accounts | $1,200,600 | $1,195,209 | $5,391 | 0.45% | | Total non-certificate accounts | $3,152,666 | $3,079,425 | $73,241 | 2.38% | | Brokered deposits | $389,860 | $401,484 | $(11,624) | -2.90% | | Total deposits | $4,618,721 | $4,550,753 | $67,968 | 1.49% | | Municipal deposits | $478,900 | $519,500 | $(40,600) | -7.82% | | Reciprocal deposits | $399,100 | $376,300 | $22,800 | 6.06% | Certificate Account Maturity Profile | Certificate Account Maturity | Amount (in thousands) | Weighted Average Rate | | :--------------------------- | :-------------------- | :-------------------- | | Within 1 year | $1,287,399 | 4.32% | | Over 1 year to 2 years | $172,747 | 4.30% | | Total certificate deposits | $1,466,055 | 4.31% | Note 8. Borrowings Total borrowings decreased significantly from December 31, 2024, to March 31, 2025, primarily due to a reduction in FHLB advances. The Bank maintains substantial available borrowing capacity with the FHLB and Federal Reserve Discount Window, secured by loans and securities Borrowings Summary | Borrowing Type | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | Total Borrowings | $399,547 | $516,555 | $(117,008) | -22.65% | | Short-term FHLB advances | $155,000 | $212,000 | $(57,000) | -26.89% | | Long-term FHLB advances | $244,547 | $304,555 | $(60,008) | -19.70% | | Weighted average rate (short-term) | 4.53% | 4.50% | 0.03% | 0.67% | | Weighted average rate (long-term) | 4.17% | 4.21% | -0.04% | -0.95% | - As of March 31, 2025, the Company had $762.0 million of available borrowing capacity with the FHLB and $629.4 million at the FRBB, secured by pledged loans and securities[76][77] Note 9. Other Commitments and Contingencies The Allowance for Credit Losses (ACL) on unfunded commitments decreased from December 31, 2024, to March 31, 2025. The Company also has significant off-balance sheet loan commitments, primarily for residential real estate, home equity lines, and revolving lines of credit Commitments and Contingencies | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | ACL on unfunded commitments | $3,000 | $3,506 | $(506) | -14.43% | | Commitments to grant residential real estate loans | $50,920 | $38,929 | $11,991 | 30.80% | | Unadvanced funds on home equity lines of credit | $285,840 | $281,890 | $3,950 | 1.40% | | Unadvanced funds on revolving lines of credit | $242,041 | $270,735 | $(28,694) | -10.60% | | Unadvanced funds on construction loans | $142,615 | $166,726 | $(24,111) | -14.46% | - The Company's exposure to credit loss from off-balance sheet instruments is represented by the contractual amount of these commitments, and the same credit policies are used as for on-balance sheet instruments[81] Note 10. Derivatives The Company uses various derivative instruments, including interest rate swaps for fair value and cashflow hedging, and non-designated derivatives like loan commitments, forward loan sale commitments, and interest rate futures, to manage interest rate risk and customer financing needs. The fair value of total derivatives decreased from December 31, 2024, to March 31, 2025 Derivative Instruments Summary | Derivative Type | Notional Amount (March 31, 2025, in thousands) | Fair Value Assets (March 31, 2025, in thousands) | Fair Value Liabilities (March 31, 2025, in thousands) | | :----------------------------------- | :--------------------------------------------- | :----------------------------------------------- | :------------------------------------------------ | | Fair value hedge - interest rate swaps | $100,000 | $0 | $455 | | Cashflow hedge - interest rate swaps | $100,000 | $76 | $0 | | Derivative loan commitments | $41,938 | $540 | $54 | | Forward loan sale commitments | $28,500 | $9 | $63 | | Interest rate swaps (non-designated) | $980,343 | $18,850 | $18,850 | | Interest Rate Futures | $31,600 | $595 | $0 | | Total derivatives (Fair Value) | N/A | $20,070 | $19,422 | - For the three months ended March 31, 2025, derivatives designated as fair value hedges resulted in a net gain of $5,000, while non-designated derivatives generated a net gain of $304,000[99] - The Company uses interest rate swaps as fair value hedges for fixed-rate residential mortgages and as cashflow hedges for brokered deposits to manage interest rate risk[84][87] Note 11. Operating Lease ROU Assets and Liabilities Operating lease Right-of-Use (ROU) assets and liabilities decreased slightly from December 31, 2024, to March 31, 2025. The weighted-average remaining lease term is approximately 15.8 years, with a weighted-average discount rate of 2.16% Operating Lease Data | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Operating lease ROU assets | $20,400 | $20,900 | | Operating lease liabilities | $22,100 | $22,700 | | Weighted-average discount rate | 2.16% | 2.15% | | Weighted-average remaining lease term (years) | 15.81 | 15.85 | | Total lease payments (future minimum) | $26,795 | N/A | | Total lease expense (3 months ended March 31, 2025) | $727 | N/A | Note 12. Minimum Regulatory Capital Requirements Both HarborOne Bancorp, Inc. and HarborOne Bank exceeded all minimum regulatory capital requirements, including the capital conservation buffer, and were considered 'well capitalized' as of March 31, 2025. Regulatory capital ratios were not impacted by unrealized losses on available-for-sale investment securities HarborOne Bancorp, Inc. Regulatory Capital Ratios | Capital Ratio (HarborOne Bancorp, Inc.) | Actual Ratio (March 31, 2025) | Minimum Required for Capital Adequacy | Minimum for 'Well Capitalized' | | :--------------------------------------- | :---------------------------- | :------------------------------------ | :---------------------------- | | Common equity Tier 1 capital to risk-weighted assets | 11.9% | 4.5% | N/A | | Tier 1 capital to risk-weighted assets | 11.9% | 6.0% | N/A | | Total capital to risk-weighted assets | 13.0% | 8.0% | N/A | | Tier 1 capital to average assets | 9.8% | 4.0% | N/A | HarborOne Bank Regulatory Capital Ratios | Capital Ratio (HarborOne Bank) | Actual Ratio (March 31, 2025) | Minimum Required for Capital Adequacy | Minimum for 'Well Capitalized' | | :--------------------------------------- | :---------------------------- | :------------------------------------ | :---------------------------- | | Common equity Tier 1 capital to risk-weighted assets | 11.1% | 4.5% | 6.5% | | Tier 1 capital to risk-weighted assets | 11.1% | 6.0% | 8.0% | | Total capital to risk-weighted assets | 12.2% | 8.0% | 10.0% | | Tier 1 capital to average assets | 9.2% | 4.0% | 5.0% | - Both the Company and the Bank exceeded the minimum capital requirements, including the currently applicable capital conservation buffer of 2.5%, at March 31, 2025[109] Note 13. Comprehensive (Loss) Income Accumulated other comprehensive (loss) income improved significantly for the three months ended March 31, 2025, primarily due to a substantial increase in available-for-sale securities, partially offset by a net loss in cash flow hedges Accumulated Other Comprehensive Income Components | Component of OCI | Balance at Dec 31, 2024 (in thousands) | Net Current-Period OCI (3 months ended Mar 31, 2025, net of tax) | Balance at Mar 31, 2025 (in thousands) | | :----------------------------------- | :------------------------------------- | :------------------------------------------------------------- | :------------------------------------ | | Postretirement Benefit | $(46) | $0 | $(46) | | Available-for-Sale Securities | $(50,620) | $4,939 | $(45,681) | | Cash Flow Hedge | $771 | $(708) | $63 | | Total Accumulated Other Comprehensive (Loss) Income | $(49,895) | $4,231 | $(45,664) | Note 14. Fair Value of Assets and Liabilities The Company measures various assets and liabilities at fair value on a recurring basis, primarily using Level 2 inputs for securities, loans held for sale, MSRs, and most derivatives. Collateral-dependent impaired loans are measured on a non-recurring basis using Level 3 inputs. Total assets measured at fair value on a recurring basis decreased from December 31, 2024, to March 31, 2025 - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (significant observable inputs), and Level 3 (significant unobservable inputs)[117] Recurring Fair Value Measurements | Asset/Liability Measured at Fair Value (Recurring) | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------------------------- | :----------------------------- | :------------------------------- | | Securities available for sale | $265,644 | $263,904 | | Loans held for sale | $19,304 | $36,768 | | Mortgage servicing rights | $42,620 | $44,500 | | Derivatives (Assets) | $20,070 | $24,929 | | Derivatives (Liabilities) | $19,422 | $23,546 | | Total Assets Measured at Fair Value (Recurring) | $347,638 | $370,101 | - Collateral-dependent individually analyzed loans are measured at fair value on a non-recurring basis, primarily using Level 3 inputs based on appraisals of underlying collateral, adjusted for estimated liquidation expenses[120][137] Note 15. Earnings Per Share Basic and diluted Earnings Per Share (EPS) decreased for the three months ended March 31, 2025, compared to the prior year, reflecting lower net income and a decrease in weighted average shares outstanding EPS Calculation | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income available to common stockholders (in thousands) | $5,500 | $7,300 | | Weighted average number of common shares outstanding (Basic) | 40,344,922 | 41,912,421 | | Weighted average number of common shares outstanding (Diluted) | 40,605,799 | 42,127,037 | | Basic EPS | $0.14 | $0.17 | | Diluted EPS | $0.14 | $0.17 | Note 16. Revenue Recognition The Company recognizes revenue from contracts with customers based on the consideration specified in the contract, satisfying performance obligations either at a point in time or over time. Transactional revenues, such as card interchange fees, ATM fees, and loan fees, are recognized immediately upon transaction or service completion - Revenue from contracts with customers is measured based on consideration specified in the contract and excludes amounts collected on behalf of third parties[142] - Performance obligations are generally satisfied as services are rendered, either at a point in time (e.g., card interchange fees, ATM fees, wire transfer fees, overdraft fees, loan fees) or over time[143][145] Note 17. Segment Reporting The Company operates in two reportable segments: HarborOne Bank and HarborOne Mortgage. HarborOne Bank's net income decreased, while HarborOne Mortgage recorded a net loss for the three months ended March 31, 2025, compared to the prior year, reflecting differing operational dynamics - The Company's reportable segments are HarborOne Bank and HarborOne Mortgage, distinguished by products and services offered[147] Segment Performance (Net Income/Loss) | Segment Performance (Net Income/Loss, in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (in thousands) | % Change | | :-------------------------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------- | :------- | | HarborOne Bank | $6,234 | $7,163 | $(929) | -12.97% | | HarborOne Mortgage | $(491) | $223 | $(714) | -320.18% | | Consolidated Net Income | $5,500 | $7,300 | $(1,800) | -24.66% | - HarborOne Bank's revenue primarily comes from interest on loans and investment securities and deposit account service charges, while HarborOne Mortgage's revenue is from interest on loans and fees from residential mortgage origination, sale, and servicing[147] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition at March 31, 2025, and results of operations for the three months ended March 31, 2025 and 2024, including discussions on critical accounting policies, recent events (the merger), asset quality, market risk management, liquidity, and capital resources Forward-Looking Statements This section contains cautionary statements regarding forward-looking information, highlighting that actual results may differ materially due to various factors including economic conditions, interest rate changes, market turbulence, and risks associated with the pending merger - Forward-looking statements are subject to significant risks and uncertainties, including changes in economic conditions, customer behavior, interest rates, loan default rates, and the impact of the pending merger[153] - Factors that could cause actual results to differ include failure to complete the Merger, unexpected delays, inability to satisfy closing conditions, and regulatory approvals imposing adverse conditions[153] Critical Accounting Policies and Estimates Management identifies Allowance for Credit Losses, Goodwill, and Deferred Tax Assets as the most critical accounting policies, requiring significant judgment and estimates that are susceptible to material changes based on evolving facts and circumstances - The Company's most critical accounting policies are related to Allowance for Credit Losses, Goodwill, and Deferred Tax Assets[161] - Estimates associated with these policies are susceptible to material changes due to factors such as changes in interest rates, economic performance, and borrower financial condition[156] Recent Events The Company announced a merger agreement with Eastern Bankshares, Inc. on April 24, 2025, where Eastern will acquire HarborOne. Shareholders will receive a mix of stock and cash, with the merger expected to close in the fourth quarter of 2025, subject to regulatory and shareholder approvals - On April 24, 2025, HarborOne Bancorp, Inc. entered into a Merger Agreement with Eastern Bankshares, Inc. and Eastern Bank[158] - Shareholders will receive either 0.765 shares of Eastern common stock or $12.00 in cash per share, subject to allocation procedures[158] - The merger is anticipated to close during the fourth quarter of 2025, contingent on regulatory and shareholder approvals[159] Comparison of Financial Condition at March 31, 2025 and December 31, 2024 Total assets decreased by 0.9% to $5.70 billion, primarily driven by decreases in loans and loans held for sale. Deposits increased by 1.5%, while borrowings significantly decreased by 22.6%. Stockholders' equity saw a slight increase, and the tangible common equity to tangible assets ratio improved Financial Condition Comparison | Metric | March 31, 2025 (in millions) | December 31, 2024 (in millions) | Change (in millions) | % Change | | :-------------------------------- | :----------------------------- | :------------------------------- | :------------------- | :------- | | Total Assets | $5,700.3 | $5,753.1 | $(52.8) | -0.9% | | Loans Held for Sale | $19.3 | $36.8 | $(17.5) | -47.5% | | Net Loans | $4,771.7 | $4,796.4 | $(24.7) | -0.5% | | Investment Securities Available for Sale | $265.6 | $263.9 | $1.7 | 0.7% | | Mortgage Servicing Rights | $42.6 | $44.5 | $(1.9) | -4.3% | | Total Deposits | $4,618.7 | $4,550.8 | $67.9 | 1.5% | | Borrowings | $399.5 | $516.6 | $(117.1) | -22.7% | | Total Stockholders' Equity | $576.0 | $575.0 | $1.0 | 0.2% | | Tangible Common Equity to Tangible Assets Ratio | 9.15% | 9.05% | 0.10% | 1.1% | - Commercial real estate and construction loans decreased by $44.5 million, while commercial and industrial loans increased by $33.0 million[165] - Total deposits increased by $68.0 million, driven by a $120.1 million increase in consumer and business deposits, partially offset by decreases in municipal and brokered deposits[172] Comparison of Results of Operations for the Three Months Ended March 31, 2025 and 2024 Consolidated net income decreased by 24.7% to $5.5 million. Net interest and dividend income on a tax equivalent basis increased by 3.6% to $31.9 million, driven by rate decreases on interest-bearing liabilities outpacing the decrease in asset yields. The net interest margin improved by 14 basis points to 2.39% Results of Operations Comparison | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Consolidated Net Income | $5,500 | $7,300 | $(1,800) | -24.7% | | Tax Equivalent Net Interest and Dividend Income | $31,930 | $30,831 | $1,099 | 3.6% | | Net Interest Margin (Fully Tax Equivalent) | 2.39% | 2.25% | 0.14% | 6.2% | | Interest and Dividend Income (Tax Equivalent) | $64,900 | $67,153 | $(2,253) | -3.4% | | Interest Expense | $32,970 | $36,322 | $(3,352) | -9.2% | | Income Tax Provision | $1,625 | $2,441 | $(816) | -33.4% | | Effective Tax Rate | 22.8% | 25.1% | -2.3% | -9.2% | - Interest expense on borrowings decreased by $4.1 million (43.5%) due to a decrease in average balance and a 58-basis-point decrease in cost[188] - Interest expense on deposits increased by $744,000, reflecting a $168.6 million increase in average balance of interest-bearing deposits, despite a 3-basis-point decrease in cost[188] Segments HarborOne Bank's net income decreased by 13.0% to $6.2 million, primarily due to increased provision for credit losses and noninterest expense. HarborOne Mortgage recorded a net loss of $491,000, a significant decline from a net income of $223,000 in the prior year, largely impacted by a negative change in MSR fair value Segment Performance (Net Income/Loss) | Segment | Net Income (Loss) (in thousands) - Q1 2025 | Net Income (Loss) (in thousands) - Q1 2024 | Change (in thousands) | % Change | | :----------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------- | | HarborOne Bank | $6,234 | $7,163 | $(929) | -13.0% | | HarborOne Mortgage | $(491) | $223 | $(714) | -320.2% | - HarborOne Bank's noninterest income increased by $89,000, driven by a $135,000 increase in interchange fees due to accrued annual VISA incentives[197] - HarborOne Mortgage's total noninterest income decreased by $886,000, primarily due to a $1.3 million negative change in mortgage servicing rights fair value, partially offset by a $703,000 increase in gain on sale of mortgage loans[203] - HarborOne Mortgage's loan production increased to $114.1 million in Q1 2025 from $102.1 million in Q1 2024, with purchase loans representing 84.9% of total production[204][205] Asset Quality Credit quality remained strong, with total nonperforming assets increasing slightly to $30.9 million, representing 0.54% of total assets. The Allowance for Credit Losses (ACL) on loans decreased to $49.3 million, or 1.02% of total loans, primarily due to a specific reserve allocation and subsequent charge-off of a commercial real estate loan Asset Quality Metrics | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | Total non-accrual loans | $30,902 | $29,463 | $1,439 | 4.88% | | Total nonperforming assets | $30,908 | $29,473 | $1,435 | 4.87% | | Allowance for credit losses on loans | $49,323 | $56,101 | $(6,778) | -12.08% | | ACL to total loans | 1.02% | 1.16% | -0.14% | -12.07% | | Total nonperforming assets to total assets | 0.54% | 0.51% | 0.03% | 5.88% | | Net charge-offs (3 months ended March 31, 2025) | $8,669 | N/A | N/A | N/A | | Annualized net charge-off rate (3 months ended March 31, 2025) | 0.72% | N/A | N/A | N/A | - A $3.6 million specific reserve allocation was recorded for a classified commercial real estate loan, which, combined with an existing $4.7 million reserve, resulted in an $8.3 million charge-off in Q1 2025[213][226] - The commercial real estate and construction portfolio composition shows Flex/Industrial (22.6%), Multifamily (18.5%), and Hotels (12.5%) as the largest segments, with the office sector having a significant doubtful nonaccrual loan[216] Management of Market Risk The Company's primary market risk is interest-rate risk, managed through an Asset/Liability Committee using income simulation and Economic Value of Equity (EVE) analysis. As of March 31, 2025, the income simulation projected a decrease in net interest income for rising rates and an increase for falling rates over two years, while EVE showed sensitivity to both upward and downward rate shifts - The Company's primary market risk is interest-rate risk, managed through an Asset/Liability Committee (ALCO) using income simulation and Economic Value of Equity (EVE) analysis[227][228][231] Net Interest Income Sensitivity Analysis | Changes in Interest Rates (basis points) | Change in Net Interest Income (% change from year one base) - March 31, 2025 (Year One) | | :--------------------------------------- | :------------------------------------------------------------------------------------ | | +300 | (11.5)% | | +200 | (7.6)% | | +100 | (3.7)% | | -100 | 2.9% | | -200 | 4.2% | | -300 | 5.2% | | -400 | 6.0% | Economic Value of Equity (EVE) Sensitivity Analysis | Changes in Interest Rates (basis points) | Estimated Increase (Decrease) in EVE (March 31, 2025, in thousands) | Percent Change in EVE | | :--------------------------------------- | :---------------------------------------------------------------- | :-------------------- | | +400 | $(224,775) | (36.3)% | | +300 | $(156,742) | (25.3)% | | +200 | $(96,632) | (15.6)% | | +100 | $(39,651) | (6.4)% | | -100 | $24,492 | 4.0% | | -200 | $(10,621) | (1.7)% | | -300 | $(60,940) | (9.9)% | | -400 | $(136,055) | (22.0)% | Liquidity Management and Capital Resources The Company maintains a strong liquidity position with $230.5 million in cash and cash equivalents, supplemented by significant borrowing capacity from the FHLB ($762.0 million) and FRBB ($629.4 million). Core deposits are a stable funding source, and the Company believes it can meet contractual obligations, with both the Company and the Bank being 'well capitalized' - The Company had $230.5 million in cash and cash equivalents at March 31, 2025[238] - Available borrowing capacity included $762.0 million from the FHLB and $629.4 million from the FRBB, secured by pledged loans and securities[238] - Core deposits are defined as deposits other than certificates of deposits and historically provide a long-term, stable, and relatively lower-cost source of funding[239] - Both the Company and the Bank exceeded all regulatory capital requirements and were considered 'well capitalized' at March 31, 2025[242] Non-GAAP Financial Measures and Reconciliation to GAAP This section provides a reconciliation of the non-GAAP tangible-common-equity-to-tangible-assets ratio, which is used by regulators and market analysts to evaluate financial condition. The ratio improved to 9.15% at March 31, 2025, from 8.92% at March 31, 2024 - The tangible-common-equity-to-tangible-assets ratio is a non-GAAP financial measure utilized by regulators and market analysts[246] Tangible Common Equity Reconciliation | Metric | March 31, 2025 (in thousands) | March 31, 2024 (in thousands) | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Total stockholders' equity | $575,967 | $577,683 | | Less: Goodwill | $59,042 | $59,042 | | Less: Other intangible assets | $568 | $1,326 | | Tangible common equity | $516,357 | $517,315 | | Total assets | $5,700,330 | $5,862,222 | | Less: Goodwill | $59,042 | $59,042 | | Less: Other intangible assets | $568 | $1,326 | | Tangible assets | $5,640,720 | $5,801,854 | | Tangible common equity / tangible assets | 9.15% | 8.92% | ITEM 3. Quantitative and Qualitative Disclosures about Market Risk This item refers to the 'Management of Market Risk' section within Item 2, which details the Company's exposure to interest-rate risk and its management strategies, including income simulation and economic value of equity analysis - The information required by this Item is included in Part I, Item 2 of this Quarterly Report on Form 10-Q under the heading 'Management of Market Risk'[250] ITEM 4. Controls and Procedures The Company's management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective as of March 31, 2025. There were no material changes to internal control over financial reporting during the quarter - The Company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2025, ensuring timely and accurate reporting[250] - No material changes occurred in the Company's internal controls over financial reporting during the quarter ended March 31, 2025[251] PART II. OTHER INFORMATION ITEM 1. Legal Proceedings The Company is not involved in any material pending legal proceedings beyond routine matters in the ordinary course of business, and no outcomes are expected to materially affect its financial condition or results of operations - The Company is not involved in any material pending legal proceedings as a plaintiff or defendant, other than routine legal proceedings occurring in the ordinary course of business[254] - No legal proceedings are expected to materially impact the Company's financial condition or results of operations[254] ITEM 1A. Risk Factors This section updates and supplements risk factors, primarily focusing on those related to the pending merger with Eastern Bankshares, Inc. Key risks include business disruptions, management distraction, restrictions on business conduct, uncertainty of stock consideration value, and potential failure to complete the merger or realize anticipated benefits - The pendency of the Merger could adversely affect the Company's business, results of operations, and financial condition by causing disruptions, creating uncertainty, and impacting relationships with customers, suppliers, and employees[256] - Restrictions on business conduct prior to the Merger's consummation, as stipulated in the Merger Agreement, may hinder the Company's ability to respond to competitive pressures or pursue new opportunities[257] - Shareholders cannot be certain of the market value of the Stock Consideration due to potential fluctuations in Eastern common stock price, and failure to complete the Merger could negatively impact the Company's stock price and future financial results[258][262] - The Merger is subject to governmental and shareholder approvals, which may cause delays or impose conditions, and Eastern may face difficulties in successfully integrating the Company's operations, potentially failing to realize expected benefits and cost savings[260][261][265][268] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company repurchased 513,855 shares of its common stock for $5.9 million during the first quarter of 2025 under a previously announced program. However, the share repurchase program was suspended on April 24, 2025, following the entry into the Merger Agreement Share Repurchase Activity | Period | Total number of shares purchased | Average price paid per share | | :-------------------------- | :----------------------------- | :--------------------------- | | January 1 to January 31, 2025 | 162,130 | $11.97 | | February 1 to February 28, 2025 | 165,500 | $11.88 | | March 1 to March 31, 2025 | 186,225 | $10.92 | | Total (Q1 2025) | 513,855 | $11.56 | - The Company suspended its share repurchase program on April 24, 2025, after entering into the Merger Agreement[272] ITEM 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[273] ITEM 4. Mine Safety Disclosures This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[274] ITEM 5. Other Information This section confirms no unregistered sales of equity securities, no use of proceeds from such sales, and no directors or executive officers had Rule 10b5-1 trading arrangements during the quarter ended March 31, 2025 - No unregistered sales of equity securities occurred during the quarter[276] - No directors or executive officers had Rule 10b5-1 trading arrangements during the quarter ended March 31, 2025[275] ITEM 6. Exhibits This item lists the exhibits included in or incorporated by reference into the Quarterly Report on Form 10-Q, including the Merger Agreement, CEO and CFO certifications, and interactive data files - Exhibits include the Agreement and Plan of Merger (Exhibit 2.1), CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1), and Interactive Data Files (Exhibit 101, 104)[279]