HarborOne Bancorp(HONE) - 2023 Q2 - Quarterly Report

Table of Contents Glossary of Acronyms and Terms PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements This section presents HarborOne Bancorp, Inc.'s unaudited consolidated financial statements and notes, detailing key financial positions and policies Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 Consolidated Balance Sheets ($ thousands) | Metric ($ thousands) | June 30, 2023 | December 31, 2022 | | :----------------------- | :------------- | :--------------- | | Assets | | | | Cash and bank deposits | 43,525 | 39,712 | | Short-term investments | 209,326 | 58,305 | | Total cash and cash equivalents | 252,851 | 98,017 | | Available-for-sale securities (at fair value) | 292,012 | 301,149 | | Held-to-maturity securities (at amortized cost) | 19,839 | 19,949 | | Net loans | 4,650,382 | 4,504,434 | | Mortgage servicing rights (at fair value) | 48,176 | 48,138 | | Goodwill | 69,802 | 69,802 | | Total assets | 5,659,254 | 5,359,545 | | Liabilities and Stockholders' Equity | | | | Total deposits | 4,287,488 | 4,189,499 | | FHLB borrowings | 604,568 | 400,675 | | Total liabilities | 5,063,722 | 4,742,569 | | Total stockholders' equity | 595,532 | 616,976 | | Total liabilities and stockholders' equity | 5,659,254 | 5,359,545 | - As of June 30, 2023, total assets increased to $5.66 billion, a 5.6% increase from $5.36 billion on December 31, 2022, primarily driven by increases in short-term investments and loans[11][176] - Cash and cash equivalents significantly increased by $154.8 million, from $98.0 million on December 31, 2022, to $252.9 million on June 30, 2023, mainly reflecting an increase in short-term investments[11][177] Consolidated Statements of Income for the Three and Six Months Ended June 30, 2023 and 2022 Consolidated Statements of Income ($ thousands) | Metric ($ thousands) | June 30, 2023 (3 months) | June 30, 2022 (3 months) | June 30, 2023 (6 months) | June 30, 2022 (6 months) | | :----------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Total interest and dividend income | 60,800 | 39,857 | 116,739 | 75,459 | | Total interest expense | 28,700 | 2,662 | 50,241 | 4,994 | | Net interest and dividend income | 32,100 | 37,195 | 66,498 | 70,465 | | Provision for credit losses | 3,283 | 2,546 | 5,149 | 2,884 | | Total non-interest income | 12,662 | 14,103 | 21,352 | 33,164 | | Total non-interest expense | 31,725 | 34,954 | 63,234 | 69,789 | | Net income | 7,479 | 9,987 | 14,776 | 22,254 | | Basic earnings per share | 0.17 | 0.21 | 0.34 | 0.47 | | Diluted earnings per share | 0.17 | 0.21 | 0.33 | 0.46 | - For the three months ended June 30, 2023, net income was $7.5 million, a 25.1% decrease year-over-year (compared to $10.0 million in the prior year period)[14][197] - For the six months ended June 30, 2023, net income was $14.8 million, a 33.5% decrease year-over-year (compared to $22.3 million in the prior year period)[14][197] - Net interest and dividend income decreased by 13.1% to $32.3 million for the three months ended June 30, 2023, primarily due to the growth in interest rates on interest-bearing liabilities exceeding the growth in yields on interest-earning assets[14][217] Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2023 and 2022 Consolidated Statements of Comprehensive (Loss) Income ($ thousands) | Metric ($ thousands) | June 30, 2023 (3 months) | June 30, 2022 (3 months) | June 30, 2023 (6 months) | June 30, 2022 (6 months) | | :----------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net income | 7,479 | 9,987 | 14,776 | 22,254 | | Total other comprehensive (loss) income | (3,880) | (15,220) | 792 | (32,630) | | Comprehensive (loss) income | 3,599 | (5,233) | 15,568 | (10,376) | - For the three months ended June 30, 2023, comprehensive income was $3.6 million, compared to a comprehensive loss of $5.2 million in the prior year period, primarily influenced by changes in unrealized gains and losses on available-for-sale securities[15] - For the six months ended June 30, 2023, comprehensive income was $15.6 million, compared to a comprehensive loss of $10.4 million in the prior year period[15] Consolidated Statements of Changes in Stockholders' Equity for the Three and Six Months Ended June 30, 2023 and 2022 Consolidated Statements of Changes in Stockholders' Equity ($ thousands) | Metric ($ thousands) | June 30, 2023 | June 30, 2022 | | :----------------------- | :------------- | :------------- | | Total stockholders' equity (beginning balance) | 599,794 | 649,065 | | Comprehensive (loss) income | 3,599 | (5,233) | | Dividends declared | (3,224) | (3,250) | | Treasury stock repurchases | (5,810) | (18,783) | | Total stockholders' equity (ending balance) | 595,532 | 624,478 | - As of June 30, 2023, total stockholders' equity was $595.5 million, a 3.5% decrease from $617.0 million on December 31, 2022, primarily due to earnings being offset by stock repurchases[17][192] - The company completed its fifth stock repurchase program on April 13, 2023, repurchasing 2,450,208 shares at an average price of $13.01 per share[17][192] Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 Consolidated Statements of Cash Flows ($ thousands) | Metric ($ thousands) | June 30, 2023 (6 months) | June 30, 2022 (6 months) | | :----------------------- | :--------------------- | :--------------------- | | Net cash provided by operating activities | 41,568 | 21,060 | | Net cash used in investing activities | (150,201) | (302,108) | | Net cash provided by financing activities | 263,467 | 170,667 | | Net change in cash and cash equivalents | 154,834 | (110,381) | | Cash and cash equivalents (ending balance) | 252,851 | 84,338 | - For the six months ended June 30, 2023, net cash provided by operating activities increased to $41.6 million, a 97.4% increase from $21.1 million in the prior year period[19] - Net cash provided by financing activities significantly increased to $263.5 million, compared to $170.7 million in the prior year period, primarily due to a net increase in deposits and FHLB borrowings[22] Notes to Consolidated Financial Statements (unaudited) Note 1. Summary of Significant Accounting Policies - The company offers various financial services, including checking, money market, savings, and certificate of deposit accounts, with primary loan products covering commercial real estate, commercial, residential mortgage, home equity, and consumer loans[28] - In the first quarter of 2023, the banking industry experienced significant volatility, and the company assessed its liquidity sources, including FHLB advances, the BTFP program, investment securities, and loan sales, to address potential deposit outflows and funding needs[29][30][31] - The company adopted ASU 2022-02 on January 1, 2023, which eliminated accounting guidance for troubled debt restructurings (TDRs) and enhanced disclosure requirements for certain loan refinancings and restructurings, with no material impact on its financial statements[35] Note 2. Debt Securities Debt Securities ($ thousands) | Security Type ($ thousands) | June 30, 2023 (Amortized Cost) | June 30, 2023 (Fair Value) | December 31, 2022 (Amortized Cost) | December 31, 2022 (Fair Value) | | :------------------------------------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Total available-for-sale securities | 358,544 | 292,012 | 369,404 | 301,149 | | Total held-to-maturity securities | 19,839 | 19,005 | 19,949 | 19,274 | - As of June 30, 2023, the fair value of available-for-sale debt securities was $292.0 million, a $9.1 million decrease from $301.1 million on December 31, 2022, primarily due to unrealized losses[36][37][182] - As of June 30, 2023, 131 of the 132 debt securities in the company's portfolio were in an unrealized loss position, mainly related to mortgage-backed securities and other obligations issued by U.S. government-sponsored entities and agencies, with these losses primarily attributable to interest rate changes rather than credit quality deterioration[40][41] Note 3. Loans Held for Sale Loans Held for Sale ($ thousands) | Metric ($ thousands) | June 30, 2023 | December 31, 2022 | | :----------------------- | :------------- | :--------------- | | Loans held for sale (fair value) | 20,949 | 18,544 | | Loans held for sale (contractual principal balance) | 20,578 | 18,208 | | Fair value less outstanding principal balance | 371 | 336 | - As of June 30, 2023, the fair value of loans held for sale was $20.9 million, a $2.4 million increase from $18.5 million on December 31, 2022[45][177] - The company elected the fair value option for mortgage loans to better match changes in the fair value of loans with changes in the fair value of forward sale commitment contracts used for economic hedging[45] Note 4. Loans and Allowance for Credit Losses Loans ($ thousands) | Loan Type ($ thousands) | June 30, 2023 | December 31, 2022 | | :----------------------- | :------------- | :--------------- | | Total residential real estate loans | 1,702,210 | 1,634,319 | | Total commercial loans | 2,969,012 | 2,873,930 | | Total consumer loans | 27,425 | 41,421 | | Total loans (before adjustments) | 4,698,647 | 4,549,670 | | Allowance for credit losses | (47,821) | (45,236) | | Net loans | 4,650,382 | 4,504,434 | - As of June 30, 2023, net loans increased to $4.65 billion, a 3.2% increase from $4.50 billion on December 31, 2022, primarily driven by growth in commercial real estate and residential real estate loans[47][180][181] Allowance for Credit Losses Activity ($ thousands) | Allowance for Credit Losses Activity ($ thousands) | June 30, 2023 (3 months) | June 30, 2022 (3 months) | June 30, 2023 (6 months) | June 30, 2022 (6 months) | | :-------------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Beginning balance | 46,994 | 41,765 | 45,236 | 45,377 | | Charge-offs | (2,988) | (11) | (3,002) | (2,857) | | Recoveries | 317 | 516 | 342 | 632 | | Provision | 3,498 | 1,290 | 5,245 | 1,719 | | Ending balance | 47,821 | 43,560 | 47,821 | 43,560 | - As of June 30, 2023, the allowance for credit losses was $47.8 million, representing 1.02% of total loans, an increase from $45.2 million (0.99% of total loans) on December 31, 2022[47][181][256][257] Delinquent and Nonaccrual Loans ($ thousands) | Delinquent and Nonaccrual Loans ($ thousands) | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :--------------- | | 30-59 days delinquent | 8,012 | 4,510 | | 60-89 days delinquent | 1,030 | 1,122 | | 90 days or more delinquent | 4,300 | 9,793 | | Total delinquent | 13,342 | 15,425 | | Nonaccrual loans | 20,210 | 14,786 | - As of June 30, 2023, total nonaccrual loans were $20.2 million, an increase from $14.8 million on December 31, 2022[54][247] Note 5. Mortgage Loan Servicing - As of June 30, 2023, the total unpaid principal balance of mortgage loans serviced for others was $3.60 billion, slightly lower than $3.62 billion on December 31, 2022[66] Mortgage Servicing Rights (MSRs) Key Assumptions | Mortgage Servicing Rights (MSRs) Key Assumptions | June 30, 2023 | December 31, 2022 | | :--------------------------------- | :------------- | :--------------- | | Prepayment speed | 7.20 % | 7.10 % | | Discount rate | 9.90 % | 9.81 % | | Default rate | 1.41 % | 1.63 % | - As of June 30, 2023, total Mortgage Servicing Rights (MSRs) were $48.2 million, largely consistent with $48.1 million on December 31, 2022, reflecting the combined impact of new MSRs, loan repayment amortization, and negative fair value adjustments[67][184] Note 6. Goodwill and Other Intangible Assets - As of June 30, 2023, and December 31, 2022, the goodwill carrying value was $69.8 million, with $59.0 million attributed to HarborOne Bank and $10.8 million to HarborOne Mortgage[68] - The company performs its annual goodwill impairment test on October 31 or when a triggering event occurs, and no triggering events requiring an interim impairment assessment were identified as of June 30, 2023[69] Note 7. Deposits Deposits ($ thousands) | Deposit Type ($ thousands) | June 30, 2023 | December 31, 2022 | | :----------------------- | :------------- | :--------------- | | Demand and checking accounts | 1,004,528 | 1,060,268 | | Regular savings and club accounts | 1,390,906 | 1,468,172 | | Money market deposit accounts | 834,120 | 861,704 | | Total non-certificate accounts | 3,229,554 | 3,390,144 | | Total certificate of deposit accounts | 1,057,934 | 799,355 | | Brokered deposits | 315,003 | 301,380 | | Total deposits | 4,287,488 | 4,189,499 | - As of June 30, 2023, total deposits increased to $4.29 billion, a 2.3% increase from $4.19 billion on December 31, 2022, primarily driven by increases in municipal and brokered deposits[73][189] - As of June 30, 2023, municipal deposits were $497.9 million, a 20.4% increase from $413.5 million on December 31, 2022[73][189] - The company participates in reciprocal deposit programs, with total reciprocal deposits of $149.2 million as of June 30, 2023, a significant increase from $28.6 million on December 31, 2022[73][189] Note 8. Borrowings Borrowings ($ thousands) | Borrowing Type ($ thousands) | June 30, 2023 | December 31, 2022 | | :----------------------- | :------------- | :--------------- | | FHLB short-term advances | 414,000 | 385,000 | | FHLB long-term advances | 190,568 | 15,675 | | Total FHLB borrowings | 604,568 | 400,675 | | Subordinated debt | 34,348 | 34,285 | - As of June 30, 2023, FHLB borrowings increased to $604.6 million, a $203.9 million increase from $400.7 million on December 31, 2022, primarily to enhance liquidity[75][191] - The company has an additional borrowing capacity of $583.7 million from FHLB, $68.8 million from FRBB, and $366.8 million through the FRB BTFP program[79][80][81][272] - The company issued $35.0 million in fixed-to-floating rate subordinated notes on August 30, 2018, with the interest rate resetting on September 1, 2023[82] Note 9. Other Commitments and Contingencies Allowance for Credit Losses (Unfunded Commitments) ($ thousands) | Allowance for Credit Losses (Unfunded Commitments) ($ thousands) | June 30, 2023 | June 30, 2022 | | :-------------------------------------- | :------------- | :------------- | | Beginning balance | 5,046 | 3,840 | | Provision | (215) | 1,256 | | Ending balance | 4,831 | 5,096 | - As of June 30, 2023, the allowance for credit losses on unfunded commitments was $4.8 million, slightly lower than $5.1 million in the prior year period[84][256] Off-Balance Sheet Financial Instruments ($ thousands) | Off-Balance Sheet Financial Instruments ($ thousands) | June 30, 2023 | December 31, 2022 | | :---------------------- | :------------- | :--------------- | | Commitments to originate residential real estate loans | 67,347 | 57,916 | | Commitments to originate other loans | 84,676 | 43,700 | | Unfunded home equity lines of credit | 256,957 | 251,759 | | Unfunded revolving lines of credit | 314,496 | 351,382 | | Unfunded construction loans | 287,523 | 262,945 | - As of June 30, 2023, the company had $152.0 million in loan origination commitments and $859.0 million in unfunded loan commitments[88][276] Note 10. Derivatives - The company uses derivative financial instruments to manage interest rate risk, including interest rate swap agreements designated as fair value and cash flow hedges, as well as derivative loan commitments and forward loan sale commitments not designated as hedging instruments[89][90][93][95][97] Derivative Instruments ($ thousands) | Derivative Instruments ($ thousands) | June 30, 2023 (Notional Amount) | June 30, 2023 (Fair Value of Assets) | June 30, 2023 (Fair Value of Liabilities) | | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Total designated as hedging instruments | 200,000 | 8,006 | — | | Total not designated as hedging instruments | 1,016,466 | 28,910 | 28,212 | | Total derivative instruments | — | 36,916 | 28,212 | - As of June 30, 2023, the company had two interest rate swap agreements with a notional amount of $100.0 million each, designated as fair value hedges of fixed-rate residential mortgage loans[91] - As of June 30, 2023, the company had one interest rate swap agreement with a notional amount of $100.0 million, designated as a cash flow hedge of brokered deposits, with a fair value of $7.6 million[94] Note 11. Operating Lease ROU Assets and Liabilities Operating Lease ROU Assets and Liabilities ($ thousands) | Metric ($ thousands) | June 30, 2023 | December 31, 2022 | | :----------------------- | :------------- | :--------------- | | Operating lease right-of-use assets | 24,100 | 26,900 | | Operating lease liabilities | 25,800 | 28,600 | - As of June 30, 2023, operating lease right-of-use assets were $24.1 million and operating lease liabilities were $25.8 million, both decreasing from December 31, 2022[108][109] - As of June 30, 2023, lease maturities ranged from 2 months to 35.2 years, with a weighted-average remaining lease term of 16.3 years[109] Note 12. Minimum Regulatory Capital Requirements - As of June 30, 2023, the capital levels for both the company and the bank exceeded all regulatory capital requirements and were above the minimum levels to be considered "well capitalized," including the 2.5% capital conservation buffer[116][196] Regulatory Capital Ratios | Regulatory Capital Ratios | HarborOne Bancorp, Inc. (June 30, 2023) | HarborOne Bank (June 30, 2023) | | :--------------------------------- | :------------------------------------- | :----------------------------- | | Common Equity Tier 1 Capital Ratio to Risk-Weighted Assets | 12.0 % | 11.3 % | | Tier 1 Capital Ratio to Risk-Weighted Assets | 12.0 % | 11.3 % | | Total Capital Ratio to Risk-Weighted Assets | 13.9 % | 12.4 % | | Tier 1 Capital Ratio to Average Assets | 10.2 % | 9.6 % | Note 13. Comprehensive (Loss) Income Components of Comprehensive (Loss) Income ($ thousands) | Components of Comprehensive (Loss) Income ($ thousands) | June 30, 2023 (3 months) | June 30, 2022 (3 months) | June 30, 2023 (6 months) | June 30, 2022 (6 months) | | :---------------------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Beginning balance | (42,410) | (19,047) | (47,082) | (1,637) | | Net other comprehensive (loss) income | (4,961) | (19,455) | 940 | (41,484) | | Related tax impact | 1,081 | 4,235 | (148) | 8,854 | | Ending balance | (46,290) | (34,267) | (46,290) | (34,267) | - As of June 30, 2023, accumulated other comprehensive loss was $46.3 million, an improvement from $47.1 million on December 31, 2022, primarily reflecting changes in unrealized gains and losses on available-for-sale securities[121] Note 14. Fair Value of Assets and Liabilities - The company uses a three-level input hierarchy to measure fair value: Level 1 for quoted prices in active markets for identical assets or liabilities; Level 2 for observable quoted prices for similar assets or liabilities; and Level 3 for unobservable inputs reflecting the company's own assumptions[122][123] Fair Value of Assets and Liabilities ($ thousands) | Assets and Liabilities ($ thousands) | June 30, 2023 (Total Fair Value) | December 31, 2022 (Total Fair Value) | | :----------------------- | :----------------------- | :----------------------- | | Assets | | | | Available-for-sale securities | 292,012 | 301,149 | | Loans held for sale | 20,949 | 18,544 | | Mortgage servicing rights | 48,176 | 48,138 | | Derivative instruments | 36,916 | 37,326 | | Liabilities | | | | Derivative instruments | 28,212 | 28,629 | - As of June 30, 2023, the company assessed that credit valuation adjustments for its interest rate swaps and risk participation agreements were not significant to the overall valuation, thus categorizing its derivative valuations generally as Level 2[139] Note 15. Earnings Per Share Earnings Per Share ($) | Earnings Per Share ($) | June 30, 2023 (3 months) | June 30, 2022 (3 months) | June 30, 2023 (6 months) | June 30, 2022 (6 months) | | :----------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Basic earnings per share | 0.17 | 0.21 | 0.34 | 0.47 | | Diluted earnings per share | 0.17 | 0.21 | 0.33 | 0.46 | - For the three months ended June 30, 2023, basic and diluted earnings per share were both $0.17, lower than $0.21 in the prior year period[153] - For the six months ended June 30, 2023, basic earnings per share were $0.34 and diluted earnings per share were $0.33, both lower than $0.47 and $0.46, respectively, in the prior year period[153] Note 16. Revenue Recognition - The company recognizes revenue based on the consideration specified in contracts with customers, and revenue is recognized when performance obligations are satisfied, typically at the time services are provided or transactions occur[154][155] - Transactional revenue includes bank card interchange fees, ATM fees, wire transfer fees, overdraft fees, and stop payment and returned item fees, as well as loan fees such as letter of credit, line renewal, and application fees[157] Note 17. Segment Reporting - The company has two reportable segments: HarborOne Bank and HarborOne Mortgage, with HarborOne Bank's revenue primarily from interest on loans and investment securities and service charges on deposit accounts, while HarborOne Mortgage's revenue is mainly from loan interest and fees from residential mortgage origination, sale, and servicing[158] Segment Net Income ($ thousands) | Segment Net Income ($ thousands) | June 30, 2023 (3 months) | June 30, 2022 (3 months) | June 30, 2023 (6 months) | June 30, 2022 (6 months) | | :----------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | HarborOne Bank | 7,301 | 9,354 | 16,351 | 18,160 | | HarborOne Mortgage | 309 | 1,390 | (984) | 5,626 | | Consolidated Net Income | 7,479 | 9,987 | 14,776 | 22,254 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition as of June 30, 2023, and operating results for the three and six months ended June 30, 2023 and 2022 Forward-Looking Statements - The company states that this report contains forward-looking statements subject to various risks and uncertainties, including changes in economic conditions, customer behavior, market volatility, interest rate fluctuations, rising loan defaults, declining security values, real estate value volatility, allowance for credit losses adequacy, deposit level changes, competitive pressures, cybersecurity incidents, regulatory changes, and goodwill impairment risks[166] Critical Accounting Policies and Estimates - The company's critical accounting policies include the allowance for credit losses, goodwill, and deferred tax assets, which involve complex judgments and estimates by management regarding changes in interest rates, economic performance, and borrower financial condition[171] Recent Developments - Given recent banking industry events, the company has implemented cost-saving measures and operational efficiencies, expecting annual savings of approximately $4.1 million[173] - As of June 30, 2023, cash and available-for-sale securities represented 9.6% of assets, and the company had $1.0 billion in additional borrowing capacity from FHLB and FRBB, with management deeming current liquidity sufficient[174] Comparison of Financial Condition at June 30, 2023 and December 31, 2022 - Total assets increased by $299.7 million, or 5.6%, to $5.66 billion, primarily reflecting increases in short-term investments and loans[176] - Cash and cash equivalents increased by $154.8 million to $252.9 million, mainly due to an increase in short-term investments[177] - Net loans increased by $145.9 million, or 3.2%, to $4.65 billion, primarily driven by growth in commercial real estate and residential real estate loans[180][181] - Deposits increased by $98.0 million, or 2.3%, to $4.29 billion, primarily driven by growth in municipal and brokered deposits[189] - FHLB borrowings increased by $203.9 million to $604.6 million, primarily utilized to enhance liquidity[191] - Total stockholders' equity was $595.5 million, a 3.5% decrease from December 31, 2022, primarily due to earnings being offset by stock repurchases[192] Comparison of Results of Operations for the Three and Six Months Ended June 30, 2023 and 2022 - For the three and six months ended June 30, 2023, consolidated net income was $7.5 million and $14.8 million, respectively, lower than $10.0 million and $22.3 million in the prior year periods[197] - Net interest and dividend income decreased by 13.1% to $32.3 million for the three months ended June 30, 2023, primarily due to the growth in interest rates on interest-bearing liabilities exceeding the growth in yields on interest-earning assets[217] - For the three months ended June 30, 2023, interest expense increased by $26.0 million, or 978.1%, to $28.7 million, primarily due to increases in the average balance and rates of deposits and FHLB borrowings[215][220] HarborOne Bank Segment - For the three months ended June 30, 2023, HarborOne Bank's net income decreased by $2.1 million to $7.3 million, primarily impacted by a decrease in net interest and dividend income and an increase in the provision for credit losses[224] - For the three months ended June 30, 2023, the provision for credit losses was $3.3 million, primarily reflecting $2.9 million in charge-offs and loan growth[226] - As of June 30, 2023, nonaccrual assets were $20.2 million, representing 0.36% of total assets, lower than $24.4 million and 0.52% on June 30, 2022[227][248] - For the three months ended June 30, 2023, total non-interest expense was $26.2 million, a 3.5% decrease from the prior year period, primarily due to reduced compensation and benefits expense[234][235] HarborOne Mortgage Segment - For the three months ended June 30, 2023, HarborOne Mortgage recorded net income of $309 thousand, compared to $1.4 million in the prior year period, primarily impacted by rising interest rates, reduced refinancing activity, and slower home sales[237] - For the three months ended June 30, 2023, total non-interest income was $5.9 million, a 32.5% decrease from $8.8 million in the prior year period, primarily due to reduced gains on mortgage loan sales and processing fees[238][241] - For the three months ended June 30, 2023, total non-interest expense was $5.5 million, a 24.2% decrease from the prior year period, primarily due to reduced compensation and benefits expense resulting from lower mortgage origination volume[243][244] Asset Quality Asset Quality Metrics ($ thousands) | Asset Quality Metrics ($ thousands) | June 30, 2023 | December 31, 2022 | | :----------------------- | :------------- | :--------------- | | Total nonaccrual loans | 20,210 | 14,786 | | Total nonaccrual assets | 20,234 | 14,840 | | Allowance for credit losses balance | 47,821 | 45,236 | | Allowance for credit losses to total loans | 1.02 % | 0.99 % | | Allowance for credit losses to nonaccrual loans | 236.62 % | 305.94 % | | Nonaccrual loans to total loans | 0.43 % | 0.32 % | | Nonaccrual assets to total assets | 0.36 % | 0.28 % | - As of June 30, 2023, total nonaccrual assets were $20.2 million, an increase from $14.8 million on December 31, 2022, yet credit quality performance remained strong[247][248] - Management closely monitors its commercial real estate loan portfolio, particularly sectors such as hospitality, unanchored retail space, and urban office space, which may be susceptible to economic conditions[249] - As of June 30, 2023, the allowance for credit losses was $47.8 million, representing 1.02% of total loans, an increase from $45.2 million on December 31, 2022[256][257] Net Charge-offs (Recoveries) ($ thousands) | Net Charge-offs (Recoveries) ($ thousands) | June 30, 2023 (3 months) | June 30, 2022 (3 months) | June 30, 2023 (6 months) | June 30, 2022 (6 months) | | :------------------------ | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Residential real estate loans | (37) | (81) | (45) | (93) | | Commercial loans | 2,670 | (412) | 2,676 | 2,347 | | Consumer loans | 38 | (12) | 29 | (29) | | Total loans | 2,671 | (505) | 2,660 | 2,225 | - For the three and six months ended June 30, 2023, net charge-offs were $2.7 million, primarily including a $2.9 million charge-off on an urban office space commercial real estate loan[259] Management of Market Risk - The company's primary market risk is interest rate risk, managed through exposure limits set by the Asset/Liability Committee, utilizing income simulation models and economic value of equity analysis as key measurement tools[262] Net Interest Income Sensitivity to Interest Rate Changes | Interest Rate Changes (Basis Points) | Net Interest Income Change (% change from Year 1 Baseline) | | :---------------- | :--------------------------------------------- | | | June 30, 2023 | June 30, 2022 | | | Year 1 | Year 2 | Year 1 | Year 2 | | +300 | (11.4)% | (10.9)% | (0.7)% | 3.7 % | | +200 | (7.3)% | (6.5)% | (0.3)% | 3.0 % | | +100 | (3.5)% | (2.9)% | (0.2)% | 1.6 % | | -100 | 3.6 % | 3.6 % | (2.1)% | (5.3)% | - As of June 30, 2023, a 300 basis point increase in interest rates would result in an 11.4% decrease in net interest income for the first year and a 10.9% decrease for the second year, indicating increased sensitivity to rising rates[264] Economic Value of Equity (EVE) Sensitivity to Interest Rate Changes | Interest Rate Changes (Basis Points) | Economic Value of Equity (EVE) ($ thousands) | EVE Change ($ thousands) | EVE Change (%) | | :---------------- | :-------------------------- | :--------------- | :---------- | | +300 | 472,635 | (187,586) | (28.4)% | | +200 | 551,271 | (108,950) | (16.5)% | | +100 | 614,813 | (45,408) | (6.9)% | | 0 | 660,221 | — | — | | -100 | 682,127 | 21,906 | 3.3 % | - As of June 30, 2023, a 300 basis point increase in interest rates would result in a 28.4% decrease in Economic Value of Equity (EVE), indicating the company's exposure to significant interest rate increases[268] Liquidity Management and Capital Resources - The company meets its short-term and long-term financial obligations through deposit inflows, loan repayments, securities maturities and sales, and FHLB borrowings[270] - As of June 30, 2023, the company had $252.9 million in cash and cash equivalents, along with a total of $1.0 billion in additional borrowing capacity from FHLB, FRBB, and the FRB BTFP program[272] - As of June 30, 2023, the company had $152.0 million in loan origination commitments and $859.0 million in unfunded loan commitments[276] - Both the company and the bank's capital levels exceeded all regulatory capital requirements and were considered "well capitalized"[278] Non-GAAP Financial Measures and Reconciliation to GAAP - The company uses the tangible common equity to tangible assets ratio as a non-GAAP financial measure to assess its financial condition, believing it provides useful information to investors[279] Tangible Common Equity to Tangible Assets Reconciliation ($ thousands) | Metric ($ thousands) | June 30, 2023 | June 30, 2022 | | :----------------------- | :------------- | :------------- | | Tangible common equity | 523,837 | 551,981 | | Tangible assets | 5,587,559 | 4,631,547 | | Tangible common equity/tangible assets | 9.38 % | 11.92 % | - As of June 30, 2023, the tangible common equity to tangible assets ratio was 9.38%, lower than 11.92% on June 30, 2022[280] ITEM 3. Quantitative and Qualitative Disclosures about Market Risk This section details the company's interest rate risk and management strategies, referencing the "Management of Market Risk" discussion ITEM 4. Controls and Procedures Management assessed disclosure controls and procedures as effective for timely information reporting, with no significant changes in internal controls this quarter - As of June 30, 2023, the company's disclosure controls and procedures were effective, ensuring timely recording, processing, summarization, and reporting of information[283] - There were no significant changes in the company's internal control over financial reporting during the quarter ended June 30, 2023[284] PART II. OTHER INFORMATION ITEM 1. Legal Proceedings The company is not involved in any other material pending legal proceedings beyond those disclosed in its Form 10-K, with a class action lawsuit settlement preliminarily approved - The company is not involved in any other material pending legal proceedings, aside from routine legal matters disclosed in its Form 10-K as of December 31, 2022[287] - The class action lawsuit of Rita Meaden v. HarborOne Bank received preliminary settlement approval on May 18, 2023, with a final approval hearing scheduled for October 11, 2023[288] ITEM 1A. Risk Factors The risk factors disclosed in this quarterly report remain consistent with those described in the company's previous annual and quarterly reports - There are no material changes to the risk factors described in the company's previously filed annual report on Form 10-K as of December 31, 2022, and quarterly report on Form 10-Q as of March 31, 2023[289] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds The company completed its fifth stock repurchase program in Q2 2023, repurchasing 2,450,208 shares, and announced a sixth program to repurchase up to 2,325,489 common shares Stock Repurchase Program Summary | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs | | :------------------- | :--------------------------- | :--------------------------- | :----------------------------------------------------------- | :--------------------------------------------------------------------- | | April 1 to April 30, 2023 | 472,308 | $12.30 | 472,308 | — | | May 1 to May 31, 2023 | — | — | — | — | | June 1 to June 30, 2023 | — | — | — | — | | Total | 472,308 | $12.30 | 472,308 | 2,450,208 | - The company completed its fifth stock repurchase program in the second quarter of 2023, repurchasing 2,450,208 shares at an average price of $13.01 per share[291] - The company announced its sixth stock repurchase program on July 5, 2023, authorizing the repurchase of up to 2,325,489 shares of common stock, representing approximately 5% of its outstanding shares, with the program expiring on June 30, 2024[292] ITEM 3. Defaults Upon Senior Securities There were no defaults upon senior securities during this quarter - There were no defaults upon senior securities during this quarter[293] ITEM 4. Mine Safety Disclosures Not applicable - Not applicable[294] ITEM 5. Other Information No directors or senior officers adopted, modified, or terminated any Rule 10b5-1(c) compliant securities trading plans during the quarter ended June 30, 2023 - During the quarter ended June 30, 2023, no contracts, instructions, or written plans for buying or selling securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) were adopted, modified, or terminated by any director or officer[295] ITEM 6. Exhibits This quarterly report includes or incorporates by reference the exhibits listed in the Exhibit Index, such as CEO and CFO certifications and interactive data files - This quarterly report includes or incorporates by reference the exhibits listed in the Exhibit Index, including certifications from the Chief Executive Officer and Chief Financial Officer, and interactive data files[296][298] SIGNATURE