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HarborOne Bancorp, Inc. - Quarter Report: 2023 September (Form 10-Q)

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-38955

HarborOne Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Massachusetts

 

81-1607465

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

770 Oak Street, Brockton, Massachusetts

02301

(Address of principal executive offices)

(Zip Code)

(508) 895-1000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act

Title of each Class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 par value

HONE

The NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer  

Accelerated filer  

Non-accelerated filer  

Smaller reporting company  

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of November 2, 2023, there were 45,766,944 shares of the Registrant’s common stock, par value $0.01 per share, outstanding

Table of Contents

Index

PAGE

Glossary of Acronyms and Terms

1

PART I.

FINANCIAL INFORMATION

ITEM 1.

Financial Statements

Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (unaudited)

2

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)

3

Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)

4

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)

5

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited)

7

Notes to Consolidated Financial Statements (unaudited)

Note 1. Summary of Significant Accounting Policies

9

Note 2. Debt Securities

10

Note 3. Loans Held for Sale

13

Note 4. Loans and Allowance for Credit Losses

14

Note 5. Mortgage Loan Servicing

20

Note 6. Goodwill and Other Intangible Assets

21

Note 7. Deposits

22

Note 8. Borrowings

23

Note 9. Other Commitments and Contingencies

24

Note 10. Derivatives

25

Note 11. Operating Lease ROU Assets and Liabilities

29

Note 12. Minimum Regulatory Capital Requirements

30

Note 13. Comprehensive (Loss) Income

32

Note 14. Fair Value of Assets and Liabilities

33

Note 15. Earnings Per Share

38

Note 16. Revenue Recognition

39

Note 17. Segment Reporting

39

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

42

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

64

ITEM 4.

Controls and Procedures

64

PART II.

OTHER INFORMATION

ITEM 1.

Legal Proceedings

65

ITEM 1A.

Risk Factors

65

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

66

ITEM 3.

Defaults Upon Senior Securities

66

ITEM 4.

Mine Safety Disclosures

66

ITEM 5.

Other Information

66

ITEM 6.

Exhibits

67

EXHIBIT INDEX

67

SIGNATURE

68

Table of Contents

Glossary of Acronyms and Terms

The following is a list of common acronyms and terms used regularly in our financial reporting:

ACL

Allowance for Credit Losses

ASU

Accounting Standards Update

BTFP

Bank Term Funding Program

DCF

Discounted cash flow

DIF

Depositors Insurance Fund

EPS

Earnings Per Share

ESOP

Employee Stock Ownership Plan

EVE

Equity at risk

FASB

Federal Accounting Standards Board

FDIC

Federal Deposit Insurance Corporation

Federal Reserve

Board of Governors of the Federal Reserve System

FHLB

Federal Home Loan Bank

FRBB

Federal Reserve Bank of Boston

GAAP

Accounting principles generally accepted in the Unites States of America

HarborOne Mortgage

HarborOne Mortgage, LLC

LIBOR

London Interbank Offered Rate

Management

Company's management

MSRs

Mortgage servicing rights

PPP

Paycheck Protection Program

ROU

Right-of-use

SBA

Small Business Administration

SEC

U.S. Securities and Exchange Commission

SOFR

Secured Overnight Financing Rate

TDRs

Troubled debt restructurings

the Bank

HarborOne Bank

the Company

HarborOne Bancorp, Inc.

the Exchange Act

Securities Exchange Act of 1934, as amended

the Notes

$35.0 million in fixed-to-floating-rate subordinated notes due 2028

the Treasury

U.S. Department of the Treasury

1

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Balance Sheets (unaudited)

September 30, 

December 31, 

(in thousands, except share data)

    

2023

2022

 

Assets

    

 

Cash and due from banks

$

38,573

$

39,712

Short-term investments

208,211

58,305

Total cash and cash equivalents

246,784

98,017

Securities available for sale, at fair value

271,078

301,149

Securities held to maturity, at amortized cost (fair value of $18,683 at September 30, 2023 and $19,274 at December 31, 2022)

19,795

19,949

Federal Home Loan Bank stock, at cost

23,378

20,071

Asset held for sale

966

Loans held for sale, at fair value

17,796

18,544

Loans

4,722,854

4,549,670

Less: Allowance for credit losses on loans

(48,312)

(45,236)

Net loans

4,674,542

4,504,434

Accrued interest receivable

17,506

15,139

Mortgage servicing rights, at fair value

49,201

48,138

Property and equipment, net

48,755

49,045

Retirement plan annuities

15,023

14,630

Bank-owned life insurance

93,495

91,953

Goodwill

69,802

69,802

Intangible assets

1,704

2,272

Other assets

114,562

106,402

Total assets

$

5,664,387

$

5,359,545

Liabilities and Stockholders' Equity

Deposits:

Demand deposit accounts

$

708,847

$

762,576

NOW accounts

289,141

297,692

Regular savings and club accounts

1,324,635

1,468,172

Money market deposit accounts

951,128

861,704

Term certificate accounts

859,266

497,975

Brokered deposits

276,941

301,380

Total deposits

4,409,958

4,189,499

FHLB borrowings

475,470

400,675

Subordinated debt

34,380

34,285

Mortgagors' escrow accounts

10,155

9,537

Accrued interest payable

4,623

2,325

Other liabilities and accrued expenses

145,167

106,248

Total liabilities

5,079,753

4,742,569

Commitments and contingencies (Notes 7, 12 and 13)

Common stock, $0.01 par value; 150,000,000 shares authorized; 60,195,868 and 60,061,527 shares issued; 45,915,364 and 48,961,452 shares outstanding at September 30, 2023 and December 31, 2022, respectively

597

596

Additional paid-in capital

485,144

483,031

Retained earnings

369,930

356,438

Treasury stock, at cost, 14,280,504 and 11,100,075 shares at September 30, 2023 and December 31, 2022, respectively

(187,803)

(148,384)

Accumulated other comprehensive loss

(56,989)

(47,082)

Unearned compensation - ESOP

(26,245)

(27,623)

Total stockholders' equity

584,634

616,976

Total liabilities and stockholders' equity

$

5,664,387

$

5,359,545

The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.

2

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HarborOne Bancorp, Inc.

Consolidated Statements of Income (unaudited)

Three Months Ended September 30, 

Nine Months Ended September 30, 

(in thousands, except share data)

  

2023

  

2022

  

2023

  

2022

Interest and dividend income:

Interest and fees on loans

$

58,124

$

42,065

$

166,399

$

113,163

Interest on loans held for sale

370

377

982

972

Interest on taxable securities

2,003

1,971

6,117

5,545

Other interest and dividend income

2,667

143

6,405

335

Total interest and dividend income

63,164

44,556

179,903

120,015

Interest expense:

Interest on deposits

25,039

3,491

61,014

7,131

Interest on FHLB and FRB borrowings

6,439

1,209

19,658

1,516

Interest on subordinated debentures

606

524

1,653

1,571

Total interest expense

32,084

5,224

82,325

10,218

Net interest and dividend income

31,080

39,332

97,578

109,797

Provision for credit losses

(113)

668

5,036

3,552

Net interest and dividend income, after provision for credit losses

31,193

38,664

92,542

106,245

Noninterest income:

Mortgage banking income:

Gain on sale of mortgage loans

2,704

3,809

8,228

13,669

Changes in mortgage servicing rights fair value

125

1,816

(1,131)

7,963

Other

2,270

2,453

6,798

7,623

Total mortgage banking income

5,099

8,078

13,895

29,255

Deposit account fees

5,133

4,870

14,878

14,234

Income on retirement plan annuities

146

119

393

338

Bank-owned life insurance income

531

503

1,542

1,480

Other income

689

675

2,242

2,102

Total noninterest income

11,598

14,245

32,950

47,409

Noninterest expense:

Compensation and benefits

18,699

20,991

54,718

63,169

Occupancy and equipment

4,430

4,829

14,103

14,832

Data processing

2,548

2,311

7,297

6,811

Loan expenses

385

355

1,115

1,218

Marketing

794

850

2,900

3,054

Deposit expenses

534

587

1,394

1,646

Postage and printing

348

373

1,230

1,204

Professional fees

1,374

1,457

3,989

4,676

Foreclosed and repossessed assets

2

(10)

18

Deposit insurance

1,004

357

2,690

1,060

Other expenses

1,754

2,363

5,680

6,574

Total noninterest expense

31,872

34,473

95,106

104,262

Income before income taxes

10,919

18,436

30,386

49,392

Income tax provision

2,507

4,678

7,198

13,380

Net income

$

8,412

$

13,758

$

23,188

$

36,012

Earnings per common share:

Basic

$

0.20

$

0.30

$

0.53

$

0.77

Diluted

$

0.20

$

0.30

$

0.53

$

0.76

Weighted average shares outstanding:

Basic

42,876,893

45,830,737

43,591,954

46,875,312

Diluted

42,983,477

46,420,527

43,793,137

47,541,647

The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.

3

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Statements of Comprehensive (Loss) Income (unaudited)

Three Months Ended September 30, 

Nine Months Ended September 30, 

(in thousands)

    

2023

2022

2023

2022

     

Net income

$

8,412

$

13,758

$

23,188

$

36,012

Other comprehensive income:

Unrealized gain/loss on cashflow hedge:

Unrealized holding gains

598

2,658

2,005

7,386

Reclassification adjustment for net (gains) losses included in net income

(1,221)

(420)

(3,373)

(380)

Net change in unrealized (losses) gains on derivatives in cashflow hedging instruments

(623)

2,238

(1,368)

7,006

Related tax effect

175

(628)

385

(1,968)

Net-of-tax amount

(448)

1,610

(983)

5,038

Unrealized gain/loss on securities available for sale:

Unrealized holding losses

(14,718)

(20,554)

(12,995)

(66,806)

Related tax effect

4,487

4,530

4,129

14,724

Net-of-tax amount

(10,231)

(16,024)

(8,866)

(52,082)

Postretirement benefit:

Adjustment of accumulated obligation for postretirement benefits

1

Reclassification adjustment for gains recognized in net periodic benefit cost

(20)

(59)

Net gains

(20)

(58)

Total other comprehensive loss

(10,699)

(14,414)

(9,907)

(47,044)

Comprehensive income (loss)

$

(2,287)

$

(656)

$

13,281

$

(11,032)

The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.

4

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

Accumulated

Common Stock

Additional

Treasury

Other

Unearned

Total

Outstanding

Paid-in

Retained

Stock,

Comprehensive

Compensation

Stockholders'

(in thousands, except share data)

Shares

Amount

Capital

Earnings

at Cost

Income (Loss)

- ESOP

Equity

Balance at June 30, 2022

49,989,007

$

593

$

479,519

$

339,471

$

(132,296)

$

(34,267)

$

(28,542)

$

624,478

Comprehensive income (loss)

13,758

(14,414)

(656)

Dividends declared of $0.07 per share

(3,180)

(3,180)

ESOP shares committed to be released (57,680 shares)

354

459

813

Restricted stock awards forfeited, net of awards

(2,845)

Share-based compensation expense

744

744

Treasury stock purchased

(783,502)

(10,829)

(10,829)

Balance at September 30, 2022

49,202,660

$

593

$

480,617

$

350,049

$

(143,125)

$

(48,681)

$

(28,083)

$

611,370

Balance at June 30, 2023

46,575,478

$

597

$

484,544

$

364,709

$

(181,324)

$

(46,290)

$

(26,704)

$

595,532

Comprehensive income (loss)

8,412

(10,699)

(2,287)

Dividends declared of $0.075 per share

(3,191)

(3,191)

ESOP shares committed to be released (57,681 shares)

104

459

563

Restricted stock awards forfeited

(7,591)

Share-based compensation expense

496

496

Treasury stock purchased

(652,523)

(6,479)

(6,479)

Balance at September 30, 2023

45,915,364

$

597

$

485,144

$

369,930

$

(187,803)

$

(56,989)

$

(26,245)

$

584,634

5

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

Accumulated

Common Stock

Additional

Treasury

Other

Unearned

Total

Outstanding

Paid-in

Retained

Stock,

Comprehensive

Compensation

Stockholders'

(in thousands, except share data)

Shares

Amount

Capital

Earnings

at Cost

Income (Loss)

- ESOP

Equity

Balance at December 31, 2021

52,390,478

$

585

$

469,934

$

325,699

$

(85,859)

$

(1,637)

$

(29,461)

$

679,261

Cumulative effect of change in accounting principle - ASC 326

(1,884)

(1,884)

Comprehensive income (loss)

36,012

(47,044)

(11,032)

Dividends declared of $0.21 per share

(9,778)

(9,778)

ESOP shares committed to be released (173,042 shares)

1,078

1,378

2,456

Restricted stock awards granted, net of forfeitures

97,971

Performance stock units vested

14,596

Share-based compensation expense

2,744

2,744

Stock options exercised

722,705

8

6,861

6,869

Treasury stock purchased

(4,023,090)

(57,266)

(57,266)

Balance at September 30, 2022

49,202,660

$

593

$

480,617

$

350,049

$

(143,125)

$

(48,681)

$

(28,083)

$

611,370

Balance at December 31, 2022

48,961,452

596

483,031

356,438

(148,384)

(47,082)

(27,623)

616,976

Comprehensive income (loss)

23,188

(9,907)

13,281

Dividends declared of $0.225 per share

(9,696)

(9,696)

ESOP shares committed to be released (173,042 shares)

507

1,378

1,885

Restricted stock awards granted, net of forfeitures

134,341

Share-based compensation expense

1

1,606

1,607

Treasury stock purchased

(3,180,429)

(39,419)

(39,419)

Balance at September 30, 2023

45,915,364

$

597

$

485,144

$

369,930

$

(187,803)

$

(56,989)

$

(26,245)

$

584,634

The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.

6

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Statements of Cash Flows (unaudited)

    

Nine Months Ended September 30, 

(in thousands)

    

2023

    

2022

Cash flows from operating activities:

Net income

$

23,188

$

36,012

Adjustments to reconcile net income to net cash used by operating activities:

Provision for credit losses

5,036

3,552

Net amortization of securities premiums/discounts

338

821

Proceeds from sale of loans

331,775

510,260

Loans originated for sale

(322,929)

(471,314)

Accretion of net deferred loan costs/fees and premiums

(94)

(315)

Depreciation and amortization of premises and equipment

2,872

2,924

Change in mortgage servicing rights fair value

1,131

(7,963)

Mortgage servicing rights capitalized

(2,194)

(3,630)

Accretion of fair value adjustment on loans and deposits, net

(251)

(1,043)

Amortization of other intangible assets

568

703

Amortization of subordinated debt issuance costs

95

95

Net gains on mortgage loan sales, including fair value adjustments

(8,098)

(12,109)

Bank-owned life insurance income

(1,542)

(1,480)

Income on retirement plan annuities

(393)

(338)

Write-down of asset held for sale

196

Net loss on disposal of premises and equipment

17

41

Net gain on sale and write-down of other real estate owned and repossessed assets

(12)

(30)

ESOP expense

1,885

2,456

Share-based compensation expense

1,607

2,744

Increase in operating lease ROU assets

1,478

1,019

Increase in operating lease liabilities

(1,473)

(976)

Change in other assets

(9,393)

(13,909)

Change in other liabilities

45,973

5,570

Net cash provided by operating activities

69,584

53,286

Cash flows from investing activities:

Activity in securities available for sale:

Maturities, prepayments and calls

16,731

37,659

Purchases

(16,102)

Activity in securities held to maturity:

Maturities, prepayment and calls

160

Purchases

(15,000)

Net redemption (purchase) of FHLB stock

(3,307)

(10,042)

Proceeds on asset held for sale

685

Loan pool purchase

(58,311)

Participation-in loan purchases

(31,443)

(116,144)

Net loan originations

(145,625)

(415,391)

Proceeds from sale of other real estate owned and repossessed assets

282

247

Additions to property and equipment

(3,565)

(1,335)

Net cash used by investing activities

(166,767)

(593,734)

(continued)

The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.

7

Table of Contents

HarborOne Bancorp, Inc.

Consolidated Statements of Cash Flows (unaudited)

Nine Months Ended September 30, 

(in thousands)

    

2023

    

2022

          

Cash flows from financing activities:

Net increase in deposits

220,355

200,379

Net change in short-term borrowed funds

(135,000)

330,000

Proceeds from FHLB borrowings

255,000

Repayment of FHLB borrowings

(45,204)

(40,027)

Net change in mortgagors' escrow accounts

618

1,383

Proceeds from exercise of stock options

6,869

Treasury stock purchased

(39,419)

(57,266)

Dividends paid

(10,400)

(9,655)

Net cash provided by financing activities

245,950

431,683

Net change in cash and cash equivalents

148,767

(108,765)

Cash and cash equivalents at beginning of period

98,017

194,719

Cash and cash equivalents at end of period

$

246,784

$

85,954

Supplemental cash flow information:

Interest paid on deposits

$

59,691

$

6,667

Interest paid on borrowed funds

21,242

3,248

Income taxes paid, net

7,507

8,020

Transfer of loans to other real estate owned and repossessed assets

228

238

Dividends declared

9,696

9,778

The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.

8

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

The unaudited interim Consolidated Financial Statements of HarborOne Bancorp, Inc. presented herein have been prepared pursuant to the rules of the SEC for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP. In the opinion of management, all adjustments and disclosures considered necessary for the fair presentation of the accompanying Consolidated Financial Statements have been included. Interim results are not necessarily reflective of the results of the entire year. The accompanying unaudited interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements for the years ended December 31, 2022 and 2021 and notes thereto included in the Company’s Annual Report on Form 10-K.

The unaudited interim Consolidated Financial Statements include the accounts of the Company; the Company’s subsidiaries, Legion Parkway Company LLC (a security corporation) and HarborOne Bank; and the Bank’s wholly-owned subsidiaries, which consist of HarborOne Mortgage, LLC, HarborOne Security Company, Inc. and a passive investment corporation. The passive investment corporation maintains and manages certain assets of the Bank. The security company was established for the purpose of buying, holding and selling securities on its own behalf. All significant intercompany balances and transactions have been eliminated in consolidation.

Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. These changes and reclassifications did not impact previously reported net income or comprehensive income.

Nature of Operations

The Company provides a variety of financial services to individuals and businesses through its 30 full-service branches in Massachusetts and Rhode Island, and a commercial lending office in each of Boston, Massachusetts and Providence, Rhode Island. HarborOne Mortgage maintains offices in Florida, Maine, Massachusetts, New Hampshire, New Jersey and Rhode Island and originates loans in five additional states.

The Company’s primary deposit products are checking, money market, savings, and term certificate of deposit accounts, while its primary lending products are commercial real estate, commercial, residential mortgages, home equity, and consumer loans. The Company also originates, sells and services residential mortgage loans through HarborOne Mortgage.

Risks and Uncertainties

During the first quarter of 2023, the banking industry experienced significant volatility with multiple high-profile bank failures and industry-wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the banking system. In response to these events, the Treasury, the Federal Reserve, and the FDIC jointly announced the BTFP on March 12, 2023. This program aims to enhance liquidity by allowing institutions to pledge certain securities at the par value of the securities, and at a borrowing rate of ten basis points over the one-year overnight index swap rate. The BTFP is available to eligible U.S. federally insured depository institutions, with advances having a term of up to one year and no prepayment penalties.

Macroeconomic trends are mixed as uncertainty remains about the economy and banking industry. Market conditions and external factors may unpredictably impact the competitive landscape for deposits in the banking industry. Additionally, the rising interest rate environment has increased competition for liquidity and the premium at which liquidity is available to meet funding needs. An unexpected increase of withdrawals of deposits could adversely impact the Company’s ability to fund its operations, potentially requiring greater reliance on secondary sources of liquidity to meet withdrawal demands or to fund continuing operations. These sources may include proceeds from FHLB advances, proceeds from the BTFP, sales of investment securities and loans, federal funds lines of credit from correspondent banks, and brokered deposits.

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Reliance on secondary funding sources could increase the Company’s overall cost of funds and thereby reduce net income. While the Company believes its current sources of liquidity are adequate to fund operations, there is no guarantee they will suffice to meet future liquidity demands. This may necessitate slowing or discontinuing loan growth, capital expenditures, or other investments, or liquidating assets.

Additionally, the Company could experience adverse effects on its business, financial condition, results of operations and cash flows if there is severe or prolonged inflation, a recession, further escalation of the current geopolitical situation, or sustained supply chain disruptions. While asset quality continues to point to economic recovery, the Company’s customers could experience similar adverse effects from these uncertainties that would impair their ability to fulfill their financial obligations to the Company resulting in deteriorating credit quality and loan charge-offs.

Summary of Significant Accounting Policies and Recently Adopted Accounting Standards Updates

Significant accounting policies in effect and disclosed within the Company’s most recent audited Consolidated Financial Statements as of December 31, 2022 remain substantially unchanged.

In March 2022, the FASB issued ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures” which eliminated the accounting guidance for TDRs while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. ASU 2022-02 also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, “Financial Instruments—Credit Losses—Measured at Amortized Cost.” The Company adopted ASU 2022-02 effective January 1, 2023 on a modified retrospective basis. The adoption of ASU 2022-02 did not have a material impact on the Company’s Consolidated Financial Statements.

2.

DEBT SECURITIES

The following is a summary of securities available for sale and held to maturity:

Gross

Gross

Allowance

Amortized

Unrealized

Unrealized

for Credit

Fair

Cost

    

Gains

    

Losses

    

Losses

    

Value

(in thousands)

September 30, 2023:

Securities available for sale

U.S. government and government-sponsored enterprise obligations

$

47,143

$

$

9,013

$

$

38,130

U.S. government agency and government-sponsored residential mortgage-backed securities

300,266

71,774

228,492

U.S. government-sponsored collateralized mortgage obligations

2,034

102

1,932

SBA asset-backed securities

1,885

161

1,724

Corporate bonds

1,000

200

800

Total securities available for sale

$

352,328

$

$

81,250

$

$

271,078

Securities held to maturity

U.S. government and government-sponsored enterprise obligations

$

15,000

$

$

782

$

$

14,218

SBA asset-backed securities

4,795

330

4,465

Total securities held to maturity

$

19,795

$

$

1,112

$

$

18,683

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Gross

Gross

Allowance

Amortized

Unrealized

Unrealized

for Credit

Fair

Cost

    

Gains

    

Losses

    

Losses

Value

(in thousands)

December 31, 2022:

Securities available for sale

U.S. government and government-sponsored enterprise obligations

$

47,143

$

$

8,649

$

$

38,494

U.S. government agency and government-sponsored residential mortgage-backed securities

315,964

59,149

256,815

U.S. government-sponsored collateralized mortgage obligations

2,612

113

2,499

SBA asset-backed securities

2,685

190

2,495

Corporate bonds

1,000

154

846

Total securities available for sale

$

369,404

$

$

68,255

$

$

301,149

Securities held to maturity

U.S. government and government-sponsored enterprise obligations

$

15,000

$

$

597

$

$

14,403

SBA asset-backed securities

4,949

78

4,871

Total securities held to maturity

$

19,949

$

$

675

$

$

19,274

Accrued interest receivable is excluded from the amortized cost basis of debt securities. Accrued interest receivable totaled $913,000 and $957,000 as of September 30, 2023 and December 31, 2022, respectively. At September 30, 2023, available-for-sale debt securities with a fair value of $268.6 million and held-to-maturity securities with an amortized cost of $15.0 million were pledged as collateral to provide BTFP borrowing capacity. The BTFP provides for funding based on the par value of the collateral which was $361.0 million.

The amortized cost and fair value of debt securities by contractual maturity at September 30, 2023 is as follows:

Available for Sale

Held to Maturity

Amortized

Fair

Amortized

Fair

    

Cost

    

Value

 

Cost

    

Value

(in thousands)

After 1 year through 5 years

$

6,998

$

6,380

$

15,000

$

14,218

After 5 years through 10 years

41,145

32,550

Over 10 years

48,143

38,930

15,000

14,218

U.S. government agency and government-sponsored residential mortgage-backed securities

300,266

228,492

U.S. government-sponsored collateralized mortgage obligations

2,034

1,932

SBA asset-backed securities

1,885

1,724

4,795

4,465

Total

$

352,328

$

271,078

$

19,795

$

18,683

U.S. government-sponsored residential mortgage-backed securities, collateralized mortgage obligations, and securities whose underlying assets are loans from the SBA have stated maturities of two to 28 years; however, it is expected that such securities will have shorter actual lives due to prepayments. U.S. government and government-sponsored enterprise obligations and corporate bonds are callable at the discretion of the issuer. U.S. government and government-sponsored enterprise obligations and corporate bonds with a total fair value of $53.1 million have a final maturity of four to nine years and a call feature of one month to four years. At September 30, 2023, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of shareholder equity.

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

There were no sales or calls of securities in the three and nine months ended September 30, 2023 and 2022, respectively.

Information pertaining to securities with gross unrealized losses at September 30, 2023 and December 31, 2022 aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

Less Than Twelve Months

Twelve Months and Over

Gross

Gross

Unrealized

Fair

Unrealized

Fair

    

Losses

    

Value

    

Losses

    

Value

(in thousands)

September 30, 2023:

Securities available for sale

U.S. government and government-sponsored enterprise obligations

$

$

$

9,013

$

38,130

U.S. government agency and government-sponsored residential mortgage-backed securities

34

71,774

228,458

U.S. government-sponsored collateralized mortgage obligations

102

1,932

SBA asset-backed securities

161

1,724

Corporate bonds

200

800

$

$

34

$

81,250

$

271,044

Securities held to maturity

U.S. government and government-sponsored enterprise obligations

$

$

782

14,218

SBA asset-backed securities

330

4,465

$

330

$

4,465

$

782

$

14,218

December 31, 2022:

Securities available for sale

U.S. government and government-sponsored enterprise obligations

$

249

$

4,751

$

8,400

$

33,743

U.S. government agency and government-sponsored residential mortgage-backed securities

3,620

35,214

55,529

221,566

U.S. government-sponsored collateralized mortgage obligations

113

2,499

SBA asset-backed securities

190

2,495

Corporate bonds

154

846

$

4,326

$

45,805

$

63,929

$

255,309

Securities held to maturity

U.S. government and government-sponsored enterprise obligations

$

597

$

14,403

$

$

SBA asset-backed securities

78

4,871

$

675

$

19,274

$

$

Management assesses the decline in fair value of investment securities on a regular basis. Unrealized losses on debt securities may occur from current market conditions, increases in interest rates since the time of purchase, a structural change in an investment, volatility of earnings of a specific issuer, or deterioration in credit quality of the issuer. Management evaluates both qualitative and quantitative factors to assess whether an impairment exists. 

As of September 30, 2023, the Company’s security portfolio consisted of 132 debt securities, all of which were in an unrealized loss position. The unrealized losses are primarily related to the Company’s debt securities that were issued by U.S. government-sponsored enterprises and agencies. The Company does not believe that the debt securities that were in an unrealized loss position as of September 30, 2023 represent a credit loss impairment. As of September 30, 2023, and

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

December 31, 2022, the gross unrealized loss positions were primarily related to mortgage-backed securities and other obligations issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Total gross unrealized losses were primarily attributable to changes in interest rates relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.

Management reviewed the collectability of the corporate bonds taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, credit ratings, including ratings in effect as of the reporting period date as well as credit rating changes between the reporting period date and the filing date of this report, and other information. Management believes the unrealized losses on the corporate bonds are primarily attributable to changes in the investment spreads and interest rates and not changes in the credit quality of the issuers of the corporate bonds.

Management expects to recover the entire amortized cost basis of the available-for-sale debt securities with an unrealized loss. Furthermore, the Company does not intend to sell these securities, and it is unlikely that the Company will be required to sell these securities, before recovery of their cost basis, which may be at maturity. Therefore, no ACL was recorded at September 30, 2023.

As of September 30, 2023, the held-to-maturity securities were U.S. government sponsored agency obligations. These securities are guaranteed by the government sponsored agency with a long history of no credit losses and Management has determined these securities to have a zero loss expectation and therefore does not estimate an ACL on these securities.

3.

LOANS HELD FOR SALE

The following table provides the fair value and contractual principal balance outstanding of loans held for sale accounted for under the fair value option:

September 30, 

December 31, 

    

2023

    

2022

(in thousands)

Loans held for sale, fair value

$

17,796

$

18,544

Loans held for sale, contractual principal outstanding

17,590

18,208

Fair value less unpaid principal balance

$

206

$

336

The Company has elected the fair value option for mortgage loans held for sale to better match changes in fair value of the loans with changes in the fair value of the forward sale commitment contracts used to economically hedge them. Changes in fair value of mortgage loans held for sale accounted for under the fair value option election amounted to a decrease of $165,000 and $130,000 in the three and nine months ended September 30, 2023, respectively, to $206,000, compared to a decrease of $768,000 and $1.6 million in the three and nine months ended September 30, 2022, respectively. These amounts are offset in earnings by the changes in fair value of forward sale commitments. The changes in fair value are reported as a component of gain on sale of mortgage loans in the Unaudited Consolidated Statements of Income.

At September 30, 2023 and December 31, 2022, there were no loans held for sale that were greater than 90 days past due.

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

4.

LOANS AND ALLOWANCE FOR CREDIT LOSSES

A summary of the balances of loans follows:

September 30, 

December 31, 

    

2023

    

2022

 

(in thousands)

Residential real estate:

One- to four-family

$

1,513,326

$

1,432,263

Second mortgages and equity lines of credit

174,814

166,219

Residential real estate construction

20,272

35,837

Total residential real estate loans

1,708,412

1,634,319

Commercial:

Commercial real estate

2,349,886

2,250,344

Commercial construction

191,224

199,311

Commercial and industrial

450,547

424,275

Total commercial loans

2,991,657

2,873,930

Consumer loans:

Auto

15,797

33,625

Personal

8,450

7,796

Total consumer loans

24,247

41,421

Total loans before basis adjustment

4,724,316

4,549,670

Basis adjustment associated with fair value hedge (1)

(1,462)

Total loans

4,722,854

4,549,670

Allowance for credit losses on loans

(48,312)

(45,236)

Loans, net

$

4,674,542

$

4,504,434

(1) Represents the basis adjustment associated with the application of hedge accounting on certain loans. Refer to Note 10 - Derivatives.

The net unamortized deferred loan origination costs included in total loans and leases were $8.3 million and $7.4 million as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023 and December 31, 2022, the commercial and industrial loans includes $355,000 and $2.1 million, respectively, of SBA PPP loans and $50,000 and $65,000, respectively, of deferred fees on the PPP loans. PPP loans are fully guaranteed by the U.S. government.

The Company has transferred a portion of its originated commercial loans to participating lenders. The amounts transferred have been accounted for as sales and are therefore not included in the Company’s accompanying unaudited interim Consolidated Balance Sheets. The Company and participating lenders share ratably in cash flows and any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. The Company continues to service the loans on behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments to participating lenders, and disburses required escrow funds to relevant parties. At September 30, 2023 and December 31, 2022, the Company was servicing commercial loans for participants in the aggregate amount of $397.6 million and $366.4 million, respectively.

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

The following table presents the activity in the ACL on loans for the three and nine months ended September 30, 2023 and 2022:

Second Mortgages

Residential

One- to Four-

and Equity

Real Estate

Commercial

Commercial

Commercial

Family

  

Lines of Credit

  

Construction

  

Real Estate

  

Construction

  

and Industrial

  

Consumer

  

Total

(in thousands)

Balance at June 30, 2023

$

12,185

$

1,012

$

630

$

20,599

$

5,373

$

7,750

$

272

$

47,821

Charge-offs

(16)

(21)

(37)

Recoveries

40

2

13

55

Provision

488

(28)

(164)

900

(937)

242

(28)

473

Balance at September 30, 2023

$

12,673

$

1,024

$

466

$

21,501

$

4,436

$

7,976

$

236

$

48,312

Second Mortgages

Residential

One- to Four-

and Equity

Real Estate

Commercial

Commercial

Commercial

Family

  

Lines of Credit

  

Construction

  

Real Estate

  

Construction

  

and Industrial

  

Consumer

  

Total

(in thousands)

Balance at December 31, 2022

$

11,532

$

924

$

280

$

20,357

$

4,645

$

7,236

$

262

$

45,236

Charge-offs

(2,918)

(51)

(70)

(3,039)

Recoveries

2

83

4

275

34

398

Provision

1,139

17

186

4,058

(209)

516

10

5,717

Balance at September 30, 2023

$

12,673

$

1,024

$

466

$

21,501

$

4,436

$

7,976

$

236

$

48,312

Second Mortgages

Residential

One- to Four-

and Equity

Real Estate

Commercial

Commercial

Commercial

Family

  

Lines of Credit

  

Construction

  

Real Estate

  

Construction

  

and Industrial

  

Consumer

  

Total

(in thousands)

Balance at June 30, 2022

$

10,082

$

849

$

327

$

20,431

$

4,370

$

7,174

$

327

$

43,560

Charge-offs

(24)

(205)

(24)

(253)

Recoveries

2

15

7

1,021

7

1,052

Provision

834

(16)

(33)

741

99

(1,300)

(63)

262

Balance at September 30, 2022

$

10,918

$

848

$

294

$

21,155

$

4,469

$

6,690

$

247

$

44,621

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Second Mortgages

Residential

One- to Four-

and Equity

Real Estate

Commercial

Commercial

Commercial

  

Family

  

Lines of Credit

  

Construction

  

Real Estate

  

Construction

  

and Industrial

  

Consumer

  

Unallocated

  

Total

(in thousands)

Balance at December 31, 2021

$

3,631

$

420

$

69

$

33,242

$

2,010

$

4,638

$

367

$

1,000

$

45,377

Adoption of Topic 326

5,198

391

185

(10,194)

1,698

2,288

123

(1,000)

(1,311)

Charge-offs

(2,810)

(246)

(55)

(3,111)

Recoveries

2

108

13

1,495

67

1,685

Provision

2,087

(71)

40

904

761

(1,485)

(255)

1,981

Balance at September 30, 2022

$

10,918

$

848

$

294

$

21,155

$

4,469

$

6,690

$

247

$

$

44,621

As of September 30, 2023, the carrying value of individually analyzed loans amounted to $18.7 million, with a related allowance of $200,000, and $18.5 million of individually analyzed loans were considered collateral-dependent. As of December 31, 2022, the carrying value of individually analyzed loans amounted to $23.8 million, with a related allowance of $203,000, and $15.9 million were considered collateral-dependent.

For collateral-dependent loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the loan is to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date.

The following table presents the carrying value of collateral-dependent individually analyzed loans as of September 30, 2023 and December 31, 2022:

September 30, 2023

December 31, 2022

Related

Related

    

Carrying Value

    

Allowance

Carrying Value

Allowance

(in thousands)

Commercial:

Commercial real estate

$

8,811

$

5

$

2,039

$

Commercial and industrial

1,982

191

3,329

7

Commercial construction

Total Commercial

10,793

196

5,368

7

Residential real estate

7,741

1

10,494

1

Total

$

18,534

$

197

$

15,862

$

8

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

The following is a summary of past due and non-accrual loans at September 30, 2023 and December 31, 2022:

90 Days

30-59 Days

60-89 Days

or More

Total

Loans on

    

Past Due

    

Past Due

    

Past Due

    

Past Due

    

Non-accrual

 

(in thousands)

September 30, 2023

Residential real estate:

One- to four-family

$

2,078

$

1,168

$

3,018

$

6,264

$

7,498

Second mortgages and equity lines of credit

171

137

305

613

453

Commercial real estate

7,004

7,004

8,811

Commercial construction

Commercial and industrial

274

97

1,437

1,808

1,980

Consumer:

Auto

132

16

30

178

31

Personal

36

17

5

58

10

Total

$

2,691

$

1,435

$

11,799

$

15,925

$

18,783

December 31, 2022

Residential real estate:

One- to four-family

$

3,711

$

524

$

6,526

$

10,761

$

8,927

Second mortgages and equity lines of credit

407

5

189

601

421

Commercial real estate

120

120

2,039

Commercial construction

Commercial and industrial

26

492

2,901

3,419

3,329

Consumer:

Auto

348

101

51

500

64

Personal

18

6

24

6

Total

$

4,510

$

1,122

$

9,793

$

15,425

$

14,786

At September 30, 2023 and December 31, 2022, there were no loans past due 90 days or more and still accruing.

Loan Modifications to Borrowers Experiencing Financial Difficulty

Effective January 1, 2023, ASU 2022-02 Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures was adopted. The Bank will modify the contractual terms of loans to a borrower experiencing financial difficulties as a way to mitigate loss and comply with regulations regarding bankruptcy and discharge situations. Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.

There were no material loan modifications based on borrower financial difficulty during the three and nine months ended September 30, 2023. There was one TDR loan modification during the three and nine months ended September 30, 2022. The TDR loan modification in 2022 provided a deferral of principal. There were no loans to borrowers experiencing financial difficulty that had a payment default during the three and nine months ended September 30, 2023 and 2022 and were modified in the twelve months prior to that default. Default is determined at 90 or more days past due, upon charge-off, or upon foreclosure. Modified loans in default are individually evaluated for the allowance for credit losses or if the modified loan is deemed uncollectible, the loan, or a portion of the loan, is written off, and the allowance for credit losses is adjusted accordingly.

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Credit Quality Indicators

Commercial

The Company uses a ten-grade internal loan rating system for commercial real estate, commercial construction and commercial loans, as follows:

Loans rated 1 – 6 are considered “pass”-rated loans with low to average risk.

Loans rated 7 are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 8 are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

Loans rated 9 are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 10 are considered “uncollectible” (loss), and of such little value that their continuance as loans is not warranted.

Loans not rated consist primarily of certain smaller balance commercial real estate and commercial loans that are managed by exception.

On an annual basis, or more often if needed, the Company formally reviews on a risk-adjusted basis, the ratings on substantially all commercial real estate, construction and commercial loans. Semi-annually, the Company engages an independent third party to review a significant portion of loans within these segments. Management uses the results of these reviews as part of its annual review process.

Residential and Consumer

On a monthly basis, the Company reviews the residential construction, residential real estate and consumer installment portfolios for credit quality primarily through the use of delinquency reports.

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Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

The following table summarizes the Company’s loan portfolio by credit quality indicator and loan portfolio segment as of September 30, 2023:

Revolving

Revolving

Loans

Loans

Converted

Term Loans at Amortized Cost by Origination Year

Amortized

to Term

2023

2022

2021

2020

2019

Prior

Cost

Loans

Total

(in thousands)

As of September 30, 2023

Commercial real estate

Pass

$

124,574

$

817,946

$

454,639

$

237,296

$

246,011

$

415,685

$

$

$

2,296,151

Special mention

17,026

4,309

9,063

14,526

44,924

Substandard

1,812

1,812

Doubtful

6,999

6,999

Total commercial real estate

124,574

834,972

454,639

241,605

255,074

439,022

2,349,886

YTD gross charge-offs

2,918

2,918

Commercial and industrial

Pass

53,242

51,548

96,455

75,178

23,999

78,676

68,852

447,950

Special mention

5

2

610

617

Substandard

19

88

72

385

50

614

Doubtful

9

1,307

50

1,366

Total commercial and industrial

53,261

51,636

96,541

75,178

24,001

80,978

68,952

450,547

YTD gross charge-offs

5

18

14

5

8

1

51

Commercial construction

Pass

16,726

115,057

58,048

1,393

191,224

Special mention

Substandard

Doubtful

Total commercial construction

16,726

115,057

58,048

1,393

191,224

YTD gross charge-offs

Residential real estate

Accrual

122,166

436,709

486,044

203,962

40,500

245,104

164,522

1,454

1,700,461

Non-accrual

132

188

7,430

201

7,951

Total residential real estate

122,166

436,709

486,044

204,094

40,688

252,534

164,723

1,454

1,708,412

YTD gross charge-offs

Consumer

Accrual

7,274

6,049

2,536

1,219

4,451

1,662

1,015

24,206

Non-accrual

2

1

22

10

6

41

Total Consumer

7,274

6,051

2,536

1,220

4,473

1,672

1,021

24,247

YTD gross charge-offs

10

4

14

14

28

70

Total loans before basis adjustment

$

324,001

$

1,444,425

$

1,097,808

$

522,097

$

324,236

$

774,206

$

236,089

$

1,454

$

4,724,316

Total YTD gross charge-offs

$

5

$

28

$

18

$

19

$

22

$

2,947

$

$

$

3,039

19

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

The following table summarizes the Company’s loan portfolio by credit quality indicator and loan portfolio segment as of December 31, 2022:

Revolving

Revolving

Loans

Loans

Converted

Term Loans at Amortized Cost by Origination Year

Amortized

to Term

2022

2021

2020

2019

2018

Prior

Cost

Loans

Total

(in thousands)

As of December 31, 2022

Commercial real estate

Pass

$

817,320

$

441,277

$

241,700

$

254,221

$

121,351

$

340,634

$

$

$

2,216,503

Special mention

9,328

22,474

31,802

Substandard

2,039

2,039

Doubtful

Total commercial real estate

817,320

441,277

241,700

263,549

143,825

342,673

2,250,344

Commercial and industrial

Pass

53,078

95,600

82,170

26,568

37,358

50,500

76,647

421,921

Special mention

49

92

492

633

Substandard

4

3

1

323

331

Doubtful

1,340

50

1,390

Total commercial and industrial

53,078

95,604

82,173

26,568

37,408

52,255

77,189

424,275

Commercial construction

Pass

88,173

87,569

11,769

9,174

318

1,487

821

199,311

Special mention

Substandard

Doubtful

Total commercial construction

88,173

87,569

11,769

9,174

318

1,487

821

199,311

Residential real estate

Accrual

443,034

507,679

211,429

42,314

25,232

239,677

154,038

1,568

1,624,971

Non-accrual

203

140

201

1,258

7,411

96

39

9,348

Total residential real estate

443,034

507,882

211,569

42,515

26,490

247,088

154,134

1,607

1,634,319

Consumer

Accrual

9,948

3,588

1,971

16,955

6,122

1,733

1,034

41,351

Non-accrual

1

28

20

17

4

70

Total Consumer

9,949

3,588

1,971

16,983

6,142

1,750

1,038

41,421

Total loans

$

1,411,554

$

1,135,920

$

549,182

$

358,789

$

214,183

$

645,253

$

233,182

$

1,607

$

4,549,670

5.

MORTGAGE LOAN SERVICING

The Company sells residential mortgages to government-sponsored enterprises and other parties. The Company retains no beneficial interests in these loans, but it may retain the servicing rights of the loans sold. Mortgage loans serviced for others are not included in the accompanying unaudited interim Consolidated Balance Sheets. The risks inherent in MSRs relate primarily to changes in prepayments that generally result from shifts in mortgage interest rates. The unpaid principal balance of mortgage loans serviced for others was $3.59 billion and $3.62 billion as of September 30, 2023 and December 31, 2022.

20

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

The Company accounts for MSRs at fair value. The Company obtains and reviews valuations from an independent third party to determine the fair value of MSRs. Key assumptions used in the estimation of fair value include prepayment speeds, discount rates, and default rates. At September 30, 2023 and December 31, 2022, the following weighted average assumptions were used in the calculation of fair value of MSRs:

September 30, 

December 31, 

    

2023

    

2022

  

Prepayment speed

7.20

7.10

%

Discount rate

10.03

9.81

Default rate

1.68

1.63

The following summarizes changes to MSRs for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2023

2022

     

2023

    

2022

(in thousands)

Balance, beginning of period

$

48,176

$

47,130

$

48,138

$

38,268

Additions

900

915

2,194

3,630

Changes in fair value due to:

Reductions from loans paid off during the period

(644)

(747)

(1,494)

(2,351)

Changes in valuation inputs or assumptions

769

2,563

363

10,314

Balance, end of period

$

49,201

$

49,861

$

49,201

$

49,861

Contractually specified servicing fees, net of subservicing expense, included in other mortgage banking income amounted to $1.9 million and $5.8 million for the three and nine months ended September 30, 2023 and $2.0 million and $6.1 million for the three and nine months ended September 30, 2022.

6.

GOODWILL AND OTHER INTANGIBLE ASSETS

There were no changes in the carrying value of goodwill for the periods ended September 30, 2023 and December 31, 2022. The Bank and HarborOne Mortgage are identified as reporting units for purposes of goodwill impairment testing. At September 30, 2023 and December 31, 2022, the carrying value of the Bank’s goodwill was $59.0 million as of both dates, and the carrying value of HarborOne Mortgage’s goodwill was $10.8 million as of both dates.

Goodwill is tested for impairment annually on October 31 or on an interim basis if an event triggering impairment may have occurred. As of September 30, 2023, the Company assessed whether there were additional events or changes in circumstances since its annual goodwill impairment test that would indicate that it was more likely than not that the fair value of the reporting unit was less than the reporting unit’s carrying amounts that would require an interim impairment assessment after October 31, 2022. The Company determined there had been no such indicators, therefore, no interim goodwill impairment assessment as of September 30, 2023 was performed.

The process of evaluating fair value is highly subjective and requires significant judgment and estimates. The goodwill at the Bank and HarborOne Mortgage is at risk of future impairment if projected operating results are not met or other inputs into the fair value measurement model change. If concerns persist in the banking sector as a result of the recent bank failures, management may determine a triggering event has occurred, which would cause us to perform an interim

21

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

impairment test. Interim impairment tests at the Bank or HarborOne Mortgage may result in an impairment charge being recorded in the period.

Other intangible assets were $1.7 million and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company determined that there was no triggering event that warranted an interim impairment test at September 30, 2023.

7.

DEPOSITS

A summary of deposit balances, by type, is as follows:

September 30, 

December 31, 

    

2023

    

2022

 

(in thousands)

NOW and demand deposit accounts

    

$

997,988

$

1,060,268

Regular savings and club accounts

1,324,635

1,468,172

Money market deposit accounts

951,128

861,704

Total non-certificate accounts

3,273,751

3,390,144

Term certificate accounts greater than $250,000

248,736

110,360

Term certificate accounts less than or equal to $250,000

610,530

387,615

Brokered deposits

276,941

301,380

Total certificate accounts

1,136,207

799,355

Total deposits

$

4,409,958

$

4,189,499

Total municipal deposits included in the table amounted to $493.4 million at September 30, 2023 and $413.5 million at December 31, 2022. Municipal deposits are generally required to be fully insured. The Company provided supplemental insurance for municipal deposits through DIF, a reciprocal deposit program, or letters of credit offered by the FHLB. DIF was exited February 24, 2023 and will generally provide coverage until February 24, 2024 on deposits that existed at the exit date. The Company has established a relationship to participate in a reciprocal deposit program with other financial institutions. The reciprocal deposit program provides access to FDIC-insured deposit products in aggregate amounts exceeding the current limits for depositors. At September 30, 2023 and December 31, 2022, total reciprocal deposits were $177.3 million and $28.6 million, respectively, consisting of non-certificate accounts.

A summary of certificate accounts by maturity at September 30, 2023 is as follows:

Weighted

Average

    

Amount

    

Rate

 

(dollars in thousands)

Within 1 year

$

1,079,547

4.19

%

Over 1 year to 2 years

27,003

2.01

Over 2 years to 3 years

26,809

3.06

Over 3 years to 4 years

2,467

0.73

Over 4 years to 5 years

381

2.58

Total certificate deposits

1,136,207

4.10

%

22

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

8.BORROWINGS

Borrowed funds at September 30, 2023 and December 31, 2022 consisted of FHLB advances. Short-term advances were $250.0 million and $385.0 million with a weighted average rate of 5.52% and 4.32%, at September 30, 2023 and December 31, 2022, respectively. Long-term advances are summarized by maturity date below.

September 30, 2023

December 31, 2022

Amount by

Weighted

Amount by

Weighted

Scheduled

Amount by

Average

Scheduled

Average

    

Maturity*

    

Call Date (1)

    

Rate (2)

    

Maturity*

    

Rate (2)

 

(dollars in thousands)

Year ending December 31:

             

2023

$

$

90,000

%      

$

180

1.40

%

2024

13,400

33,400

1.39

13,400

1.39

2025

60,987

60,987

4.32

987

2026

100,000

40,000

4.28

2027

2028 and thereafter

51,083

1,083

3.81

1,108

2.00

$

225,470

$

225,470

4.01

%  

$

15,675

1.35

%

* Includes an amortizing advance requiring monthly principal and interest payments.

(1) Callable FHLB advances are shown in the respective periods assuming that the callable debt is redeemed at the call date, while all other advances are shown in the periods corresponding to their scheduled maturity date. There were eight callable advances at September 30, 2023.

(2) Weighted average rates are based on scheduled maturity dates.

The FHLB advances are secured by a blanket security agreement which requires the Bank to maintain certain qualifying assets as collateral, principally residential mortgage loans and commercial real estate loans held in the Bank’s portfolio. The carrying value of the loans pledged as collateral for these borrowings totaled $2.01 billion at September 30, 2023 and $1.71 billion at December 31, 2022. As of September 30, 2023, the Company had $830.7 million of available borrowing capacity with the FHLB.

The Company also has additional borrowing capacity under a $25.0 million unsecured federal funds line with a correspondent bank and a secured line of credit with the FRBB, secured by 69% of the carrying value of commercial loans with principal balances amounting to $99.1 million and $100.2 million at September 30, 2023 and December 31, 2022, respectively. No amounts were outstanding under either line at September 30, 2023 or December 31, 2022.

On March 12, 2023, the Federal Reserve announced the creation of the BTFP. The BTFP offers loans of up to one year to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasury securities, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets are valued at par for purposes of the collateral pledge under the BTFP. The Company has $360.9 million in borrowing capacity under this program, and no amounts were outstanding at September 30, 2023.

On August 30, 2018, the Company issued $35.0 million in fixed-to-floating-rate subordinated notes due 2028 in a private placement to institutional accredited investors. On October 19, 2023, the Company notified holders of the Notes that the Company had exercised its option to redeem the Notes in full, effective December 1, 2023. The current interest rate on the Notes is 8.45%. The Notes are carried on the Consolidated Balance Sheets net of unamortized issuance costs of $620,000 and $715,000 at September 30, 2023 and December 31, 2022, respectively.

23

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

9.

OTHER COMMITMENTS AND CONTINGENCIES

ACL on Unfunded Commitments

The ACL on unfunded commitments amounted to $4.2 million and $5.5 million at September 30, 2023 and 2022, respectively. The activity in the ACL on unfunded commitments for the three and nine months ended September 30, 2023 and 2022 is presented below:

Residential

Commercial

Commercial

Commercial

Real Estate

Real Estate

Construction

and Industrial

Consumer

Total

(in thousands)

Balance at June 30, 2023

$

272

$

490

$

3,180

$

870

$

19

$

4,831

Provision

(4)

(17)

(603)

41

(3)

(586)

Balance at September 30, 2023

$

268

$

473

$

2,577

$

911

$

16

$

4,245

Balance at June 30, 2022

$

337

$

482

$

3,638

$

624

$

15

$

5,096

Provision

(7)

29

135

253

(4)

406

Balance at September 30, 2022

$

330

$

511

$

3,773

$

877

$

11

$

5,502

Residential

Commercial

Commercial

Commercial

Real Estate

Real Estate

Construction

and Industrial

Consumer

Total

(in thousands)

Balance at December 31, 2022

$

336

$

628

$

3,079

$

870

$

14

$

4,927

Provision

(68)

(155)

(502)

41

2

(682)

Balance at September 30, 2023

$

268

$

473

$

2,577

$

911

$

16

$

4,245

Balance at December 31, 2021

$

$

$

$

$

$

Adoption of Topic 326

318

380

2,561

658

14

3,931

Provision

12

131

1,212

219

(3)

1,571

Balance at September 30, 2022

$

330

$

511

$

3,773

$

877

$

11

$

5,502

Loan Commitments

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and advance funds on various lines of credit. Those commitments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the accompanying unaudited interim Consolidated Financial Statements.

The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.

24

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

The following off-balance sheet financial instruments were outstanding at September 30, 2023 and December 31, 2022. The contract amounts represent credit risk.

    

September 30, 

December 31, 

 

2023

2022

(in thousands)

Commitments to grant residential real estate loans-HarborOne Mortgage

$

52,370

$

57,916

Commitments to grant other loans

63,777

43,700

Unadvanced funds on home equity lines of credit

255,391

251,759

Unadvanced funds on revolving lines of credit

318,427

351,382

Unadvanced funds on construction loans

226,626

262,945

Commitments to extend credit and unadvanced portion of construction loans are agreements to lend to a customer, as long as there is no violation of any condition established in the contract. Commitments to grant loans generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for unadvanced funds on construction loans and home equity and revolving lines of credit may expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit-worthiness on a case-by-case basis. Commitments to grant loans, and unadvanced construction loans and home equity lines of credit are collateralized by real estate, while revolving lines of credit are unsecured.

10.

DERIVATIVES

The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally to manage the Company’s interest-rate risk. Additionally, the Company enters into interest rate derivatives to accommodate the business requirements of its customers. All derivatives are recognized as either assets or liabilities on the balance sheet and are measured at fair value. The accounting for changes in the fair value of a derivative instrument depends upon whether or not it qualifies as a hedge for accounting purposes, and further, by the type of hedging relationship.

Derivatives Designated as Hedging Instruments

Fair Value Hedge- The Company is exposed to changes in the fair value of fixed-rate assets due to changes in benchmark interest rates. In June 2023, to manage its exposure to changes in the fair value of a closed asset pool of fixed-rate residential mortgages, the Company entered into interest rate swaps with a total notional amount of $100.0 million, designated as fair value portfolio layer hedges. The Company receives variable-rate interest payments in exchange for making fixed-rate payments over the lives of the contracts without exchanging the notional amounts. The gain or loss on these derivatives, as well as the offsetting loss or gain on the hedged items attributable to the hedged risk, are recognized in interest income in the Company’s Consolidated Statements of Income.

As of September 30, 2023, the Company had two interest rate swap agreements with a notional amount of $100.0 million that were designated as a fair value hedge of fixed-rate residential mortgages. The hedges were determined to be effective during the three months ended September 30, 2023, and the Company expects the hedges to remain effective during the remaining terms of the swaps.

25

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

The following amounts were recorded on the Consolidated Balance Sheets related to cumulative basis adjustment for fair value hedges as of the dates indicated:

Cumulative Amount of Fair Value

Hedging Adjustment Included in the

Line Item in the Consolidated Balance Sheets

Carrying Amount of the Hedged

Carrying Amount of the Hedged

in Which the Hedged Item is Included

Assets

Assets

September 30,

September 30,

September 30,

September 30,

2023

2022

2023

2022

(in thousands)

Loans held for investment (1)

$

98,538

$

$

(1,462)

$

Total

$

98,538

$

$

(1,462)

$

(1) These amounts were included in the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At September 30, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $1.23 billion; the cumulative basis adjustments associated with these hedging relationships was $(1.5 million) and the amount of the designated hedged items were $100.0 million.

Cashflow Hedge- As part of its interest-rate risk-management strategy, the Company utilizes interest rate swap agreements to help manage its interest-rate risk positions. The notional amount of the interest rate swaps does not represent the amount exchanged by the parties. The exchange of cash flows is determined by reference to the notional amounts and the other terms of the interest rate swap agreements. The changes in fair value of derivatives designated as cashflow hedges are recorded in other comprehensive income and subsequently reclassified to earnings when gains or losses are realized.

As of September 30, 2023, the Company had one interest rate swap agreement with a notional amount of $100.0 million that was designated as a cashflow hedge of brokered deposits. The interest rate swap agreement has an average maturity of 1.52 years, the current weighted average fixed rate paid is 0.671%, the weighted average 3-month SOFR swap receive rate is 5.507%, and the fair value is $6.9 million. The Company expects approximately $4.8 million related to the cashflow hedge to be reclassified to interest expense, from other comprehensive income, in the next twelve months.

Derivatives Not Designated as Hedging Instruments

Derivative Loan Commitments- Mortgage loan commitments qualify as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. The Company enters into commitments to fund residential mortgage loans at specified times in the future, with the intention that these loans will subsequently be sold in the secondary market. A mortgage loan commitment binds the Company to lend funds to a potential borrower at a specified interest rate and within a specified period of time, generally up to 60 days after inception of the rate lock.

Outstanding derivative loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might decline from inception of a rate lock to funding of the loan due to increases in mortgage interest rates. If interest rates increase, the value of these loan commitments decreases. Conversely, if interest rates decrease, the value of these loan commitments increases.

Forward Loan Sale Commitments-The Company utilizes both “mandatory delivery” and “best efforts” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments.

With a “mandatory delivery” contract, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the Company fails to deliver the number of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a “pair-off” fee, based on then-current market prices, to the investor to compensate the investor for the shortfall.

26

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

With a “best efforts” contract, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally, the price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g., on the same day the lender commits to lend funds to a potential borrower).

The Company expects that these forward loan sale commitments will experience changes in fair value opposite to the change in fair value of derivative loan commitments.

Interest Rate Swaps-The Company enters into interest rate swap agreements that are transacted to meet the financing needs of its commercial customers. Offsetting interest rate swap agreements are simultaneously transacted with a third-party financial institution to effectively eliminate the Company’s interest-rate risk associated with the customer swaps. The primary risks associated with these transactions arise from exposure to the ability of the counterparties to meet the terms of the contract. The interest rate swap notional amount is the aggregate notional amount of the customer swap and the offsetting third-party swap. The Company also assesses the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determines whether the credit valuation adjustments are significant to the overall valuation of its derivatives.

Risk Participation Agreements-The Company has entered into risk participation agreements with correspondent institutions and shares in any interest rate swap losses incurred as a result of the commercial loan customers’ termination of a loan-level interest rate swap agreement prior to maturity. The Company records these risk participation agreements at fair value. The Company’s maximum credit exposure is based on its proportionate share of the settlement amount of the referenced interest rate swap. Settlement amounts are generally calculated based on the fair value of the swap plus outstanding accrued interest receivables from the customer.

The following table presents the outstanding notional balances and fair values of outstanding derivative instruments:

Assets

Liabilities

Notional

Fair

Fair

    

Amount

    

Value

    

Value

 

(in thousands)

September 30, 2023:

       

Derivatives designated as hedging instruments

Fair value hedge - interest rate swaps

$

100,000

$

1,463

$

Cashflow hedge - interest rate swaps

100,000

6,946

Total derivatives designated as hedging instruments

$

8,409

$

Derivatives not designated as hedging instruments

Derivative loan commitments

$

40,445

$

420

$

111

Forward loan sale commitments

31,000

304

Interest rate swaps

859,275

33,889

33,889

Risk participation agreements

182,347

Total derivatives not designated as hedging instruments

$

34,613

$

34,000

Total derivatives

$

43,022

$

34,000

December 31, 2022:

Derivatives designated as hedging instruments

Cashflow hedge - interest rate swaps

$

100,000

$

8,314

$

Total derivatives designated as hedging instruments

$

8,314

$

Derivatives not designated as hedging instruments

Derivative loan commitments

$

27,935

$

238

$

65

Forward loan sale commitments

29,000

249

39

Interest rate swaps

772,588

28,525

28,525

Risk participation agreements

164,528

Total derivatives not designated as hedging instruments

$

29,012

$

28,629

Total derivatives

$

37,326

$

28,629

27

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

The following table presents the recorded net gains and losses pertaining to the Company’s derivative instruments:

Location of gain (loss)

recognized in

Three Months Ended September 30, 

Nine Months Ended September 30, 

Income

   

2023

2022

   

2023

2022

(in thousands)

Derivatives designated as fair value hedge

Hedged items - loans

Interest income

$

(1,018)

$

$

(1,462)

$

Interest rate swap contracts

Interest income

1,026

1,463

Total

$

8

$

$

1

$

Derivatives not designated as hedging instruments

Derivative loan commitments

Mortgage banking income

$

(129)

$

(606)

$

137

$

(874)

Forward loan sale commitments

Mortgage banking income

45

1,377

94

1,356

Interest rate swaps

Other income

330

Total

$

(84)

$

771

$

231

$

812

The effect of cashflow hedge accounting on accumulated other comprehensive income is as follows:

Three Months Ended September 30, 

Nine Months Ended September 30, 

2023

2022

2023

2022

(in thousands)

Derivatives designated as hedging instruments

      

(Loss) gain in OCI on derivatives (effective portion), net of tax

$

(448)

$

1,610

$

(983)

$

5,038

Gain (loss) reclassified from OCI into interest expense (effective portion)

$

1,221

$

420

$

3,373

$

380

Master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral or cash funds, in the event of default on, or termination of, any one contract. Collateral is provided by cash or securities received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds.

28

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

The following table presents the offsetting of derivatives and amounts subject to an enforceable master netting arrangement, not offset in the Consolidated Balance Sheets at September 30, 2023:

Gross Amounts Not Offset in the Consolidated Balance Sheets

Net Amounts

Gross Amounts

Gross Amounts

Assets (Liabilities)

Cash

of Recognized

Offset in the

presented in the

Collateral

Assets

Consolidated

Consolidated

Financial

(Received)

Net

(Liabilities)

  

Balance Sheets

   

Balance Sheets

   

Instruments

  

Posted

   

Amount

(in thousands)

Derivatives designated as hedging instruments

Interest rate swap on deposits

$

6,946

$

$

6,946

$

$

(6,946)

$

Interest rate swap on residential real estate loans

$

1,463

$

$

1,463

$

$

$

1,463

Derivatives not designated as hedging instruments

Customer interest rate swaps

$

33,824

$

$

33,824

$

$

(37,054)

$

(3,230)

11.

OPERATING LEASE ROU ASSETS AND LIABILITIES

Operating lease ROU assets, included in other assets, were $23.5 million and $26.9 million at September 30, 2023 and December 31, 2022, respectively.

Operating lease liabilities, included in other liabilities and accrued expenses, were $25.2 million and $28.6 million at September 30, 2023 and December 31, 2022, respectively. As of September 30, 2023 and December 31, 2022 there were no leases that had not yet commenced. At September 30, 2023, lease expiration dates ranged from two months to 34.9 years and have a weighted average remaining lease term of 16.3 years. At December 31, 2022, lease expiration dates ranged from three months to 35.7 years and had a weighted average remaining lease term of 17.3 years.

Future minimum lease payments under non-cancellable leases and a reconciliation to the amount recorded as operating lease liabilities as of September 30, 2023 were as follows:

September 30, 

2023

(in thousands)

2023

$

760

2024

2,827

2025

2,552

2026

2,505

2027

2,445

Thereafter

19,421

Total lease payments

30,510

Imputed interest

(5,347)

Total present value of operating lease liabilities

$

25,163

The weighted-average discount rate and remaining lease term for operating leases were as follows:

September 30, 2023

December 31, 2022

Weighted-average discount rate

2.08

%

2.02

%

Weighted-average remaining lease term (years)

16.25

17.33

29

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Rental expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease components, such as fair-market value adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

The following table presents the components of total lease expense:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

2023

2022

2023

2022

(in thousands)

Lease Expense:

Operating lease expense

$

766

$

836

$

2,365

$

2,472

Short-term lease expense

40

37

105

105

Variable lease expense

5

10

Sublease income

(3)

(4)

(12)

(9)

Total lease expense

$

808

$

869

$

2,468

$

2,568

Other Information

Cash paid for amounts included in the measurement of lease liabilities-

operating cash flows for operating leases

768

845

2,382

2,446

Operating Lease - Operating cash flows (Liability reduction)

640

701

1,975

2,041

ROU assets obtained in exchange for new operating lease liabilities

77

596

1,160

12.MINIMUM REGULATORY CAPITAL REQUIREMENTS

The Company and the Bank are subject to various regulatory capital requirements administered by the Federal Reserve and the FDIC. Failure to meet minimum capital requirements can result in mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s Consolidated Financial Statements.

Under the capital rules, risk-based capital ratios are calculated by dividing Tier 1, common equity Tier 1, and total risk-based capital, respectively, by risk-weighted assets. Assets and off-balance sheet credit equivalents are assigned to one of several risk-weight categories, based primarily on relative risk. The rules require banks and bank holding companies to maintain a minimum common equity Tier 1 capital ratio of 4.5%, a minimum Tier 1 capital ratio of 6.0% and a total capital ratio of 8.0%. In addition, a Tier 1 leverage ratio of 4.0% is required. Additionally, the capital rules require a bank holding company to maintain a capital conservation buffer of common equity Tier 1 capital in an amount above the minimum risk-based capital requirements equal to 2.5% of total risk weighted assets, or face restrictions on the ability to pay dividends, pay discretionary bonuses, and to engage in share repurchases.

Under the FDIC’s prompt corrective action rules, an insured state nonmember bank is considered “well capitalized” if its capital ratios meet or exceed the ratios as set forth in the following table and is not subject to any written agreement, order, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. The Bank must meet well capitalized requirements under prompt corrective action provisions. Prompt corrective action provisions are not applicable to bank holding companies.

A bank holding company is considered “well capitalized” if the bank holding company (i) has a total risk-based capital ratio of at least 10.0%, (ii) has a Tier 1 risk-based capital ratio of at least 6.0%, and (iii) is not subject to any written agreement order, capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital measure.

At September 30, 2023, the capital levels of both the Company and the Bank exceeded all regulatory capital requirements and their regulatory capital ratios were above the minimum levels required to be considered well capitalized

30

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

for regulatory purposes. The capital levels of both the Company and the Bank at September 30, 2023 also exceeded the minimum capital requirements, including the currently applicable capital conservation buffer of 2.5%.

The Company’s and the Bank’s actual regulatory capital ratios as of September 30, 2023 and December 31, 2022 are presented in the table below.

Minimum Required to be

Considered "Well Capitalized"

Minimum Required for

Under Prompt Corrective

Actual

Capital Adequacy Purposes

Action Provisions

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

(dollars in thousands)

HarborOne Bancorp, Inc.

September 30, 2023

Common equity Tier 1 capital to risk-weighted assets

$

570,586

12.0

%  

$

213,499

4.5

%  

N/A

N/A

Tier 1 capital to risk-weighted assets

570,586

12.0

284,665

6.0

N/A

N/A

Total capital to risk-weighted assets

651,143

13.7

379,554

8.0

N/A

N/A

Tier 1 capital to average assets

570,586

10.1

224,874

4.0

N/A

N/A

December 31, 2022

Common equity Tier 1 capital to risk-weighted assets

$

592,610

12.8

%  

$

208,541

4.5

%  

N/A

N/A

Tier 1 capital to risk-weighted assets

592,610

12.8

278,054

6.0

N/A

N/A

Total capital to risk-weighted assets

677,774

14.6

370,739

8.0

N/A

N/A

Tier 1 capital to average assets

592,610

11.5

205,897

4.0

N/A

N/A

HarborOne Bank

September 30, 2023

Common equity Tier 1 capital to risk-weighted assets

$

543,025

11.5

%  

$

213,410

4.5

%  

$

308,259

6.5

%

Tier 1 capital to risk-weighted assets

543,025

11.5

284,547

6.0

379,396

8.0

Total capital to risk-weighted assets

595,582

12.6

379,396

8.0

474,245

10.0

Tier 1 capital to average assets

543,025

9.7

224,848

4.0

281,060

5.0

December 31, 2022

Common equity Tier 1 capital to risk-weighted assets

$

525,522

11.3

%  

$

208,447

4.5

%  

$

301,090

6.5

%

Tier 1 capital to risk-weighted assets

525,522

11.3

277,929

6.0

370,572

8.0

Total capital to risk-weighted assets

575,686

12.4

370,572

8.0

463,215

10.0

Tier 1 capital to average assets

525,522

10.2

205,874

4.0

257,342

5.0

31

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

13.COMPREHENSIVE (LOSS) INCOME

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities are reported as a separate component of the stockholders’ equity section of the Consolidated Balance Sheets, such items, along with net income, are components of comprehensive income (loss).

The following table presents changes in accumulated other comprehensive (loss) income by component for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended September 30, 

2023

2022

Available

Cash

Available

Cash

Postretirement

for Sale

Flow

for Sale

Flow

Benefit

Securities

Hedge

Total

Securities

Hedge

Total

(in thousands)

Balance at beginning of period

   

$

112

$

(51,847)

$

5,445

$

(46,290)

   

$

(38,892)

$

4,625

$

(34,267)

Other comprehensive income (loss) before reclassifications

(14,718)

598

(14,120)

(20,554)

2,658

(17,896)

Amounts reclassified from accumulated other comprehensive (loss) income

(20)

(1,221)

(1,241)

(420)

(420)

Net current period other comprehensive (loss) income

(20)

(14,718)

(623)

(15,361)

(20,554)

2,238

(18,316)

Related tax effect

4,487

175

4,662

4,530

(628)

3,902

Balance at end of period

$

92

$

(62,078)

$

4,997

$

(56,989)

$

(54,916)

$

6,235

$

(48,681)

Nine Months Ended September 30, 

2023

2022

Available

Cash

Available

Cash

Postretirement

for Sale

Flow

for Sale

Flow

Benefit

Securities

Hedge

Total

Securities

Hedge

Total

(in thousands)

Balance at beginning of period

$

150

$

(53,212)

$

5,980

$

(47,082)

$

(2,834)

$

1,197

$

(1,637)

Other comprehensive (loss) income before reclassifications

1

(12,995)

2,005

(10,989)

(66,806)

7,386

(59,420)

Amounts reclassified from accumulated other comprehensive income (loss)

(59)

(3,373)

(3,432)

(380)

(380)

Net current period other comprehensive (loss) income

(58)

(12,995)

(1,368)

(14,421)

(66,806)

7,006

(59,800)

Related tax effect

4,129

385

4,514

14,724

(1,968)

12,756

Balance at end of period

$

92

$

(62,078)

$

4,997

$

(56,989)

$

(54,916)

$

6,235

$

(48,681)

32

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

14.

FAIR VALUE OF ASSETS AND LIABILITIES

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

•Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

•Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The following methods and assumptions were used by the Company in estimating fair value disclosures:

Debt Securities – Available-for-sale debt securities are recorded at fair value on a recurring basis. When available, the Company uses quoted market prices to determine the fair value of debt securities; such items are classified as Level 1. There were no Level 1 securities held at September 30, 2023 and December 31, 2022.

Level 2 debt securities are traded less frequently than exchange-traded instruments. The fair value of these securities is determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category includes obligations of U.S. government-sponsored enterprises, including mortgage-backed securities, individual name issuer trust preferred debt securities and corporate bonds.

Debt securities not actively traded whose fair value is determined through the use of cash flows utilizing inputs that are unobservable are classified as Level 3. There were no Level 3 securities held at September 30, 2023 and December 31, 2022.

Loans held for sale - The fair value of mortgage loans held for sale is estimated based on current market prices for similar loans in the secondary market and therefore are classified as Level 2 assets. There were no mortgage loans held for sale 90 days or more past due as of September 30, 2023 and December 31, 2022.

Collateral-Dependent Impaired Loans - The fair value of collateral-dependent loans that are deemed to be impaired is determined based upon the fair value of the underlying collateral. Such collateral primarily consists of real estate and, to a lesser extent, other business assets. For collateral-dependent loans for which repayment is dependent on the sale of the collateral, management adjusts the fair value for estimated costs to sell. For collateral-dependent loans for which repayment is dependent on the operation of the collateral, estimated costs to sell are not incorporated into the measurement. Management may also adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values resulting from its knowledge of the property. Internal valuations are utilized to determine the fair value of other business assets. Collateral-dependent impaired loans are categorized as Level 3.

Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, the Company reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.

Retirement plan annuities - The carrying value of the annuities are based on their contract values which approximate fair value.

33

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

MSRs - Fair value is based on a third-party valuation model that calculates the present value of estimated future net servicing income and includes observable market data such as prepayment speeds and default and loss rates.

Deposits and mortgagors’ escrow accounts - The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) and mortgagors’ escrow accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a DCF calculation that applies market interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Borrowed funds - The fair values of borrowed funds are estimated using DCF analyses based on the current incremental borrowing rates in the market for similar types of borrowing arrangements.

Accrued interest - The carrying amounts of accrued interest approximate fair value.

Derivatives

Derivatives designated as hedging instrument - The Company works directly with a third-party vendor to provide periodic valuations for its interest-rate risk-management agreements to determine fair value of its interest rate swaps executed for interest-rate risk management. The vendor utilizes standard valuation methodologies applicable to interest rate derivatives based on readily observable market data and are therefore considered Level 2 valuations.

Forward loan sale commitments and derivative loan commitments - Forward loan sale commitments and derivative loan commitments are based on fair values of the underlying mortgage loans and the probability of such commitments being exercised. The assumptions for pull-through rates are derived from internal data and adjusted using management judgment. Derivative loan commitments include the value of servicing rights and non-refundable costs of originating the loan based on the Company’s internal cost analysis that is not observable. The weighted average pull-through rate for derivative loan commitments was approximately 93% and 91% at September 30, 2023 and December 31, 2022, respectively.

Interest rate swaps and risk participation agreements - The Company’s interest rate swaps are traded in over-the-counter markets where quoted market prices are not readily available. For these interest rate derivatives, fair value is determined by a third party utilizing models that use primarily market observable inputs, such as swap rates and yield curves. The pricing models used to value interest rate swaps calculate the sum of each instrument’s fixed and variable cash flows, which are then discounted using an appropriate yield curve to arrive at the fair value of each swap. The pricing models do not contain a high level of subjectivity as the methodologies used do not require significant judgment.

Although the Company has determined that the majority of the inputs used to value its interest rate swaps and risk participation agreements fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with interest rate contracts and risk participation agreements utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. As of September 30, 2023 and December 31, 2022, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company classified its derivative valuations in their entirety as Level 2.

Off-balance sheet credit-related instruments - Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of off-balance sheet instruments is immaterial.

Transfers between levels are recognized at the end of the reporting period, if applicable. There were no transfers during the periods presented.

34

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

Total

    

Level 1

    

Level 2

    

Level 3

    

Fair Value

 

(in thousands)

September 30, 2023

Assets

Securities available for sale

$

$

271,078

$

$

271,078

Loans held for sale

17,796

17,796

Mortgage servicing rights

49,201

49,201

Derivatives

42,298

724

43,022

$

$

380,373

$

724

$

381,097

Liabilities

Derivatives

$

$

33,889

$

111

$

34,000

December 31, 2022

Assets

Securities available for sale

$

$

301,149

$

$

301,149

Loans held for sale

18,544

18,544

Mortgage servicing rights

48,138

48,138

Derivatives

36,839

487

37,326

$

$

404,670

$

487

$

405,157

Liabilities

Derivatives

$

$

28,525

$

104

$

28,629

The table below presents, for the three and nine months ended September 30, 2023 and 2022, the changes in Level 3 assets and liabilities that are measured at fair value on a recurring basis.

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2023

2022

      

2023

    

2022

(in thousands)

Assets: Derivative and Forward Loan Sale Commitments:

Balance at beginning of period

$

783

$

1,344

$

487

$

1,583

Total gains (losses) included in net income (1)

(59)

891

237

652

Balance at end of period

$

724

$

2,235

$

724

$

2,235

Changes in unrealized gains relating to instruments at period end

$

724

$

2,235

$

724

$

2,235

Liabilities: Derivative and Forward Loan Sale Commitments:

Balance at beginning of period

$

(85)

$

(239)

$

(104)

$

(189)

Total gains (losses) included in net income (1)

(26)

(120)

(7)

(170)

Balance at end of period

$

(111)

$

(359)

$

(111)

$

(359)

Changes in unrealized losses relating to instruments at period end

$

(111)

$

(359)

$

(111)

$

(359)

(1) Included in mortgage banking income on the Consolidated Statements of Income.

35

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Assets Measured at Fair Value on a Non-recurring Basis

The Company is required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with GAAP. The following is a summary of applicable non-recurring fair value measurements. There are no liabilities measured at fair value on a non-recurring basis.

September 30, 

December 31, 

2023

2022

    

Level 1

    

Level 2

    

Level 3

Level 1

    

Level 2

    

Level 3

(in thousands)

Collateral-dependent impaired loans

$

$

$

7,340

$

$

$

349

Losses in the following table represent the amount of the fair value adjustments recorded during the period on the carrying value of the assets held at September 30, 2023 and December 31, 2022, respectively. Losses on fully charged off loans are not included in the table.

Three Months Ended September 30, 

Nine Months Ended September 30, 

2023

2022

2023

    

2022

(in thousands)

Collateral-dependent impaired loans

$

178

$

92

$

3,116

$

840

The table below presents quantitative information about significant unobservable inputs (Level 3) for assets measured at fair value on a nonrecurring basis at the dates indicated.

Fair Value

September 30, 

December 31, 

Valuation Technique

2023

2022

(in thousands)

Collateral-dependent impaired loans

$

7,340

$

349

Sales Comparison Approach (1)

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which includes unobservable inputs such as adjustments for differences between the comparable sales. The Company may also use another source of collateral assessment to determine a reasonable estimate of the fair value of the collateral. Appraisals may be adjusted by Management for qualitative factors and estimated liquidation expenses. Generally, appraisals for residential real estate and commercial real estate loan are discounted 20%. Commercial and industrial appraisals are generally discounted 25%-50%. Management may take larger discounts to reflect market liquidity for certain types of assets not addressed in the appraisals.

36

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Summary of Fair Values of Financial Instruments

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments are as follows. Certain financial instruments and all nonfinancial instruments are exempt from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.

September 30, 2023

Carrying

Fair Value

    

Amount

    

Level 1

    

Level 2

    

Level 3

    

Total

 

(in thousands)

Financial assets:

Cash and cash equivalents

$

246,784

$

246,784

$

$

$

246,784

Securities available for sale

271,078

271,078

271,078

Securities held to maturity

19,795

18,683

18,683

Federal Home Loan Bank stock

23,378

N/A

N/A

N/A

N/A

Loans held for sale

17,796

17,796

17,796

Loans, net

4,674,542

4,451,754

4,451,754

Retirement plan annuities

15,023

15,023

15,023

Accrued interest receivable

17,506

17,506

17,506

Derivatives

43,022

42,298

724

43,022

Financial liabilities:

Deposits

4,409,958

4,389,434

4,389,434

Borrowed funds

475,470

472,875

472,875

Subordinated debt

34,380

34,099

34,099

Mortgagors' escrow accounts

10,155

10,155

10,155

Accrued interest payable

4,623

4,623

4,623

Derivatives

34,000

33,889

111

34,000

December 31, 2022

Carrying

Fair Value

    

Amount

    

Level 1

    

Level 2

    

Level 3

    

Total

 

(in thousands)

Financial assets:

Cash and cash equivalents

$

98,017

$

98,017

$

$

$

98,017

Securities available for sale

301,149

301,149

301,149

Securities held to maturity

19,949

19,274

19,274

Federal Home Loan Bank stock

20,071

N/A

N/A

N/A

N/A

Loans held for sale

18,544

18,544

18,544

Loans, net

4,504,434

4,383,613

4,383,613

Retirement plan annuities

14,630

14,630

14,630

Accrued interest receivable

15,139

15,139

15,139

Derivatives

37,326

36,839

487

37,326

Financial liabilities:

Deposits

4,189,499

4,166,796

4,166,796

Borrowed funds

400,675

399,655

399,655

Subordinated debt

34,285

28,221

28,221

Mortgagors' escrow accounts

9,537

9,537

9,537

Accrued interest payable

2,325

2,325

2,325

Derivatives

28,629

28,525

104

28,629

37

Table of Contents

HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

15.

EARNINGS PER SHARE

Basic EPS represents net income attributable to common shareholders divided by the weighted-average number of common shares outstanding during the period. Non-vested restricted shares that are participating securities are included in the computation of basic EPS. Diluted EPS is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding, plus the effect of potential dilutive common stock equivalents outstanding during the period. At September 30, 2023 and 2022, respectively, potential common shares of 1,193,036 and 4,255 were considered to be anti-dilutive and excluded from EPS.

The following table presents earnings per common share.

Three Months Ended September 30, 

2023

2022

Net income available to common stockholders (in thousands)

$

8,412

$

13,758

Average number of common shares outstanding

46,369,111

49,626,152

Less: Average unallocated ESOP shares and non-vested restricted shares

(3,492,218)

(3,795,415)

Weighted average number of common shares outstanding used to calculate basic earnings per common share

42,876,893

45,830,737

Dilutive effect of share-based compensation

106,584

589,790

Weighted average number of common shares outstanding used to calculate diluted earnings per common share

42,983,477

46,420,527

Earnings per common share:

Basic

$

0.20

$

0.30

Diluted

$

0.20

$

0.30

Nine Months Ended September 30, 

2023

2022

Net income available to common stockholders (in thousands)

$

23,188

$

36,012

Average number of common shares outstanding

47,133,894

50,738,918

Less: Average unallocated ESOP shares and non-vested restricted shares

(3,541,940)

(3,863,606)

Weighted average number of common shares outstanding used to calculate basic earnings per common share

43,591,954

46,875,312

Dilutive effect of share-based compensation

201,183

666,335

Weighted average number of common shares outstanding used to calculate diluted earnings per common share

43,793,137

47,541,647

Earnings per common share:

Basic

$

0.53

$

0.77

Diluted

$

0.53

$

0.76

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

16.

REVENUE RECOGNITION

Revenue from contracts with customers in the scope of ASC Topic 606 is measured based on the consideration specified in the contract with a customer and excludes amounts collected on behalf of third parties. The Company recognizes revenue from contracts with customers when it satisfies its performance obligations.

The Company’s performance obligations are generally satisfied as services are rendered and can either be satisfied at a point in time or over time. Unsatisfied performance obligations at the report date are not material to our Consolidated Financial Statements.

In certain cases, other parties are involved with providing services to our customers. If the Company is a principal in the transaction (providing services itself or through a third party on its behalf), revenues are reported based on the gross consideration received from the customer and any related expenses are reported gross in noninterest expense. If the Company is an agent in the transaction (referring to another party to provide services), the Company reports its net fee or commission retained as revenue.

The Company recognizes revenue that is transactional in nature and such revenue is earned at a point in time. Revenue that is recognized at a point in time includes card interchange fees (fee income related to debit card transactions), ATM fees, wire transfer fees, overdraft charge fees, and stop-payment and returned check fees. Additionally, revenue is collected from loan fees, such as letters of credit, line renewal fees and application fees. Such revenue is derived from transactional information and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer’s transaction.

17.

SEGMENT REPORTING

The Company has two reportable segments: HarborOne Bank and HarborOne Mortgage. Revenue from HarborOne Bank consists primarily of interest earned on loans and investment securities and service charges on deposit accounts. Revenue from HarborOne Mortgage comprises interest earned on loans and fees received as a result of the residential mortgage origination, sale and servicing process.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Segment profit and loss is measured by net income on a legal entity basis. Intercompany transactions are eliminated in consolidation.

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Information about the reportable segments and reconciliation to the unaudited interim Consolidated Financial Statements at September 30, 2023 and 2022 and for the three and nine months ended September 30, 2023 and 2022 is presented in the tables below.

Three Months Ended September 30, 2023

HarborOne

HarborOne

Bank

    

Mortgage

    

Consolidated

(in thousands)

Net interest and dividend income

$

31,468

$

199

$

31,080

Benefit for credit losses

(113)

(113)

Net interest and dividend income, after benefit for credit losses

31,581

199

31,193

Mortgage banking income:

Gain on sale of mortgage loans

2,704

2,704

Intersegment gain (loss)

(198)

249

Changes in mortgage servicing rights fair value

18

107

125

Other

188

2,082

2,270

Total mortgage banking income

8

5,142

5,099

Other noninterest income (loss)

6,503

(4)

6,499

Total noninterest income

6,511

5,138

11,598

Noninterest expense

26,272

5,490

31,872

Income (loss) before income taxes

11,820

(153)

10,919

Provision (benefit) for income taxes

2,716

(15)

2,507

Net income (loss)

$

9,104

$

(138)

$

8,412

Nine Months Ended September 30, 2023

HarborOne

HarborOne

    

Bank

    

Mortgage

    

Consolidated

(in thousands)

Net interest and dividend income

$

98,520

$

646

$

97,578

Provision for credit losses

5,036

5,036

Net interest and dividend income, after provision for credit losses

93,484

646

92,542

Mortgage banking income:

Gain on sale of mortgage loans

8,228

8,228

Intersegment gain (loss)

(904)

793

Changes in mortgage servicing rights fair value

(89)

(1,042)

(1,131)

Other

584

6,214

6,798

Total mortgage banking income (loss)

(409)

14,193

13,895

Other noninterest income

19,059

(4)

19,055

Total noninterest income

18,650

14,189

32,950

Noninterest expense

78,655

16,305

95,106

Income (loss) before income taxes

33,479

(1,470)

30,386

Provision (benefit) for income taxes

8,024

(348)

7,198

Net income (loss)

$

25,455

$

(1,122)

$

23,188

Total assets at period end

$

5,672,956

$

113,619

$

5,664,387

Goodwill at period end

$

59,042

$

10,760

$

69,802

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HarborOne Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three Months Ended September 30, 2022

HarborOne

HarborOne

    

Bank

    

Mortgage

Consolidated

(in thousands)

Net interest and dividend income

$

39,373

$

437

$

39,332

Provision for credit losses

668

668

Net interest and dividend income, after provision for credit losses

38,705

437

38,664

Mortgage banking income:

Gain on sale of mortgage loans

3,809

3,809

Intersegment gain (loss)

(904)

698

Changes in mortgage servicing rights fair value

164

1,652

1,816

Other

218

2,235

2,453

Total mortgage banking income (loss)

(522)

8,394

8,078

Other noninterest income (loss)

6,180

(13)

6,167

Total noninterest income

5,658

8,381

14,245

Noninterest expense

27,707

6,610

34,473

Income before income taxes

16,656

2,208

18,436

Provision for income taxes

4,166

687

4,678

Net income

$

12,490

$

1,521

$

13,758

Nine Months Ended September 30, 2022

HarborOne

HarborOne

Bank

Mortgage

Consolidated

(in thousands)

Net interest and dividend income

$

110,043

$

1,198

$

109,797

Provision for credit losses

3,552

3,552

Net interest and dividend income, after provision for credit losses

106,491

1,198

106,245

Mortgage banking income:

Gain on sale of mortgage loans

13,669

13,669

Intersegment gain (loss)

(2,607)

2,632

Changes in mortgage servicing rights fair value

881

7,082

7,963

Other

670

6,953

7,623

Total mortgage banking income (loss)

(1,056)

30,336

29,255

Other noninterest income

18,151

3

18,154

Total noninterest income

17,095

30,339

47,409

Noninterest expense

81,663

21,613

104,262

Income before income taxes

41,923

9,924

49,392

Provision for income taxes

11,273

2,777

13,380

Net income

$

30,650

$

7,147

$

36,012

Total assets at period end

$

5,000,963

$

132,431

$

4,987,643

Goodwill at period end

$

59,042

$

10,760

$

69,802

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HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section is intended to assist in the understanding of the financial performance of the Company and its subsidiaries through a discussion of our financial condition at September 30, 2023, and our results of operations for the three and nine months ended September 30, 2023 and 2022. This section should be read in conjunction with the unaudited interim Consolidated Financial Statements and Notes thereto of the Company appearing in Part I, Item 1 of this Form 10-Q.

Forward-Looking Statements

Certain statements herein constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We may also make forward-looking statements in other documents we file with the SEC, in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees. Such statements may be identified by words such as “believes,” “will,” “would,” “expects,” “project,” “may,” “could,” “developments,” “strategic,” “launching,” “opportunities,” “anticipates,” “estimates,” “intends,” “plans,” “targets” and similar expressions. These statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements as a result of numerous factors. Factors that could cause such differences to exist include, but are not limited to, changes in general business and economic conditions (including inflation and concerns about liquidity) on a national basis and in the local markets in which the Company operates, including changes that adversely affect borrowers’ ability to service and repay the Company’s loans; changes in customer behavior; ongoing turbulence in the capital and debt markets and the impact of such conditions on the Company’s business activities; changes in interest rates; increases in loan default and charge-off rates; decreases in the value of securities in the Company’s investment portfolio; fluctuations in real estate values; the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions, customer behavior or adverse economic developments; the adequacy of loan loss reserves; decreases in deposit levels necessitating increased borrowing to fund loans and investments; competitive pressures from other financial institutions; acquisitions may not produce results at levels or within time frames originally anticipated; cybersecurity incidents, fraud, natural disasters, war, terrorism, civil unrest, and future pandemics; changes in regulation; changes in accounting standards and practices; the risk that goodwill and intangibles recorded in the Company’s financial statements will become impaired; demand for loans in the Company’s market area; the Company’s ability to attract and maintain deposits; risks related to the implementation of acquisitions, dispositions, and restructurings; the risk that the Company may not be successful in the implementation of its business strategy; changes in assumptions used in making such forward-looking statements and the risk factors described in the Annual Report on Form 10-K and Quarterly Reports on Form 10-Q as filed with the SEC, which are available at the SEC’s website, www.sec.gov. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, HarborOne’s actual results could differ materially from those discussed. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. The Company disclaims any obligation to publicly update or revise any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes, except as required by law.

Critical Accounting Policies and Estimates

The Company’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in its most recent Annual Report on Form 10-K. Modifications to significant accounting policies made during the year are described in Note 1 to the Consolidated Financial Statements included in Item 1 of this report. The preparation of the Consolidated Financial Statements in accordance with GAAP and practices generally applicable to the financial services industry requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates.

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HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Certain of our accounting policies, which are important to the portrayal of our financial condition, require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers.

Management has identified the Company’s most critical accounting policies as related to:

•Allowance for Credit Losses

•Goodwill

•Deferred Tax Assets

The accounting policies and estimates, including the nature of the estimates and types of assumptions used, are described in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s most recent Form 10-K and pertain to discussion in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this report.

Recent Developments

In light of recent events in the banking sector, including recent bank failures, increasing interest rates and recessionary concerns, the Company continues to proactively assess the operations of the Bank and HarborOne Mortgage to mitigate the risks impacting the banking industry and ensure that the Company continues to serve its clients and communities in a cost-effective way.

The Company enacted cost-savings measures and operational efficiencies throughout 2023 that will result in approximately $4.6 million in pre-tax annual savings.

The Company has cash and available-for-sale securities representing 9.1% of assets at September 30, 2023. The Company maintains the ability to access contingent liquidity at the FHLB and the FRBB totaling $1.3 billion and $861.1 million at September 30, 2023 and December 31, 2022, respectively. Management considers the Company’s current liquidity position to be adequate to meet both short-term and long-term liquidity needs. Refer to the section “Liquidity Management and Capital Resources” for additional information. Additionally, the Company and Bank are above the standards to be considered well-capitalized under regulatory requirements. Refer to “Note 12. Minimum Regulatory Capital Requirements,” included in this report.

Macroeconomic trends continue to be mixed as uncertainty remains about the economy and banking industry. Market conditions and external factors may unpredictably impact the Company. For additional factors that could adversely impact the Company’s future results of operations and financial condition, see the section labeled “Risk Factors” in Part II Item 1A below and Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as updated by our Quarterly Reports on Form 10-Q and other filings submitted to the SEC.

Comparison of Financial Condition at September 30, 2023 and December 31, 2022

Total Assets.  Total assets increased $304.8 million, or 5.7%, to $5.66 billion at September 30, 2023 from $5.36 billion at December 31, 2022. The increase primarily reflects an increase of $149.9 million in short-term investments and a $173.2 million increase in loans. The increase in short-term investments reflects management’s proactive liquidity-enhancing measures in response to financial industry concerns.

Cash and Cash Equivalents.  Cash and cash equivalents increased $148.8 million to $246.8 million at September 30, 2023 from $98.0 million at December 31, 2022, primarily due to an increase in short-term investments.

Loans Held for Sale.  Loans held for sale at September 30, 2023 were $17.8 million, a decrease of $748,000 from $18.5 million at December 31, 2022.

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HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Loans, net.  Net loans increased $170.1 million, or 3.8%, to $4.67 billion at September 30, 2023 from $4.50 billion at December 31, 2022. The following table sets forth information concerning the composition of loans:

.02

September 30, 

December 31, 

Increase (Decrease)

2023

2022

Dollars

Percent

(dollars in thousands)

Residential real estate:

One- to four-family

$

1,513,326

$

1,432,263

$

81,063

5.7

%

Second mortgage and equity lines of credit

174,814

166,219

8,595

5.2

Residential construction

20,272

35,837

(15,565)

(43.4)

Total residential real estate loans

1,708,412

1,634,319

74,093

4.5

Commercial:

Commercial real estate

2,349,886

2,250,344

99,542

4.4

Commercial construction

191,224

199,311

(8,087)

(4.1)

Commercial and industrial

450,547

424,275

26,272

6.2

Total commercial loans

2,991,657

2,873,930

117,727

4.1

Consumer loans

24,247

41,421

(17,174)

(41.5)

Total loans before basis adjustment

4,724,316

4,549,670

174,646

3.8

`

Basis adjustment associated with fair value hedge (1)

(1,462)

(1,462)

(100.0)

Total loans

4,722,854

4,549,670

173,184

3.8

Allowance for credit losses on loans

(48,312)

(45,236)

(3,076)

6.8

Loans, net

$

4,674,542

$

4,504,434

$

170,108

3.8

%

(1) Represents the basis adjustment associated with the application of hedge accounting on certain residential real estate loans. Refer to Note 10 - Derivatives.

The increase in net loans is primarily due to commercial real estate and residential real estate loan growth. Management continues to seek prudent commercial lending opportunities to deepen relationships with existing customers and develop new relationships with strong borrowers. The ACL was $48.3 million at September 30, 2023 and $45.2 million at December 31, 2022. See additional disclosure in the Asset Quality section below.

Securities.  Investment securities available for sale at September 30, 2023 were $271.1 million, a decrease of $30.0 million, or 10.0%, from $301.1 million at December 31, 2022. Securities available for sale were negatively impacted by unrealized losses of $81.3 million and $68.3 million as of September 30, 2023 and December 31, 2022, respectively. As of September 30, 2023 and December 31, 2022, the gross unrealized loss positions were primarily related to mortgage-backed securities and other obligations issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Total gross unrealized losses were primarily attributable to changes in interest rates relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.

Securities held to maturity amounted to $19.8 million at September 30, 2023 and $19.9 million at December 31, 2022, with a fair value of $18.7 million and $19.3 million, respectively.

Mortgage servicing rights.  MSRs are created as a result of our mortgage banking origination activities and accounted for at fair value. At September 30, 2023, we serviced mortgage loans for others with an aggregate outstanding principal balance of $3.59 billion. Total MSRs were $49.2 million at September 30, 2023 and $48.1 million at December 31, 2022. The change in total MSRs for the nine months ended September 30, 2023 reflects additions of $2.2 million, amortization from loan repayment of $1.5 million and a positive fair value mark of $363,000.

Quarterly, we utilize a third-party provider to assist in the determination of the fair value of our MSRs. They provide the appropriate prepayment speed, and discount and default rate assumptions based on our portfolio and key benchmark mortgage rates. Management reviews the assumptions and calculation. Any measurement of fair value is

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HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

limited by the conditions existing and assumptions made at a particular point in time. Those assumptions may not be appropriate if they are applied to a different point in time.

The assumptions used in the MSR fair value calculation are significantly impacted by the residential mortgage benchmark indices. Decreasing mortgage rates normally encourages increased mortgage refinancing activity, which reduces the life of the loans underlying the MSRs, thereby reducing the value of MSRs, whereas increasing interest rates would result in increases in fair value, and a corresponding increase in earnings. MSRs recorded during periods of historically low interest rates may be less sensitive to falling rates in the future as they were originated in a low mortgage rate environment.

Deposits.  Deposits increased $220.5 million, or 5.3%, to $4.41 billion at September 30, 2023 from $4.19 billion at December 31, 2022. The following table sets forth information concerning the composition of deposits:

September 30, 

December 31, 

Increase (Decrease)

2023

2022

Dollars

Percent

(dollars in thousands)

Noninterest-bearing deposits

$

708,847

$

762,576

$

(53,729)

(7.0)

%

NOW accounts

289,085

297,625

(8,540)

(2.9)

Regular savings

1,324,635

1,468,172

(143,537)

(9.8)

Money market accounts

470,499

451,663

18,836

4.2

Term certificate accounts

846,568

494,599

351,969

71.2

Consumer and business deposits

3,639,634

3,474,635

164,999

4.7

Municipal deposits

493,383

413,484

79,899

19.3

Brokered deposits

276,941

301,380

(24,439)

(8.1)

Total deposits

$

4,409,958

$

4,189,499

$

220,459

5.3

%

Reciprocal deposits

$

177,271

$

28,560

$

148,711

520.7

%

The growth in deposits was driven by an increase of $352.0 million in term certificate accounts, $79.9 million in municipal deposits and $18.8 million in money market accounts. We participate in a reciprocal deposit program that provides access to FDIC-insured deposit products in aggregate amounts exceeding the current limits for depositors. Total deposits included $177.3 million in reciprocal deposits. The brokered deposits provide a channel for the Company to seek additional funding outside the Company’s core market.

The total of estimated deposits in excess of the FDIC insurance limits amounted to $1.49 billion and $1.56 billion as of September 30, 2023 and December 31, 2022, respectively. On February 24, 2023, at 5 p.m. local time, the Bank exited the DIF, which insures deposits in excess of FDIC-insured limits. All customer non-certificate deposits as of that date and time will remain covered by DIF insurance for one year until February 24, 2024. Certificates of deposit as of that date and time will remain covered by DIF insurance until their maturity date. Including DIF excess insurance coverage, insured deposits are approximately 85% of total deposits, including Bank subsidiary deposits. In addition, certain municipal deposits exceeding the deposit insurance limits have been collateralized through letters of credit offered by the FHLB.

The Company calculates its uninsured deposits based on the guidance provided by the FDIC for regulatory reporting purposes, which includes subsidiary deposits.

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Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

The following table summarizes uninsured deposits at September 30, 2023:

September 30, 

December 31, 

2023

2022

(in thousands)

Uninsured deposits, per regulatory reporting requirements

$

1,488,028

$

1,557,581

Less: Subsidiary deposits

339,594

294,062

Collateralized deposits

9,500

Uninsured deposits, after exclusions

$

1,138,934

$

1,263,519

Uninsured deposits, after excluding subsidiary deposits and collateralized deposits, represented 26% of total deposits at September 30, 2023. Management believes that this provides a more informative view of deposits at risk, as subsidiary deposits are eliminated in consolidation and collateralized deposits are secured.

Borrowed Funds.  FHLB borrowings increased $74.8 million to $475.5 million at September 30, 2023 from $400.7 million at December 31, 2022. At September 30, 2023, FHLB short-term borrowings were $250.0 million. As of September 30, 2023, the Bank had $1.28 billion in available borrowing capacity across multiple relationships.

Stockholders’ equity.  Total stockholders’ equity was $584.6 million at September 30, 2023, compared to $617.0 million at December 31, 2022 and $611.4 million at September 30, 2022. Stockholders’ equity decreased 5.2% when compared to the year end, as earnings were offset by share repurchases. The Company completed its fifth share repurchase on April 13, 2023 of 2,450,208 shares at an average price of $13.01, including $0.13 per share of excise tax. The Company commenced a sixth share repurchase program during the third quarter of 2023, repurchasing 652,523 shares at an average price of $9.93, including $0.10 per share of excise tax, during the three months ended September 30, 2023.  

The tangible-common-equity-to-tangible-assets ratio was 9.17% at September 30, 2023, 10.31% at December 31, 2022, and 10.97% at September 30, 2022. At September 30, 2023, the capital levels of both the Company and the Bank exceeded all regulatory capital requirements and their regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory purposes. The capital levels of both the Company and the Bank at September 30, 2023, also exceeded the minimum capital requirements, including the currently applicable capital conservation buffer of 2.5%. Regulatory capital ratios are not impacted by the decline in other comprehensive income as a result of the unrealized losses on available-for-sale investment securities.

Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2023 and 2022

HarborOne Bancorp, Inc. Consolidated

Overview.  Consolidated net income for the three and nine months ended September 30, 2023 was $8.4 million and $23.2 million, respectively, compared to net income of $13.8 million and $36.0 million for the three and nine months ended September 30, 2022.

Average Balances and Yields.  The following tables set forth average balance sheets, annualized average yields and costs, and certain other information for the periods indicated, on a consolidated basis. Interest income on tax-exempt loans and securities has been adjusted to a fully taxable-equivalent basis using a federal tax rate of 21%. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

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HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Three Months Ended September 30, 

2023

2022

Average

Average

Outstanding

Yield/

Outstanding

Yield/

    

Balance

      

Interest

      

Cost (8)

      

Balance

      

Interest

      

Cost (8)

      

(dollars in thousands)

Interest-earning assets:

Investment securities (1)

$

375,779

$

2,003

2.11

%  

$

390,577

$

1,971

2.00

%

Other interest-earning assets

207,234

2,667

5.11

27,723

143

2.05

Loans held for sale

20,919

370

7.02

28,046

377

5.33

Loans

Commercial loans (2)(3)

2,980,817

40,438

5.38

2,522,359

28,298

4.45

Residential real estate loans (3)(4)

1,700,383

17,525

4.09

1,470,305

12,972

3.50

Consumer loans (3)

25,126

412

6.51

63,220

795

4.99

Total loans

4,706,326

58,375

4.92

4,055,884

42,065

4.11

Total interest-earning assets

5,310,258

63,415

4.74

4,502,230

44,556

3.93

Noninterest-earning assets

314,030

308,734

Total assets

$

5,624,288

$

4,810,964

Interest-bearing liabilities:

Savings accounts

$

1,360,728

6,787

1.98

$

1,293,598

1,211

0.37

NOW accounts

274,329

75

0.11

305,777

42

0.05

Money market accounts

910,694

8,355

3.64

893,452

1,382

0.61

Certificates of deposit

818,182

7,212

3.50

486,923

787

0.64

Brokered deposits

287,428

2,610

3.60

102,875

69

0.27

Total interest-bearing deposits

3,651,361

25,039

2.72

3,082,625

3,491

0.45

FHLB and FRB borrowings

508,001

6,439

5.03

196,036

1,209

2.45

Subordinated debentures

34,364

606

7.00

34,237

524

6.07

Total borrowings

542,365

7,045

5.15

230,273

1,733

3.00

Total interest-bearing liabilities

4,193,726

32,084

3.04

3,312,898

5,224

0.63

Noninterest-bearing liabilities:

Noninterest-bearing deposits

705,009

789,214

Other noninterest-bearing liabilities

126,742

80,304

Total liabilities

5,025,477

4,182,416

Total equity

598,811

628,548

Total liabilities and equity

$

5,624,288

$

4,810,964

Tax equivalent net interest income

31,331

39,332

Tax equivalent interest rate spread (5)

1.70

%  

3.30

%

Less: tax equivalent adjustment

251

Net interest income as reported

$

31,080

$

39,332

Net interest-earning assets (6)

$

1,116,532

$

1,189,332

Net interest margin (7)

2.32

%  

3.47

%

Tax equivalent effect

0.02

Net interest margin on a fully tax equivalent basis

2.34

%

3.47

%

Ratio of interest-earning assets to interest-bearing liabilities

126.62

%  

135.90

%

Supplemental information:

Total deposits, including demand deposits

$

4,356,370

$

25,039

$

3,871,839

$

3,491

Cost of total deposits

2.28

%

0.36

%

Total funding liabilities, including demand deposits

$

4,898,735

$

32,084

$

4,102,112

$

5,224

Cost of total funding liabilities

2.60

%

0.51

%

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

(2) Includes industrial revenue bonds for the quarter ended September 30, 2023. Interest income from tax exempt loans is computed on a taxable equivalent basis using a rate of 21% for the quarters presented. The yield on commercial loans before tax equivalent adjustment at September 30, 2023 was 5.35%.

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

(4) Includes the basis adjustments of certain loans included in fair value hedging relationships.

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

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

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

(8) Annualized.

47

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Nine Months Ended September 30, 

2023

2022

Average

Average

Outstanding

Yield/

Outstanding

Yield/

    

Balance

      

Interest

      

Cost (8)

      

Balance

      

Interest

      

Cost (8)

      

(dollars in thousands)

Interest-earning assets:

Investment securities (1)

$

381,572

$

6,117

2.14

%  

$

391,786

$

5,545

1.89

%  

Other interest-earning assets

170,377

6,405

5.03

80,540

335

0.56

Loans held for sale

19,557

982

6.71

29,114

972

4.46

Loans

Commercial loans (2)(3)

2,940,483

116,116

5.28

2,400,290

75,688

4.22

Residential real estate loans (3)(4)

1,676,979

49,598

3.95

1,341,508

34,296

3.42

Consumer loans (3)

30,112

1,350

5.99

89,934

3,179

4.73

Total loans

4,647,574

167,064

4.81

3,831,732

113,163

3.95

Total interest-earning assets

5,219,080

180,568

4.63

4,333,172

120,015

3.70

Noninterest-earning assets

310,826

315,781

Total assets

$

5,529,906

$

4,648,953

Interest-bearing liabilities:

Savings accounts

$

1,413,553

18,397

1.74

$

1,242,533

2,203

0.24

NOW accounts

276,872

170

0.08

306,115

116

0.05

Money market accounts

846,235

19,849

3.14

879,310

2,320

0.35

Certificates of deposit

693,941

15,170

2.92

497,744

2,186

0.59

Brokered deposits

299,665

7,428

3.31

100,969

306

0.41

Total interest-bearing deposits

3,530,266

61,014

2.31

3,026,671

7,131

0.32

FHLB and FRB borrowings

541,034

19,658

4.86

96,015

1,516

2.11

Subordinated debentures

34,331

1,653

6.44

34,206

1,571

6.14

Total borrowings

575,365

21,311

4.95

130,221

3,087

3.17

Total interest-bearing liabilities

4,105,631

82,325

2.68

3,156,892

10,218

0.43

Noninterest-bearing liabilities:

Noninterest-bearing deposits

712,815

765,479

Other noninterest-bearing liabilities

105,732

80,727

Total liabilities

4,924,178

4,003,098

Total equity

605,728

645,855

Total liabilities and equity

$

5,529,906

$

4,648,953

Tax equivalent net interest income

98,243

109,797

Tax equivalent interest rate spread (5)

1.95

%  

3.27

%

Less: tax equivalent adjustment

665

Net interest income as reported

$

97,578

$

109,797

Net interest-earning assets (6)

$

1,113,449

$

1,176,280

Net interest margin (7)

2.50

%  

3.39

%

Tax equivalent effect

0.02

Net interest margin on a fully tax equivalent basis

2.52

%

3.39

%

Ratio of interest-earning assets to interest-bearing liabilities

127.12

%  

137.26

%

Supplemental information:

Total deposits, including demand deposits

$

4,243,081

$

61,014

$

3,792,150

$

7,131

Cost of total deposits

1.92

%

0.25

%

Total funding liabilities, including demand deposits

$

4,818,446

$

82,325

$

3,922,371

$

10,218

Cost of total funding liabilities

2.28

%

0.35

%

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

(2) Includes industrial revenue bonds for the nine months ended September 30, 2023. Interest income from tax exempt loans is computed on a taxable equivalent basis using a rate of 21%. The yield on commercial loans before tax equivalent adjustment at September 30, 2023 was 5.25%.

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

(4) Includes the basis adjustments of certain loans included in fair value hedging relationships.

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

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

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

(8) Annualized.

48

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Rate/Volume Analysis.  The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated, on a consolidated basis. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.

Three Months Ended September 30, 

Nine Months Ended September 30, 

2023 v. 2022

2023 v. 2022

Increase (Decrease)

Total

Increase (Decrease)

Total

Due to Changes in

Increase

Due to Changes in

Increase

    Volume

    

    Rate

    

(Decrease)

    

    Volume

    

    Rate

    

(Decrease)

(in thousands)

Interest-earning assets:

Investment securities

$

(76)

$

108

$

32

$

(148)

$

720

$

572

Other interest-earning assets

2,050

474

2,524

740

5,330

6,070

Loans held for sale

(108)

101

(7)

(384)

394

10

Loans

Commercial loans

5,643

6,497

12,140

19,060

21,368

40,428

Residential real estate loans

2,194

2,359

4,553

9,403

5,899

15,302

Consumer loans

(574)

191

(383)

(2,522)

693

(1,829)

Total loans

7,263

9,047

16,310

25,941

27,960

53,901

Total interest-earning assets

9,129

9,730

18,859

26,149

34,404

60,553

Interest-bearing liabilities:

Savings accounts

66

5,510

5,576

344

15,850

16,194

NOW accounts

(4)

37

33

(12)

66

54

Money market accounts

27

6,946

6,973

(92)

17,621

17,529

Certificates of deposit

851

5,574

6,425

1,171

11,813

12,984

Brokered deposit

319

2,222

2,541

1,532

5,590

7,122

Total interest-bearing deposits

1,259

20,289

21,548

2,943

50,940

53,883

FHLB and FRB advances

3,144

2,086

5,230

14,165

3,977

18,142

Subordinated debentures

2

80

82

6

76

82

Total borrowings

3,146

2,166

5,312

14,171

4,053

18,224

Total interest-bearing liabilities

4,405

22,455

26,860

17,114

54,993

72,107

Change in net interest income

$

4,724

$

(12,725)

$

(8,001)

$

9,035

$

(20,589)

$

(11,554)

Interest and Dividend Income.  Interest and dividend income on a tax equivalent basis increased $18.9 million, or 42.3%, to $63.4 million for the three months ended September 30, 2023, compared to $44.6 million for the three months ended September 30, 2022. The significant components of the increase were:

Interest and fees on loans on a tax equivalent basis increased $16.3 million, or 38.8%, reflecting loan growth, and an 81-basis-point increase in the yield.

Interest income on other earning assets increased $2.5 million, or 1,765.0%, reflecting an increase in the average balance and interest rates of federal funds.

Interest income on securities increased $32,000, or 1.6%, primarily reflecting the increase in rate.

Interest on loans held for sale decreased $7,000, or 1.9%, reflecting the decrease in mortgage volume partially offset by the increase in rate.

49

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Compared to the first nine months of 2022, interest and dividend income on a tax equivalent basis increased $60.6 million, or 50.5%, reflecting similar trends to the quarter-over-quarter results, increased volume and rates on interest-bearing assets.

Interest Expense.  Interest expense increased $26.9 million, or 514.1%, to $32.1 million for the three months ended September 30, 2023 from $5.2 million for the three months ended September 30, 2022. The significant components of the increase were:

Interest expense on deposits increased $21.5 million, or 617.2%, reflecting deposit growth, and a 227 basis-point increase in rates paid.
Interest expense on FHLB and FRBB borrowings increased $5.2 million, or 432.6%, reflecting an increase in the average balance and a 258-basis-point increase in the cost of FHLB borrowings.

Compared to the first nine months of 2022, interest expense increased $72.1 million, or 705.7%, reflecting similar trends to the quarter-over-quarter results, increased volume and rates on interest-bearing liabilities.

Net Interest and Dividend Income.  Net interest and dividend income on a tax equivalent basis decreased $8.0 million, or 20.3%, to $31.3 million for the three months ended September 30, 2023 from $39.3 million for the three months ended September 30, 2022 Although the average balance of interest bearing assets and liabilities increased $808.0 million and $880.8 million, respectively, rate increases on interest-bearing liabilities outpaced the increase in the yield on interest-earning assets by 160 basis points. The net interest spread was 1.70% for the three months ended September 30, 2023 compared to 3.30% for the three months ended September 30, 2022 and net interest margin on a full tax equivalent basis decreased 113 basis points to 2.34% for the three months ended September 30, 2023 from 3.47% for three months ended September 30,  2022.

Compared to the first nine months of 2022, net interest and dividend income on a tax equivalent basis decreased $11.6 million, or 10.5%, to $98.2 million from $109.8 million. The tax equivalent net interest spread decreased 132 basis points to 1.95% for the nine months ended September 30, 2023 from 3.27% for the nine months ended September 30, 2022, and net interest margin on a tax equivalent basis decreased by 87 basis points to 2.52% for the nine months ended September 30, 2023 from 3.39% for the nine months ended September 30, 2022.

Income Tax Provision.  The provision for income taxes and effective tax rate for the three months ended September 30, 2023 was $2.5 million and 23.0%, respectively, compared to $4.7 million and 25.4%, respectively, for the three months ended September 30, 2022.

The provision for income taxes and effective tax rate for the nine months ended September 30, 2023 was $7.2 million and 23.7%, respectively, compared to $13.4 million and 27.1%, respectively, for the nine months ended September 30, 2022.

Segments. The Company has two reportable segments: HarborOne Bank and HarborOne Mortgage. Revenue from HarborOne Bank consists primarily of interest earned on loans and investment securities and service charges on deposit accounts. Revenue from HarborOne Mortgage is comprised of interest earned on loans and fees received as a result of the residential mortgage origination, sale and servicing process. Residential real estate portfolio loans are originated by HarborOne Mortgage and purchased by the Bank.

50

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

The tables below show the results of operations for the Company’s segments, HarborOne Bank and HarborOne Mortgage, for the three and nine months ended September 30, 2023 and 2022, and the increase or decrease in those results:

HarborOne Bank

HarborOne Mortgage

Three Months Ended

Three Months Ended

September 30, 

Increase (Decrease)

September 30, 

Increase (Decrease)

    

2023

    

2022

    

Dollars

    

Percent

    

2023

    

2022

    

Dollars

    

Percent

    

(dollars in thousands)

Net interest and dividend income

$

31,468

$

39,373

$

(7,905)

(20.1)

%  

$

199

$

437

$

(238)

(54.5)

%  

Provision (benefit) for credit losses

(113)

668

(781)

(116.9)

Net interest and dividend income, after provision (benefit) for credit losses

31,581

38,705

(7,124)

(18.4)

199

437

(238)

(54.5)

Mortgage banking income:

Gain on sale of mortgage loans

2,704

3,809

(1,105)

(29.0)

Intersegment gain (loss)

(198)

(904)

706

78.1

249

698

(449)

(64.3)

Changes in mortgage servicing rights fair value

18

164

(146)

(89.0)

107

1,652

(1,545)

(93.5)

Other

188

218

(30)

(13.8)

2,082

2,235

(153)

(6.8)

Total mortgage banking income (loss)

8

(522)

530

101.5

5,142

8,394

(3,252)

(38.7)

Other noninterest income (loss)

6,503

6,180

323

5.2

(4)

(13)

9

69.2

Total noninterest income

6,511

5,658

853

15.1

5,138

8,381

(3,243)

(38.7)

Noninterest expense

26,272

27,707

(1,435)

(5.2)

5,490

6,610

(1,120)

(16.9)

Income (loss) before income taxes

11,820

16,656

(4,836)

(29.0)

(153)

2,208

(2,361)

(106.9)

Provision (benefit) for income taxes

2,716

4,166

(1,450)

(34.8)

(15)

687

(702)

(102.2)

Net income (loss)

$

9,104

$

12,490

$

(3,386)

(27.1)

%  

$

(138)

$

1,521

$

(1,659)

(109.1)

%  

HarborOne Bank

HarborOne Mortgage

Nine Months Ended

Nine Months Ended

September 30, 

Increase (Decrease)

September 30, 

Increase (Decrease)

    

2023

    

2022

    

Dollars

    

Percent

    

2023

2022

Dollars

Percent

(dollars in thousands)

Net interest and dividend income

$

98,520

$

110,043

$

(11,523)

(10.5)

%  

$

646

$

1,198

$

(552)

(46.1)

%

Provision for credit losses

5,036

3,552

1,484

41.8

Net interest and dividend income, after provision for credit losses

93,484

106,491

(13,007)

(12.2)

646

1,198

(552)

(46.1)

Mortgage banking income:

Gain on sale of mortgage loans

8,228

13,669

(5,441)

(39.8)

Intersegment gain (loss)

(904)

(2,607)

1,703

65.3

793

2,632

(1,839)

(69.9)

Changes in mortgage servicing rights fair value

(89)

881

(970)

(110.1)

(1,042)

7,082

(8,124)

(114.7)

Other

584

670

(86)

(12.8)

6,214

6,953

(739)

(10.6)

Total mortgage banking income (loss)

(409)

(1,056)

647

61.3

14,193

30,336

(16,143)

(53.2)

Other noninterest income (loss)

19,059

18,151

908

5.0

(4)

3

(7)

(233.3)

Total noninterest income

18,650

17,095

1,555

9.1

14,189

30,339

(16,150)

(53.2)

Noninterest expense

78,655

81,663

(3,008)

(3.7)

16,305

21,613

(5,308)

(24.6)

Income (loss) before income taxes

33,479

41,923

(8,444)

(20.1)

(1,470)

9,924

(11,394)

(114.8)

Provision (benefit) for income taxes

8,024

11,273

(3,249)

(28.8)

(348)

2,777

(3,125)

(112.5)

Net income (loss)

$

25,455

$

30,650

$

(5,195)

(16.9)

%  

$

(1,122)

$

7,147

$

(8,269)

(115.7)

%

51

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

HarborOne Bank Segment

Results of Operations for the Three and Nine Months Ended September 30, 2023 and 2022

Net Income. The Bank’s net income decreased $3.4 million to $9.1 million for the three months ended September 30, 2023 compared to $12.5 million for the three months ended September 30, 2022. The decrease in net income reflects a decrease of $7.9 million, or 20.1%, in net interest and dividend income partially offset by a $853,000, or 15.1%, increase in noninterest income, a $1.4 million, or 5.2%, decrease in noninterest expense and a decrease in provision for credit losses of $781,000, or 116.9%.

Compared to the first nine months of 2022, the Bank’s net income for the nine months ended September 30, 2023 decreased $5.2 million to $25.5 million from $30.7 million. The decrease in net income reflects a decrease of $11.5 million, or 10.5%, in net interest and dividend income and an increase in provision for credit losses of $1.5 million, or 41.8%, partially offset by a $1.6 million, or 9.1%, increase in noninterest income and a $3.0 million, or 3.7%, decrease in noninterest expense.

Provision for Credit Losses.  The Bank recorded a reversal of provision for credit losses of $113,000 for the three months ended September 30, 2023, reflecting a $586,000 reversal of provision for unfunded commitments, partially offset by a $472,000 provision for loan credit losses, primarily for loan growth. For the nine months ended September 30, 2023 provision for credit losses were $5.0 million reflecting a $5.7 million provision for loan credit losses, primarily for loan growth and charge off replenishment, partially offset by a $682,000 reversal of provision for unfunded commitments. The Bank recorded provision for credit losses of $668,000 and $3.6 million for the three and nine months ended September 30, 2022.

Net recoveries totaled $18,000 for the quarter ended September 30, 2023, compared to net recoveries of $799,000, or 0.08% of average loans outstanding on an annualized basis, for the quarter ended September 30, 2022. Net charge-offs totaled $2.6 million, or 0.08% of average loans outstanding on an annualized basis for the nine months ended September 30, 2023, as compared to the net charge-offs of $1.4 million for the same period in 2022. At September 30, 2023, nonperforming assets were $18.8 million, and nonperforming assets to total assets were 0.33% as compared to $23.4 million and 0.47%, respectively, at September 30, 2022.

Noninterest Income.  Total noninterest income was $6.5 million and $18.7 million for the three and nine months ended September 30, 2023 compared to $5.7 million and $17.1 million for the respective prior year period. The following table sets forth the components of noninterest income:

Three Months Ended September 30, 

Increase (Decrease)

2023

2022

Dollars

Percent

(dollars in thousands)

Intersegment loss

$

(198)

$

(904)

$

706

78.1

%

Secondary market loan servicing fees, net of guarantee fees

188

218

(30)

(13.8)

Changes in mortgage servicing rights fair value

18

164

(146)

(89.0)

Total mortgage banking income (loss)

8

(522)

530

101.5

%

Interchange fees

2,685

2,574

111

4.3

Other deposit account fees

2,447

2,296

151

6.6

Income on retirement plan annuities

146

119

27

22.7

Bank-owned life insurance income

531

503

28

5.6

Swap fee income

233

70

163

232.9

Other

461

618

(157)

(25.4)

Total noninterest income

$

6,511

$

5,658

$

853

15.1

%

52

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Nine Months Ended September 30, 

Increase (Decrease)

2023

2022

Dollars

Percent

(dollars in thousands)

Intersegment loss

$

(904)

$

(2,607)

$

1,703

65.3

%

Secondary market loan servicing fees, net of guarantee fees

584

670

(86)

(12.8)

Changes in mortgage servicing rights fair value

(89)

881

(970)

(110.1)

Total mortgage banking loss

(409)

(1,056)

647

61.3

%

Interchange fees

7,877

7,754

123

1.6

Other deposit account fees

7,001

6,480

521

8.0

Income on retirement plan annuities

393

338

55

16.3

Bank-owned life insurance income

1,542

1,480

62

4.2

Swap fee income

688

112

576

514.3

Other

1,558

1,987

(429)

(21.6)

Total noninterest income

$

18,650

$

17,095

$

1,555

9.1

%

The primary reasons for the variances within the noninterest income categories shown in the preceding tables are noted below:

The Bank records an intersegment loss on loans purchased from HarborOne Mortgage that is offset in consolidation. The Bank purchased $132.4 million of residential mortgage loans from HarborOne Mortgage during the nine months ended September 30, 2023 as compared to $335.0 million for the prior year period.
The change in the MSR fair value is generally consistent with the change in key benchmark residential mortgage rates. As interest rates rise and prepayment speeds decrease, MSR fair value tends to increase. Conversely, when interest rates fall and prepayment speeds increase, MSR fair value tends to decrease. Continued interest rate increases will not necessarily equate to MSR fair value increases in the future as price caps impact the fair value calculation.
The increase in other deposit account fees reflects an increase in overdraft protection fees of $53,000 and $252,000 and an increase in fees on business accounts of $64,000 and $240,000 for the three and nine months ended September 30, 2023.
Swap fee income is collected and recorded at the time the swap contract is entered into, and therefore income fluctuates as a function of the swap agreements entered into in a period.
The year-to-date decrease in other noninterest income primarily reflects a positive credit valuation adjustment of $239,000 on the termination of an interest rate swap that was included in other noninterest income for the nine months ended September 30, 2022 and no such income in 2023.

53

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Noninterest Expense.  Total noninterest expense was $26.3 million and $78.7 million for the three and nine months ended September 30, 2023 compared to $27.7 million and $81.7 million for the respective prior year period. The following table sets forth the components of noninterest expense:

Three Months Ended September 30, 

Increase (Decrease)

2023

2022

Dollars

Percent

(dollars in thousands)

Compensation and benefits

$

15,238

$

16,455

$

(1,217)

(7.4)

%

Occupancy and equipment

3,828

4,096

(268)

(6.5)

Data processing expenses

2,527

2,219

308

13.9

Loan expenses

128

68

60

88.2

Marketing

709

728

(19)

(2.6)

Deposit expenses

534

587

(53)

(9.0)

Postage and printing

330

358

(28)

(7.8)

Professional fees

914

1,258

(344)

(27.3)

Foreclosed and repossessed assets

2

2

Deposit insurance

1,004

357

647

181.2

Other expenses

1,058

1,581

(523)

(33.1)

Total noninterest expense

$

26,272

$

27,707

$

(1,435)

(5.2)

%

Nine Months Ended September 30, 

Increase (Decrease)

2023

2022

Dollars

Percent

(dollars in thousands)

Compensation and benefits

$

45,069

$

47,942

$

(2,873)

(6.0)

%

Occupancy and equipment

12,033

12,598

(565)

(4.5)

Data processing expenses

7,187

6,552

635

9.7

Loan expenses

311

298

13

4.4

Marketing

2,559

2,776

(217)

(7.8)

Deposit expenses

1,394

1,646

(252)

(15.3)

Postage and printing

1,170

1,128

42

3.7

Professional fees

2,609

3,419

(810)

(23.7)

Foreclosed and repossessed assets

(10)

18

(28)

(155.6)

Deposit insurance

2,690

1,060

1,630

153.8

Other expenses

3,643

4,226

(583)

(13.8)

Total noninterest expense

$

78,655

$

81,663

$

(3,008)

(3.7)

%

The primary reasons for the significant variances within the noninterest expense categories shown in the preceding table are noted below:

The decrease in compensation expense primarily reflects decreased expense related to incentive and benefit expenses and headcount reductions. For the three and nine months ended September 2023, compensation and benefits includes one-time severance costs of $252,000 and $786,000, respectively.

The decrease in occupancy expense reflects a decrease in utilities, building maintenance, and landscaping.

Data processing expenses increased due to an increase in core system processing fees.

The decrease in professional fees reflects a decrease in consulting services.

The increase in deposit insurance reflects a two-basis-point increase in the insurance rate.

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HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

HarborOne Mortgage Segment

Results of Operations for the Three and Nine Months Ended September 30, 2023 and 2022

Net Income.  HarborOne Mortgage recorded a net loss of $138,000 and $1.1 million the three and nine months ended September 30, 2023, compared to net income of $1.5 million and $7.1 million for the prior year respective periods. The HarborOne Mortgage segment’s results are heavily impacted by prevailing rates, refinancing activity, and home sales.

Noninterest Income.  Total noninterest income was $5.1 million and $14.2 million for the three and nine months ended September 30, 2023 as compared to $8.4 million and $30.3 million for the respective prior year periods. Noninterest income is primarily from mortgage banking income, for which the following table provides further detail:

Three Months Ended September 30, 

Increase (Decrease)

2023

2022

Dollars

Percent

(dollars in thousands)

Gain on sale of mortgage loans

$

2,704

$

3,809

$

(1,105)

(29.0)

%

Intersegment gain

249

698

(449)

(64.3)

Processing, underwriting and closing fees

453

466

(13)

(2.8)

Secondary market loan servicing fees net of guarantee fees

1,629

1,769

(140)

(7.9)

Changes in mortgage servicing rights fair value

107

1,652

(1,545)

(93.5)

Total mortgage banking income

$

5,142

$

8,394

$

(3,252)

(38.7)

%

Originated mortgage servicing rights included in gain on sale of mortgage loans

$

900

$

915

$

(15)

(1.6)

%

Change in 10-year Treasury Constant Maturity rate in basis points

78

85

Nine Months Ended September 30, 

Increase (Decrease)

2023

2022

Dollars

Percent

(dollars in thousands)

Gain on sale of mortgage loans

$

8,228

$

13,669

$

(5,441)

(39.8)

%

Intersegment gain

793

2,632

(1,839)

(69.9)

Processing, underwriting and closing fees

1,155

1,723

(568)

(33.0)

Secondary market loan servicing fees net of guarantee fees

5,059

5,230

(171)

(3.3)

Changes in mortgage servicing rights fair value

(1,042)

7,082

(8,124)

(114.7)

Total mortgage banking income

$

14,193

$

30,336

$

(16,143)

(53.2)

%

Originated mortgage servicing rights included in gain on sale of mortgage loans

$

2,193

$

3,630

$

(1,437)

(39.6)

%

Change in 10-year Treasury Constant Maturity rate in basis points

71

231

The primary reasons for the significant variances in the noninterest income category shown in the preceding table are noted below:

The change in the MSR fair value is generally consistent with the change in key benchmark residential mortgage rates. As interest rates rise and prepayment speeds decrease, MSR fair value tends to increase. Conversely, when interest rates fall and prepayment speeds increase, MSR fair value tends to decrease. The change in the MSR fair value for the three and nine months ended September 30, 2023, reflects the increase of benchmark residential rates at

55

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

September 30, 2023, muted by MSR price caps used in the valuation model, offset with amortization related to principal payments. Continued interest rate increases will not necessarily equate to MSR fair value increases in the future.
Gain on sale of mortgages and processing, underwriting and closing fees decreased as mortgage demand remains weak on higher interest rates compared to the respective prior year period.
The decrease in the secondary market loan servicing fee net of guarantee fees reflects the decrease in the average serviced mortgage loans for the three and nine months ended September 30, 2023, as compared to the respective prior year periods.

The following tables provide additional loan production detail:

Three Months Ended September 30, 

2023

2022

Loan

Loan

Amount

    

% of Total

Amount

% of Total

(dollars in thousands)

Product Type

Conventional

$

99,038

62.9

%

$

117,536

46.9

%

Government

9,009

5.7

15,020

6.0

State Housing Agency

9,397

6.0

12,037

4.8

Jumbo

40,109

25.4

105,776

42.2

Seconds

20

0.0

95

0.1

Total

$

157,573

100.0

%

$

250,464

100.0

%

Purpose

Purchase

$

143,205

90.9

%

$

228,934

91.4

%

Refinance

11,841

7.5

15,007

6.0

Construction

2,527

1.6

6,523

2.6

Total

$

157,573

100.0

%

$

250,464

100.0

%

Nine Months Ended September 30, 

2023

2022

Loan

Loan

Amount

    

% of Total

Amount

    

% of Total

(dollars in thousands)

Product Type

Conventional

$

253,219

55.6

%

$

421,436

52.6

%

Government

32,935

7.2

44,784

5.6

State Housing Agency

27,296

6.0

30,112

3.7

Jumbo

141,802

31.2

305,291

38.1

Seconds

71

0.0

195

Total

$

455,323

100.0

%

$

801,818

100.0

%

Purpose

Purchase

$

418,701

92.0

%

$

603,289

75.2

%

Refinance

30,153

6.6

169,362

21.1

Construction

6,469

1.4

29,167

3.7

Total

$

455,323

100.0

%

$

801,818

100.0

%

56

Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Noninterest Expense.  Total noninterest expense was $5.5 million and $16.3 million for the three and nine months ended September 30, 2023 compared to $6.6 million and $21.6 million for the respective prior year periods. The following table sets forth the components of noninterest expense:

Three Months Ended September 30, 

Increase (Decrease)

2023

2022

Dollars

Percent

(dollars in thousands)

Compensation and benefits

$

4,014

$

4,788

$

(774)

(16.2)

%

Occupancy and equipment

567

691

(124)

(17.9)

Data processing expenses

21

92

(71)

(77.2)

Loan expenses

258

287

(29)

(10.1)

Marketing

85

122

(37)

(30.3)

Postage and printing

12

11

1

9.1

Professional fees

155

108

47

43.5

Other expenses

378

511

(133)

(26.0)

Total noninterest expense

$

5,490

$

6,610

$

(1,120)

(16.9)

%

Nine Months Ended September 30, 

Increase (Decrease)

2023

2022

Dollars

Percent

(dollars in thousands)

Compensation and benefits

$

11,289

$

15,974

$

(4,685)

(29.3)

%

Occupancy and equipment

1,956

2,094

(138)

(6.6)

Data processing expenses

110

259

(149)

(57.5)

Loan expenses

805

920

(115)

(12.5)

Marketing

341

278

63

22.7

Postage and printing

35

47

(12)

(25.5)

Professional fees

592

484

108

22.3

Other expenses

1,177

1,557

(380)

(24.4)

Total noninterest expense

$

16,305

$

21,613

$

(5,308)

(24.6)

%

The primary reasons for the significant variances within the noninterest expense categories shown in the preceding table are noted below:

The decrease in compensation and benefits primarily reflects decreased commission expense consistent with the changes in mortgage origination volumes and decreased staffing levels. For the three and nine months ended September 2023, compensation and benefits includes one-time severance costs of $110,000 and $359,000, respectively.

Loan expense primarily is for expenses to originate loans and is generally consistent with mortgage origination volumes;
The increase in marketing reflects increased advertising; and
The decrease in other expenses reflects decreased employment agency fees.

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Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Asset Quality

The following table provides information with respect to our nonperforming assets at the dates indicated. We did not have any accruing loans past due 90 days or more at the dates presented.

September 30, 

December 31, 

    

2023

    

2022

(dollars in thousands)

Non-accrual loans:

Residential real estate:

        

One- to four-family

$

7,498

$

8,927

Second mortgages and equity lines of credit

453

421

Commercial real estate

8,811

2,039

Commercial construction

Commercial and industrial

1,980

3,329

Consumer

41

70

Total non-accrual loans

18,783

14,786

Other real estate owned and repossessed assets:

One- to four-family residential real estate owned

Other repossessed assets

12

54

Total nonperforming assets

$

18,795

$

14,840

Period end allowance for credit losses balance

48,312

45,236

Period end total loan balance

4,722,854

4,549,670

Allowance for credit losses to total loans(1)

1.02

%

0.99

%

Allowance for credit losses to non-accrual loans

257.21

%

305.94

%

Total nonperforming loans to total loans (1)

0.40

%  

0.32

%

Total nonperforming assets to total assets

0.33

%  

0.28

%

(1) Total loans are presented before allowance for credit losses, but include deferred loan origination costs (fees), net, and the basis adjustment associated with the application of hedge accounting on certain residential real estate loans. Refer to Note 10 - Derivatives.

Credit quality performance has remained strong, with total nonperforming assets of $18.8 million at September 30, 2023, compared to $14.8 million at December 31, 2022 and $23.4 million at September 30, 2022. Nonperforming assets as a percentage of total assets were 0.33% at September 30, 2023, 0.28% at December 31, 2022, and 0.47% at September 30, 2022.

Management also continues to monitor certain sectors within the commercial real estate segment that may be particularly susceptible to increased credit risk as a result of trends that were precipitated by the COVID-19 pandemic and may be exacerbated by current economic conditions. This includes business-oriented hotels, non-anchored retail space, and metro office space. As of September 30, 2023, business-oriented hotels loans included 13 loans with a total outstanding balance of $114.4 million, non-anchored retail space loans included 30 loans with a total outstanding balance of $40.4 million, and metro office space loans included two loans with a total outstanding balance of $12.0 million. As of September 30, 2023, there was one metro office space loan with a carrying value of $7.0 million that was rated doubtful and on nonaccrual and one business-oriented hotel credit with a carrying value of $1.7 million that was rated substandard and on nonaccrual. The other loans in these groups were performing in accordance with their terms.

Management employs a process and methodology to estimate the ACL on loans that evaluates both quantitative and qualitative factors. The methodology for evaluating quantitative factors consists of two basic components. The first component involves pooling loans into portfolio segments for loans that share similar risk characteristics. A DCF methodology is used to estimate credit losses for each pooled portfolio segment. The methodology incorporates the probability of default and loss given default. Management utilizes the national unemployment rate as an econometric factor with a one-year forecast period and one-year straight-line reversion period to its historical mean in order to estimate the probability of default for each loan portfolio segment. Utilizing a third-party regression model, the forecasted national unemployment rate is correlated with the probability of default for each loan portfolio segment. The DCF methodology combines the probability of default, the loss given default, maturity date and prepayment speeds to estimate a reserve for each loan. The sum of all the loan level reserves is aggregated for each portfolio segment and a loss rate factor is derived.

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Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Quantitative loss factors for pooled loans are also supplemented by certain qualitative risk factors reflecting management’s view of how losses may vary from those represented by quantitative loss rates.

The second component involves individually analyzed loans that do not share similar risk characteristics with loans that are pooled into portfolio segments. For loans that are individually analyzed, the ACL is measured using a DCF methodology based upon the loan’s contractual effective interest rate, or at the loan’s observable market price, or, if the loan is collateral-dependent, at the fair value of the collateral.

In estimating the ACL on loans, management considers the sensitivity of the model and significant judgments and assumptions that could result in an amount that is materially different from management’s estimate. Management performed a sensitivity analysis to understand the impact of hypothetical changes in qualitative loss factors on the ACL. The sensitivity analysis evaluated the impact of changes to commercial loan segments due to the concentration of the Bank’s ACL allocation in the total commercial portfolio. At September 30, 2023, the potential impact of changes to Management’s judgements on total commercial qualitative risk factors ranged between a $12.8 million reduction and $12.2 million increase in the ACL. This sensitivity analysis does not represent a change to management’s judgment, but rather provides a hypothetical result to assess the sensitivity of the ACL to a key input.

The ACL was $48.3 million, or 1.02% of total loans, at September 30, 2023, compared to $45.2 million, or 0.99% of total loans, at December 31, 2022. The ACL on individually analyzed loans amounted to $200,000, 1.07% of the carrying value of individually analyzed loans. The ACL on unfunded commitments, included in other liabilities on the unaudited Consolidated Balance Sheets, amounted to $4.2 million and $4.9 million at September 30, 2023 and December 31, 2022, respectively.

The following table sets forth the breakdown of the ACL by loan category at the dates indicated:

September 30, 2023

December 31, 2022

% of

% of

Allowance

Allowance

Amount to

% of Loans

Amount to

% of Loans

    

Total

in Category

Total

in Category

 

Amount

    

Allowance

    

to Total Loans

    

Amount

    

Allowance

    

to Total Loans

(dollars in thousands)

Residential real estate:

One- to four-family

$

12,673

26.23

%  

32.01

%  

$

11,532

25.49

%  

31.48

%

Second mortgages and equity lines of credit

1,024

2.12

3.70

924

2.04

3.65

Residential construction

466

0.96

0.43

280

0.62

0.79

Commercial real estate

21,501

44.51

49.76

20,357

45.00

49.46

Commercial construction

4,436

9.18

4.05

4,645

10.27

4.38

Commercial and industrial

7,976

16.51

9.54

7,236

16.00

9.33

Consumer

236

0.49

0.51

262

0.58

0.91

Total allowance for credit losses on loans

$

48,312

100.00

%  

100.00

%  

$

45,236

100.00

%  

100.00

%

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Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

The following table sets forth net charge-offs (recoveries) and the ratio of annualized net charge-offs (recoveries) to average loans for the periods indicated:

Three Months Ended September 30, 

2023

2022

Net

Net Charge-

Net

Net Charge-

Average

Charge-offs

off (Recovery)

Average

Charge-offs

off (Recovery)

Balance

(Recoveries)

   

Rate

      

Balance

(Recoveries)

   

Rate

(dollars in thousands)

Residential real estate:

One- to four-family

$

1,503,563

$

%

$

1,276,112

$

(2)

(0.00)

%

Second mortgages and equity lines of credit

174,104

(40)

(0.09)

%

154,601

(15)

(0.04)

%

Residential real estate construction

22,716

%

39,592

%

Total residential real estate loans

$

1,700,383

$

(40)

(0.01)

%

$

1,470,305

$

(17)

(0.00)

%

Commercial:

Commercial real estate

$

2,426,224

$

(2)

(0.00)

%

$

2,042,145

$

17

0.00

%

Commercial construction

201,387

%

177,999

%

Commercial and industrial

353,206

16

0.02

%

302,215

(816)

(1.08)

%

Total commercial loans

$

2,980,817

$

14

0.00

%

$

2,522,359

$

(799)

(0.13)

%

Total Consumer loans

$

25,126

$

8

0.13

%

$

63,220

$

17

0.11

%

Total loans

$

4,706,326

$

(18)

(0.00)

%

$

4,055,884

$

(799)

(0.08)

%

Nine Months Ended September 30, 

2023

2022

Net

Net Charge-

Net

Net Charge-

Average

Charge-offs

off (Recovery)

Average

Charge-offs

off (Recovery)

Balance

(Recoveries)

   

Rate

      

Balance

(Recoveries)

   

Rate

(dollars in thousands)

Residential real estate:

One- to four-family

$

1,479,012

$

(2)

(0.00)

%

$

1,157,063

$

(2)

(0.00)

%

Second mortgages and equity lines of credit

169,385

(83)

(0.07)

%

145,965

(108)

(0.10)

%

Residential real estate construction

28,582

%

38,480

%

Total residential real estate loans

$

1,676,979

$

(85)

(0.01)

%

$

1,341,508

$

(110)

(0.01)

%

Commercial:

Commercial real estate

$

2,394,343

$

2,914

0.16

%

$

1,937,531

$

2,797

0.19

%

Commercial construction

210,885

%

156,709

%

Commercial and industrial

335,255

(224)

(0.09)

%

306,050

(1,249)

(0.54)

%

Total commercial loans

$

2,940,483

$

2,690

0.12

%

$

2,400,290

$

1,548

0.09

%

Total Consumer loans

$

30,112

$

36

0.16

%

$

89,934

$

(12)

(0.02)

%

Total loans

$

4,647,574

$

2,641

0.08

%

$

3,831,732

$

1,426

0.05

%

Net recoveries were $18,000 for the three months ended September 30, 2023, and net charge-offs were $2.6 million, or 0.08% of average loans outstanding on an annualized basis for the nine months ended September 30, 2023. Net recoveries were $799,000 for the three months ended September 30, 2022, and net charge-offs were $1.4 million, or 0.05% of average loans outstanding on an annualized basis for the nine months ended September 30, 2022.

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Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

Management of Market Risk

The principal market risk facing the Company is interest-rate risk. The Company’s Asset/Liability Committee establishes exposure limits that govern the Company’s tolerance for interest-rate risk. The policy limits and guidelines serve as benchmarks for measuring interest-rate risk and for providing a framework for evaluation and interest-rate risk-management decision making. The Company’s primary measure of its interest-rate risk is an income simulation model and an economic value of equity analysis.

Net Interest Income Analysis.  The Company uses income simulation as the primary tool for measuring interest-rate risk inherent in our balance sheet at a given point in time by showing the effect on net interest income, over specified time frames, of instantaneous parallel shifts in market rates. For simulation purposes, the Company’s balance sheet is assumed to remain static over the simulation horizon. The model results are dependent on material assumptions. These assumptions include, but are not limited to, management’s best assessment of the effect of changing interest rates on the prepayment speeds of certain assets and liabilities, projections for account balances in each of the product lines offered and the historical behavior of deposit rates and balances in relation to changes in interest rates (deposit betas). These assumptions are inherently changeable, and as a result, the model is not expected to precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from the simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in the balance sheet composition and market conditions. Assumptions are supported with quarterly back-testing of the model to actual market rate shifts.

The table below sets forth, as of September 30, 2023 and 2022, the net interest income simulation results that estimate the impact of interest rate changes on the Company’s estimated net interest income over two years:

Change in Net Interest Income

(% change from year one base)

Changes in Interest Rates

September 30, 2023

September 30, 2022

(basis points) (1)

    

Year One

Year Two

Year One

Year Two

+300

(13.1)

%

(11.8)

%

(6.9)

%

(4.4)

%

+200

(8.6)

%

(7.7)

%

(4.4)

%

(2.5)

%

+100

(4.2)

%

(3.5)

%

(2.2)

%

(1.2)

%

-100

4.6

%

4.7

%

0.8

%

(1.1)

%

(1) The calculated change in net interest income assumes an instantaneous parallel shift of the yield curve.

Economic Value of Equity Analysis.  The Company also uses the net present value of EVE methodology. This methodology calculates the difference between the present value of expected cash flows from assets and liabilities. The comparative scenarios assume an immediate parallel shift in the yield curve up 100, 200, and 300 basis points and down 100 basis points.

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Table of Contents

HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

The table below sets forth, as of September 30, 2023 the estimated changes in the EVE that would result from an instantaneous parallel shift in interest rates. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

At September 30, 2023

EVE as a Percentage of Economic

Estimated Increase (Decrease)

Value of Assets

Changes in Interest Rates

Estimated

in EVE

Changes in

(basis points) (1)

    

EVE

    

Amount

    

Percent

EVE Ratio (2)

    

Percent

 

(dollars in thousands)

+ 300

$

412,808

$

(192,950)

(31.9)

%  

8.6

%  

(3.0)

%  

+ 200

482,037

(123,721)

(20.4)

9.7

(1.9)

+ 100

552,023

(53,735)

(8.9)

10.8

(0.8)

0

605,758

11.6

- 100

650,654

44,896

7.4

12.0

0.4

(1) Assumes instantaneous parallel changes in interest rates.

(2) EVE Ratio represents EVE divided by the economic value of assets.

The board of directors and management review the methodology’s measurements for both net interest income and EVE on a quarterly basis to determine whether the exposure resulting from the changes in interest rates remains within established tolerance levels and develop appropriate strategies to manage this exposure.

Liquidity Management and Capital Resources

Liquidity measures the Company’s ability to meet both current and future financial obligations of a short- and long-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of securities, and borrowings from the FHLB. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, calls of investment securities and borrowed funds, and prepayments on loans are greatly influenced by general interest rates, economic conditions, and competition.

The objective of our liquidity risk management process is to manage cash flow and liquidity in an effort to provide continuous access to sufficient, reasonably priced funds. Funding requirements are impacted by loan originations and refinancings, deposit balance changes, liability issuances and settlements, and off-balance sheet funding commitments. We consider and comply with various regulatory guidelines regarding required liquidity levels and periodically monitor our liquidity position in light of the changing economic environment and customer activity. Based on periodic liquidity assessments, we may alter our asset, liability, and off-balance sheet positions. Management regularly adjusts our investments in liquid assets based upon an assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and securities, and (iv) the objectives of our interest-rate risk and investment policies.

We continue to focus on maintaining a strong liquidity position. We have access to immediate liquid resources in cash and cash equivalents of $246.8 million at September 30, 2023, which is primarily on deposit with FRBB. Maturities and payments on outstanding loans and investment securities also provide a steady flow of funds. Liquidity is further enhanced by our ability to pledge loans to access secured borrowings from the FHLB and FRBB. As of September 30, 2023, we had additional borrowing capacity of $830.7 million from the FHLB, $68.0 million from the FRBB line based on the amount of collateral pledged, and $360.9 million available based on the par value of securities pledged under our facility through the BTFP. We also have additional borrowing capacity under a $25.0 million unsecured federal funds line with a correspondent bank. Potential sources of liquidity also include unpledged investment securities in our available-for-sale securities portfolio with a carrying value of $2.5 million and our ability to sell loans in the secondary market.

Our core deposits (which we define as deposits other than certificates of deposits) have historically provided us with a long-term source of stable and relatively lower cost source of funding. However, we may be negatively impacted

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HarborOne Bancorp, Inc.

Management’s Discussion and Analysis

by unexpected deposit withdrawals from weakness in the financial markets and industry-wide reductions in liquidity. Additional funding is available through the issuance of long-term debt or equity.

In the ordinary course of the Company’s operations, the Company has entered into certain contractual obligations and has made other commitments to make future payments. At September 30, 2023, we had outstanding commitments to originate loans of $116.5 million and unadvanced funds on loans of $800.4 million. Certificates of deposit that are scheduled to mature within one year from September 30, 2023 totaled $1.08 billion. Management expects, based on historical experience, that a substantial portion of the maturing certificates of deposit will be renewed.

The Company believes that it will be able to meet its contractual obligations as they come due through the maintenance of adequate cash levels and liquidity. Other than normal changes in the ordinary course of business, there have been no significant changes in the types of contractual obligations or amounts due since December 31, 2022.

Our ability to maintain adequate levels of liquidity is dependent on our ability to continue to maintain a strong risk profile and capital base. The Company and the Bank are subject to various regulatory capital requirements. At September 30, 2023, the Company and the Bank exceeded all regulatory capital requirements and were considered “well capitalized” under regulatory guidelines. See Note 12 of the Notes to Consolidated Financial Statements.

Non-GAAP Financial Measures and Reconciliation to GAAP

In addition to results presented in accordance with generally accepted accounting principles, this Form 10-Q contains certain non-GAAP financial measures. The Company’s management believes that the supplemental non-GAAP information, which consists of the tangible-common-equity-to-tangible-assets ratio, 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.

The following table reconciles the Company’s tangible-common-equity-to-tangible-assets ratio for the periods indicated:

September 30, 

2023

2022

(dollars on thousands)

Tangible common equity:

Total stockholders' equity

$

584,634

$

611,370

Less: Goodwill

69,802

69,802

Less: Other intangible assets (1)

1,704

2,461

Tangible common equity

$

513,128

$

539,107

Tangible assets:

Total assets

$

5,664,387

$

4,987,643

Less: Goodwill

69,802

69,802

Less: Other intangible assets (1)

1,704

2,461

Tangible assets

$

5,592,881

$

4,915,380

Tangible common equity / tangible assets (2)

9.17

%  

10.97

%  

(1) Other intangible assets are core deposit intangibles.

(2) This non-GAAP ratio is total stockholders' equity less goodwill and intangible assets to total assets less goodwill and intangible assets.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.”

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures as of the period ended September 30, 2023. Based upon that evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective and designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management including its Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosures. The Company will continue to review and document its disclosure controls and procedures and consider such changes in future evaluations of the effectiveness of such controls and procedures, as it deems appropriate.

Internal Control Over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Other than the legal proceedings disclosed in Item 3. Legal Proceedings in our December 31, 2022 Form 10-K and Part II Item 1, “Legal Proceedings” of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 filed with the SEC on August 8, 2023, we are not involved in any material pending legal proceedings as a plaintiff or a defendant other than routine legal proceedings occurring in the ordinary course of business. We are not involved in any legal proceedings the outcome of which we believe would be material to our financial condition or results of operations.

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors described in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 10, 2023 and Part II. Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 filed with the SEC on May 9, 2023.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

a)Unregistered Sales of Equity Securities. None

b)Use of Proceeds. None

c)Repurchase of Equity Securities.

Total number of

Maximum number (or

shares (or units)

approximate dollar

purchased as part

value) of shares (or

Total number of

of publicly

units) that may yet be

shares (or units)

Average price paid

announced plans or

purchased under the

Period

purchased

per share (or unit)

programs

plans or programs

July 1 to July 31, 2023

30,000

$

10.65

30,000

2,295,489

August 1 to August 31, 2023

300,000

10.12

330,000

1,995,489

September 1 to September 30, 2023

322,523

9.69

652,523

1,672,966

652,523

$

9.93

652,523

1,672,966

On July 5, 2023, the Company announced a sixth share repurchase program to repurchase up to 2,325,489 shares of its common stock, or approximately 5% of its outstanding shares. During the third quarter of 2023, the Company repurchased 652,523 shares at an average cost of $9.93 per share under the sixth share repurchase program. The sixth share repurchase program will expire on June 30, 2024.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Rule 10b5-1 Trading Plans

During the quarter ended September 30, 2023, none of the Company’s directors or executive officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) had in place, or adopted, modified, or terminated any contract, instruction, or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as such term is defined in the Item 408 of Regulation S-K).

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ITEM 6. EXHIBITS

The exhibits listed in the Exhibit Index are included in, or incorporated by reference into, this Quarterly Report on Form 10-Q.

EXHIBIT INDEX

The following exhibits are included in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (and are numbered in accordance with Item 601 of Regulation S-K):

Exhibit No.

    

Description

31.1*

Certification of Chief Executive Officer Required by Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act

31.2*

Certification of Interim Chief Financial Officer Required by Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act

32.1**

Certification of Chief Executive Officer and Interim Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

Interactive data files (formatted in Inline XBRL) pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, (ii) the Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022 (iii) the Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2023 and 2022, (iv) the Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022, (v) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022, and (vi) the Notes to the unaudited Consolidated Financial Statements.

104

Cover Page Interactive Data File (formatted in Inline XBRL and included in Exhibit 101)

*Filed herewith

**Furnished herewith

† Management contract or compensation plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HarborOne Bancorp, Inc.

Date: November 7, 2023

By:

/s/ Joseph F. Casey

Joseph F. Casey

President and Chief Executive Officer

(Principal Executive Officer)

Date: November 7, 2023

By:

/s/ Jean Levesque

Jean Levesque

First Vice President and Interim Chief Financial Officer

(Principal Financial Officer)

Date: November 7, 2023

By:

/s/ Paul Roukey

Paul Roukey

Vice President and Interim Principal Accounting Officer

(Principal Accounting Officer)

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