HarborOne Bancorp, Inc. (HONE) is a community bank with a strong presence in Massachusetts and Rhode Island, serving individuals and businesses through its 30 full-service branches. Founded in 1917 as a credit union, the company has evolved over the decades to become a diversified financial institution, offering a range of deposit products, commercial and consumer loans, and mortgage banking services through its subsidiary, HarborOne Mortgage.
Business Overview and History
HarborOne Bancorp's origins date back to 1917 when it was established as the Brockton Credit Union, serving the financial needs of local residents. In 1982, the company was founded as a mutual savings bank, focusing on providing banking services to the Brockton, Massachusetts community. Over the following decades, HarborOne steadily expanded its footprint, opening additional branches throughout southeastern Massachusetts and eventually entering the Rhode Island market.
A significant milestone in the company's history came in 2002 when it converted from a mutual savings bank to a stock-issuing bank holding company, HarborOne Bancorp, Inc. This transition allowed the company to raise additional capital and pursue growth opportunities more aggressively. In the years that followed, HarborOne continued to open new branches and expand its commercial and residential lending operations.
During the 2008 financial crisis, HarborOne faced challenges similar to many other financial institutions, with the sharp decline in the housing market and rise in loan defaults impacting its operations. The company worked diligently to manage its troubled assets and maintain a strong capital position throughout this difficult period, demonstrating its resilience and commitment to its customers.
In 2013, HarborOne took an important step in diversifying its business model by acquiring HarborOne Mortgage, a regional mortgage lender. This acquisition allowed the company to supplement its traditional banking operations with a robust mortgage origination and servicing platform. Over the next decade, the mortgage business became an increasingly important contributor to HarborOne's overall profitability.
In 2018, HarborOne Bancorp completed its initial public offering and began trading on the NASDAQ stock exchange under the ticker symbol "HONE." This transition to a publicly-traded company has provided the bank with additional capital resources to fund its expansion and diversification efforts.
Today, HarborOne Bancorp operates as a fully integrated financial services provider, offering a comprehensive suite of banking, mortgage, and wealth management solutions to its customers. The company's community-focused approach and commitment to serving the unique needs of its local markets have been instrumental in its continued growth and success.
Financial Overview
As of September 30, 2024, HarborOne Bancorp reported total assets of $5.78 billion, reflecting a 1.9% increase compared to the previous year-end. The company's loan portfolio grew by 2.7% to $4.88 billion, driven by strong demand for commercial real estate, commercial construction, and commercial and industrial loans.
HarborOne's deposit base also expanded, reaching $4.54 billion as of September 30, 2024, a 3.4% increase from December 31, 2023. The growth was primarily attributable to a rise in brokered deposits, municipal deposits, and consumer and business deposits. The company's strong liquidity position is further bolstered by its access to additional borrowing capacity from the Federal Home Loan Bank and the Federal Reserve Bank.
Net interest income for the nine months ended September 30, 2024, stood at $93.83 million, a 3.9% decrease compared to the same period in 2023. This decline was primarily due to a compression in the net interest margin, which fell to 2.31% from 2.52% a year earlier, as the company faced rising deposit costs amidst a higher interest rate environment.
Despite the margin pressure, HarborOne's net income for the first nine months of 2024 was $18.52 million, a 20.0% decrease from the prior-year period. The company's profitability was impacted by higher provision for credit losses, which increased to $6.35 million from $5.04 million in the first nine months of 2023.
For the most recent quarter, HarborOne reported revenue of $77,212,000, net income of $3,924,000, operating cash flow of $7,771,000, and free cash flow of $8,101,000. The company saw year-over-year growth in all these metrics, demonstrating its ability to generate positive financial results despite challenging market conditions.
Segment Performance
HarborOne Bancorp operates two reportable segments: HarborOne Bank and HarborOne Mortgage. The Bank segment, which generates the majority of the company's revenue, reported net income of $19.61 million for the nine months ended September 30, 2024, a 22.9% decrease from the same period in 2023. This decline was primarily driven by a $5.16 million, or 5.2%, decrease in net interest and dividend income, as well as a $3.29 million, or 4.2%, increase in noninterest expense.
The HarborOne Bank segment's net interest and dividend income was $93.36 million for the nine months ended September 30, 2024, a decrease of 5.2% compared to the same period in the prior year. Noninterest income for this segment was $20.12 million, an increase of 7.9% compared to the prior year period, driven by increases in interchange fees, deposit account fees, and bank-owned life insurance income. Noninterest expense for the segment was $81.95 million, an increase of 4.2% compared to the prior year period, primarily due to increases in compensation and benefits, deposit expenses, and other expenses.
The Mortgage segment, on the other hand, recorded a net loss of $1.10 million for both the three and nine-month periods ended September 30, 2024, compared to net losses of $138,000 and $1.12 million, respectively, in the prior-year periods. The segment's performance was impacted by a decline in mortgage banking income, which fell by 7.8% and 7.6% for the three and nine-month periods, respectively, due to lower loan production and fair value adjustments on mortgage servicing rights.
For the HarborOne Mortgage segment, noninterest income was $13.10 million for the nine months ended September 30, 2024, a decrease of 7.7% compared to the prior year period, primarily due to a decrease in changes in mortgage servicing rights fair value, partially offset by an increase in gain on sale of mortgage loans. Noninterest expense for this segment was $15.18 million, a decrease of 6.9% compared to the prior year period, reflecting cost-saving actions taken throughout 2023 and into 2024.
Liquidity and Capital Strength
HarborOne Bancorp maintains a strong liquidity position, with cash and cash equivalents totaling $224.3 million as of September 30, 2024. The company's access to additional borrowing capacity from the Federal Home Loan Bank and the Federal Reserve Bank, as well as its ability to sell loans in the secondary market, further enhances its liquidity profile. While specific details on credit facilities and credit lines were not provided, the company has confirmed that it has access to such facilities to support its liquidity needs.
In terms of capital, HarborOne Bancorp exceeded all regulatory capital requirements as of September 30, 2024, and was considered well-capitalized under regulatory guidelines. The company's total risk-based capital ratio stood at 12.90%, well above the 8.00% minimum requirement, and its Tier 1 leverage ratio was 9.80%, exceeding the 4.00% minimum.
Risks and Challenges
Despite HarborOne Bancorp's strong community banking foundation, the company faces several risks and challenges that investors should be aware of:
1. Interest Rate Risk: The company's net interest margin and profitability are vulnerable to interest rate fluctuations, which can impact both its loan and deposit pricing.
2. Regulatory Oversight: As a financial institution, HarborOne Bancorp is subject to extensive regulatory requirements and oversight, which can lead to increased compliance costs and operational complexities.
3. Competition: The company operates in a highly competitive banking environment, with both traditional and non-traditional financial institutions vying for customer deposits and loan originations.
4. Cybersecurity Threats: The increasing frequency and sophistication of cyber-attacks pose a significant risk to the company's information systems and customer data.
5. Concentration Risk: A substantial portion of HarborOne Bancorp's loan portfolio is concentrated in commercial real estate and construction loans, making the company vulnerable to any downturn in these sectors.
Outlook and Conclusion
HarborOne Bancorp's performance in the first nine months of 2024 was impacted by the challenging interest rate environment and elevated provision for credit losses. However, the company's strong community banking roots, diversified product offerings, and prudent risk management practices position it well to navigate these headwinds.
Going forward, HarborOne Bancorp will need to focus on managing its interest rate risk, maintaining robust credit underwriting standards, and leveraging its technological capabilities to enhance its operational efficiency and customer experience. The company's ability to adapt to the evolving banking landscape and capitalize on growth opportunities in its core markets will be crucial in driving long-term shareholder value.
HarborOne Bancorp primarily operates in the United States market, with a focus on Massachusetts and Rhode Island. As a small-cap company, its geographic reach is primarily regional, which allows it to maintain a strong community presence and capitalize on local market knowledge.
Overall, HarborOne Bancorp's history of resilience, its commitment to serving the diverse financial needs of its communities, and its sound capital and liquidity positions make it a compelling investment opportunity for those seeking exposure to a well-managed community bank. The company's ability to generate positive financial results in the most recent quarter, despite challenging market conditions, demonstrates its operational strength and adaptability. As HarborOne continues to navigate the evolving financial services landscape, its focus on both traditional banking and mortgage services positions it well to capture diverse revenue streams and meet the changing needs of its customers.