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 March 31, 2025
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 ofincorporation or organization)
(I.R.S. EmployerIdentification 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).
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 May 1, 2025 there were 43,090,980 shares of the Registrant’s common stock, par value $0.01 per share, outstanding.
Index
PAGE
Glossary of Acronyms and Terms
1
PART I.
FINANCIAL INFORMATION
ITEM 1.
Financial Statements
Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024 (unaudited)
2
Consolidated Statements of Income for the Three Months Ended March 31, 2025 and 2024 (unaudited)
3
Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2025 and 2024 (unaudited)
4
Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2025 and 2024 (unaudited)
5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2025 and 2024 (unaudited)
6
Notes to Consolidated Financial Statements (unaudited)
Note 1. Summary of Significant Accounting Policies
8
Note 2. Debt Securities
9
Note 3. Loans Held for Sale
12
Note 4. Loans and Allowance for Credit Losses
13
Note 5. Mortgage Loan Servicing
19
Note 6. Goodwill and Other Intangible Assets
Note 7. Deposits
20
Note 8. Borrowings
21
Note 9. Other Commitments and Contingencies
22
Note 10. Derivatives
23
Note 11. Operating Lease ROU Assets and Liabilities
27
Note 12. Minimum Regulatory Capital Requirements
28
Note 13. Comprehensive (Loss) Income
30
Note 14. Fair Value of Assets and Liabilities
Note 15. Earnings Per Share
36
Note 16. Revenue Recognition
Note 17. Segment Reporting
37
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
39
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
58
ITEM 4.
Controls and Procedures
PART II.
OTHER INFORMATION
Legal Proceedings
59
ITEM 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
62
Defaults Upon Senior Securities
Mine Safety Disclosures
ITEM 5.
Other Information
ITEM 6.
Exhibits
63
EXHIBIT INDEX
SIGNATURE
64
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
Bank
HarborOne Bank
BOLI
Bank-owned life insurance
Company
CRE
Commercial real estate
DCF
Discounted cash flow
EPS
Earnings Per Share
ESOP
Employee Stock Ownership Plan
Eastern
Eastern Bankshares, Inc., a Massachusetts corporation
EVE
Equity at risk
Exchange Act
Securities Exchange Act of 1934, as amended
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 United States of America
HarborOne Mortgage
HarborOne Mortgage, LLC
Management
Company’s management
Merger Agreement
Agreement and Plan of Merger, by and among Eastern Bankshares, Inc., Eastern Bank, HarborOne Bancorp, Inc., and HarborOne Bank
MSRs
Mortgage servicing rights
ROU
Right-of-use
SBA
U.S. Small Business Administration
SEC
U.S. Securities and Exchange Commission
SOFR
Secured Overnight Financing Rate
Treasury
U.S. Department of the Treasury
Consolidated Balance Sheets (unaudited)
March 31,
December 31,
(in thousands, except share data)
2025
2024
Assets
Cash and due from banks
$
44,383
44,090
Short-term investments
186,109
186,981
Total cash and cash equivalents
230,492
231,071
Securities available for sale, at fair value
265,644
263,904
Securities held to maturity, at amortized cost (fair value of $19,067 at March 31, 2025 and $19,285 at December 31, 2024)
19,211
19,627
Federal Home Loan Bank stock, at cost
18,330
23,277
Loans held for sale, at fair value
19,304
36,768
Loans
4,821,033
4,852,499
Less: Allowance for credit losses on loans
(49,323)
(56,101)
Net loans
4,771,710
4,796,398
Accrued interest receivable
18,158
18,393
Mortgage servicing rights, at fair value
42,620
44,500
Property and equipment, net
45,510
46,253
Retirement plan annuities
15,817
15,698
98,469
97,726
Goodwill
59,042
Intangible assets
568
757
Other assets
95,455
99,719
Total assets
5,700,330
5,753,133
Liabilities and Stockholders' Equity
Deposits:
Demand deposit accounts
703,736
690,647
NOW accounts
340,194
298,337
Regular savings and club accounts
908,136
895,232
Money market deposit accounts
1,200,600
1,195,209
Term certificate accounts
1,076,195
1,069,844
Brokered deposits
389,860
401,484
Total deposits
4,618,721
4,550,753
Borrowings
399,547
516,555
Mortgagors' escrow accounts
10,370
8,537
Accrued interest payable
7,027
6,575
Other liabilities and accrued expenses
88,698
95,702
Total liabilities
5,124,363
5,178,122
Commitments and contingencies (Notes 7, 12 and 13)
Common stock, $0.01 par value; 150,000,000 shares authorized; 60,754,801 and 60,517,573 shares issued; 43,408,480 and 43,723,278 shares outstanding at March 31, 2025 and December 31, 2024, respectively
598
Additional paid-in capital
490,327
489,532
Retained earnings
375,710
373,861
Treasury stock, at cost, 17,346,321 and 16,794,295 shares at March 31, 2025 and December 31, 2024, respectively
(221,516)
(215,138)
Accumulated other comprehensive loss
(45,664)
(49,895)
Unearned compensation - ESOP
(23,488)
(23,947)
Total stockholders' equity
575,967
575,011
Total liabilities and stockholders' equity
The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.
Consolidated Statements of Income (unaudited)
Three Months Ended March 31,
Interest and dividend income:
Interest and fees on loans
59,872
59,937
Interest on loans held for sale
296
243
Interest on securities
1,993
2,065
Other interest and dividend income
2,278
4,659
Total interest and dividend income
64,439
66,904
Interest expense:
Interest on deposits
27,643
26,899
Interest on borrowings
5,327
9,423
Total interest expense
32,970
36,322
Net interest and dividend income
31,469
30,582
Provision for credit (benefits) losses
1,385
(168)
Net interest and dividend income, after provision for credit (benefits) losses
30,084
30,750
Noninterest income:
Mortgage banking income:
Gain on sale of mortgage loans
2,716
2,013
Changes in mortgage servicing rights fair value
(1,372)
54
Other
2,108
2,276
Total mortgage banking income
3,452
4,343
Deposit account fees
5,153
4,983
Income on retirement plan annuities
119
145
Bank-owned life insurance income
743
746
Other income
424
524
Total noninterest income
9,891
10,741
Noninterest expense:
Compensation and benefits
18,785
17,636
Occupancy and equipment
4,627
4,781
Data processing
2,625
2,479
Loan expenses
431
371
Marketing
588
816
Deposit expenses
843
690
Postage and printing
353
438
Professional fees
1,382
1,457
Foreclosed and repossessed assets
Deposit insurance
1,050
1,164
Other expenses
2,161
1,914
Total noninterest expense
32,850
31,750
Income before income taxes
7,125
9,741
Income tax provision
1,625
2,441
Net income
5,500
7,300
Earnings per common share:
Basic
0.14
0.17
Diluted
Weighted average shares outstanding:
40,344,922
41,912,421
40,605,799
42,127,037
Consolidated Statements of Comprehensive Income (Loss) (unaudited)
(in thousands)
Other comprehensive income:
Unrealized gain/loss on cashflow hedge:
Unrealized holding gains
718
Reclassification adjustment for net gains included in net income
(987)
(1,235)
Net change in unrealized losses on derivatives in cashflow hedging instruments
(964)
(517)
Related tax effect
256
148
Net-of-tax amount
(708)
(369)
Unrealized gain/loss on securities available for sale:
Unrealized holding gains (losses)
6,360
(4,940)
(1,421)
348
4,939
(4,592)
Postretirement benefit:
Adjustment of accumulated obligation for postretirement benefits
(1)
Reclassification adjustment for gains recognized in net periodic benefit cost
(3)
(20)
Net gains
—
(21)
Total other comprehensive income (loss)
4,231
(4,982)
Comprehensive income
9,731
2,318
Consolidated Statements of Changes in Stockholders’ Equity (unaudited)
Accumulated
Common Stock
Additional
Unearned
Total
Outstanding
Paid-in
Retained
Stock,
Comprehensive
Compensation
Stockholders'
Shares
Amount
Capital
Earnings
at Cost
Income (Loss)
- ESOP
Equity
Balance at December 31, 2023
45,401,224
486,502
359,656
(193,590)
(43,622)
(25,785)
583,759
Comprehensive income (loss)
Dividends declared of $0.08 per share
(3,365)
ESOP shares committed to be released (57,681 shares)
162
459
621
Restricted stock awards granted, net of forfeitures
193,073
Performance stock units vested
63,860
Share-based compensation expense
613
Treasury stock purchased
(603,151)
(6,263)
Balance at March 31, 2024
45,055,006
487,277
363,591
(199,853)
(48,604)
(25,326)
577,683
Balance at December 31, 2024
43,723,278
Dividends declared of $0.09 per share
(3,651)
200
659
228,195
9,033
595
(552,026)
(6,378)
Balance at March 31, 2025
43,408,480
Consolidated Statements of Cash Flows (unaudited)
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses (benefit)
Net amortization of securities premiums/discounts
74
88
Proceeds from sale of loans
125,945
92,798
Loans originated for sale
(105,861)
(87,755)
Accretion of net deferred loan costs/fees and premiums
(101)
(56)
Depreciation and amortization of premises and equipment
906
946
Change in mortgage servicing rights fair value
1,933
(275)
Mortgage servicing rights capitalized
(53)
(211)
Accretion of fair value adjustment on loans and deposits, net
(108)
(92)
Amortization of other intangible assets
189
Net gains on mortgage loan sales, including fair value adjustments
(2,620)
(1,790)
(743)
(746)
(119)
(145)
Net loss on disposal of premises and equipment
45
Net gain on sale and write-down of other real estate owned and repossessed assets
ESOP expense
Decrease in operating lease ROU assets
523
462
Decrease in operating lease liabilities
(540)
(443)
Change in other assets
1,842
(3,803)
Change in other liabilities
(6,094)
7,437
Net cash provided by operating activities
23,362
14,974
Cash flows from investing activities:
Activity in securities available for sale:
Maturities, prepayments and calls
4,543
4,801
Purchases
(10,689)
Activity in securities held to maturity:
Maturities, prepayment and calls
420
Net redemption of FHLB stock
4,947
533
Net loan repayments (originations)
23,487
(27,822)
Proceeds from sale of other real estate owned and repossessed assets
65
Additions to property and equipment
(208)
(110)
Net cash provided by (used in) investing activities
33,194
(33,148)
(continued)
Cash flows from financing activities:
Net increase in deposits
67,968
6,615
Net change in short-term borrowed funds
(57,000)
(68,000)
Proceeds from borrowings
317,326
Repayment of borrowings
(60,008)
(63,408)
Net change in mortgagors' escrow accounts
1,833
1,492
Dividends paid
(3,550)
(3,497)
Net cash (used in) provided by financing activities
(57,135)
184,265
Net change in cash and cash equivalents
(579)
166,091
Cash and cash equivalents at beginning of period
227,350
Cash and cash equivalents at end of period
393,441
Supplemental cash flow information:
Interest paid on deposits
26,850
26,781
Interest paid on borrowed funds
5,635
7,501
Income taxes paid, net
4,666
2,103
Transfer of loans to other real estate owned and repossessed assets
41
Dividends declared
3,651
3,365
7
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 unaudited interim 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, 2024 and 2023 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.
Merger
On April 24, 2025, the Company, the Bank, Eastern, and Eastern Bank entered into the Merger Agreement. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Eastern will acquire the Company and the Bank through the merger of the Company with and into Eastern, with Eastern as the surviving entity (the “Merger”). The Merger Agreement further provides that following the Merger, the Bank will merge with and into Eastern Bank, with Eastern Bank as the surviving entity. Under the terms of the Merger Agreement, the Company’s shareholders will receive for each share of Company common stock, at the holder’s election, either (i) 0.765 shares of Eastern common stock (the “Stock Consideration”) or (ii) $12.00 in cash (the “Cash Consideration”), subject to allocation procedures to ensure that the total number of shares of the Company’s common stock that receive the Stock Consideration represents between 75% and 85% of the total number of shares of the Company’s common stock outstanding immediately prior to the completion of the Merger.
Each outstanding and unexercised option to acquire a share of Company common stock will be converted into an option to purchase that number of whole shares of Company Common Stock (rounded down to the nearest whole share) equal to the product of (i) the number of shares of HarborOne Common Stock subject to such HarborOne Stock Option multiplied by (ii) 0.765 (the “Exchange Ratio”) with an exercise price per share of Company Common Stock (rounded up to the nearest whole cent) equal to the quotient of (x) the exercise price per share of HarborOne Common Stock of such HarborOne Stock Option divided by (y) the Exchange Ratio. Except as expressly provided in the immediately preceding sentence, each such Company Stock Option replacing a HarborOne Stock Option will be subject to the same terms and conditions (including vesting and exercisability terms) as applied to the corresponding HarborOne Stock Option. Each restricted stock award of the Company, whether or not vested, that is outstanding immediately prior to the effective time of the Merger will fully vest and be canceled and converted into the right to receive the per share Cash Consideration and/or Stock Consideration (the “Merger Consideration”). In addition, each HarborOne performance-based restricted stock unit that is outstanding and unvested will accelerate in full and fully vest, with any applicable performance-based vesting condition to be deemed achieved at the target level of performance, and shall be converted into the right to receive the Merger Consideration.
Completion of the Merger is subject to customary closing conditions, including receipt of regulatory approvals and approval by the Company’s shareholders. The Company anticipates that the Merger will close during the fourth quarter of 2025, although Eastern has the right under the Merger Agreement to defer the closing until February 20, 2026 if the closing conditions are satisfied after October 31, 2025 but before February 20, 2026.
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 lines of credit, and consumer loans. The Company also originates, sells and services residential mortgage loans through HarborOne Mortgage.
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, 2024 remain substantially unchanged.
2.DEBT SECURITIES
The following is a summary of securities available for sale and held to maturity:
Gross
Allowance
Amortized
Unrealized
for Credit
Fair
Cost
Gains
Losses
Value
March 31, 2025:
Securities available for sale
U.S. government and government-sponsored enterprise obligations
42,143
5,454
36,689
U.S. government agency and government-sponsored residential mortgage-backed securities
279,192
214
53,449
225,957
SBA asset-backed securities
1,157
38
1,119
Corporate bonds
2,000
151
1,879
Total securities available for sale
324,492
244
59,092
Securities held to maturity
15,000
137
14,863
4,211
4,204
Total securities held to maturity
144
19,067
December 31, 2024:
6,480
35,663
283,523
43
58,569
224,997
1,446
1,862
329,112
56
65,264
228
14,772
114
4,513
342
19,285
Accrued interest receivable is excluded from the amortized cost basis of debt securities. Accrued interest receivable totaled $852,000 and $958,000 as of March 31, 2025 and December 31, 2024, respectively. At March 31, 2025, available-for-sale debt securities with a fair value of $262.6 million and held-to-maturity securities with a fair value of $14.9 million were pledged as collateral to provide borrowing capacity through the Federal Reserve’s Discount Window.
The amortized cost and fair value of debt securities by contractual maturity at March 31, 2025 is as follows:
Available for Sale
Held to Maturity
After 1 year through 5 years
17,643
16,029
After 5 years through 10 years
26,500
22,539
Over 10 years
44,143
38,568
U.S. government-sponsored residential mortgage-backed securities and securities whose underlying assets are loans from the SBA have stated maturities of two to 30 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 $53.4 million have a final maturity of two to seven years and a call feature of one month to two years. At March 31, 2025 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.
There were no sales or calls of securities in the three months ended March 31, 2025 and 2024.
10
Information pertaining to securities with gross unrealized losses at March 31, 2025 and December 31, 2024, 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
207,424
849
246,081
-
31
9,346
58,538
206,308
65,233
244,202
4,512
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 March 31, 2025, the Company’s security portfolio consisted of 112 debt securities, 101 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 March 31, 2025 represent a credit loss impairment. As of March 31, 2025, and December 31, 2024, 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.
11
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 March 31, 2025.
As of March 31, 2025, the held-to-maturity securities were U.S. government-sponsored enterprise obligations. These securities are guaranteed by the government-sponsored enterprise 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:
Loans held for sale, fair value
Loans held for sale, contractual principal outstanding
18,837
36,205
Fair value less unpaid principal balance
467
563
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 $96,000 in the three months ended March 31, 2025 to $467,000, compared to a decrease of $222,000 in the three months ended March 31, 2024 to $309,000. 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 March 31, 2025 and December 31, 2024, there were no loans held for sale that were greater than 90 days past due.
4.LOANS AND ALLOWANCE FOR CREDIT LOSSES
A summary of the balances of loans follows:
Commercial:
2,272,480
2,280,309
Commercial construction
216,013
252,691
Commercial and industrial
627,480
594,453
Total commercial loans
3,115,973
3,127,453
Residential real estate:
One- to four-family
1,487,942
1,506,571
Second mortgages and equity lines of credit
190,621
189,598
Residential real estate construction
10,551
11,307
Total residential real estate loans
1,689,114
1,707,476
Consumer loans:
Auto
7,672
8,550
Personal
7,707
8,940
Total consumer loans
15,379
17,490
Total loans before basis adjustment
4,820,466
4,852,419
Basis adjustment associated with fair value hedge (1)
567
80
Total loans
Allowance for credit losses on loans
Loans, net
(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 fees and costs included in total loans and leases were $8.9 million and $8.8 million as of March 31, 2025 and December 31, 2024, respectively.
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 March 31, 2025 and December 31, 2024, the Company was servicing loans for participants in the aggregate amounts of $438.5 million and $431.4 million, respectively.
The following table presents the activity in the ACL on loans for the three months ended March 31, 2025 and 2024:
Second
Mortgages
Commercial
and
Residential
One- to Four-
Equity Lines
Real Estate
Construction
Industrial
Family
of Credit
Consumer
30,764
4,257
10,700
8,720
1,348
186
126
56,101
Charge-offs
(8,304)
(384)
(28)
(8,716)
Recoveries
47
Provision
2,360
(800)
628
(130)
(155)
(18)
1,891
24,824
3,457
10,966
8,590
1,203
168
115
49,323
21,288
4,824
8,107
12,101
964
418
270
47,972
(228)
(49)
(277)
100
46
152
(125)
498
138
(66)
(25)
(87)
338
21,263
5,322
8,063
12,035
942
331
229
48,185
Individually analyzed loans include non-accrual loans and certain other loans based on the underlying risk characteristics and the discretion of Management to individually analyze such loans. As of March 31, 2025, the carrying value of individually analyzed loans amounted to $78.7 million, with a related allowance of $2.3 million, and $59.3 million of individually analyzed loans were considered collateral-dependent. As of December 31, 2024, the carrying value of individually analyzed loans amounted to $87.2 million, with a related allowance of $7.8 million, and $67.2 million of individually analyzed loans 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 March 31, 2025 and December 31, 2024:
March 31, 2025
December 31, 2024
Carrying
Related
Commercial real estate (1)
36,261
457
44,983
5,426
Commercial and industrial (2)
11,378
87
11,935
560
Total Commercial
47,639
544
56,918
5,986
Residential real estate (1)
11,704
90
10,321
59,343
634
67,239
(1) The collateral type is real estate.
(2) The collateral type is business enterprise value and business assets.
14
The following is a summary of past due and non-accrual loans at March 31, 2025 and December 31, 2024:
90 Days
Non-accrual Loans
30-59 Days
60-89 Days
or More
With
Without
Past Due
an ACL
8,610
8,640
3,039
1,461
4,503
10,386
8,688
1,131
5,937
15,756
306
10,458
221
450
808
941
Consumer:
26
34
33
16
40
12,037
9,897
7,887
29,821
507
30,395
3,803
3,843
16,836
8,273
684
1,269
10,226
665
1,539
8,589
7,014
6,670
22,273
9,545
466
312
183
961
89
775
52
42
21,225
8,076
8,126
37,427
17,604
11,859
At March 31, 2025 and December 31, 2024, there were no loans past due 90 days or more and still accruing.
Loan Modifications to Borrowers Experiencing Financial Difficulty
The Bank will modify the contractual terms of loans to a borrower experiencing financial difficulties as a way to mitigate loss and to 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.
The following table presents the amortized cost basis of loans at March 31, 2025 that were both experiencing financial difficulty and modified during the three months ended March 31, 2025 by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below:
Three Months Ended March 31, 2025
Combination Term
Total Class
Term
Interest Rate
Extension Interest Rate
of Financing
Extension
Reduction
Receivable
Residential real estate
429
0.03
%
The financial effect of the modifications to the loan in the residential real estate category was a reduced weighted-average contractual rate from 6.63% to 5.0%, and an additional 11.4 years to the life of the loan. There were no material loan modifications based on borrower financial difficulty during the three months ended March 31, 2024.
15
The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. As of March 31, 2025, modified loans to borrowers experiencing financial difficulty had a current payment status. During the three months ended March 31, 2025 and 2024, there were no loans to borrowers experiencing financial difficulty that had a payment default 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.
Credit Quality Indicators
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.
The following table summarizes the Company’s loan portfolio by credit quality indicator and loan portfolio segment as of March 31, 2025:
Revolving
Converted
Term Loans at Amortized Cost by Origination Year
to Term
2023
2022
2021
Prior
Pass
10,814
83,643
160,911
733,666
465,523
670,876
2,125,433
Special mention
7,064
49,623
10,967
24,136
91,790
Substandard
5,921
27,018
13,708
46,647
Doubtful
Total commercial real estate
173,896
818,917
476,490
708,720
YTD gross charge-offs
8,298
8,304
28,905
85,922
71,157
78,126
80,540
150,752
107,456
602,858
6,222
1,650
1,283
9,159
61
2,798
3,767
3,593
3,750
13,969
1,320
174
1,494
Total commercial and industrial
85,926
77,440
82,574
84,307
156,948
111,380
180
48
156
384
860
33,898
49,671
78,517
35,835
1,827
200,608
15,405
Total commercial construction
93,922
Accrual
6,924
83,455
123,742
406,850
447,088
426,244
180,689
2,417
1,677,409
Non-accrual
852
664
9,601
570
18
11,705
Total residential real estate
407,702
447,752
435,845
181,259
2,435
2,174
4,306
3,521
2,772
900
744
913
15,330
49
Total Consumer
3,548
2,776
931
17
49,677
291,228
428,297
1,405,891
1,045,284
1,302,257
295,397
Total YTD gross charge-offs
197
51
170
8,716
The following table summarizes the Company’s loan portfolio by credit quality indicator and loan portfolio segment as of December 31, 2024:
2020
82,833
162,401
743,173
433,482
190,543
525,120
2,137,552
6,872
39,614
7,539
12,077
12,149
78,251
6,598
44,191
13,717
64,506
175,871
826,978
441,021
202,620
550,986
80,926
78,767
72,636
82,638
63,043
93,493
104,897
576,400
1,703
1,279
2,783
5,770
178
2,874
3,844
3,841
260
10,997
1,237
1,286
80,931
78,945
77,213
86,482
99,850
107,989
69
303
122
31,074
45,739
82,447
73,657
1,972
234,889
17,802
100,249
85,268
125,741
413,118
452,081
192,734
246,206
179,516
2,403
1,697,067
469
673
113
8,572
577
10,409
413,587
452,754
192,847
254,778
180,093
2,408
7,134
4,040
3,186
1,113
279
720
1,004
17,476
7,137
3,197
35
25
154
287,243
430,336
1,421,224
1,055,027
458,789
906,334
291,058
147
84
55
782
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 $3.31 billion and $3.36 billion as of March 31, 2025 and December 31, 2024, respectively.
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 March 31, 2025 and December 31, 2024, the following weighted average assumptions were used in the calculation of fair value of MSRs:
Prepayment speed
7.90
7.67
Discount rate
9.92
9.97
Default rate
1.85
1.83
The following summarizes changes to MSRs for the three months ended March 31, 2025 and 2024:
Balance, beginning of period
46,111
Additions
53
211
Changes in fair value due to:
Reductions from loans paid off during the period
(782)
(769)
Changes in valuation inputs or assumptions
(1,151)
1,044
Balance, end of period
46,597
Contractually specified servicing fees, net of subservicing expense, included in other mortgage banking income amounted to $1.8 million and $2.0 million for the three ended March 31, 2025 and 2024, respectively.
6.GOODWILL AND OTHER INTANGIBLE ASSETS
At March 31, 2025 and December 31, 2024, the carrying value of the Bank’s goodwill was $59.0 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 March 31, 2025, 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, 2024, including evaluating the reporting unit value as compared to the value implied by the merger agreement.
Management considered the merger agreement to be a triggering event under ASC 350. Accordingly, an interim qualitative assessment was performed. The qualitative assessment indicated that it was not more likely than not that impairment existed at March 31, 2025.
The process of evaluating fair value is highly subjective and requires significant judgment and estimates. The goodwill at the Bank is at risk of future impairment in the event of a sustained decline in the value of its stock as well as values of other financial institutions, declines in revenue for the Company beyond current forecasts, or significant adverse changes in the operating environment for the financial industry.
Other intangible assets were $568,000 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 March 31, 2025.
7.DEPOSITS
A summary of deposit balances, by type, is as follows:
NOW and demand deposit accounts
1,043,930
988,984
Total non-certificate accounts
3,152,666
3,079,425
Term certificate accounts greater than $250,000
307,098
303,334
Term certificate accounts less than or equal to $250,000
769,097
766,510
Total certificate accounts
1,466,055
1,471,328
Total municipal deposits included in the table amounted to $478.9 million at March 31, 2025 and $519.5 million at December 31, 2024. Municipal deposits are generally required to be fully insured. The Company provides supplemental insurance for municipal deposits through a reciprocal deposit program and letters of credit offered by the FHLB. The Company participates in a reciprocal deposit program with other financial institutions that provides access to FDIC-insured deposit products in aggregate amounts exceeding the current limits for depositors. At March 31, 2025 and December 31, 2024, total reciprocal deposits were $399.1 million and $376.3 million, respectively.
A summary of certificate accounts by maturity at March 31, 2025 is as follows:
Weighted
Average
Rate
(dollars in thousands)
Within 1 year
1,287,399
4.32
Over 1 year to 2 years
172,747
4.30
Over 2 years to 3 years
2,848
3.11
Over 3 years to 4 years
2.97
Over 4 years to 5 years
1,604
3.43
Total certificate deposits
4.31
8.BORROWINGS
Borrowed funds at March 31, 2025 and December 31, 2024 consisted of FHLB advances. Short-term advances were $155.0 million and $212.0 million with a weighted average rate of 4.53% and 4.50%, at March 31, 2025 and December 31, 2024, respectively. Long-term borrowings are summarized by maturity date below.
Amount by
Scheduled
Maturity*
Call Date (1)
Rate (2)
Year ending December 31:
987
170,987
60,987
230,987
2026
75,000
40,000
4.39
2027
85,000
4.17
2028
59,198
19,198
4.04
2029
23,128
13,128
4.06
2030
2031 and thereafter
1,234
1.68
1,242
244,547
304,555
4.21
* 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 9 callable advances at March 31, 2025.
(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 $2.10 billion at March 31, 2025 and $2.16 billion at December 31, 2024. As of March 31, 2025, the Company had $762.0 million of available borrowing capacity with the FHLB.
The Federal Reserve Discount Window extends credit based on eligible collateral. At March 31, 2025, the Bank had $629.4 million of borrowing capacity at the FRBB secured by pledged loans and securities whose collateral value was $362.1 million and $267.3 million, respectively. At March 31, 2025, there was no balance outstanding. The Company also has additional borrowing capacity under a $25.0 million unsecured federal funds line with a correspondent bank.
9.OTHER COMMITMENTS AND CONTINGENCIES
ACL on Unfunded Commitments
The ACL on unfunded commitments amounted to $3.0 million and $3.4 million at March 31, 2025 and 2024, respectively. The activity in the ACL on unfunded commitments for the three months ended March 31, 2025 and 2024 is presented below:
and Industrial
947
1,398
793
359
3,506
(40)
(354)
(103)
(9)
(506)
907
350
3,000
411
2,351
882
254
3,918
(51)
(421)
(37)
360
1,930
845
258
3,412
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.
The following off-balance sheet financial instruments were outstanding at March 31, 2025 and December 31, 2024. The contract amounts represent credit risk.
Commitments to grant residential real estate loans-HarborOne Mortgage
50,920
38,929
Commitments to grant other loans
48,522
25,191
Unadvanced funds on home equity lines of credit
285,840
281,890
Unadvanced funds on revolving lines of credit
242,041
270,735
Unadvanced funds on construction loans
142,615
166,726
Commitments to extend credit and unadvanced portions 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 creditworthiness 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 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 March 31, 2025, 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 March 31, 2025, and the Company expects the hedges to remain effective during the remaining terms of the swaps.
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
in Which the Hedged Item is Included
Loans held for investment (1)
100,567
100,080
(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 March 31, 2025, the amortized cost basis of the closed portfolios used in these hedging relationships was $1.12 billion; the cumulative basis adjustments associated with these hedging relationships was $567,000 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 March 31, 2025, 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 0.02 years, the current weighted average fixed rate paid is 0.67%, the weighted average three-month SOFR swap receive rate is 4.64%, and the fair value is $76,000. The Company expects approximately $76,000 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.
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.
Interest Rate Futures -The Company uses interest rate futures to mitigate the impact of fluctuations in interest rates and interest rate volatility on the fair value of the MSRs. Changes in their fair value are reflected in current-period earnings in mortgage banking income.
24
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:
Liabilities
Notional
Derivatives designated as hedging instruments
Fair value hedge - interest rate swaps
100,000
455
Cashflow hedge - interest rate swaps
76
Total derivatives designated as hedging instruments
Derivatives not designated as hedging instruments
Derivative loan commitments
41,938
540
Forward loan sale commitments
28,500
Interest rate swaps
980,343
18,850
Risk participation agreements
215,355
Interest Rate Futures
31,600
Total derivatives not designated as hedging instruments
19,994
18,967
Total derivatives
20,070
19,422
112
1,040
1,152
374
50,500
382
1,015,448
23,021
216,245
35,400
376
23,777
23,462
24,929
23,546
The following table presents the recorded net gains and losses pertaining to the Company’s derivative instruments:
Location of gain (loss)
recognized in
Income
Derivatives designated as fair value hedge
Hedged items - loans
Interest income
488
(1,429)
Interest rate swap contracts
(483)
1,420
Mortgage banking income
57
(431)
310
Interest rate futures
561
(221)
304
146
The effect of cashflow hedge accounting on accumulated other comprehensive income is as follows:
Loss in OCI on derivatives (effective portion), net of tax
Gain reclassified from OCI into interest income (effective portion)
1,235
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.
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 March 31, 2025:
Gross Amounts Not Offset in the Consolidated Balance Sheets
Net Amounts
Gross Amounts
Assets (Liabilities)
Cash
of Recognized
Offset in the
presented in the
Collateral
Consolidated
Financial
(Received)
Net
(Liabilities)
Balance Sheets
Instruments
Posted
Interest rate swap on deposits
(76)
Interest rate swap on residential real estate loans
(455)
510
Customer interest rate swaps
15,842
(14,524)
1,318
11.OPERATING LEASE ROU ASSETS AND LIABILITIES
Operating lease ROU assets, included in other assets, were $20.4 million and $20.9 million at March 31, 2025 and December 31, 2024, respectively.
Operating lease liabilities, included in other liabilities and accrued expenses, were $22.1 million and $22.7 million at March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025 and December 31, 2024, there were no leases that had not yet commenced. At March 31, 2025, lease expiration dates ranged from nine months to 32.9 years and had a weighted average remaining lease term of 15.8 years. At December 31, 2024, lease expiration dates ranged from two months to 33.2 years and had a weighted average remaining lease term of 15.9 years.
Future minimum lease payments under non-cancellable leases and a reconciliation to the amount recorded as operating lease liabilities as of March 31, 2025 were as follows:
2,137
2,679
2,555
2,296
2,045
Thereafter
15,083
Total lease payments
26,795
Imputed interest
(4,652)
Total present value of operating lease liabilities
22,143
The weighted-average discount rate and remaining lease term for operating leases were as follows:
Weighted-average discount rate
2.16
2.15
Weighted-average remaining lease term (years)
15.81
15.85
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
Lease Expense:
Operating lease expense
747
Short-term lease expense
Variable lease expense
Total lease expense
727
778
Cash paid for amounts included in the measurement of lease liabilities-
operating cash flows for operating leases
706
737
Operating Lease - Operating cash flows (Liability reduction)
591
615
ROU assets obtained in exchange for new operating lease liabilities
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 unaudited 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 March 31, 2025, 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 March 31, 2025 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 March 31, 2025 and December 31, 2024 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
Ratio
Common equity Tier 1 capital to risk-weighted assets
562,181
11.9
213,244
4.5
N/A
Tier 1 capital to risk-weighted assets
284,325
6.0
Total capital to risk-weighted assets
614,504
13.0
379,100
8.0
Tier 1 capital to average assets
9.8
228,390
4.0
565,319
11.8
215,789
287,718
624,926
383,624
229,865
525,104
11.1
213,251
308,030
6.5
284,335
379,113
577,427
12.2
473,892
10.0
9.2
228,360
285,450
5.0
528,185
11.0
215,846
311,778
287,795
383,727
587,792
12.3
479,659
229,836
287,295
29
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 unaudited Consolidated Balance Sheets, such items, along with net income, are components of comprehensive (loss) income.
The following table presents changes in accumulated other comprehensive (loss) income by component for the three months ended March 31, 2025 and 2024:
Post-
Available-
retirement
for-Sale
Flow
Benefit
Securities
Hedge
Balance at beginning of period
(46)
(50,620)
771
85
(47,373)
3,666
Other comprehensive (loss) income before reclassifications
6,386
(4,223)
Amounts reclassified from accumulated other comprehensive (loss) income
(990)
(1,255)
Net current-period other comprehensive (loss) income
5,396
(5,478)
(1,165)
496
Balance at end of period
(45,681)
(51,965)
3,297
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:
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 March 31, 2025 and December 31, 2024.
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, 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 March 31, 2025 and December 31, 2024.
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 March 31, 2025 and December 31, 2024.
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.
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 92% and 91% at March 31, 2025 and December 31, 2024, 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 March 31, 2025 and December 31, 2024, 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.
Interest rate futures – The Company’s interest rate futures are valued based on quoted prices for similar assets in an active market with inputs that are observable and as a result, the Company has classified these derivatives 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.
32
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:
Level 1
Level 2
Level 3
Fair Value
Loans held for sale
19,521
549
347,089
347,638
19,305
117
24,173
756
369,345
370,101
23,481
The table below presents, for the three months ended March 31, 2025 and 2024, the changes in Level 3 assets and liabilities that are measured at fair value on a recurring basis.
Assets: Derivative and Forward Loan Sale Commitments:
484
Total losses included in net income (1)
(207)
(35)
449
Changes in unrealized gains relating to instruments at period end
Liabilities: Derivative and Forward Loan Sale Commitments:
(65)
(451)
Total (losses) gains included in net income (1)
(52)
401
(117)
(50)
Changes in unrealized losses relating to instruments at period end
(1) Included in mortgage banking income on the Consolidated Statements of Income.
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 at March 31, 2025 or December 31, 2024.
Collateral-dependent individually analyzed loans
15,037
47,463
The table below presents quantitative information about significant unobservable inputs (Level 3) for assets measured at fair value on a non-recurring basis at the dates indicated.
Valuation Technique
Appraisals of collateral (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 properties. Appraisals are adjusted for estimated liquidation expenses of 6% when the loan is expected to be repaid through the sale of the collateral. 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 collateral.
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.
Financial assets:
Cash and cash equivalents
Federal Home Loan Bank stock
4,581,889
Financial liabilities:
Deposits
4,618,333
Borrowed funds
400,102
4,577,140
4,549,755
516,287
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 March 31, 2025 and 2024, respectively, potential common shares of 115,552 and 105,836 were considered to be anti-dilutive and excluded from EPS.
The following table presents earnings per common share.
Net income available to common stockholders (in thousands)
Average number of common shares outstanding
43,544,104
45,285,471
Less: Average unallocated ESOP shares and non-vested restricted shares
(3,199,182)
(3,373,050)
Weighted average number of common shares outstanding used to calculate basic earnings per common share
Dilutive effect of share-based compensation
260,877
214,616
Weighted average number of common shares outstanding used to calculate diluted earnings per common share
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’s reportable segments are determined by the Chief Financial Officer, who is the designated CODM based upon the products and services offered, primarily distinguished between banking and mortgage banking operations. They are also distinguished by the level of information provided to the CODM, who uses such information to review performance of various components of the business. The CODM assesses the performance of the Company’s segments by evaluating revenue streams, significant expenses, and comparing actual results to budgeted amounts. Segment pretax profit or loss is used to assess the performance of the banking segment by monitoring net interest and dividend income. Segment pretax profit or loss is used to assess the performance of the mortgage banking segment by monitoring mortgage banking income.
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.
Information about the reportable segments and reconciliation to the unaudited interim Consolidated Financial Statements at March 31, 2025 and 2024 and for the three months ended March 31, 2025 and 2024 is presented in the tables below.
HarborOne
Mortgage
Eliminations
Interest and dividend income
64,205
470
10,005
(10,241)
Interest expense
(32,890)
(321)
241
(32,970)
31,315
149
(10,000)
Provision for credit losses
Net interest and dividend income, after provision for credit losses
29,930
Intersegment (loss) gain
(81)
209
(128)
(134)
(1,238)
167
1,941
Total mortgage banking (loss) income
(48)
3,628
Other noninterest income
6,440
6,439
6,392
(129)
16,117
3,167
(499)
Other noninterest expense
12,068
1,337
660
14,065
28,185
4,504
161
Income (loss) before income taxes
8,137
(727)
9,844
(10,129)
Provision (benefit) for income taxes
1,903
(236)
(42)
Net income (loss)
6,234
(491)
9,886
Total assets at period end
5,704,033
92,729
580,866
(677,298)
Total liabilities at period end
5,164,508
36,237
4,899
(81,281)
Goodwill at period end
Three Months Ended March 31, 2024
66,743
443
3,517
(3,799)
(36,258)
(363)
299
(36,322)
30,485
(3,500)
30,653
308
(72)
(32)
86
2,097
(88)
(73)
6,391
6,398
6,303
4,514
15,307
2,919
(590)
12,100
1,392
622
14,114
27,407
4,311
9,549
283
3,482
(3,573)
2,386
60
(5)
7,163
223
3,487
5,867,715
92,719
578,808
(677,020)
5,862,222
5,341,467
35,541
5,665
(98,134)
5,284,539
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 March 31, 2025, and our results of operations for the three months ended March 31, 2025 and 2024. 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 the impact of recently imposed tariffs by the U.S. Administration and foreign governments, 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; failure to complete the Merger or unexpected delays related to the Merger or either party’s inability to satisfy closing conditions required to complete the Merger; failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect Eastern or the expected benefits of the Merger); certain restrictions during the pendency of the Merger that may impact the Company’s ability to pursue certain business opportunities or strategic transactions; the diversion of Management’s attention from ongoing business operations and opportunities; 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; 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.
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:
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 Events
On April 24, 2025, the Company, the Bank, Eastern, and Eastern Bank, entered into the Merger Agreement. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Eastern will acquire the Company and the Bank through the merger of HarborOne with and into Eastern, with Eastern as the surviving entity. The Merger Agreement further provides that following the Merger, HarborOne Bank will merge with and into Eastern Bank, with Eastern Bank as the surviving entity. Under the terms of the Merger Agreement, the Company’s shareholders will receive for each share of Company common stock, at the holder’s election, either (i) the Stock Consideration or (ii) the Cash Consideration, subject to allocation procedures to ensure that the total number of shares of the Company’s common stock that receive the Stock Consideration represents between 75% and 85% of the total number of shares of the Company’s common stock outstanding immediately prior to the completion of the Merger.
Comparison of Financial Condition at March 31, 2025 and December 31, 2024
Total Assets. Total assets decreased $52.8 million, or 0.9%, to $5.70 billion at March 31, 2025 from $5.75 billion at December 31, 2024. The decrease primarily reflects a decrease of $31.5 million in loans and a $17.5 million decrease in loans held for sale.
Cash and Cash Equivalents. Cash and cash equivalents decreased $579,000 to $230.5 million at March 31, 2025 from $231.1 million at December 31, 2024.
Loans Held for Sale. Loans held for sale at March 31, 2025 were $19.3 million, a decrease of $17.5 million from $36.8 million at December 31, 2024, reflecting decreased loan production at HarborOne Mortgage due to constrained loan demand from an uptick in mortgage rates and low for-sale inventory.
Loans, net. Net loans decreased $24.7 million, or 0.5%, to $4.77 billion at March 31, 2025 from $4.80 billion at December 31, 2024. The following table sets forth information concerning the composition of loans:
Increase (Decrease)
Dollars
Percent
(7,829)
(0.3)
(36,678)
(14.5)
33,027
5.6
(11,480)
(0.4)
(18,629)
(1.2)
1,023
0.5
Residential construction
(756)
(6.7)
(18,362)
(1.1)
Consumer loans
(2,111)
(12.1)
(31,953)
(0.7)
`
487
608.8
(31,466)
(0.6)
6,778
(24,688)
(0.5)
(1) Represents the basis adjustment associated with the application of hedge accounting on certain residential real estate loans. Refer to Note 10 - Derivatives.
Commercial real estate and construction loans decreased $44.5 million, as lending activity was subdued and Management favored payoffs over renewals for maturing loans secured by commercial real estate. Commercial and industrial loans increased $33.0 million. Residential real estate and consumer loans decreased $20.0 million, partly reflecting minimal loan purchases from HarborOne Mortgage during the quarter. Management continues to seek prudent commercial lending opportunities that deepen relationships with existing customers and that develop new relationships with strong borrowers.
Securities. Investment securities available for sale at March 31, 2025 were $265.6 million, an increase of $1.7 million, or 0.7%, from $263.9 million at December 31, 2024. The fair value of securities available for sale improved during the first quarter of 2025 but remain negatively impacted by unrealized losses of $58.8 million and $65.2 million as of March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025 and December 31, 2024, 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 $19.2 million at March 31, 2025 and $19.6 million at December 31, 2024, with a fair value of $19.1 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 March 31, 2025 we serviced mortgage loans for others with an aggregate outstanding principal balance of $3.31 billion. Total MSRs were $42.6 million at March 31, 2025 and $44.5 million at December 31, 2024. The change in total MSRs for the three months ended March 31, 2025 reflects additions of $53,000 from new mortgage originations, amortization from loan repayments of $782,000 and a negative fair value mark of $1.2 million.
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 limited by the conditions existing and assumptions made at a particular point in time. Those assumptions may not be appropriate if they are applied at a different point in time.
The assumptions used in the MSR fair value calculation are significantly impacted by 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 were $4.62 billion and $4.55 billion at March 31, 2025 and December 31, 2024, respectively. The following table sets forth information concerning the composition of deposits:
Noninterest-bearing deposits
13,089
1.9
340,185
298,329
41,856
14.0
Regular savings
12,904
1.4
Money market accounts
722,298
676,377
45,921
6.8
1,075,565
1,069,222
6,343
0.6
Consumer and business deposits
3,749,920
3,629,807
120,113
3.3
Municipal deposits
478,941
519,462
(40,521)
(7.8)
(11,624)
(2.9)
1.5
Reciprocal deposits
399,117
376,268
22,849
6.1
Total deposits increased $68.0 million reflecting an increase of $120.1 million in consumer and business deposits partially offset by decreases in municipal deposits of $40.5 million and brokered deposits of $11.6 million. Brokered deposits provide a channel for the Company to seek additional funding outside the Company’s core market. We also 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 $399.1 million in reciprocal deposits. The increase in reciprocal deposits primarily reflects municipal depositors increased utilization of the reciprocal deposit program, as municipal deposits are generally required to be insured or secured by FHLB letters of credit.
The total of estimated deposits in excess of the FDIC insurance limits amounted to $1.4 billion as of March 31, 2025 and December 31, 2024.
The following table summarizes uninsured deposits at the date indicated:
Uninsured deposits, per regulatory reporting requirements
1,383,958
1,394,783
Less: Subsidiary deposits
440,385
428,632
Collateralized deposits
189,217
218,988
Uninsured deposits, after exclusions
754,356
747,163
Uninsured deposits, after excluding subsidiary deposits and collateralized deposits, represented 16% of total deposits at March 31, 2025. Management believes that this provides a more informative view of uninsured deposits, as subsidiary deposits are eliminated in consolidation and collateralized deposits are secured.
Borrowed Funds. Borrowings decreased $117.0 million to $399.5 million at March 31, 2025 from $516.6 million at December 31, 2024. At March 31, 2025, FHLB short-term borrowings were $155.0 million and long-term borrowings were $244.5 million. As of March 31, 2025, the Bank had $1.4 billion in available borrowing capacity across multiple relationships.
Stockholders’ equity. Total stockholders’ equity was $576.0 million at March 31, 2025, compared to $575.0 million at December 31, 2024 and $577.7 million at March 31, 2024. Stockholders’ equity increased 0.2% when compared to the year end, as earnings and a decrease in unrealized loss on available-for-sale securities were partially offset by share repurchases and dividends. Share repurchases for the three months ended March 31, 2025 were 513,855 shares totaling $5.9 million.
The tangible-common-equity-to-tangible-assets ratio (non-GAAP) was 9.15% at March 31, 2025, 9.05% at December 31, 2024, and 8.92% at March 31, 2024. See reconciliation in section entitled “Non-GAAP Financial Measures and Reconciliation to GAAP” below. At March 31, 2025, 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 March 31, 2025, 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 Months Ended March 31, 2025 and 2024
HarborOne Bancorp, Inc. Consolidated
Overview. Consolidated net income for the three months ended March 31, 2025 and 2024 was $5.5 million and $7.3 million, respectively.
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.
Yield/
Balance
Interest
Cost (8)
Interest-earning assets:
Investment securities (1)
346,902
2.33
372,787
2.23
Other interest-earning assets
213,400
4.33
356,470
5.26
17,237
6.96
14,260
6.85
Commercial loans (2)(3)
3,125,369
41,796
5.42
3,040,835
41,653
5.51
Residential real estate loans (3)(4)
1,696,444
18,243
4.36
1,700,694
18,175
Consumer loans (3)
16,601
294
7.18
20,539
358
7.01
4,838,414
60,333
5.06
4,762,068
60,186
5.08
Total interest-earning assets
5,415,953
64,900
4.86
5,505,585
67,153
4.91
Noninterest-earning assets
290,734
299,153
5,706,687
5,804,738
Interest-bearing liabilities:
Savings accounts
908,434
3,050
1.36
1,186,201
5,523
1.87
303,719
127
289,902
75
0.10
1,190,811
9,648
3.29
994,353
9,313
3.77
Certificates of deposit
1,060,313
11,343
4.34
855,070
8,554
4.02
387,294
3,475
3.64
356,459
3,434
3.87
Total interest-bearing deposits
3,850,571
2.91
3,681,985
2.94
Total borrowings
493,206
4.38
764,623
4.96
Total interest-bearing liabilities
4,343,777
3.08
4,446,608
Noninterest-bearing liabilities:
677,314
654,436
Other noninterest-bearing liabilities
105,747
119,289
5,126,838
5,220,333
Total equity
579,849
584,405
Total liabilities and equity
Tax equivalent net interest income
31,930
30,831
Tax equivalent interest rate spread (5)
1.78
1.62
Less: tax equivalent adjustment
461
249
Net interest income as reported
Net interest-earning assets (6)
1,072,176
1,058,977
Net interest margin (7)
2.36
Tax equivalent effect
0.02
Net interest margin on a fully tax equivalent basis
2.39
2.25
Ratio of interest-earning assets to interest-bearing liabilities
124.68
123.82
Supplemental information:
Total deposits, including demand deposits
4,527,885
4,336,421
Cost of total deposits
2.48
2.49
Total funding liabilities, including demand deposits
5,021,091
5,101,044
Cost of total funding liabilities
2.66
2.86
(1) Includes securities available for sale and securities held to maturity.
(2) Includes industrial revenue bonds. Interest income from tax exempt loans is computed on a taxable equivalent basis using a rate of 21% for the quarters presented.
(3) Includes non-accruing 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.
44
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.
2025 v. 2024
Due to Changes in
Increase
Volume
(Decrease)
Investment securities
(158)
(1,654)
(2,381)
Commercial loans
927
(784)
143
Residential real estate loans
(69)
68
(64)
786
(639)
(977)
(1,276)
(2,253)
(1,142)
(1,331)
(2,473)
1,656
(1,321)
335
686
2,789
Brokered deposit
271
(230)
2,892
(2,148)
(3,085)
(1,011)
(4,096)
(193)
(3,159)
(3,352)
Change in net interest income
1,883
1,099
Interest and Dividend Income. Interest and dividend income on a tax equivalent basis decreased $2.3 million, or 3.4%, to $64.9 million for the three months ended March 31, 2025, compared to $67.2 million for the three months ended March 31, 2024. The significant components of the decrease were:
Interest Expense. Interest expense decreased $3.4 million, or 9.2%, to $33.0 million for the three months ended March 31, 2025 from $36.3 million for the three months ended March 31, 2024. The significant components of the decrease were:
Net Interest and Dividend Income. Net interest and dividend income on a tax equivalent basis increased $1.1 million, or 3.6%, to $31.9 million for the three months ended March 31, 2025 from $30.8 million for the three months ended March 31, 2024. The average balance of interest-earning assets and liabilities decreased $89.6 million and $102.8 million, respectively, and rate decreases on interest-bearing liabilities outpaced the decrease in the yield on interest-earning assets by 16 basis points. The net interest margin on a fully tax equivalent basis increased 14 basis points to 2.39% for the three months ended March 31, 2025 from 2.25% for three months ended March 31, 2024.
Income Tax Provision. The provision for income taxes was $1.6 million and $2.4 million for the three months ended March 31, 2025 and 2024, respectively. The effective tax rate for three months ended March 31, 2025 and 2024 was 22.8% and 25.1%, respectively.
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.
The tables below show the results of operations for the Company’s segments, HarborOne Bank and HarborOne Mortgage, for the three months ended March 31, 2025 and 2024, and the increase or decrease in those results:
830
2.7
86.3
Provision (benefit) for credit losses
1,553
(924.4)
Net interest and dividend income, after provision (benefit) for credit losses
(723)
(2.4)
703
34.9
Intersegment gain (loss)
155
(65.7)
(99)
(32.1)
(102)
318.8
(1,324)
(1,539.5)
(13)
(7.2)
(156)
(7.4)
Total mortgage banking income (loss)
(45.5)
(876)
(19.4)
0.8
(10)
(100.0)
(886)
(19.6)
Noninterest expense
2.8
193
(1,412)
(14.8)
(1,010)
(356.9)
(20.2)
(296)
(493.3)
(929)
(13.0)
(714)
(320.2)
HarborOne Bank Segment
Results of Operations for the Three Months Ended March 31, 2025 and 2024
Net Income. The Bank’s net income decreased $929,000, or 13.0% to $6.2 million for the three months ended March 31, 2025 compared to $7.2 million for the three months ended March 31, 2024. The decrease in net income reflects a $1.6 million increase in provision for credit losses and a $778,000 increase in noninterest expense, partially offset by an $830,000 increase in net interest and dividend income and an $89,000 increase in noninterest income.
Provision for Credit Losses. The Bank recorded a provision for credit losses of $1.4 million for the three months ended March 31, 2025. The provision for loan credit losses was $1.9 million and the provision for unfunded commitments was a negative $506,000. The provision for loan credit losses was primarily due to a further specific reserve allocation for a previously identified classified commercial real estate loan, partially offset by a decrease in loan balances and qualitative factor adjustments.
Noninterest Income. Total noninterest income was $6.4 million for the three months ended March 31, 2025 compared to $6.3 million for the respective prior year period. The following table sets forth the components of noninterest income:
Intersegment loss
Secondary market loan servicing fees, net of guarantee fees
Total mortgage banking (loss)
Interchange fees
2,701
2,566
135
5.3
Other deposit account fees
2,452
(26)
(17.9)
Swap fee income
73
(70)
(95.9)
422
444
(22)
(5.0)
The primary reasons for the variances within the noninterest income categories shown in the preceding table are noted below:
Noninterest Expense. Total noninterest expense was $28.2 million for the three months ended March 31, 2025 compared to $27.4 million in the prior year period. The following table sets forth the components of noninterest expense:
810
4,035
4,150
(115)
(2.8)
Data processing expenses
2,614
2,470
5.8
106
71
49.3
555
783
(29.1)
153
22.2
339
(85)
(20.0)
916
1,056
(140)
(13.3)
25.0
(114)
(9.8)
1,605
1,288
317
24.6
The primary reasons for the significant variances within the noninterest expense categories shown in the preceding table are noted below:
HarborOne Mortgage Segment
Results of Operations for the Three Months ended March 31, 2025 and 2024
Net Income. HarborOne Mortgage recorded a net loss of $491,000 for the three months ended March 31, 2025, compared to a net income of $223,000 for the respective prior year period. The HarborOne Mortgage segment’s results are heavily impacted by prevailing interest rates, refinancing activity, and home sales.
Noninterest Income. Total noninterest income was $3.6 million for the three months ended March 31, 2025 as compared to $4.5 million for the prior year period. Noninterest income is primarily from mortgage banking income, for which the following table provides further detail:
Intersegment gain
Processing, underwriting and closing fees
366
319
14.7
Secondary market loan servicing fees net of guarantee fees
1,575
1,778
(203)
(11.4)
Originated mortgage servicing rights included in gain on sale of mortgage loans
210
(157)
(74.8)
Change in 10-year Treasury Constant Maturity rate in basis points
The primary reasons for the significant variances in the noninterest income category shown in the preceding table are noted below:
The following tables provide additional loan production detail:
Loan
% of Total
Product Type
Conventional
81,937
71.8
74,582
73.0
Government
15,481
13.6
12,226
12.0
State Housing Agency
5,360
4.7
4,542
4.4
Jumbo
11,332
9.9
10,703
10.6
Seconds
0.0
114,135
100.0
102,102
Purpose
Purchase
96,828
84.9
84,002
82.3
Refinance
15,555
14,523
14.2
1,752
3,577
3.5
Noninterest Expense. Total noninterest expense was $4.5 million for the three months ended March 31, 2025 compared to $4.3 million for the respective prior year period. The following table sets forth the components of noninterest expense:
248
8.5
553
604
(8.4)
325
6.9
132
(3.8)
276
298
50
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.
Non-accrual loans:
10,538
2,204
10,764
864
Total non-accrual loans
30,902
29,463
Other real estate owned and repossessed assets:
One- to four-family residential real estate owned
Other repossessed assets
Total nonperforming assets
30,908
29,473
Period end allowance for credit losses balance
Period end total loan balance
Allowance for credit losses to total loans(1)
1.02
1.16
Allowance for credit losses to non-accrual loans
159.61
190.41
Total nonperforming loans to total loans (1)
0.64
0.61
Total nonperforming assets to total assets
0.54
0.51
(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 has remained strong, with total nonperforming assets of $30.9 million at March 31, 2025, compared to $29.5 million at December 31, 2024. Nonperforming assets as a percentage of total assets were 0.54% at March 31, 2025 and 0.51% at December 31, 2024. As of March 31, 2025, classified CRE and CRE construction loans amounted to $55.3 million, and includes:
The commercial and industrial loan category has an $8.6 million credit to a healthcare practice, is classified as substandard with no specific reserve, and is currently being modified.
Loans to borrowers experiencing financial difficulty and modified during the three months ended March 31, 2025 was $429,000 representing one residential real estate credit that was provided a rate reduction and term extension modifications. As of March 31, 2025, modified loans to borrowers experiencing financial difficulty had a current payment status. During the three months ended March 31, 2025 there were no loans to borrowers experiencing financial difficulty that had a payment default and were modified in the twelve months prior to the default.
Management continues to closely monitor the CRE loan portfolio for signs of deterioration given analysts’ projections of market softness over the near term due to higher vacancies and interest rates. The New England focused portfolio has limited near-term maturity risk with 75% of the loans maturing in 2027 or later. The CRE and CRE construction portfolio composition includes:
As of March 31, 2025
Risk Rating
Special
to Total
Mention
Nonaccrual
Flex/Industrial
561,523
22.6
13,270
4,508
Multifamily
459,656
18.5
5,584
16,101
Hotels
312,042
12.5
12,144
4,500
Retail
295,138
6,817
Healthcare
217,010
8.7
35,658
Office
211,538
19,907
All Other
431,586
17.3
33,722
1,631
Total CRE and CRE construction
2,488,493
107,195
Management performs comprehensive reviews and works proactively with borrowers facing financial stress and implements prudent accommodations to improve the Bank’s prospects of contractual repayment.
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 forecasted based on economic variable loss drivers. Management utilizes multiple economic projections and assumes these variables revert to the long-term average. Reversion towards long-term average generally begins eight quarters after the forecast start date and generally concludes within sixteen quarters of the forecast start date. 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. 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. Due to the concentration of the Bank’s ACL allocation in the total commercial portfolio, the sensitivity analysis evaluated the impact of changes to commercial loan segments. At March 31, 2025, the potential impact of changes to Management’s judgements on total commercial qualitative risk factors ranged between a $17.6 million reduction and $26.2 million
increase in the ACL. This sensitivity analysis does not represent a change to Management’s judgement but rather provides a hypothetical result to assess the sensitivity of the ACL to a key input.
The ACL was $49.3 million, or 1.02% of total loans, at March 31, 2025, compared to $56.1 million, or 1.16% of total loans, at December 31, 2024. The ACL on individually analyzed loans amounted to $2.4 million, or 2.9% 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 $3.0 million at March 31, 2025, compared to $3.5 million at December 31, 2024.
The following table sets forth the breakdown of the ACL by loan category at the dates indicated:
% of
Amount to
% of Loans
in Category
to Total Loans
50.33
47.14
54.84
46.99
4.48
7.59
5.21
22.23
13.02
19.07
12.25
17.42
30.87
15.55
31.05
2.44
3.95
2.40
3.91
0.34
0.22
0.33
0.23
0.32
0.36
Total allowance for credit losses on loans
100.00
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:
Net Charge-
off (Recovery)
(Recoveries)
2,275,868
8,300
1.46
2,457,496
(100)
(0.02)
243,146
221,460
606,355
362
0.24
361,879
182
0.20
8,662
1.11
82
0.01
1,496,249
1,509,433
189,700
175,084
(0.01)
10,495
16,177
(0.00)
Total Consumer loans
0.41
0.90
8,669
0.72
125
The Company recorded a $1.4 million provision for credit losses for the quarter ended March 31, 2025. The provision for loan credit losses was $1.9 million and the provision for unfunded commitments was a negative $506,000. The provision for loan credit losses was primarily due to a further specific reserve allocation for a previously identified classified commercial real estate loan, partially offset by a decrease in loan balances and qualitative factor adjustments. The specific reserve allocation recorded on the commercial real estate loan was $3.6 million based on the re-evaluation of collateral due to a revised exit strategy, adding to a specific reserve allocation of $4.7 million. The aggregate allowance of $8.3 million was charged off in the first quarter of 2025. Net charge-offs totaled $8.7 million, or 0.72% of average loans outstanding on an annualized basis for the quarter ended March 31, 2025.
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 March 31, 2025 and 2024, 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
March 31, 2024
(basis points) (1)
Year One
Year Two
+300
(11.5)
(8.9)
(9.7)
+200
(7.6)
(5.7)
(6.4)
(9.4)
+100
(3.7)
(2.5)
(3.1)
(4.3)
-100
2.9
2.3
3.6
5.5
-200
4.2
1.6
3.9
-300
5.2
(0.1)
3.7
4.1
-400
(2.6)
(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, 300 and 400 basis points and down 100, 200, 300 and 400 basis points.
The table below sets forth, as of March 31, 2025, 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 March 31, 2025
EVE as a Percentage of Economic
Estimated Increase (Decrease)
Value of Assets
Estimated
in EVE
Changes in
EVE Ratio (2)
+ 400
393,763
(224,775)
(36.3)
8.1
(3.4)
+ 300
461,796
(156,742)
(25.3)
(2.3)
+ 200
521,906
(96,632)
(15.6)
10.2
(1.3)
+ 100
578,887
(39,651)
0
618,538
11.5
- 100
643,030
24,492
11.6
0.1
- 200
607,917
(10,621)
(1.7)
10.7
(0.8)
- 300
557,598
(60,940)
(9.9)
9.6
(1.9)
482,483
(136,055)
(22.0)
8.2
(3.3)
(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 amortization 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 $230.5 million at March 31, 2025, which are primarily on deposit with the 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 and securities to access secured borrowings from the FHLB and FRBB. As of March 31, 2025, we had additional borrowing capacity of $762.0 million from the FHLB and $629.4 million from the FRBB based on the amount of collateral pledged. 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 $3.0 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, deposit inflows and outflows can vary widely and are influenced by prevailing market interest rates, competition, local and national economic conditions and fluctuations in our business customers’ own liquidity needs and may be negatively impacted by unexpected deposit withdrawals from weakness in the financial markets and industry-wide reductions in liquidity. The Company utilizes third- party brokers to obtain brokered deposits to supplement core deposit fluctuations and loan growth. At March 31, 2025, the Company had $389.9 million in brokered deposits. 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 March 31, 2025, we had outstanding commitments to originate loans of $99.4 million and unadvanced funds on loans of $670.5 million. Certificates of deposit that are scheduled to mature within one year from March 31, 2025 totaled $1.29 billion.
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, 2024.
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 March 31, 2025, 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 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:
(dollars on thousands)
Tangible common equity:
Less: Goodwill
Less: Other intangible assets (1)
1,326
Tangible common equity
516,357
517,315
Tangible assets:
Tangible assets
5,640,720
5,801,854
Tangible common equity / tangible assets (2)
9.15
8.92
(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.
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 March 31, 2025. 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 March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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
This section supplements and updates certain of the information found under Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 6, 2025 (“Annual Report”), based on information currently known to us and recent developments since the date of the Annual Report filing. The matters discussed below should be read in conjunction with the risks described in Part I. Item 1A. “Risk Factors” of our Annual Report. However, the risks and uncertainties that we face are not limited to those described below and those set forth in the Annual Report. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our common stock.
Risks Related to the Merger
The pendency of the Merger could adversely affect the Company’s business, results of operations and financial condition.
The pendency of the Merger could cause disruptions in and create uncertainty surrounding the Company’s business, including affecting the Company’s relationships with the Company’s existing and future customers, suppliers and employees, which could have an adverse effect on the Company’s business, results of operations and financial condition, regardless of whether the Merger is completed. In particular, we could potentially lose additional important personnel as a result of the departure of employees who decide to pursue other opportunities in light of the Merger. We could also potentially lose additional customers or suppliers, and new customer or supplier contracts could be delayed or decreased. In addition, we have allocated, and will continue to allocate, significant Management resources towards the completion of the transaction, which could adversely affect the Company’s business and results of operations.
We are subject to restrictions on the conduct of the Company’s business prior to the consummation of the Merger as provided in the Merger Agreement, including, among other things, certain restrictions on the Company’s ability to acquire other businesses, sell or transfer the Company’s assets, and amend the Company’s organizational documents. These restrictions could result in the Company’s inability to respond effectively to competitive pressures, industry developments and future opportunities, retain key employees and may otherwise harm the Company’s business, results of operations and financial condition.
Because the price of Eastern common stock will fluctuate, the Company’s shareholders cannot be certain of the market value of the Stock Consideration.
Upon completion of the Merger, the shares of the Company’s common stock outstanding immediately prior to the effective time of the Merger will be converted into the right to receive, at each shareholder’s election, either the Stock Consideration or the Cash Consideration, subject to allocation procedures to ensure the total number of shares of the Company’s common stock that receive the Stock Consideration represents between 75% and 85% of the total number of shares of the Company’s common stock outstanding immediately prior to the effective time of the Merger. The exchange ratio for the Stock Consideration is fixed. As a result, the dollar value of the Stock Consideration that the Company’s shareholders may receive upon completion of the Merger will depend upon the market value of Eastern common stock at the time of completion of the Merger, which may be lower or higher than the closing price of Eastern common stock on the last full trading day preceding the date the Merger Agreement was executed. The market values of Eastern common stock and the Company’s common stock have varied since the Merger Agreement was executed and will continue to vary in the future due to changes in the business, operations or prospects of the Company and Eastern, market assessments of
the Merger, regulatory considerations, market and economic considerations, and other factors, most of which are beyond the Company’s control.
The Merger is subject to the receipt of consents and approvals from governmental authorities that may delay the date of completion of the Merger or impose conditions that could have an adverse effect on the Company.
Before the Merger may be completed, various consents, approvals, waiver or non-objections must be obtained from state and federal governmental authorities, including the Federal Reserve, the FDIC, the Massachusetts Commissioner of Banks, and the Massachusetts Housing Partnership Fund. Satisfying the requirements of these governmental authorities may delay the date of completion of the Merger. In addition, these governmental authorities may include conditions on the completion of the Merger, or require changes to the terms of the Merger. Eastern is not obligated to complete the Merger should any regulatory approval prohibit or materially limit the ownership or operation by Eastern or any of its subsidiaries, of all or any material portion of the business or assets of the Company or any of its subsidiaries or Eastern or its subsidiaries, or compel Eastern or any of its subsidiaries to dispose of or hold separate all or any material portion of the business or assets of the Company or any of its subsidiaries or Eastern or any of its subsidiaries.
The Merger and related transactions are subject to approval by the Company’s shareholders.
The Merger cannot be completed unless the Company’s shareholders approve the Merger Agreement by the affirmative vote of the holders of at least two-thirds of the outstanding shares of the Company’s common stock. If shareholder approval is not obtained by the Company’s shareholders, the Merger cannot be completed.
Failure to complete the Merger could negatively impact the stock price of the Company and future businesses and financial results of the Company.
If the Merger is not completed, the ongoing businesses, financial condition and results of operation of the Company may be adversely affected and market prices of the Company’s common stock may decline significantly, particularly to the extent that the current market prices reflect a market assumption that the Merger will be consummated. If the consummation of the Merger is delayed, including by the receipt of a competing acquisition proposal, the Company’s business, financial condition and results of operations may be materially adversely affected.
In addition, the Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement, as well as the costs and expenses of filing, printing and mailing the proxy statement/prospectus and all filing and other fees paid to the SEC and other regulatory agencies in connection with the Merger. If the Merger is not completed, the Company would have to recognize these expenses without realizing the expected benefits of the Merger. Any of the foregoing, or other risks arising in connection with the failure of or delay in consummating the Merger, including the diversion of Management attention from pursuing other opportunities and the constraints in the Merger Agreement on the ability to make significant changes to the Company’s ongoing business during the pendency of the Merger, could have a material adverse effect on the Company’s businesses, financial conditions and results of operations.
Additionally, the Company’s business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of Management on the Merger, without realizing any of the anticipated benefits of completing the Merger. If the Merger Agreement is terminated and the Company’s board of directors seeks another merger or business combination, the Company’s shareholders cannot be certain that the Company will be able to find a party willing to engage in a transaction on more attractive terms than the Merger.
Eastern may be unable to successfully integrate the Company’s operations or otherwise realize the expected benefits from the Merger, which could adversely affect Eastern’s results of operations and financial condition.
The Merger involves the integration of two companies that have previously operated independently. The difficulties of combining the operations of the two companies include:
The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of the business and the loss of key personnel. The integration of the two companies will require the experience and expertise of certain of the Company’s key employees who are expected to be retained by Eastern. Eastern may not be successful in retaining these employees for the time period necessary to successfully integrate the Company’s operations with those of Eastern. The diversion of Management’s attention and any delay or difficulty encountered in connection with the Merger and the integration of the two companies’ operations could have an adverse effect on the business and results of operations of Eastern following the Merger.
The success of the Merger will depend, in part, on Eastern’s ability to realize the anticipated benefits and cost savings from combining the Company’s business with Eastern’s. If Eastern is unable to successfully integrate the Company, the anticipated benefits and cost savings of the Merger may not be realized fully or may take longer to realize than expected. For example, Eastern may fail to realize the anticipated increase in earnings and cost savings anticipated to be derived from the Merger. In addition, as with regard to any merger, a significant decline in asset valuations or cash flows may also cause Eastern not to realize expected benefits.
The termination fee and the restrictions on solicitation contained in the Merger Agreement may discourage other companies from trying to acquire the Company.
Until the completion of the Merger, with some exceptions, the Company is prohibited from soliciting, initiating, knowingly encouraging or participating in any discussion of or otherwise considering any inquiry or proposal that may lead to an acquisition proposal, such as a merger or other business combination transaction, with any person other than Eastern. In addition, the Company has agreed to pay an $18.9 million termination fee to Eastern in specified circumstances. These provisions could discourage other companies that may have an interest in acquiring the Company from considering or proposing such an acquisition even though those other companies might be willing to offer greater value to the Company’s shareholders than Eastern has offered in the Merger. The payment of the termination fee could also have a material adverse effect on the Company’s financial condition.
The Company’s shareholders will not be entitled to dissenters' or appraisal rights in the Merger.
Dissenters’ or appraisal rights are statutory rights that, if applicable under law, enable shareholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction. Under the Massachusetts Business Corporation Act, holders of Company common stock will not be entitled to dissenters’ or appraisal rights in the Merger with respect to their shares of Company common stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Total number of
Maximum number (or
shares (or units)
approximate dollar
purchased as part
value) of shares (or
of publicly
units) that may yet be
Average price paid
announced plans or
purchased under the
Period
purchased
per share (or unit)
programs
plans or programs
January 1 to January 31, 2025
162,130
11.97
1,266,897
February 1 to February 28, 2025
165,500
11.88
327,630
1,101,397
March 1 to March 31, 2025
186,225
10.92
513,855
915,172
11.56
On May 29, 2024, the Company announced a share repurchase program to repurchase up to 2,222,568 shares of its common stock, or approximately 5% of its outstanding shares. During the first quarter of 2025, the Company repurchased 513,855 shares at an average cost of $11.56 per share in open market transactions under the share repurchase program. On April 24, 2025, the Company suspended the repurchase program following its entry into the Merger Agreement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
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.
The following exhibits are included in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 (and are numbered in accordance with Item 601 of Regulation S-K):
Exhibit No.
Description
2.1
Agreement and Plan of Merger by and among Eastern Bankshares, Inc., Eastern Bank, HarborOne Bancorp, Inc. and HarborOne Bank, dated as of April 24, 2025 (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 24, 2025)
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 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 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 March 31, 2025 and December 31, 2024, (ii) the Consolidated Statements of Income for the three months ended March 31, 2025 and 2024 (iii) the Consolidated Statements of Comprehensive (Loss) Income for the three months ended March 31, 2025 and 2024, (iv) the Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2025 and 2024, (v) the Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024, 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.
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.
Date: May 6, 2025
By:
/s/ Joseph F. Casey
Joseph F. Casey
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Stephen W. Finocchio
Stephen W. Finocchio
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)