8-K: HarborOne Bancorp Reports Net Loss in Q4 2023 Due to Mortgage Goodwill Impairment

HarborOne Bancorp experienced a net loss in the fourth quarter of 2023, primarily due to a significant goodwill impairment at its mortgage subsidiary, despite growth in other areas.

Summary

• HarborOne Bancorp reported a net loss of $7.1 million, or $0.17 per diluted share, for the fourth quarter of 2023, compared to a net income of $9.6 million, or $0.21 per diluted share, for the same period last year.
• The full year 2023 net income was $16.1 million, or $0.37 per diluted share, a decrease of $29.5 million, or 64.7%, compared to 2022.
• The results were significantly impacted by a $10.8 million goodwill impairment at HarborOne Mortgage due to challenging market conditions.
• Excluding the goodwill impairment, the adjusted net income for the quarter was $3.7 million, or $0.09 per diluted share, and $26.9 million, or $0.62 per diluted share for the year.
• The company saw deposit growth of $172.7 million, or 4.4%, year-over-year, excluding brokered deposits, and loan growth of $200.6 million, or 4.4%, year-over-year.
• The net interest margin decreased to 2.23% for the quarter, compared to 3.23% in the same quarter of the previous year.
• The company repurchased 570,527 shares at an average cost of $10.15 per share, totaling $5.8 million, and redeemed $35 million in subordinated debt with an 8.45% interest rate.
• Nonperforming loans as a percentage of total loans were 0.37%, compared to 0.39% last quarter, indicating strong asset quality.

Sentiment

Score: 4

Explanation: The sentiment is negative due to the net loss and significant goodwill impairment, but there are some positives such as deposit and loan growth and strong asset quality. The overall tone is cautious.

Positives

• Deposit growth, excluding brokered deposits, increased by $172.7 million, or 4.4%, year-over-year.
• Loan growth was $200.6 million, or 4.4%, year-over-year.
• Asset quality remains strong with nonperforming loans at 0.37% of total loans.
• The company continued its share repurchase program, buying back 570,527 shares in the quarter.
• HarborOne redeemed $35 million of subordinated debt, reducing interest expenses.
• Customer deposit growth exceeded 4% in 2023, with increased market share in about 80% of markets.

Negatives

• The company reported a net loss of $7.1 million for the fourth quarter of 2023.
• Net income for the year decreased by 64.7% compared to the previous year.
• The mortgage banking segment faced significant headwinds, leading to a $10.8 million goodwill impairment.
• Net interest margin decreased to 2.23% for the quarter, down from 3.23% in the same quarter of the previous year.
• Total noninterest income decreased by 10.1% compared to the same quarter last year, primarily due to a decrease in mortgage banking income.
• Total noninterest expense increased by 24.7% compared to the prior year quarter, although it decreased excluding the goodwill impairment.

Risks

• The mortgage banking industry faces significant headwinds due to high interest rates and low housing inventory.
• The company is monitoring the commercial real estate portfolio for potential deterioration due to higher vacancies and interest rates.
• Certain sectors within the commercial real estate segment, such as business-oriented hotels, non-anchored retail space, and metro office space, may be susceptible to increased credit risk.
• The company is exposed to the risk of falling interest rates in 2024, which may put pressure on deposit pricing.
• There is a risk that future credit losses may be higher than currently expected due to changes in economic assumptions or adverse economic developments.

Future Outlook

The company expects falling interest rates throughout 2024, but anticipates continued pressure on deposit pricing in competitive markets. Management continues to monitor the loan portfolio for signs of deterioration in light of speculation that commercial real estate values may deteriorate.

Management Comments

• I am very proud of the progress our team is making in building our relationship bank model, said Joseph F. Casey, President and CEO.
• We have customer deposit growth of over 4% in 2023, as well as growth in deposit market share in about 80% of our markets.
• This growth will position us well for the future.

Industry Context

The results reflect the challenges faced by the mortgage banking industry due to high interest rates and low housing inventory. The company's focus on relationship banking and deposit growth is a strategic response to these challenges. The company is also proactively managing its commercial real estate portfolio in light of potential market adjustments.

Comparison to Industry Standards

• The goodwill impairment at HarborOne Mortgage is a significant event, reflecting the broader challenges in the mortgage industry, similar to what other regional banks with mortgage operations have experienced.
• The decrease in net interest margin is consistent with the trend seen across the banking sector due to rising funding costs and competitive deposit pricing, similar to other regional banks such as Eastern Bank and Rockland Trust.
• The company's loan growth of 4.4% is moderate compared to some peers who have seen higher growth, but it is focused on high-quality, deep-relationship lending, which is a more conservative approach.
• The company's strong capital ratios and liquidity position are in line with regulatory requirements and industry best practices, similar to other well-capitalized banks in the region.
• The company's focus on relationship banking and deposit growth is a common strategy among regional banks to navigate the current economic environment, similar to strategies employed by institutions like Berkshire Bank and Cambridge Trust.

Stakeholder Impact

• Shareholders will be negatively impacted by the net loss and decreased earnings per share.
• Employees may be affected by cost-saving measures, including reductions in force.
• Customers may benefit from the company's focus on relationship banking and deposit growth.
• Creditors are likely to view the company's strong capital position and liquidity favorably.
• Suppliers may be impacted by cost-saving measures.

Next Steps

• The company will continue its share repurchase program.
• Management will closely monitor the loan portfolio for signs of deterioration.
• The company will focus on building its relationship bank model and growing deposit market share.
• The company will continue to manage costs and optimize its banking center network.

Key Dates

Keywords

HarborOne Bancorp, financial results, net loss, goodwill impairment, mortgage banking, deposit growth, loan growth, net interest margin, share repurchase, subordinated debt, asset quality, commercial real estate