HarborOne Bank branch at 68 Legion Parkway in Brockton, Massachusetts. Photo courtesy of HarborOne Bank

HarborOne Bank recorded a net loss in the fourth quarter of the year as a challenging mortgage market forced it to record a goodwill impairment charge at its mortgage company subsidiary.

The bank’s net loss in the fourth quarter was $7.1 million compared to the net income of $8.4 million in the third quarter. This was dragged down by the $10.8 million goodwill impairment charge for Harbor One Mortgage.

The bank disclosed that Harbor One Mortgage only had a $2.2 million increase in loan sales out of $124.2 million mortgage loan closings in the fourth quarter due to persistent low inventory of for-sale residential real estate and elevated mortgage interest rates.

“Throughout 2023, HarborOne Mortgage and the mortgage banking industry in general, faced significant headwinds. The combination of the average residential mortgage rate reaching twenty-year highs during 2023 and a housing market with low inventory and higher prices, generated the lowest annual residential mortgage loan origination volume in two decades. As a result of these conditions, the impairment analysis of goodwill completed in the fourth quarter resulted in a determination that the goodwill at HarborOne Mortgage was fully impaired,” the bank stated in its financial results.

Excluding the goodwill impairment charge, net income for the fourth quarter was $3.7 million. Goodwill impairment is a non-cash charge that has no impact on its liquidity or regulatory capital ratios.

“The current market expectations for 2024 suggest falling rates throughout the year, although pressure may remain on deposit pricing in competitive markets as financial institutions continue to prioritize customer deposit funding,” HarborOne said.

Net interest income declined to $29.7 million from $31.1 million a quarter ago. This is due to the higher cost of funding (up 21 basis points) outpacing the yields in interest-bearing assets (up 7 basis points).

Total deposits were slightly down, to $4.39 billion from $4.41 billion the previous quarter, as customers moved their money from lower-yield accounts to higher-yield certificates of deposits. HarborOne’s non-CD accounts decreased by $76.4 million while term CD accounts increased by $4.2 million as competitive rate specials attracted term certificate deposits during the quarter.

Loans during the quarter slightly increased to $4.75 billion from $4.72 billion in the third quarter primarily on the gains in commercial construction, and commercial and industrial loans.

HarborOne recorded $1.3 million in charge-offs in the fourth quarter due to one office space loan that was rated doubtful and nonaccrual, or non-paying. The property, valued at $5.7 million, is currently under a purchase and sale agreement that is expected to close in the second quarter of 2024.

The bank also had another business-oriented hotel loan with a carrying value of $1.7 million that was rated substandard and on nonaccrual. It clarified that other loans in these groups were performing in accordance with their terms.

The $5.67 billion asset HarborOne Bank has branches located in Boston and south of Boston, as well as in Rhode Island.