BROCKTON, Mass.–(BUSINESS WIRE)–HarborOne Bancorp, Inc. (the “Company” or “HarborOne”) (NASDAQ: HONE), the holding company for HarborOne Bank (the “Bank”), announced net income of $13.8 million, or $0.30 per basic and diluted share, for the third quarter of 2022, compared to net income of $10.0 million, or $0.21 per basic and diluted share, for the preceding quarter and $12.3 million, or $0.24 per diluted share, for the same period last year.
Selected Third Quarter Financial Highlights:
Net income increased $3.8 million, or 37.8%.
Return on average assets was 1.14%, and return on average equity was 8.76%.
Loan growth of $285.4 million, or 7.3%.
Total deposit growth $35.2 million, or 0.91% and core deposit growth of $22.9 million, or 0.70%.
Continued share repurchase program.
“I am proud of our team’s ability to manage the volatile interest rate environment,” said Joseph F. Casey, President and Chief Executive Officer. He added: “The Company continues to drive revenue through expanded margin which was up 30 basis points year-over-year resulting in net interest income expansion of $12.4 million, or 12.7%. Our mortgage segment remains profitable as the increasing value of our servicing rights, coupled with expense reductions, partially offset declining origination volume and gain-on-sale margins.”
Net Interest Income
The Company’s net interest and dividend income was $39.3 million for the quarter ended September 30, 2022, up $2.1 million, or 5.7%, from $37.2 million for the quarter ended June 30, 2022, and up $6.5 million, or 19.9%, from $32.8 million for the quarter ended September 30, 2021. The interest rate spread and net interest margin were 3.30% and 3.47%, respectively, for the quarter ended September 30, 2022, compared to 3.39% and 3.48%, respectively, for the quarter ended June 30, 2022, and 2.97% and 3.08%, respectively, for the quarter ended September 30, 2021. On a linked-quarter basis, the increase in net interest and dividend income primarily reflects an increase in the average loan balance coupled with increased yields on loans and investments primarily due to rate increases, partially offset by decreases in fees recognized in connection with U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans and higher rates on deposits. The cost of funds was 51 basis points for the quarter ended September 30, 2022, compared to 27 basis points in the preceding quarter.
The $4.7 million increase in total interest and dividend income on a linked-quarter basis reflected a 20-basis-point increase in the yield on interest-earning assets. The yield on loans increased 15 basis points, from 3.96% to 4.11%. Interest on loans in the third quarter included $454,000 in prepayment penalties on commercial loans and $188,000 in accretion income from the fair value discount on loans acquired in connection with the merger with Coastway Bancorp, Inc. Prepayment penalties and accretion income in the preceding quarter were $1.1 million and $353,000, respectively. The three months ended September 30, 2022 and June 30, 2022 include the recognition of deferred fees on PPP loans in the amount of $24,000 and $368,000, respectively. The yield on investments increased 8 basis points, from 1.92% to 2.00%.
The increase in net interest and dividend income from the prior year quarter reflects an increase of $8.7 million, or 24.4%, in total interest and dividend income and an increase of $2.2 million, or 73.8%, in total interest expense. The changes reflect rate and volume changes in both interest-bearing assets and liabilities. The yield on interest-earning assets increased 57 basis points, while the average balance increased $272.3 million, and the cost of interest-bearing liabilities increased 24 basis points, while the average balance increased $271.6 million.
Noninterest Income
Total noninterest income increased $142,000, or 1.0%, to $14.2 million for the quarter ended September 30, 2022, from $14.1 million for the quarter ended June 30, 2022. Mortgage loan closings for the quarter ended September 30, 2022 were $250.5 million with a gain on loan sales of $3.8 million, compared to $297.5 million in mortgage closings and $4.5 million in gain on sales for the preceding quarter. Deposit account fees were $4.9 million for the quarter ended September 30, 2022, flat compared to the quarter ended June 30, 2022. Other income for the quarter ended September 30, 2022 increased $82,000.
Although declining mortgage demand and volume has negatively impacted mortgage banking income, the change in the fair value of mortgage servicing rights has provided a positive offset. The increase in the fair value of mortgage servicing rights for the three months ended September 30, 2022 was $2.6 million, as compared to an increase of $1.6 million in the fair value of mortgage servicing rights for the three months ended June 30, 2022. The 10-year Treasury Constant Maturity rate increased 85 basis points versus the second quarter of 2022. The impact of principal payments on the underlying mortgages on the mortgage servicing rights was consistent at $747,000 and $771,000 for the quarters ended September 30, 2022 and June 30, 2022, respectively. The change in the fair value of the mortgage servicing rights is generally consistent with the change in the 10-year Treasury Constant Maturity rate. As interest rates rise and prepayment speeds slow, mortgage servicing rights values tend to increase; conversely, as interest rates fall and prepayment speeds quicken, mortgage servicing rights values tend to decrease.
Total noninterest income decreased $7.8 million, or 35.3%, compared to the quarter ended September 30, 2021, primarily due to a $7.6 million, or 48.4%, decrease in mortgage banking income, driven by the decrease in loan closings and narrowing gain-on-sale margins.
Noninterest Expense
Total noninterest expenses were $34.5 million for the quarter ended September 30, 2022, a decrease of $481,000, or 1.4%, from the quarter ended June 30, 2022. Compensation and benefits decreased $464,000, or 2.2%, and professional fees decreased $223,000, or 13.3%, partially offset by a $254,000 increase in occupancy and equipment expenses. The decrease in compensation expense reflects a $477,000 decrease in commission expense consistent with the decrease in mortgage originations. The increase in occupancy and equipment expense reflects an increase in expenses for utilities and software licenses.
Total noninterest expenses decreased $4.8 million, or 12.2%, from the quarter ended September 30, 2021. Compensation and benefits decreased $3.8 million and loan expenses decreased $968,000, consistent with the decrease in residential mortgage loan closings and corresponding decrease in mortgage origination commissions. The decrease in compensation and benefits also reflects proactive cost reduction measures taken at HarborOne Mortgage beginning in the second quarter of 2021.
Income Tax Provision
The effective tax rate was 25.4% for the quarter ended September 30, 2022, compared to 27.6% for the quarter ended June 30, 2022 and 28.6% for the quarter ended September 30, 2021. The third quarter 2022 effective rate was impacted by a tax benefit recorded for Industrial Revenue Bonds. The 2022 effective tax rate is expected to be approximately 27%.
Asset Quality and Allowance for Credit Losses
Effective January 1, 2022, the Company adopted Accounting Standards Update No. 2016-13, commonly referred to as CECL, which requires the measurement of expected lifetime credit losses for financial assets measured at amortized cost, as well as unfunded commitments that are considered off-balance sheet credit exposures. CECL requires that the allowance for credit losses (“ACL”) be calculated based on current expected credit losses over the full remaining expected life of the financial assets and also consider expected future changes in macroeconomic conditions. Upon adoption of CECL on January 1, 2022, the Company’s ACL on loans decreased by $1.3 million, and the ACL on unfunded commitments increased by $3.9 million, for a net increase of $2.6 million. The after-tax impact of $1.9 million was recognized as a one-time, cumulative-effect adjustment that decreased retained earnings.
Credit quality performance continued to be strong with total nonperforming assets of $23.4 million at September 30, 2022, compared to $24.4 million at June 30, 2022 and $36.5 million at September 30, 2021. Nonperforming assets as a percentage of total assets were 0.47% at September 30, 2022, 0.52% at June 30, 2022, and 0.80% at September 30, 2021.
The funded loan provision for credit losses for the three and nine months ended September 30, 2022 was $262,000 and $2.0 million, respectively, and reflects provisioning for loan growth partially offset by a reduction in pandemic related uncertainty. Net recoveries totaled $799,000, or 0.08% of average loans outstanding on an annualized basis, for the quarter ended September 30, 2022. Net recoveries totaled $504,000, or 0.05% of average loans outstanding on an annualized basis, for the quarter ended June 30, 2022, and net charge-offs totaled $1.7 million, or 0.19% of average loans outstanding on an annualized basis, for the quarter ended September 30, 2021. The third quarter 2022 recovery reflects the disposition of assets from a SBA guaranteed credit.
The ACL was $44.6 million, or 1.06% of total loans, at September 30, 2022, compared to $43.6 million, or 1.11% of total loans, at June 30, 2022 and an allowance for loss under the incurred loss model of $48.0 million, or 1.39% of total loans, at September 30, 2021. The ACL on unfunded commitments, included in other liabilities on the unaudited Consolidated Balance Sheets, amounted to $5.5 million at September 30, 2022 as compared to $5.1 million at June 30, 2022 and the associated provision was $406,000 and $1.6 million for the three and nine months ended September 30, 2022. There was no ACL on unfunded commitments at December 31, 2021 or September 30, 2021. The increase from the prior quarter reflects $95.3 million in new construction originations in the third quarter, with $72.4 million in unfunded balances as of September 30, 2022.
We have not experienced any significant negative trends in the at-risk sectors identified in response to conditions that developed during the COVID-19 pandemic; however management continues to monitor certain credit types within those sectors that may be susceptible to increased credit risk as a result of trends that were precipitated by the COVID-19 pandemic and may be exacerbated by current economic conditions. Management is focused on business-oriented hotels, non-anchored retail space and metro office space. As of September 30, 2022, business-oriented hotels included 13 loans with a total outstanding balance of $93.9 million, non-anchored retail space included 31 loans with a total outstanding balance of $56.3 million and metro office space included 2 loans with a total outstanding balance of $14.9 million. As of September 30, 2022 there were two business-oriented hotel credits with a carrying value of $10.3 million that were rated substandard and on nonaccrual. One of those credits in the amount of $2.0 million was provided a principal deferral that resulted in a troubled-debt restructuring designation in the third quarter. One business-oriented hotel credit in the amount of $9.5 million was downgraded to a watch risk rating during the third quarter of 2022. The other loans in these groups were performing in accordance with their terms.
Balance Sheet
Total assets increased $283.6 million, or 6.0%, to $4.99 billion at September 30, 2022, from $4.70 billion at June 30, 2022. The increase primarily reflects an increase of $285.4 million in loans. Securities available for sale were negatively impacted by unrealized losses of $70.4 million as of September 30, 2022, as compared to $49.9 million of unrealized losses as of June 30, 2022, and $3.6 million of unrealized losses as of December 31, 2021.
Loans increased $285.4 million, or 7.3%, to $4.20 billion at September 30, 2022, from $3.91 billion at June 30, 2022. The increase in loans for the three months ended September 30, 2022 was primarily due to increases in commercial real estate loans of $194.3 million, commercial construction loans of $26.3 million and residential real estate loans of $97.7 million, partially offset by decreases in commercial and industrial loans of $10.1 million and consumer loans of $22.8 million. As of September 30, 2022, outstanding PPP loans amounted to $2.0 million, and there was $24,000 in deferred processing fee income. We expect to complete the forgiveness process for the remaining PPP loans by year-end.
Total deposits were $3.88 billion at September 30, 2022 and $3.85 billion at June 30, 2022. Compared to the prior quarter, non-certificate accounts increased $22.9 million, and term certificate accounts increased $12.3 million. FHLB borrowings increased $240.0 million to $345.7 million at September 30, 2022 from $105.7 million at June 30, 2022. At September 30, 2022, FHLB borrowings were primarily short-term borrowings.
Total stockholders’ equity was $611.4 million at September 30, 2022, compared to $624.5 million at June 30, 2022 and $680.0 million at September 30, 2021. Stockholders’ equity decreased 2.1% when compared to the prior quarter, as earnings were offset by share repurchases and elevated levels of unrealized losses on available-for-sale investment securities included in other comprehensive income. The Company repurchased 783,502 shares at an average price of $13.82 during the three months ended September 30, 2022 and announced a fifth share repurchase program on September 21, 2022 to commence at the completion of the share repurchase program announced on April 12, 2022. The tangible-common-equity-to-tangible-assets ratio was 10.97% at September 30, 2022, 11.92% at June 30, 2022, and 13.50% at September 30, 2021. At September 30, 2022, the Company and the Bank had strong capital positions and exceeded all regulatory capital requirements.
About HarborOne Bancorp, Inc.
HarborOne Bancorp, Inc. is the holding company for HarborOne Bank, a Massachusetts-chartered savings bank. HarborOne Bank serves the financial needs of consumers, businesses, and municipalities throughout Eastern Massachusetts and Rhode Island through a network of 31 full-service branches located in Massachusetts and Rhode Island, and a commercial lending office in each of Boston, Massachusetts and Providence, Rhode Island. The Bank also provides a range of educational services through “HarborOne U,” with classes on small business, financial literacy and personal enrichment at two campuses located adjacent to our Brockton and Mansfield locations. HarborOne Mortgage, LLC, a subsidiary of HarborOne Bank, is a full-service mortgage lender with 26 offices in Maine, Massachusetts, Rhode Island, and New Hampshire, and is licensed to lend in six additional states.
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 Securities and Exchange Commission (“SEC”), in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees. Such statements may be identified by words such as “believes,” “will,” “would,” “expects,” “project,” “may,” “could,” “developments,” “strategic,” “launching,” “opportunities,” “anticipates,” “estimates,” “intends,” “plans,” “targets” and similar expressions. These statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements as a result of numerous factors. Factors that could cause such differences to exist include, but are not limited to, changes in general business and economic conditions (including inflation) 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; changes related to the discontinuation and replacement of LIBOR; decreases in the value of securities in the Company’s investment portfolio; fluctuations in real estate values; the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions, customer behavior or adverse economic developments; the adequacy of loan loss reserves; decreases in deposit levels necessitating increased borrowing to fund loans and investments; competitive pressures from other financial institutions; acquisitions may not produce results at levels or within time frames originally anticipated; cybersecurity incidents, fraud, natural disasters, war, terrorism, civil unrest, the ongoing COVID-19 pandemic, 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.
Use of Non-GAAP Measures
In addition to results presented in accordance with generally accepted accounting principles (“GAAP”), this press release contains certain non-GAAP financial measures. The Company’s management believes that the supplemental non-GAAP information, which consists of the efficiency ratio, tangible common equity to tangible assets ratio and tangible book value per share, 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.
HarborOne Bancorp, Inc.
Consolidated Balance Sheet Trend
(Unaudited)
September 30,
June 30,
March 31,
December 31,
September 30,
(in thousands)
2022
2022
2022
2021
2021
Assets
Cash and due from banks
$
39,910
$
35,843
$
41,862
$
35,549
$
42,589
Short-term investments
46,044
48,495
97,870
159,170
277,050
Total cash and cash equivalents
85,954
84,338
139,732
194,719
319,639
Securities available for sale, at fair value
304,852
334,398
361,529
394,036
390,552
Securities held to maturity, at amortized cost
15,000
10,000
—
—
—
Federal Home Loan Bank stock, at cost
15,973
5,625
5,931
5,931
6,828
Asset held for sale
—
—
678
881
881
Loans held for sale, at fair value
18,805
31,679
25,690
45,642
77,052
Loans:
Commercial real estate
2,041,905
1,847,619
1,816,484
1,699,877
1,573,284
Commercial construction
185,062
158,762
154,059
136,563
152,685
Commercial and industrial
397,112
407,182
410,787
421,608
414,814
Total commercial loans
2,624,079
2,413,563
2,381,330
2,258,048
2,140,783
Residential real estate
1,520,809
1,423,074
1,252,920
1,217,980
1,160,689
Consumer
52,466
75,312
103,100
131,705
156,272
Loans
4,197,354
3,911,949
3,737,350
3,607,733
3,457,744
Less: Allowance for credit losses on loans
(44,621)
(43,560)
(41,765)
(45,377)
(47,988)
Net loans
4,152,733
3,868,389
3,695,585
3,562,356
3,409,756
Mortgage servicing rights, at fair value
49,861
47,130
45,043
38,268
36,540
Goodwill
69,802
69,802
69,802
69,802
69,802
Other intangible assets
2,461
2,695
2,930
3,164
3,399
Other assets
272,202
249,988
244,405
238,606
252,645
Total assets
$
4,987,643
$
4,704,044
$
4,591,325
$
4,553,405
$
4,567,094
Liabilities and Stockholders’ Equity
Deposits:
Demand deposit accounts
$
795,945
$
775,154
$
771,172
$
743,051
$
756,917
NOW accounts
308,191
316,839
310,090
313,733
300,577
Regular savings and club accounts
1,289,825
1,282,913
1,218,656
1,138,979
1,144,595
Money market deposit accounts
889,517
885,673
864,316
858,970
832,441
Term certificate accounts
599,632
587,354
597,746
627,916
659,850
Total deposits
3,883,110
3,847,933
3,761,980
3,682,649
3,694,380
Short-term borrowed funds
330,000
90,000
—
—
—
Long-term borrowed funds
15,684
15,693
55,702
55,711
55,720
Subordinated debt
34,254
34,222
34,191
34,159
34,128
Other liabilities and accrued expenses
113,225
91,718
90,387
101,625
102,834
Total liabilities
4,376,273
4,079,566
3,942,260
3,874,144
3,887,062
Common stock
593
593
591
585
585
Additional paid-in capital
480,617
479,519
477,302
469,934
468,526
Unearned compensation – ESOP
(28,083)
(28,542)
(29,002)
(29,461)
(29,921)
Retained earnings
350,049
339,471
332,734
325,699
315,683
Treasury stock
(143,125)
(132,296)
(113,513)
(85,859)
(73,723)
Accumulated other comprehensive loss
(48,681)
(34,267)
(19,047)
(1,637)
(1,118)
Total stockholders’ equity
611,370
624,478
649,065
679,261
680,032
Total liabilities and stockholders’ equity
$
4,987,643
$
4,704,044
$
4,591,325
$
4,553,405
$
4,567,094
HarborOne Bancorp, Inc.
Consolidated Statements of Net Income – Trend
(Unaudited)
Quarters Ended
September 30,
June 30,
March 31,
December 31,
September 30,
(in thousands, except share data)
2022
2022
2022
2021
2021
Interest and dividend income:
Interest and fees on loans
$
42,065
$
37,522
$
33,576
$
34,177
$
33,680
Interest on loans held for sale
377
331
264
501
665
Interest on securities
1,971
1,873
1,701
1,541
1,293
Other interest and dividend income
143
131
61
134
170
Total interest and dividend income
44,556
39,857
35,602
36,353
35,808
Interest expense:
Interest on deposits
3,491
2,019
1,621
1,651
2,050
Interest on FHLB borrowings
1,209
119
188
193
431
Interest on subordinated debentures
524
524
523
524
524
Total interest expense
5,224
2,662
2,332
2,368
3,005
Net interest and dividend income
39,332
37,195
33,270
33,985
32,803
Provision (benefit) for credit losses
668
2,546
338
(1,436)
(1,627)
Net interest and dividend income, after provision (benefit) for credit losses
38,664
34,649
32,932
35,421
34,430
Noninterest income:
Mortgage banking income:
Gain on sale of mortgage loans
3,809
4,538
5,322
10,063
12,756
Changes in mortgage servicing rights fair value
1,816
862
5,285
(245)
(992)
Other
2,453
2,612
2,558
3,359
3,882
Total mortgage banking income
8,078
8,012
13,165
13,177
15,646
Deposit account fees
4,870
4,892
4,472
4,783
4,658
Income on retirement plan annuities
119
112
107
109
108
Gain on sale and call of securities, net
—
—
—
—
241
Bank-owned life insurance income
503
494
483
506
515
Other income
675
593
834
589
842
Total noninterest income
14,245
14,103
19,061
19,164
22,010
Noninterest expenses:
Compensation and benefits
20,991
21,455
20,723
24,564
24,760
Occupancy and equipment
4,829
4,575
5,428
4,923
4,765
Data processing
2,311
2,259
2,241
2,244
2,205
Loan expense
355
385
478
732
1,323
Marketing
850
986
1,218
1,120
880
Professional fees
1,457
1,680
1,539
1,443
1,362
Deposit insurance
357
354
349
345
341
Prepayment penalties on Federal Home Loan Bank advances
—
—
—
—
1,095
Other expenses
3,323
3,260
2,859
2,817
2,543
Total noninterest expenses
34,473
34,954
34,835
38,188
39,274
Income before income taxes
18,436
13,798
17,158
16,397
17,166
Income tax provision
4,678
3,811
4,891
3,807
4,907
Net income
$
13,758
$
9,987
$
12,267
$
12,590
$
12,259
Earnings per common share:
Basic
$
0.30
$
0.21
$
0.26
$
0.26
$
0.25
Diluted
$
0.30
$
0.21
$
0.25
$
0.25
$
0.24
Weighted average shares outstanding:
Basic
45,830,737
46,980,830
47,836,410
48,918,539
49,801,123
Diluted
46,420,527
47,536,033
48,690,420
49,828,379
50,663,415
Contacts
Linda Simmons, EVP, CFO (508) 895-1379