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 $7.5 million, or $0.17 per diluted share, for the second quarter of 2023, compared to net income of $7.3 million, or $0.16 per diluted share, for the preceding quarter and net income of $10.0 million, or $0.21 per diluted share, for the same period last year.
Selected Financial Highlights:
Loan growth of $75.6 million, or 1.6%, and deposit growth of $45.8 million, or 1.1%, on a linked-quarter basis.
The closure of one branch and the relocation of another branch were completed, providing long-term expense savings.
Completed share repurchase program and received regulatory non-objection for sixth share repurchase program.
“During the second quarter, we completed our fifth share repurchase program and received regulatory approval to commence our sixth program,” said Joseph F. Casey, President and CEO. “Despite continued economic headwinds, our book value per share and tangible book value per share increased for the last three consecutive quarters. Additionally, the pace of deposit cost increases has slowed and we had solid customer deposit growth in Q2, with the average balance increasing at an annualized growth rate of 9.5%.”
Net Interest Income
The Company’s net interest and dividend income was $32.1 million for the quarter ended June 30, 2023, compared to $34.4 million for the quarter ended March 31, 2023, and $37.2 million for the quarter ended June 30, 2022. The tax equivalent interest rate spread and net interest margin were 1.89% and 2.45%, respectively, for the quarter ended June 30, 2023, compared to 2.28% and 2.78%, respectively, for the quarter ended March 31, 2023, and 3.39% and 3.48%, respectively, for the quarter ended June 30, 2022. The Company continues to evaluate and execute strategies to mitigate interest rate risk and manage net interest margin, including designated fair value and cash flow hedges, competitive deposit and loan pricing and brokered certificates of deposit.
On a linked-quarter basis, the decreases in net interest and dividend income, tax equivalent interest rate spread, and net interest margin primarily reflect an increase in interest-bearing liabilities, with higher cost of funding, partially offset by increased loan balances and yields with liability repricing outpacing assets. The cost of funds was 235 basis points for the quarter ended June 30, 2023, compared to 188 basis points for the preceding quarter. Income on other interest-earning assets increased $2.1 million on a linked-quarter basis, primarily reflecting an increase in the average balance invested in federal funds.
The $5.1 million decrease in net interest and dividend income from the prior year quarter reflects an increase of $26.0 million, or 978.1%, in total interest expense, partially offset by an increase of $20.9 million, or 52.5%, in total interest and dividend income. The changes reflect rate and volume changes in both interest-bearing assets and liabilities. The cost of interest-bearing liabilities increased 240 basis points, while the average balance increased $1.08 billion, and the yield on interest-earning assets increased 90 basis points, while the average balance increased $1.00 billion.
Noninterest Income
Total noninterest income increased $4.0 million, or 45.7%, to $12.7 million for the quarter ended June 30, 2023, from $8.7 million for the quarter ended March 31, 2023. Higher gain-on-sale margins and volume provided gain on loan sales of $3.3 million for the quarter ended June 30, 2023 compared to $2.2 million in gain on sales for the preceding quarter, from mortgage loan closings of $172.2 million and $125.6 million, respectively. Deposit account fees were $5.0 million for the quarter ended June 30, 2023, compared to $4.7 million for the quarter ended March 31, 2023.
The increase in the fair value of mortgage servicing rights for the three months ended June 30, 2023 was $915,000 as compared to a decrease of $1.3 million in the fair value of mortgage servicing rights for the three months ended March 31, 2023. The valuation was positively impacted by key benchmark mortgage rates used in the valuation. The impact of principal payments on the underlying mortgages on the mortgage servicing rights was $479,000 and $371,000 for the quarters ended June 30, 2023 and March 31, 2023, respectively.
Total noninterest income decreased $1.4 million, or 10.2%, compared to the quarter ended June 30, 2022, primarily due to a $2.0 million, or 24.5%, decrease in mortgage banking income, driven by the decrease in loan demand as a result of interest rate increases. The prior year quarter also reflected a $1.6 million increase in the fair value of mortgage servicing rights.
Noninterest Expense
Total noninterest expenses were $31.7 million for the quarter ended June 30, 2023, an increase of $216,000, or 0.7%, from the quarter ended March 31, 2023. Deposit insurance expense increased $666,000 and compensation and benefits increased $421,000, primarily reflecting increased mortgage origination commission partially offset by decreased payroll tax expense. There were additional decreases in occupancy and equipment expense of $407,000, reflecting recent cost saving measures.
Total noninterest expenses decreased $3.2 million, or 9.2%, from the quarter ended June 30, 2022. Compensation and benefits decreased $3.2 million, primarily reflecting decreased mortgage origination commission and incentive accruals, and professional fees decreased $566,000, partially offset by a deposit insurance expense increase of $822,000.
During the second quarter of 2023 the Bank took cost-saving and organizational efficiency measures with an estimated annual savings of $2.9 million and recognized severance expense of $452,000. Additionally, the Bank closed one branch and relocated another branch, which will both provide additional long-term expense savings.
Asset Quality and Allowance for Credit Losses
Total nonperforming assets were $20.2 million at June 30, 2023, compared to $12.3 million at March 31, 2023 and $24.4 million at June 30, 2022. Nonperforming assets as a percentage of total assets were 0.36% at June 30, 2023, 0.22% at March 31, 2023, and 0.52% at June 30, 2022. During the quarter ended June 30, 2023, a $2.9 million charge off was recorded on a metro office space commercial real estate credit, and it was placed on nonaccrual. As of June 30, 2023, the carrying value of the credit is $7.0 million.
The provision for credit losses for the quarter ended June 30, 2023 was $3.3 million and primarily reflects replenishment as a result of the charge-off and provisioning for loan growth. Net charge-offs totaled $2.7 million, or 0.23% of average loans outstanding on an annualized basis, for the quarter ended June 30, 2023. Net recoveries totaled $11,000 for the quarter ended March 31, 2023, and $504,000 for the quarter ended June 30, 2022.
The allowance for credit losses (“ACL”) on loans was $47.8 million, or 1.02% of total loans, at June 30, 2023, compared to $47.0 million, or 1.02% of total loans, at March 31, 2023 and $43.6 million, or 1.11% of total loans, at June 30, 2022. The ACL on unfunded commitments, included in other liabilities on the unaudited Consolidated Balance Sheets, amounted to $4.8 million at June 30, 2023 as compared to $5.0 million at March 31, 2023 and $5.1 million at June 30, 2022.
We believe that we are well positioned to withstand a downturn in the credit cycle should one materialize. We continue to closely monitor our loan portfolio for signs of deterioration. Management continues to be focused on commercial real estate in light of speculation that commercial real estate values may deteriorate as the market adjusts to higher vacancies and rates. Our commercial real estate portfolio is centered in New England, with approximately 75% in Massachusetts and Rhode Island. Approximately 60% of commercial real estate loans are fixed-rate loans with limited near-term maturity risk.
Management has also identified certain sectors within the commercial real estate segment that may be particularly 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. This includes business-oriented hotels, non-anchored retail space and metro office space. As of June 30, 2023, business-oriented hotels loans included 13 loans with a total outstanding balance of $114.8 million, non-anchored retail space loans included 28 loans with a total outstanding balance of $41.5 million, and metro office space loans included two loans with a total outstanding balance of $11.9 million. As of June 30, 2023, there was one metro office space loan with a carrying value of $7.0 million, that was rated doubtful and on nonaccrual and one business-oriented hotel credit with a carrying value of $1.8 million that was rated substandard and on nonaccrual. The other loans in these groups were performing in accordance with their terms.
Balance Sheet
Total assets increased $86.4 million, or 1.6%, to $5.66 billion at June 30, 2023, from $5.57 billion at March 31, 2023. The increase primarily reflects an increase of $75.6 million in loans.
Available-for-sale securities were $292.0 million and $303.1 million at June 30, 2023 and March 31, 2023, respectively. The unrealized loss on securities available for sale increased to $66.5 million as of June 30, 2023, as compared to $61.2 million of unrealized losses as of March 31, 2023. Securities held to maturity were $19.8 million, or 0.35% of total assets, with a fair value of $19.0 million.
Loans increased $75.6 million, or 1.6%, to $4.70 billion at June 30, 2023, from $4.62 billion at March 31, 2023. The increase in loans for the three months ended June 30, 2023 was primarily due to increases in commercial and industrial loans of $30.4 million, commercial construction loans of $16.2 million, and residential real estate loans of $33.8 million, partially offset by a decrease in consumer loans of $4.8 million. Management continues to seek prudent commercial lending opportunities to deepen relationships with existing customers and develop new relationships with strong borrowers.
Total deposits were $4.29 billion at June 30, 2023 and $4.24 billion at March 31, 2023. Compared to the prior quarter, non-certificate accounts decreased $35.7 million, brokered deposits decreased $7.9 million, and term certificate accounts increased $89.4 million, primarily due to an 11-month term rate special offered during the quarter. As of June 30, 2023, FDIC-insured deposits were approximately 69% of total deposits, including Bank subsidiary deposits. Including Depositors Insurance Fund (“DIF”), excess insurance coverage that remains available until February 24, 2024, insured deposits are approximately 88% of total deposits, including Bank subsidiary deposits. The Bank exited the DIF as of February 24, 2023; however, insurance remains in place for funds on deposit as of that date for one year or until maturity for term certificates.
FHLB borrowings increased $13.9 million to $604.6 million at June 30, 2023 from $590.7 million at March 31, 2023. At June 30, 2023, FHLB short-term borrowings were $414.0 million as the Bank utilized available credit to enhance liquidity. In the second quarter of 2023, the Bank established access to the Bank Term Funding Program (“BTFP”) with the Federal Reserve to enhance its liquidity position. As of June 30, 2023, there were no outstanding advances under the BTFP and the Bank had $1.0 billion in available borrowing capacity across multiple relationships.
Total stockholders’ equity was $595.5 million at June 30, 2023, compared to $599.8 million at March 31, 2023 and $624.5 million at June 30, 2022. Stockholders’ equity decreased 0.7% when compared to the prior quarter, as earnings were offset by share repurchases. The Company repurchased 472,308 shares at an average price of $12.30, including $0.13 per share of excise tax, during the three months ended June 30, 2023. A share repurchase program that commenced in the first quarter of 2023 was completed in the second quarter of 2023, and the Company plans to commence a sixth share repurchase program during the third quarter of 2023. The tangible-common-equity-to-tangible-assets ratio (1) was 9.38% at June 30, 2023, 9.60% at March 31, 2023, and 11.92% at June 30, 2022. At June 30, 2023, the Company and the Bank had strong capital positions, exceeded all regulatory capital requirements, and are considered well-capitalized.
About HarborOne Bancorp, Inc.
HarborOne Bancorp, Inc. is the holding company for HarborOne Bank, a Massachusetts-chartered trust company. HarborOne Bank serves the financial needs of consumers, businesses, and municipalities throughout Eastern Massachusetts and Rhode Island through a network of 30 full-service banking centers located in Massachusetts and Rhode Island, and commercial lending offices in Boston, Massachusetts and Providence, Rhode Island. HarborOne Bank also provides a range of educational resources through “HarborOne U,” with free digital content, webinars, and recordings for small business and personal financial education. HarborOne Mortgage, LLC, a subsidiary of HarborOne Bank, provides mortgage lending services throughout New England and other states.
(1) This non-GAAP ratio is total stockholders’ equity less goodwill and intangible assets to total assets less goodwill and intangible assets.
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 and concerns about 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; 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, 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)
June 30,
March 31,
December 31,
September 30,
June 30,
(in thousands)
2023
2023
2022
2022
2022
Assets
Cash and due from banks
$
43,525
$
38,989
$
39,712
$
39,910
$
35,843
Short-term investments
209,326
210,765
58,305
46,044
48,495
Total cash and cash equivalents
252,851
249,754
98,017
85,954
84,338
Securities available for sale, at fair value
292,012
303,059
301,149
304,852
334,398
Securities held to maturity, at amortized cost
19,839
19,838
19,949
15,000
10,000
Federal Home Loan Bank stock, at cost
27,123
23,589
20,071
15,973
5,625
Asset held for sale
966
—
—
—
—
Loans held for sale, at fair value
20,949
13,956
18,544
18,805
31,679
Loans:
Commercial real estate
2,286,688
2,286,727
2,250,344
2,041,905
1,847,619
Commercial construction
228,902
212,689
199,311
185,062
158,762
Commercial and industrial
453,422
423,036
424,275
397,112
407,182
Total commercial loans
2,969,012
2,922,452
2,873,930
2,624,079
2,413,563
Residential real estate
1,701,766
1,667,934
1,634,319
1,520,809
1,423,074
Consumer
27,425
32,246
41,421
52,466
75,312
Loans
4,698,203
4,622,632
4,549,670
4,197,354
3,911,949
Less: Allowance for credit losses on loans
(47,821
)
(46,994
)
(45,236
)
(44,621
)
(43,560
)
Net loans
4,650,382
4,575,638
4,504,434
4,152,733
3,868,389
Mortgage servicing rights, at fair value
48,176
47,080
48,138
49,861
47,130
Goodwill
69,802
69,802
69,802
69,802
69,802
Other intangible assets
1,893
2,082
2,272
2,461
2,695
Other assets
275,261
268,060
277,169
272,202
249,988
Total assets
$
5,659,254
$
5,572,858
$
5,359,545
$
4,987,643
$
4,704,044
Liabilities and Stockholders’ Equity
Deposits:
Demand deposit accounts
$
717,572
$
726,548
$
762,576
$
795,945
$
775,154
NOW accounts
286,956
287,376
297,692
308,191
316,839
Regular savings and club accounts
1,390,906
1,455,318
1,468,172
1,289,825
1,282,913
Money market deposit accounts
834,120
796,008
861,704
889,517
885,673
Term certificate accounts
742,931
653,553
497,975
484,936
487,354
Brokered deposits
315,003
322,927
301,380
114,696
100,000
Total deposits
4,287,488
4,241,730
4,189,499
3,883,110
3,847,933
FHLB borrowings
604,568
590,665
400,675
345,684
105,693
Subordinated debt
34,348
34,317
34,285
34,254
34,222
Other liabilities and accrued expenses
137,318
106,352
118,110
113,225
91,718
Total liabilities
5,063,722
4,973,064
4,742,569
4,376,273
4,079,566
Common stock
597
597
596
593
593
Additional paid-in capital
484,544
483,831
483,031
480,617
479,519
Unearned compensation – ESOP
(26,704
)
(27,164
)
(27,623
)
(28,083
)
(28,542
)
Retained earnings
364,709
360,454
356,438
350,049
339,471
Treasury stock
(181,324
)
(175,514
)
(148,384
)
(143,125
)
(132,296
)
Accumulated other comprehensive loss
(46,290
)
(42,410
)
(47,082
)
(48,681
)
(34,267
)
Total stockholders’ equity
595,532
599,794
616,976
611,370
624,478
Total liabilities and stockholders’ equity
$
5,659,254
$
5,572,858
$
5,359,545
$
4,987,643
$
4,704,044
HarborOne Bancorp, Inc.
Consolidated Statements of Net Income – Trend
(Unaudited)
Quarters Ended
June 30,
March 31,
December 31,
September 30,
June 30,
(in thousands, except share data)
2023
2023
2022
2022
2022
Interest and dividend income:
Interest and fees on loans
$
55,504
$
52,771
$
49,177
$
42,065
$
37,522
Interest on loans held for sale
326
286
334
377
331
Interest on securities
2,035
2,079
2,045
1,971
1,873
Other interest and dividend income
2,935
803
359
143
131
Total interest and dividend income
60,800
55,939
51,915
44,556
39,857
Interest expense:
Interest on deposits
20,062
15,913
8,499
3,491
2,019
Interest on FHLB and FRB borrowings
8,114
5,105
3,703
1,209
119
Interest on subordinated debentures
524
523
524
524
524
Total interest expense
28,700
21,541
12,726
5,224
2,662
Net interest and dividend income
32,100
34,398
39,189
39,332
37,195
Provision for credit losses
3,283
1,866
2,108
668
2,546
Net interest and dividend income, after provision for credit losses
28,817
32,532
37,081
38,664
34,649
Noninterest income:
Mortgage banking income:
Gain on sale of mortgage loans
3,300
2,224
2,301
3,809
4,538
Changes in mortgage servicing rights fair value
436
(1,692
)
(2,631
)
1,816
862
Other
2,312
2,216
2,325
2,453
2,612
Total mortgage banking income
6,048
2,748
1,995
8,078
8,012
Deposit account fees
5,012
4,733
5,031
4,870
4,892
Income on retirement plan annuities
128
119
118
119
112
Bank-owned life insurance income
511
500
501
503
494
Other income
963
590
2,255
675
593
Total noninterest income
12,662
8,690
9,900
14,245
14,103
Noninterest expenses:
Compensation and benefits
18,220
17,799
20,104
20,991
21,455
Occupancy and equipment
4,633
5,040
4,935
4,829
4,575
Data processing
2,403
2,346
2,359
2,311
2,259
Loan expense
417
313
169
355
385
Marketing
925
1,181
862
850
986
Professional fees
1,114
1,501
1,446
1,457
1,680
Deposit insurance
1,176
510
385
357
354
Other expenses
2,837
2,819
4,384
3,323
3,260
Total noninterest expenses
31,725
31,509
34,644
34,473
34,954
Income before income taxes
9,754
9,713
12,337
18,436
13,798
Income tax provision
2,275
2,416
2,760
4,678
3,811
Net income
$
7,479
$
7,297
$
9,577
$
13,758
$
9,987
Earnings per common share:
Basic
$
0.17
$
0.16
$
0.21
$
0.30
$
0.21
Diluted
$
0.17
$
0.16
$
0.21
$
0.30
$
0.21
Weighted average shares outstanding:
Basic
43,063,507
44,857,224
45,321,491
45,830,737
46,980,830
Diluted
43,133,455
45,284,240
45,861,658
46,420,527
47,536,033
Contacts
Linda Simmons, EVP, CFO
508-895-1000
lsimmons@harborone.com