HarborOne Bancorp, Inc. (the “Company” or “HarborOne”) (NASDAQ: HONE), the holding company for HarborOne Bank (the “Bank”), announced net income of $12.3 million, or $0.25 per diluted share, for the first quarter of 2022, compared to net income of $12.6 million, or $0.25 per diluted share, for the preceding quarter and $19.4 million, or $0.37 per basic and diluted share, for the same period last year.

Selected First Quarter Financial Highlights:

• Return on average assets was 1.08% and return on average equity was 7.35%.
• Commercial loan growth of $123.3 million, or 5.5%.
• Core deposit growth of $109.5 million, or 3.6%.
• Net interest margin increased 2 basis points to 3.21%.
• Strong credit quality with nonperforming assets to total assets down 22 basis points to 0.57%.
• Announced fourth share repurchase program after completing third share repurchase program at $14.64 per share.
• Raised quarterly dividend rate 40%, from $0.05 to $0.07 per quarter.

“We remain focused on the core fundamentals of deposit and loan growth, as we continue to invest in building out our small business banking team and tools. The launch of our new BusinessOne lending platform for small businesses will provide our business banking customers with quick access to the capital they need to help them achieve their growth objectives,” said James Blake, CEO. “We continue to be responsive to the challenges in the residential mortgage market in this rising rate environment, continuously assessing our operational costs, and making the necessary staff and expense adjustments,” added Joseph Casey, President and COO.

Net Interest Income

The Company’s net interest and dividend income was $33.3 million for the quarter ended March 31, 2022, down $715,000, or 2.1%, from $34.0 million for the quarter ended December 31, 2021 and up $1.2 million, or 3.8%, from $32.1 million for the quarter ended March 31, 2021. The tax equivalent interest rate spread and net interest margin were 3.12% and 3.21%, respectively, for the quarter ended March 31, 2022, compared to 3.10% and 3.19%, respectively, for the quarter ended December 31, 2021, and 2.99% and 3.14%, respectively, for the quarter ended March 31, 2021. On a linked-quarter basis, the decrease in net interest and dividend income primarily reflects decreases in fees recognized in connection with U.S. Small Business Administration Paycheck Protection Program (“PPP”) loans, accretion income and prepayment penalties as compared to the prior quarter, partially offset by increased rates on investments. The cost of funds was flat at 25 basis points.

The $751,000 decrease in total interest and dividend income primarily reflected a decrease in interest income on loans. The three months ended March 31, 2022 and December 31, 2021 include the recognition of deferred fees on PPP loans in the amount of $487,000 and $1.2 million, respectively. Interest on loans in the first quarter included $284,000 in accretion income from the fair value discount on loans acquired in connection with the merger with Coastway Bancorp, Inc. and $305,000 in prepayment penalties on commercial loans. Accretion income and prepayment penalties in the preceding quarter were $634,000 and $861,000, respectively.

The increase in net interest and dividend income from the prior year quarter reflected a decrease of $1.5 million, or 38.6%, in total interest expense, partially offset by a $245,000, or 0.7%, decrease in total interest and dividend income. The decreases reflect rate and volume changes in both interest-bearing assets and liabilities. The cost of interest-bearing liabilities decreased 21 basis points, while the average balance increased $60.7 million. The yield on interest-earning assets decreased 8 basis points, while the average balance increased $60.4 million.

Noninterest Income

Total noninterest income decreased $103,000, or 0.5%, to $19.1 million for the quarter ended March 31, 2022, from $19.2 million for the quarter ended December 31, 2021. Softening demand for mortgage loans resulted in mortgage loan closings of $253.8 million and a gain on loan sales of $5.3 million for the quarter ended March 31, 2022, compared to $451.4 million in mortgage closings and $10.1 million in gain on sales for the preceding quarter. The change in the fair value of derivatives included in mortgage banking income was a positive $1.0 million for the three months ended March 31, 2022, as compared to a negative $2.6 million for the three months ended December 31, 2021.

The change in the fair value of mortgage servicing rights positively impacted mortgage banking income; resulting in an increase of $5.3 million in the fair value of mortgage servicing rights for the three months ended March 31, 2022; as compared to a decrease of $245,000 in the fair value of mortgage servicing rights for the three months ended December 31, 2021. The 10-year Treasury Constant Maturity rate increased 80 basis points versus the fourth quarter of 2021, and prepayments slowed. 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.

Deposit account fees decreased $311,000, or 6.5%, to $4.5 million for the quarter ended March 31, 2022, from $4.8 million for the quarter ended December 31, 2021. Other income for the quarter ended March 31, 2022 increased $245,000. The fourth quarter of 2021 included a write-off of $431,000 on a direct interest-rate swap related to a non-accrual loan, and no such write-off was recorded in the first quarter of 2022.

Total noninterest income decreased $18.7 million, or 49.6%, as compared to the quarter ended March 31, 2021, primarily due to a $19.6 million, or 59.8%, decrease in mortgage banking income, driven by the decrease in loan closings and narrowing gain-on-sale margins. The decrease in mortgage banking income was offset by a $620,000 increase in deposit account fees.

Noninterest Expense

Total noninterest expenses were $34.8 million for the quarter ended March 31, 2022, a decrease of $3.4 million, or 8.8%, from the quarter ended December 31, 2021. The decrease primarily reflects the decrease in compensation and benefits, consistent with the decrease in residential mortgage loan closings at HarborOne Mortgage, LLC (“HarborOne Mortgage”).

Total noninterest expenses decreased $8.0 million, or 18.6%, from the quarter ended March 31, 2021. Compensation and benefits decreased $6.7 million and loan expenses decreased $2.0 million, consistent with the decrease in residential mortgage loan closings.

Income Tax Provision

The effective tax rate was 28.5% for the quarter ended March 31, 2022, compared to 23.2% for the quarter ended December 31, 2021 and 28.1% for the quarter ended March 31, 2021. The effective tax rate for the quarter ended December 31, 2021 was impacted by the recognition of a net tax benefit in the amount of $754,000 for a reserve release upon the expiration of the applicable statute of limitations.

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 has remained strong with total nonperforming assets of $26.1 million at March 31, 2022, compared to $36.2 million at December 31, 2021 and $32.9 million at March 31, 2021. Nonperforming assets as a percentage of total assets were 0.57% at March 31, 2022, 0.79% at December 31, 2021, and 0.71% at March 31, 2021. The decrease in nonperforming assets was primarily due to the resolution of one credit in the amount of $8.8 million, previously included in the office at-risk sector, for which the Company also recorded a $2.8 million charge off in the first quarter of 2022.

Net charges-offs totaled $2.7 million, or 0.30% of average loans outstanding on an annualized basis, for the quarter ended March 31, 2022. Net charge-offs totaled $1.2 million, or 0.13% of average loans outstanding on an annualized basis, for the quarter ended December 31, 2021, and net charge-offs totaled $102,000, or 0.01% of average loans outstanding on an annualized basis, for the quarter ended March 31, 2021.

The ACL was $41.8 million, or 1.12% of total loans, at March 31, 2022, compared to $45.4 million, or 1.26% of total loans, at December 31, 2021 and $55.4 million, or 1.60% of total loans, at March 31, 2021. The ACL on unfunded commitments, included in other liabilities on the unaudited Consolidated Balance Sheets, amounted to $3.8 million at March 31, 2022, and there was no ACL on unfunded commitments at December 31, 2021.

Although we have not experienced any significant negative trends in the at-risk sectors previously identified, Management continues to monitor commercial loan sectors that may be susceptible to increased credit risk as a result of the COVID-19 pandemic: retail, office space, hotels, restaurants, and recreation. The five commercial sectors identified as at-risk totaled $835.2 million at March 31, 2022, which represents 35.1% of the commercial loan portfolio. The at-risk sectors include $712.7 million in commercial real estate loans, $73.8 million in commercial and industrial loans, and $48.7 million in commercial construction loans. Non-performing loans included in the at-risk sectors amounted to $10.8 million at March 31, 2022, the majority of which was included in the hotels sector.

Balance Sheet

Total assets increased $37.9 million, or 0.8%, to $4.59 billion at March 31, 2022 from $4.55 billion at December 31, 2021. The increase primarily reflects an increase of $129.6 million in loans, partially offset by decreases of $55.0 million in cash and cash equivalents and $32.5 million in securities available for sale. Securities available for sale were negatively impacted by unrealized losses of $30.0 million as March 31, 2022, as compared to $3.6 million of unrealized losses as of December 31, 2021.

Loans increased $129.6 million, or 3.6%, to $3.74 billion at March 31, 2022, from $3.61 billion at December 31, 2021. The increase in loans for the three months ended March 31, 2022 was primarily due to an increase in total commercial loans of $123.3 million and residential real estate loans of $34.9 million, partially offset by a decrease in consumer loans of $28.6 million. As of March 31, 2022, outstanding PPP loans amounted to $13.6 million, and there was $462,000 in deferred processing fee income. We expect to complete the forgiveness process for the remaining PPP loans by the end of the second quarter of 2022.

Total deposits were $3.76 billion at March 31, 2022 and $3.68 billion at December 31, 2021. Compared to the prior quarter, non-certificate accounts increased $109.5 million, and term certificate accounts decreased $30.2 million. FHLB borrowings were flat at $55.7 million at March 31, 2022 and December 31, 2021.

Total stockholders’ equity was $649.1 million at March 31, 2022, compared to $679.3 million at December 31, 2021 and $698.1 million at March 31, 2021. Stockholders’ equity decreased 4.4% 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 completed its third share repurchase program on March 25, 2022 of 2,668,159 shares at an average price of $14.64. The Company announced a fourth share repurchase program on April 12, 2022, under which it may repurchase up to 2,526,134 shares of the Company’s common stock, or approximately 5% of the Company’s outstanding shares. The tangible-common-equity-to-tangible-assets ratio was 12.75% at March 31, 2022, 13.53% at December 31, 2021, and 13.77% at March 31, 2021. At March 31, 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 30 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 more than 30 offices in Massachusetts, Rhode Island, and New Hampshire, and is licensed to lend in seven 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, ongoing disruptions due to the COVID-19 pandemic and the measures taken to contain its spread on our employees, customers, business operations, credit quality, financial position, liquidity and results of operations; changes in general business and economic conditions 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; 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; operational risks including, but not limited to, 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 tax equivalent basis for yields, 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.

Category: Earnings