HarborOne Bancorp, Inc. (the “Company” or “HarborOne”) (NASDAQ: HONE), the holding company for HarborOne Bank (the “Bank”), announced net income of $45.6 million, or $0.97 per diluted share, for the year ended December 31, 2022, a decrease of $12.9 million, or 22.1%, compared to net income of $58.5 million, or $1.14 per diluted share, for the year ended December 31, 2021. For the fourth quarter of 2022, net income was $9.6 million, or $0.21 per diluted share, compared to $13.8 million, or $0.30 per diluted share, for the preceding quarter and $12.6 million, or $0.25 per diluted share, for the quarter ended December 31, 2021.

Selected Financial Highlights:

• Net interest income up $17.6 million, or 13.4% year over year, driven by higher rates and loan growth.
• Strong asset quality; nonperforming loans to total loans was 0.32% compared to 1.00% last year.
• Robust loan growth of $941.9 million, or 26.1%, year over year.
• Total deposit growth of $506.8 million, or 13.8% and core deposit growth of $335.4 million, or 11.0%.
• Despite a reduction in mortgage banking income, HarborOne Mortgage posted positive earnings in 2022.
• Continued share repurchase program.

“I am very proud of our team’s 2022 accomplishments. Despite a challenging rate environment, our focused customer engagement produced loan growth of 26%, deposit growth of 14%, and net interest income growth of 13% ; all while reducing expenses by 13%,” said Joseph F. Casey, President and Chief Executive Officer. He added: “Our mortgage team, in particular, faced the rapidly rising mortgage rates and dramatic reduction in refinance volume head on, implementing significant cost reductions in order to maintain profitability for the year.”

Net Interest Income

The Company’s net interest and dividend income was $39.2 million for the quarter ended December 31, 2022, compared to $39.3 million for the quarter ended September 30, 2022, and up $5.2 million, or 15.3%, from $34.0 million for the quarter ended December 31, 2021. The tax equivalent interest rate spread and net interest margin were 2.88% and 3.23%, respectively, for the quarter ended December 31, 2022, compared to 3.30% and 3.47%, respectively, for the quarter ended September 30, 2022, and 3.10% and 3.19%, respectively, for the quarter ended December 31, 2021. On a linked-quarter basis, the decreases in net interest and dividend income, tax equivalent interest rate spread, and net interest margin primarily reflect higher rates on deposits partially offset by increased loan balances and yields. The cost of funds was 114 basis points for the quarter ended December 31, 2022, compared to 51 basis points for the preceding quarter.

The $7.4 million increase in total interest and dividend income on a linked-quarter basis reflected a 34-basis-point increase in the yield on interest-earning assets and a $333.7 million increase in average earning assets. The yield on loans increased 36 basis points, from 4.11% to 4.47%. The yield on investments increased 9 basis points, from 2.00% to 2.09%.

The increase in net interest and dividend income from the prior year quarter reflects an increase of $15.6 million, or 42.8%, in total interest and dividend income and an increase of $10.4 million, or 437.4%, 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 86 basis points, while the average balance increased $610.8 million, and the cost of interest-bearing liabilities increased 108 basis points, while the average balance increased $620.0 million.

Noninterest Income

Total noninterest income decreased $4.3, or 30.5%, to $9.9 million for the quarter ended December 31, 2022, from $14.2 million for the quarter ended September 30, 2022. Mortgage loan closings for the quarter ended December 31, 2022 were $222.4 million with a gain on loan sales of $2.3 million, compared to $250.5 million in mortgage closings and $3.8 million in gain on sales for the preceding quarter. Deposit account fees were $5.0 million for the quarter ended December 31, 2022, compared to $4.9 million for the quarter ended September 30, 2022. Other income for the quarter ended December 31, 2022 increased $1.6 million, primarily reflecting a $1.2 million increase in swap fee income.

The decrease in the fair value of mortgage servicing rights for the three months ended December 31, 2022 was $2.1 million, as compared to an increase of $2.6 million in the fair value of mortgage servicing rights for the three months ended September 30, 2022. The valuation was negatively impacted by key benchmark mortgage rates used in the valuation that declined, as well as an increase in the discount rate to reflect secondary market servicing conditions. The impact of principal payments on the underlying mortgages on the mortgage servicing rights was $570,000 and $747,000 for the quarters ended December 31, 2022 and September 30, 2022, respectively.

Total noninterest income decreased $9.3 million, or 48.3%, compared to the quarter ended December 31, 2021, primarily due to a $11.2 million, or 84.9%, decrease in mortgage banking income, driven by the decrease in loan closings and narrowing gain-on-sale margins.

Noninterest Expense

Total noninterest expenses were $34.6 million for the quarter ended December 31, 2022, an increase of $171,000, or 0.5%, from the quarter ended September 30, 2022. Other expenses increased $1.1 million, or 31.9% for the quarter ended December 31 2022, primarily as a result of a legal settlement. In the fourth quarter of 2022, the Company reached an agreement-in-principle to settle a purported class action lawsuit concerning overdraft fees on re-presented transactions. The matter was filed in the Massachusetts Superior Court in June 2022, and it is expected to be refiled in federal court for final settlement purposes, where the settlement remains subject to court approval. As of December 31, 2022, the Company estimated the settlement expense, including related costs, to be $950,000. The increase was offset by an $887,000, or 4.2%, decrease in compensation expense, primarily reflecting a $715,000 decrease in salaries and mortgage origination commissions.

Total noninterest expenses decreased $3.5 million, or 9.3%, from the quarter ended December 30, 2021. Compensation and benefits decreased $4.5 million and loan expenses decreased $563,000, consistent with the decrease in residential mortgage loan closings and corresponding decrease in mortgage origination commissions. The decrease in compensation and benefits also reflects the impact of proactive cost reduction measures taken at HarborOne Mortgage, LLC beginning in the second quarter of 2021.

Income Tax Provision

The effective tax rate for the quarter and year ended December 31, 2022 was 22.4% and 26.1%, respectively, compared to 23.2% and 27.3% for the quarter and year ended December 31, 2021. The 2022 effective tax rate was impacted by a tax benefit recorded for Industrial Revenue Bonds and a reserve release upon the expiration of the 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 continued to be strong with total nonperforming assets of $14.8 million at December 31, 2022, compared to $23.4 million at September 30, 2022 and $36.2 million at December 31, 2021. Nonperforming assets as a percentage of total assets were 0.28% at December 31, 2022, 0.47% at September 30, 2022, and 0.79% at December 31, 2021. During 2022, two large commercial credits were resolved, reducing nonperforming assets significantly.

The provision for funded loan credit losses for the quarter and year ended December 31, 2022 was $2.7 million and $4.7 million, respectively, and reflects provisioning for loan growth partially offset by a reduction in pandemic-related uncertainty. Net charge-offs totaled $2.1 million, or 0.19%, and $3.5 million, or 0.09%, of average loans outstanding on an annualized basis, for the quarter and year ended December 31, 2022, respectively. Net recoveries totaled $799,000, or 0.08% of average loans outstanding on an annualized basis, for the quarter ended September 30, 2022, and 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.

The ACL was $45.2 million, or 0.99% of total loans, at December 31, 2022, compared to $44.6 million, or 1.06% of total loans, at September 30, 2022 and an allowance for loss under the incurred loss model of $45.4 million, or 1.26% of total loans, at December 31, 2021. The ACL on unfunded commitments, included in other liabilities on the unaudited Consolidated Balance Sheets, amounted to $4.9 million at December 31, 2022 as compared to $5.5 million at September 30, 2022, reflecting a negative provision of $575,000 for the quarter ended December 31, 2022. For the year ended December 31, 2022, the provision for unfunded commitments was $966,000, and there was no ACL on unfunded commitments at December 31, 2021. The decrease from the prior quarter primarily reflects the movement of commercial loans from construction loans to permanent loans.

We have not experienced any significant negative trends in the at-risk sectors previously 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 loans secured by business-oriented hotels, non-anchored retail space and metro office space. As of December 31, 2022, business-oriented hotels loans included 12 loans with a total outstanding balance of $86.0 million, non-anchored retail space loans included 28 loans with a total outstanding balance of $40.5 million, and metro office space loans included two loans with a total outstanding balance of $14.9 million. As of December 31, 2022 there was one business-oriented hotel credit with a carrying value of $2.1 million that was rated substandard and on nonaccrual. This credit was provided a principal deferral that resulted in a troubled debt restructuring designation in the third quarter. The other loans in these groups were performing in accordance with their terms.

Balance Sheet

Total assets increased $371.9 million, or 7.5%, to $5.36 billion at December 31, 2022, from $4.99 billion at September 30, 2022. The increase primarily reflects an increase of $352.3 million in loans. Securities available for sale were negatively impacted by unrealized losses of $68.3 million as of December 31, 2022, as compared to $70.4 million of unrealized losses as of September 30, 2022 and $3.6 million of unrealized losses as of December 31, 2021.

Loans increased $352.3 million, or 8.4%, to $4.55 billion at December 31, 2022, from $4.20 billion at September 30, 2022. The increase in loans for the three months ended December 31, 2022 was primarily due to increases in commercial real estate loans of $208.4 million, commercial and industrial loans of $27.2 million, commercial construction loans of $14.2 million, and residential real estate loans of $113.5 million, partially offset by decreases in consumer loans of $11.0 million.

Total deposits were $4.19 billion at December 31, 2022 and $3.88 billion at September 30, 2022. Compared to the prior quarter, non-certificate accounts increased $106.7 million, and term certificate accounts increased $199.7 million. FHLB borrowings increased $55.0 million to $400.7 million at December 31, 2022 from $345.7 million at September 30, 2022. At December 31, 2022, FHLB borrowings were primarily short-term borrowings.

Total stockholders’ equity was $617.0 million at December 31, 2022, compared to $611.4 million at September 30, 2022 and $679.3 million at December 31, 2021. Stockholders’ equity increased 0.9% when compared to the prior quarter, as earnings were offset by share repurchases. The Company repurchased 349,738 shares at an average price of $13.63 during the three months ended December 31, 2022 and announced a fifth share repurchase program on September 21, 2022 to commence following the completion of the share repurchase program announced on April 12, 2022. The tangible-common-equity-to-tangible-assets ratio was 10.31% at December 31, 2022, 10.97% at September 30, 2022, and 13.53% at December 31, 2021. At December 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 31 full-service branches located in Massachusetts and Rhode Island, and a commercial lending office in each of Boston, Massachusetts and Providence, Rhode Island. HarborOne 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.