HarborOne Bancorp, Inc. Announces 2019 Fourth Quarter Earnings

Contact: Linda Simmons, SVP, CFO

Brockton, Massachusetts (January 27, 2020): HarborOne Bancorp, Inc. (the “Company” or “HarborOne”) (NASDAQ: HONE), the holding company for HarborOne Bank (the “Bank”), announced net income of $4.3 million, or $0.08 per basic and diluted share, for the fourth quarter of 2019, compared to $7.1 million, or $0.13 per basic and diluted share, for the preceding quarter and $111,000, or $0.00 per basic and diluted share, for the same period last year. For the year ended December 31, 2019 net income was $18.3 million, or $0.33 per basic and diluted share, compared to $11.4 million, or $0.20 per basic and diluted share, for the same period last year. 

 

On August 14, 2019, the Company completed its second step conversion from the mutual holding company to the stock holding company form of organization and related common stock offering. All historical share and per share information has been restated to reflect the 1.795431 exchange ratio.

 

Selected highlights:

 

 

“We’re pleased that focusing on the fundamentals of our strategic plan, strong deposit and commercial loan growth, and capitalizing on a strong New England market, yielded solid results,” said James Blake, CEO, HarborOne.  “We  are committed to continued growth over the next couple of years.” “The key to our success is our people,” added Joseph Casey, President, HarborOne,  “We’re making strategic investments in our business, people and processes to drive improved productivity and efficiency.”

 

Net Interest Income

The Company’s net interest and dividend income was $28.3 million for the quarter ended December 31,  2019,  up  $349,000, or 1.2%, from $28.0 million for the quarter ended September 30, 2019 and up $1.5 million, or 5.8%, from  $26.8 million for the quarter ended December 31, 2018. The tax-equivalent interest rate spread and net interest margin were 2.70% and 3.08%, respectively, for the quarter ended December 31, 2019 compared to 2.73% and 3.11%, respectively, for the quarter ended September 30, 2019, and 3.00% and 3.26%, respectively, for the quarter ended December 31, 2018. 

 

The increase in net interest and dividend income from the preceding quarter reflected flat interest and dividend income and a decrease of $356,000, or 3.0%, in total interest expense.  Interest on loans in the fourth quarter included $1.1 million in accretion income from the fair value discount on loans acquired from Coastway Bancorp, Inc. (“Coastway”) and $268,000 in prepayment penalties on commercial loans. Accretion income and prepayment penalties in the previous quarter were $1.1 million and $5,000, respectively. The yield on loans was 4.55% for the quarter ended December 31, 2019 down from 4.64% for the quarter ended September 30, 2019.  The decrease in interest expense primarily reflected a decrease in interest rates, resulting in a 7 basis point decrease in the cost of interest-bearing deposits offset by a shift in the deposit mix. The average balance of money market accounts and certificates of deposits decreased quarter over quarter, $12.6 million and $20.1 million, respectively, while the lower cost savings account average balance increased $52.0 million from the prior quarter. Average FHLB advances increased $35.5 million partially offset by a  12 basis point decrease in the cost of those funds, resulting in an increase of $136,000 in interest expense on FHLB borrowings.  

 

The increase in net interest and dividend income from the prior year quarter reflected a $2.8 million, or 7.6%, increase in total interest and dividend income partially offset by an increase of $1.3 million, or 12.4%, in total interest expense. The increases in total interest and dividend income reflected an increase in the average balance of interest-earning assets of $382.5 million partially offset by a 17 basis point decrease in the yield on those assets. The increase in average assets largely reflects commercial loan growth. Total interest expense increased primarily due to an increase in average interest-bearing deposits of $273.2 million with a 22 basis point increase in the cost of those funds, due to organic deposit growth in money market and savings accounts. Average FHLB borrowings decreased $188.9 million and the cost of those funds increased by 4 basis points. 

 

Noninterest Income

Noninterest income increased  $866,000, or 5.0%, to  $18.1 million for the quarter ended December 31, 2019 from $17.3 million for the quarter ended September 30, 2019 primarily due to an increase in mortgage banking income of $1.5 million, partially offset by a loss on assets held for sale of $482,000 and a net decrease of $60,000 in the other noninterest income categories, excluding gain on sale and call of securities, net. Lower mortgage rates provided higher than normal seasonal mortgage origination activity and resulted in a 4% increase in mortgage production by HarborOne Mortgage, LLC (“HarborOne Mortgage”) compared to the third quarter of 2019. The 10-year Treasury Constant Maturity rate rebounded at the end of the fourth quarter of 2019 and positively impacted the fair value of the mortgage servicing rights, resulting in a $625,000 increase in their fair value in the fourth quarter as compared to a $2.5 million decrease in their fair value in the preceding quarter. The loss on asset held for sale reflects a write down to fair value on the transfer of the former Coastway corporate office in Warwick, Rhode Island to assets held for sale, in anticipation of closing on the sale in the first half of 2020.  We plan to execute a short-term lease-back for a small portion of the office space providing significant savings.

 

Noninterest income increased  $6.5 million, or 55.7%, as compared to the quarter ended December 31, 2018 primarily due to a $7.0 million, or 116.6%, increase in mortgage banking income. Mortgage banking income increased compared to the same period last year,  due to the increase in the fair value of mortgage servicing rights of $625,000 in 2019 as compared to a $1.7 million decrease in 2018. Mortgage originations increased primarily as a result of lower residential mortgage interest rates and increased refinancing volume. Deposit account fee income increased $267,000 reflecting new accounts, and other income increased $372,000 as a result of increased swap fee income. The increases were partially offset by a decrease of $660,000 in income on bank-owned life insurance and the above noted loss on assets held for sale. The quarter ended December 31, 2018 included a death benefit of $746,000 included in bank-owned life insurance income.  

 

Noninterest Expense

Noninterest expenses were $38.7 million for the quarter ended December 31, 2019, an increase of  $2.5 million, or 7.0%, from the quarter ended September 30, 2019, driven by a $1.6 million increase in professional fees, a $481,000 increase in compensation and benefits, and a $230,000 increase in deposit insurance. The increase in professional fees is primarily due to an increase in consulting fees. HarborOne Mortgage recorded $712,000 in consulting expense to review the filings effected by the Home Mortgage Disclosure Act regulation expansion. The Bank also had increased consulting expense for initiatives in human resources, finance, retail and technology. The increase in compensation and benefits is primarily due to ESOP expense. For the quarter ended December 31, 2019 and the preceding quarter, deposit insurance expense was impacted by the Bank’s FDIC assessment credit awards and a reduction in the assessment rate due to improved capital ratios as a result of the second step conversion.  

 

Total noninterest expenses increased $2.1 million, or 5.9%, from the quarter ended December 31, 2018.  Compensation and benefits increased $3.7 million, professional fees increased $1.2 million, loan expense increased $666,000 and occupancy and equipment expense increased $417,000. The increases were partially offset by a $567,000 decrease in deposit insurance expense primarily as a result of the FDIC credit awards noted above. Additionally, the quarter ended December 31, 2018 included $3.8 million in merger expenses.  The increase in compensation and benefit expense and loan expense primarily reflected the increased volume of residential real estate mortgage originations. The increase in occupancy and equipment expense is primarily due to the acquisition of Coastway and expenses related to the new Stoughton branch and the Boston branch and commercial lending office. 

 

Income Tax Provision

The effective tax rate was 33.6% for the quarter ended December 31, 2019, compared to 12.9% for the quarter ended September 30, 2019 and 68.0% for the quarter ended December 31, 2018.  The increase in the effective tax rate over the preceding quarter reflects higher taxable income than was projected in the third quarter and an increase in unfavorable permanent items.  In addition, the effective tax rate for the quarter ended September 30, 2019 was impacted by the 2015 federal tax refund of $1.3 million and the 2015 Massachusetts state tax refund of $39,700. The effective tax rate for the quarter ended December 31, 2018 was primarily impacted by nondeductible merger expenses in the Coastway acquisition. The effective tax rate for the years ended December 31, 2019 and 2018 was 19.4% and 19.8%, respectively. The effective tax rate for 2020 is expected to be approximately 28%.

 

Asset Quality

The Company recorded a provision for loan losses of $1.3 million for the quarter ended December 31, 2019,  compared to $889,000 for the quarter ended September 30, 2019 and $1.5 million for the quarter ended December 31, 2018.  The provisions for loan losses are primarily due to commercial real estate loan growth. Changes in the provision for loan losses are based on management’s assessment of loan portfolio growth and composition changes, historical charge-off trends, and ongoing evaluation of credit quality and current economic conditions. 

 

Net charge-offs totaled $235,000 for the quarter ended December 31, 2019,  or 0.03%, of average loans outstanding on an annualized basis, compared to $106,000, or 0.01% of average loans outstanding on an annualized basis, for the quarter ended September 30, 2019 and $287,000, or 0.04% of average loans outstanding on an annualized basis, for the quarter ended December 31, 2018. 

 

The allowance for loan losses was $24.1 million, or 0.76%, of total loans at December 31, 2019, compared to $23.0 million, or 0.74%, of total loans at September 30, 2019 and $20.7 million, or 0.69%, of total loans at December 31,  2018. 

 

Total nonperforming assets were $31.0 million at December 31, 2019 compared to $27.9 million at September 30, 2019 and $18.5 million at December 31, 2018. Nonperforming assets as a percentage of total assets were 0.76% at December 31, 2019, 0.71% at September 30, 2019 and 0.51% at December 31, 2018. The increase in nonperforming assets from the preceding quarter was primarily due to two commercial loans to one borrower totaling  $2.0 million for which no specific reserve is required at this time. The Company continues to minimize loan losses through diligent collection efforts, prudent workout arrangements and strong underwriting.

 

Balance Sheet

Total assets increased $109.9 million, or 2.8%, to $4.06 billion at December 31, 2019 from $3.95 billion at September 30, 2019. The increase primarily reflects an increase of $59.3 million in loans and the purchase of $40.0 million in bank-owned life insurance. 

 

Net loans increased $58.3 million, or 1.9%, to $3.15 billion at December 31, 2019 from $3.09 billion at September 30, 2019. The net increase in loans for the three months ended December 31, 2019 was primarily due to increases in commercial real estate loans of $84.3 million and commercial loans of $7.6 million, partially offset by decreases in residential real estate loans of $13.3 million, commercial construction loans of $6.6 million, and consumer loans of $12.8 million.    Loans held for sale increased  $8.4 million, or 8.3%, to $110.6 million at December 31, 2019 from $102.1 million at September 30, 2019. 

 

Total deposits increased $18.4 million, or 0.6%, to $2.94 billion at December 31, 2019 from $2.92  billion at September 30, 2019. Compared to the prior quarter,  non-certificate accounts increased $4.7 million, brokered deposits increased $14.7 million and term CDs decreased $986,000. FHLB borrowings were $354.1 million at December 31, 2019 and $271.1 million at September 30, 2019.

 

Total stockholders’ equity was $665.8 million at December 31, 2019 compared to $659.6 million at September 30, 2019 and $357.6 million at December 31, 2018. The tangible common equity to tangible assets ratio was 14.81% at December 31, 2019,  15.06% at September 30, 2019 and 7.81% at December 31, 2018.  The increase in stockholders’ equity and ratios from December 31, 2018 to December 31, 2019 primarily reflects the results of the Company’s second step offering, net of the additional ESOP funding. At December 31, 2019, the Company and the Bank exceeded all regulatory capital requirements.

 

About HarborOne Bancorp, Inc.

HarborOne Bancorp, Inc. is the holding company for HarborOne Bank, the largest co-operative bank in New England. HarborOne Bank serves the financial needs of consumers, businesses, and municipalities throughout Eastern Massachusetts and Rhode Island through a network of 25 full-service branches located in Massachusetts and Rhode Island,  one limited service branch 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, New Hampshire, Maine, and New Jersey and is also licensed to lend in four 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. 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, acquisitions may not produce results at levels or within time frames originally anticipated;  adverse conditions in the capital and debt markets and the impact of such conditions on the Company’s business activities; changes in interest rates; competitive pressures from other financial institutions; the effects of general economic conditions on a national basis or 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 the value of securities in the Company’s investment portfolio; changes in loan default and charge-off rates; fluctuations in real estate values; the adequacy of loan loss reserves; decreases in deposit levels necessitating increased borrowing to fund loans and investments; operational risks including, but not limited to, cybersecurity, fraud and natural disasters; changes in government 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 Securities and Exchange Commission (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 Bancorp, Inc.’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.