BROCKTON, Mass., January 27, 2022--(BUSINESS WIRE)--HarborOne Bancorp, Inc. (the "Company" or "HarborOne") (NASDAQ: HONE), the holding company for HarborOne Bank (the "Bank"), announced net income of $58.5 million, or $1.14 per diluted share, for the year ended December 31, 2021, an increase of $13.7 million, or 30.6%, compared to net income of $44.8 million, or $0.82 per diluted share, for the year ended December 31, 2020. For the fourth quarter of 2021, net income was $12.6 million, or $0.25 per diluted share, compared to $12.3 million, or $0.24 per diluted share, for the preceding quarter and $17.6 million, or $0.33 per diluted share, for the quarter ended December 31, 2020.
Selected Financial Highlights:
For the year ended December 31, 2021, return on average assets was 1.29% and return on average equity was 8.45%.
Commercial loan growth of $240.9 million, or 12.1%, year over year, excluding U.S. Small Business Administration Paycheck Protection Program ("PPP") loans.
Net interest income up $11.3 million, or 9.4%, year over year.
Recorded a reversal of provision for loan losses of $1.4 million and $7.3 million, for the quarter and year ended December 31, 2021, respectively.
Cost of deposits down 46 basis points year over year, from 70 basis points to 24 basis points.
Continued metro Boston expansion, opening three greater Boston branches in the fourth quarter.
"We’re tremendously proud to share our Q4 and 2021 annual performance results with our customers, shareholders, and employees. Our vision for the business, our business strategy, and our execution all came together seamlessly in ’21, despite the challenges. The results are a testament to our teamwork approach, unparalleled commitment to execution excellence, and the benefits of living our values while serving our customers," said Jim Blake, Chief Executive Officer. "Our performance over the last two years is something we’re all extremely proud of." "We’re battle tested and resilient, and we look forward to continuing our progress against our strategic plan and bringing our truly unique value proposition to our customers and the communities that we serve in the years ahead," added Joe Casey, President and Chief Operating Officer.
Net Interest Income
The Company’s net interest and dividend income was $34.0 million for the quarter ended December 31, 2021, up $1.2 million, or 3.6%, from $32.8 million for the quarter ended September 30, 2021 and up $1.2 million, or 3.8%, from $32.8 million for the quarter ended December 31, 2020. The tax equivalent interest rate spread and net interest margin were 3.10% and 3.19%, respectively, for the quarter ended December 31, 2021, compared to 2.97% and 3.08%, respectively, for the quarter ended September 30, 2021, and 3.03% and 3.22%, respectively, for the quarter ended December 31, 2020. Net interest margin and the tax equivalent interest rate spread continue to be impacted by low interest rates, elevated loan prepayments, and the recognition of deferred fees on PPP loan forgiveness. The Federal Home Loan Bank of Boston ("FHLB") borrowing prepayment on September 30, 2021 of $20.0 million resulted in a 66-basis-point decrease in the cost of those funds. Additionally, the continued favorable repricing of deposits and a 5-basis-point increase in the yield on interest-earning assets positively impacted the spread and margin on a linked quarter basis. Although interest rates may begin to increase in 2022, the positive impact of the recognition of deferred loan fees on PPP loan forgiveness will diminish.
The $545,000 increase in total interest and dividend income primarily reflected a 5-basis-point increase in the yield on average interest-earning assets, as excess funds were invested in mortgage-backed securities. The yield on loans continues to be impacted by the recognition of deferred fees due to PPP loan forgiveness, accretion income and prepayment penalties, although the recent uptick in rates is expected to lessen the impact from these yield adjustments in the future. The three months ended December 31, 2021 and September 30, 2021 include the recognition of deferred fees on PPP loans in the amount of $1.2 million and $1.9 million, respectively. The remaining $949,000 in deferred PPP loan fees are expected to be recognized in the first quarter of 2022 as the loans are forgiven. Interest on loans in the fourth quarter included $634,000 in accretion income from the fair value discount on loans acquired in connection with the merger with Coastway Bancorp, Inc. and $861,000 in prepayment penalties on commercial loans. Accretion income and prepayment penalties in the preceding quarter were $675,000 and $436,000, respectively.
The quarter-over-quarter decrease in total interest expense of $637,000 primarily reflected a decrease in interest rates, resulting in a 6-basis-point decrease in the cost of interest-bearing deposits. The mix of deposits continues to shift as customers move to more liquid options. The average balance of certificate of deposit accounts decreased quarter over quarter by $27.4 million, while the average balance of non-certificate accounts increased $36.1 million from the preceding quarter. Average FHLB advances decreased $28.7 million, and the cost of those funds decreased 66 basis points, resulting in a decrease of $238,000 in interest expense on FHLB advances.
The increase in net interest and dividend income from the prior year quarter reflected a decrease of $2.6 million, or 52.4%, in total interest expense, partially offset by a $1.4 million, or 3.6%, 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 37 basis points, while the average balance increased $92.6 million. The yield on interest-earning assets decreased 30 basis points, while the average balance increased $178.3 million.
Total noninterest income decreased $2.8 million, or 12.9%, to $19.2 million for the quarter ended December 31, 2021, from $22.0 million for the quarter ended September 30, 2021. Softening mortgage loan demand resulted in mortgage loan closings of $451.4 million and a gain on loan sales of $10.1 million for the quarter ended December 31, 2021, as compared to $604.9 million in mortgage closings and $12.8 million in gain on sales for the preceding quarter. The locked residential mortgage pipeline decreased $100.8 million and negatively impacted the fair value of the derivative mortgage commitments recorded through the gain on loan sales. The change in the fair value of derivatives included in mortgage banking income was a negative $2.6 million for the three months ended December 31, 2021, as compared to a negative $833,000 for the three months ended September 30, 2021.
The change in the fair value of mortgage servicing rights positively impacted mortgage banking income; however, it was offset by the impact of residential mortgage loan payoffs, resulting in a net decrease of $245,000 and $992,000 in the fair value of mortgage servicing rights for the three months ended December 31, 2021 and September 30, 2021, respectively. The fair value of the mortgage servicing rights increased $1.1 million for the three months ended December 31, 2021, as compared to a $621,000 increase for the three months ended September 30, 2021. Residential mortgage loan payoffs resulted in a decrease of mortgage servicing rights values in the amount of $1.3 million and $1.6 million for the three months ended December 31, 2021 and September 30, 2021, respectively. The 10-year Treasury Constant Maturity rate was flat versus the third quarter of 2021, and prepayments began to slow. 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 increased $125,000, or 2.7%, to $4.8 million for the quarter ended December 31, 2021, from $4.7 million for the quarter ended September 30, 2021. Other income for the quarter ended December 31, 2021 includes a write-off of $431,000 on a direct interest-rate swap related to a non-accrual loan. The quarter ended September 30, 2021 included gain on sale of securities in the amount of $241,000, and no such gain on sale of securities was recorded in the fourth quarter of 2021.
Total noninterest income decreased $17.9 million, or 48.2%, as compared to the quarter ended December 31, 2020, primarily due to an $18.6 million, or 58.5%, decrease in mortgage banking income, driven by the decrease in loan closings and narrowing gain-on-sale margins in 2021. The decrease in mortgage banking income was offset by a $1.1 million increase in deposit account fees as deposit fees were reinstated in 2021.
Total noninterest expenses were $38.2 million for the quarter ended December 31, 2021, a decrease of $1.1 million, or 2.8%, from the quarter ended September 30, 2021. During the third quarter of 2021, the Bank paid a $1.1 million prepayment penalty on Federal Home Loan Bank borrowings, and no such penalty was paid in the fourth quarter of 2021. Loan expense decreased $591,000, reflecting the decrease in residential mortgage loan closings at HarborOne Mortgage, LLC ("HarborOne Mortgage").
Total noninterest expenses decreased $3.1 million, or 7.5%, from the quarter ended December 31, 2020. Compensation and benefits decreased $2.6 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 23.2% for the quarter ended December 31, 2021, compared to 28.6% for the quarter ended September 30, 2021 and 15.7% for the quarter ended December 31, 2020. 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 statute of limitations. The effective tax rate for the quarter ended December 31, 2020 was impacted by a 2016 federal tax refund of $1.9 million recognized on the expiration of the statute of limitations.
Provision for Loan Losses and Asset Quality
The Company recorded a reversal of provision for loan losses of $1.4 million for the quarter ended December 31, 2021, compared to a reversal of provision of $1.6 million for the quarter ended September 30, 2021 and a provision for loan losses of $7.6 million for the quarter ended December 31, 2020. The allowance for loan losses was $45.4 million, or 1.26% of total loans, at December 31, 2021, compared to $48.0 million, or 1.39% of total loans, at September 30, 2021 and $55.4 million, or 1.59% of total loans, at December 31, 2020. The provision for loan losses is impacted by specific reserves, charge-offs, changes in historical charge-off trends, and adjusted for management’s assessment of certain qualitative factors including, loan portfolio growth and composition changes, ongoing evaluations of credit quality trends and current economic conditions.
Net charges-offs totaled $1.2 million, or 0.13% of average loans outstanding on an annualized basis, for the quarter ended December 31, 2021. During the fourth quarter, there was a $1.4 million charge-off on a single credit previously reserved for in a prior period. 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, and net charge-offs totaled $1.4 million, or 0.16% of average loans outstanding on an annualized basis, for the quarter ended December 31, 2020.
Credit quality performance has remained strong with total nonperforming assets of $36.2 million at December 31, 2021, compared to $36.5 million at September 30, 2021 and $34.7 million at December 31, 2020. Nonperforming assets as a percentage of total assets were 0.79% at December 31, 2021, 0.80% at September 30, 2021, and 0.77% at December 31, 2020.
At the start of the COVID-19 pandemic, management established a COVID-19 pandemic qualitative factor. In estimating the provision for the COVID-19 pandemic, management considers economic factors, including unemployment rates and the interest rate environment, and trends in the pandemic, such as vaccination and case rates. Positive economic trends in the fourth quarter of 2021, were offset by rising COVID-19 cases, despite strong vaccination rates in our market area, and resulted in management increasing the provision related to COVID-19. For the year ended December 31, 2021, the provision for the COVID-19 pandemic has decreased.
We provided payment deferrals and other accommodations to certain of our commercial loan customers whose businesses were impacted by the COVID-19 pandemic and the related mitigation efforts. As of December 31, 2021, all payment deferrals have expired. There are three commercial loans with expired deferrals, amounting to $2.7 million, that are delinquent and on non-accrual status. There is one commercial credit in the amount of $8.8 million whose deferral has expired and is current, but is on non-accrual status.
We had previously provided access to the PPP to both our existing customers and new customers, to ensure that small businesses in the communities we serve had access to this important lifeline for their businesses. As of December 31, 2021, outstanding PPP loans amounted to $27.0 million, and there was $949,000 in deferred processing fee income. We expect to complete the forgiveness process on the remaining PPP loans by the end of the first quarter of 2022.
The residential loan and consumer loan portfolios have not experienced significant credit quality deterioration as of December 31, 2021; however, the continuing impact and uncertain nature of the COVID-19 pandemic may result in increases in delinquencies, charge-offs and loan modifications in these portfolios in 2022. As of December 31, 2021, all payment deferrals on residential mortgage loans had expired. As of December 31, 2021, seven residential real estate loans with expired deferrals and a total outstanding principal balance of $978,000 are delinquent, and four of those loans, amounting to $735,000, are in non-accrual status. We have no active payment deferrals on consumer loans, eight loans with expired deferrals and a total outstanding principal balance of $163,000 that are delinquent. Requests for additional extensions on residential mortgage loans and consumer loans were not significant as of December 31, 2021.
Management continues to assess the impact of the COVID-19 pandemic on our commercial loan portfolio, in light of current economic conditions and the effects of government actions to diminish the spread of new variants of the virus. Our commercial loan portfolio is diversified across many sectors and is largely secured by commercial real estate loans, which make up 75.3% of the total commercial loan portfolio. Management has identified and monitors 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 $800.2 million at December 31, 2021, which represents 35.4% of the commercial loan portfolio. The at-risk sectors include $671.5 million in commercial real estate loans, $79.4 million in commercial and industrial loans, and $49.2 million in commercial construction loans. Non-performing loans included in the at-risk sectors amounted to $20.4 million at December 31, 2021, the majority of which was $10.9 million included in the hotels sector and $8.8 million included in the office space sector.
Although we have identified certain sectors that have the potential to be more susceptible to negative impacts of the COVID-19 pandemic, as trends largely continue to improve, we continue to make prudent lending decisions that include these sectors. For the year ended December 31, 2021, we originated $214.6 million loans in the at-risk sectors, including $101.9 million in the hotel sector. These hotel sector credits are generally secured by low to moderately leveraged real estate with solid operating metrics and strong sponsorship, and are typically to existing customers that have a track record of performance with the bank.
Total assets decreased $13.7 million, or 0.3%, to $4.55 billion at December 31, 2021 from $4.57 billion at September 30, 2021. The decrease primarily reflects a decrease of $117.9 million in short-term investments and a $31.4 million decrease in loans held for sale, partially offset by increases of $152.6 million in net loans and $3.5 million in securities available for sale. Short-term investments were primarily used to fund the loan growth.
Net loans increased $152.6 million, or 4.5%, to $3.56 billion at December 31, 2021 from $3.41 billion at September 30, 2021. The net increase in loans for the three months ended December 31, 2021 was primarily due to increases in commercial real estate loans of $126.6 million, residential mortgage loans of $57.3 million, and commercial and industrial loans of $6.8 million, partially offset by decreases in commercial construction loans of $16.1 million and consumer loans of $24.6 million. The decrease in commercial and industrial loans is primarily due to forgiveness of PPP loans during the quarter. Excluding the change in PPP loans, total commercial loans increased $143.4 million, primarily due to an increase in commercial real loans. The allowance for loan losses was $45.4 million at December 31, 2021 and $48.0 million at September 30, 2021, the change primarily reflecting a negative $1.4 million provision for loan losses and $1.2 million in net loan charge-offs recorded in the fourth quarter.
Total deposits were $3.68 billion at December 31, 2021 and $3.69 billion at September 30, 2021. Compared to the prior quarter, non-certificate accounts increased $20.2 million, and term certificate accounts decreased $31.9 million. FHLB borrowings were flat at $55.7 million at December 31, 2021 and September 30, 2021. Three branches acquired from East Boston Savings Bank in Brighton, Cambridge and Brookline were opened during the quarter. The opening of an additional Brighton branch has been delayed due to a permitting issue.
Total stockholders’ equity was $679.3 million at December 31, 2021, compared to $680.0 million at September 30, 2021 and $696.3 million at December 31, 2020. The Company adopted a third share repurchase program on September 17, 2021 to repurchase up to 2,668,159 shares of the Company’s common stock, or approximately 5% of the Company’s outstanding shares. The Company had repurchased 800,364 shares at an average price of $14.55 under the third share repurchase program as of December 31, 2021. The tangible common equity-to-tangible-assets ratio was 13.53% at December 31, 2021, 13.50% at September 30, 2021, and 14.11% at December 31, 2020. At December 31, 2021, 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, and future pandemics; changes in regulation; reputational risk relating to the Company’s participation in the Paycheck Protection Program and other pandemic-related legislative and regulatory initiatives and programs; 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.
HarborOne Bancorp, Inc.
Consolidated Balance Sheet Trend
Cash and due from banks
Total cash and cash equivalents
Securities available for sale, at fair value
Federal Home Loan Bank stock, at cost
Asset held for sale
Loans held for sale, at fair value
Commercial real estate
Commercial and industrial
Total commercial loans
Residential real estate
Less: Allowance for loan losses
Mortgage servicing rights, at fair value
Other intangible assets
Liabilities and Stockholders' Equity
Demand deposit accounts
Regular savings and club accounts
Money market deposit accounts
Term certificate accounts
Short-term borrowed funds
Long-term borrowed funds
Other liabilities and accrued expenses
Additional paid-in capital
Unearned compensation - ESOP