HarborOne Bancorp, Inc. Announces 2017 Fourth Quarter Earnings

Contact: Joseph F. Casey, EVP, COO, CFO

Brockton, Massachusetts (January 26, 2018): HarborOne Bancorp, Inc. (the “Company”) (NASDAQ: HONE), the holding company for HarborOne Bank (the “Bank”), announced net income of $1.6 million, or $0.05 per basic and diluted share, for the fourth quarter of 2017, compared to $2.8 million, or $0.09 per basic and diluted share, for the prior quarter and net income of $2.9 million, or $0.09 per basic and diluted share, for the same quarter last year. The decrease in net income in the fourth quarter of 2017 primarily reflects a decrease in mortgage banking income of $1.5 million due to a decrease in mortgage origination volumes. One-time items impacting fourth quarter net income include a $1.2 million reversal of a contingent consideration accrual for Merrimack Mortgage Company, LLC that was settled in the fourth quarter and is included in other income,  an  accrual of $925,000 to freeze the director’s post retirement benefit plan included in other expenses and a charge of $243,000 related to the revaluation of the Company’s net deferred tax assets as a result of the enactment of the Tax Cuts and Jobs Act of 2017 included in the income tax provision.

The Company reported net income for the full year of $10.4 million, or $0.33 per basic and diluted share, as compared to net income of $5.9 million for the prior year. The Company’s year-to-date results for 2016 included a one-time contribution of $4.8 million to The HarborOne Foundation; excluding this non-recurring expense, net income for 2016 would have been $8.8 million.

James W. Blake, President and CEO stated, “During the quarter we generated steady growth in our commercial loan portfolio and plan to maintain our growth strategy in 2018 with a new branch and the continued expansion of our lending portfolio.  We look forward to the coming year as we strive to continue building a banking franchise dedicated to providing superior customer service, robust product offerings and committed support to our communities.”

Net Interest Income

The Company’s net interest and dividend income was $19.4 million for the quarter ended December 31, 2017,  up $163,000, or 0.8%, from $19.3 million for the quarter ended September 30, 2017 and up $2.9 million,  or 17.4%, from  $16.6 million for the quarter ended December 31, 2016. The tax-equivalent interest rate spread and net interest margin were 2.90% and 3.07%, respectively, for the quarter ended December 31, 2017 compared to 2.91% and 3.07%, respectively, for the quarter ended September 30, 2017 and 2.77% and 2.92%, respectively, for the quarter ended December 31, 2016.

The increase in net interest income from the previous quarter reflects a $395,000, or 1.7%, increase in total interest and dividend income and an increase of $232,000, or 5.6% in total interest expense. The increase in interest and dividend income is primarily due commercial loan growth that provided an increase in average outstanding loans of $64.8 million that was partially offset by decreases in the average balances of residential real estate and consumer loans. The yield on loans was 3.94%  for the quarter ended December 31, 2017 and 3.95% for the quarter ended September 30, 2017. The third quarter yield reflects the impact of a $680,000 commercial loan prepayment penalty. The increase in interest expense is due to an increase in average interest-bearing deposits of $14.8 million with a  7 basis point increase in the cost of those funds offset by a  decrease in average FHLB advances of $7.8 million and a 10 basis point decrease in total cost of borrowed funds.

The increase in net interest income over the prior year quarter is primarily due to growth in the Company’s average loan balances to $2.23 billion from $2.06 billion and an increase in the yield on loans to 3.94% from 3.65%, again primarily driven by commercial loan growth as well as higher rates on variable rate loans.  Total interest and dividend income increased  $2.7 million, or 13.3%, and total interest expense increased $883,000, or 25.3% over the prior year quarter as a result of rising interest rates.

Noninterest Income

Noninterest income decreased to $14.2 million for the quarter ended December 31, 2017,  down  $473,000, or 3.2%, from the quarter ended September 30, 2017.  The decrease is primarily due to a decrease in mortgage banking income of $1.5 million as mortgage originations decreased 12.4% from the prior quarter. Changes in the mortgage servicing rights fair value adjustments amounted to  a $74,000 decrease in the fourth quarter of 2017 compared to a $488,000 decrease in the third quarter of 2017. An increase of $1.0 million in other income partially offset the mortgage banking income decrease. Other income includes a $1.2 million reversal of contingent consideration for the Merrimack Mortgage Company, LLC earn out agreement that was settled in full in the fourth quarter of 2017. 

Noninterest income decreased  $5.1 million, or 26.6%, as compared to the quarter ended December 31, 2016, primarily driven by a decrease of $6.3 million, or 41.1%, in mortgage banking income. Compared to the same quarter prior year, mortgage originations by Merrimack Mortgage Company, LLC decreased 28.7% in 2017 primarily as a result of higher residential mortgage interest rates and reduced refinance volume in 2017.

Noninterest Expense

Noninterest expenses were $29.7 million for the quarter ended December 31, 2017, an increase of $1.3 million, or 4.4%, from the quarter ended September 30, 2017.  The increase was primarily due to an increase in other expenses of $1.2 million, or 56.2%. The increase primarily reflects an expense accrual of $925,000 to freeze the director postretirement benefit plan.

Noninterest expenses increased  $330,000,  or 1.1%, from the quarter ended December 31, 2016. Increases in occupancy and equipment of $529,000, marketing of $101,000, professional fees of $275,000, deposit insurance of $204,000 and other expenses of $1.0 million were partially offset by decreases in compensation and benefit expense of $866,000 and loan expense of $958,000. Decreased mortgage originations in the fourth quarter of 2017 primarily contributed to the expense decreases in that quarter as compared to the fourth quarter of 2016. The increase in occupancy and equipment expense is primarily due to an increase in service maintenance contract costs and the increase in other expenses is due to the aforementioned accrual to freeze the director postretirement benefits.

Income Tax Provision

The effective tax rate was 49.2% for the quarter ended December 31, 2017, 37.5% for the quarter ended September 30, 2017 and 41.5% for the quarter ended December 31, 2016. The enactment of the Tax Cuts and Jobs Act of 2017 resulted in significant changes to the U.S. tax code, including a reduction in the top corporate income tax rate from 35% to 21% effective January 1, 2018. As a result of the reduction in tax rate, the Company revalued its net deferred tax asset and recorded a one-time additional $243,000 tax provision in the fourth quarter of 2017.  In addition, as a result of the recently enacted reduction in the corporate income tax rate the Company expects an effective tax rate for 2018 of approximately 26%.

Asset Quality

The Company recorded a provision for loan losses of $760,000 for the quarter ended December 31, 2017, $921,000 for the quarter ended September 30, 2017 and $1.5 million for the quarter ended December 31, 2016.  The provisions for the fourth quarter of 2017 and 2016 were primarily due to commercial loan growth. The third quarter 2017 provision was a result of commercial loan growth and an additional specific reserve of $375,000 on a substandard commercial loan. In the first quarter of 2017, the Company adjusted general reserve allocations for commercial real estate and commercial loans based on updated peer data.  The updated peer data resulted in lower general reserve rates on these loan types; however, this decrease was partially offset by commercial 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. The allowance for loan losses was $18.5 million, or 0.84%, of total loans at December 31, 2017, compared to $17.9 million, or 0.84%, of total loans, at September 30, 2017 and $17.0 million, or 0.85%, of total loans at December 31, 2016. Net charge-offs totaled $204,000 for the quarter ended December 31, 2017, or 0.04%, of average loans outstanding on an annualized basis, compared to $169,000, or 0.03%, for the quarter ended September 30, 2017 and $320,000, or 0.06%, for the quarter ended December 31, 2016.

Nonperforming assets were $18.6 million at December 31, 2017 compared to $20.6 million at September 30, 2017 and $22.9 million at December 31, 2016. Nonperforming assets as a percentage of total assets were 0.69% at December 31, 2017,  0.78% at September 30, 2017 and 0.94% at December 31, 2016. The steady decline reflects the Company’s continued efforts to minimize nonperforming assets through diligent collection efforts, prudent workout arrangements and strong underwriting.

Balance Sheet

Total assets increased $25.5 million, or 1.0%, to $2.68 billion at December 31, 2017 from $2.66 billion at September 30, 2017. Net loans increased $71.9 million, or 3.4%, to $2.18 billion at December 31, 2017 from $2.10 billion at September 30, 2017.  The net increase in loans for the three months ended December 31, 2017 was primarily due to increases of $32.4 million in commercial real estate loans and $52.0 million in construction loans partially offset by a  decrease of $2.5 million in residential real estate loans, $2.1 million in commercial and industrial loans, and $5.9 million in consumer loans.  Loans held for sale decreased $36.7 million, or 38.2%, to $59.5 million at December 31, 2017 from $96.2 million at September 30,  2017 due to the seasonal decrease in residential mortgage originations.

Total deposits increased $10.2 million, or 0.5%, to $2.01 billion at December 31, 2017 from $2.00 billion at September 30, 2017.  Compared to the prior quarter, non-certificate accounts increased $5.7 million,  brokered deposits increased $363,000 and term certificate accounts increased $4.2 million.  The increase in non-certificate accounts was primarily due to an increase in money market accounts. Borrowings were  $290.4 million at December 31, 2017 and $276.4 million at September 30, 2017.

Total stockholders’ equity was $343.5 million at December 31, 2017 compared to $340.6 million at September 30, 2017 and $329.4 million at December 31, 2016.   The tangible common equity to tangible assets ratio was 12.35% at December 31, 2017, 12.36% at September 30, 2017 and 12.97% at December 31, 2016.  At December 31, 2017, the Company and the Bank exceed all regulatory capital requirements.

Annual Meeting

HarborOne Bancorp, Inc. has scheduled its annual meeting of shareholders for Thursday, May 10, 2018 at 5:00 p.m. local time, at Goodwin Procter LLP, 100 Northern Avenue, Boston, MA 02210. The date for determining the Company’s shareholders of record for the annual meeting is March 12, 2018.

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 Southeastern Massachusetts through a network of 14 full-service branches, two limited service branches, a commercial loan office in Providence, Rhode Island, a residential lending office in Westford, Massachusetts, and 13 free-standing ATMs. 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. Merrimack Mortgage Company, LLC, a subsidiary of HarborOne Bank, is a full-service mortgage lender with 33 offices in Massachusetts, New Hampshire and Maine, and also does business 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. 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, 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.