BROCKTON, Mass. – A slowdown in the mortgage banking business took a bite out of HarborOne Bancorp’s annual profits, which dropped 22.1% year over year.
The parent company for HarborOne Bank on Thursday reported yearly earnings of $45.6 million, reflecting lower mortgage banking income along with a more aggressive approach to building credit reserves ahead of a forecasted economic downturn.
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Earnings per diluted share also fell by 17 cents to 97 cents per share.
Aggressive federal interest rate hikes, often seen as a boon for banks’ profit margins, hurt the bank’s mortgage business, both in volume of new loans and in the profits from loans sold on the secondary market, the company stated. Indeed, the $31.3 million in annual mortgage banking income marked a 60% cut over the prior year.
This, in turn, drove down non-interest income, which fell 43.1% year-over-year to $57.3 million.
Also cutting into profit margins, the company socked away $5.7 million in credit loss provisions in 2022, mirroring the strategy of banks nationwide who are anticipating loan defaults in the coming economic downturn. In comparison, the company dumped $7.3 million from its reserves in 2021 when the economy was in a stronger position.
One benefit of higher interest rates was a boost to interest income, which rose 19.5% to $171.9 million. This was partially offset by higher interest expenses, also a function of interest rate hikes, which jumped 83.2% to $22.9 million.
Net interest margin, the difference between interest income generated versus the amount of interest paid, rose 22 basis points to 3.34%.
Annual non-interest expenses of $138.9 million marked a 12.6% decline over a year prior, including an 18.3% drop to compensation and benefits and a 75.8% cut to loan expenses, reflecting fewer residential mortgage closings and a corresponding decrease in commissions, the company stated.
Total assets stood at $5.4 billion as of Dec. 31, a 17.7% increase over a year ago driven by loan growth. The $4.5 billion in total loans marked a 26.1% bump year-over-year, with the biggest gains in commercial real estate loans.
Deposits rose 13.8% to $4.2 billion, driven by increases in regular savings and club accounts and term certificate accounts.
The company also reported a fourth-quarter profit of $9.6 million, down 23.9% over the fourth quarter of 2021. The lower quarterly earnings again reflected major losses to mortgage banking income, which decreased more than sixfold to $2 million. This in turn cut quarterly non-interest income in half, to $9.9 million.
Quarterly interest income jumped 42.8% to $51.9 million, fueled by rising interest rates and loan growth. Higher interest rates also hiked up quarterly interest expenses, which increased sixfold to $12.7 million.
The company also set aside $2.1 million in credit loss provisions in the fourth quarter, compared with the $1.4 million it released from its stockpile in the fourth quarter of 2021.
Quarterly non-interest expenses of $34.6 million represented a 9.3% drop over a year ago, with lower compensation and benefit costs. This was partially offset by an extra $1.1 million in “other” expenses from a settlement over a class action lawsuit about overdraft fees, the company stated.
“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%,” Joseph F. Casey, CEO and president said in a statement. “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.”
HarborOne Bank has eight branches in Rhode Island since it acquired Coastway Bancorp in 2018. The bank ranks ninth in terms of Rhode Island deposit market share as of June 30, according to the Federal Deposit Insurance Corp.
Nancy Lavin is a PBN staff writer. Contact her at Lavin@PBN.com.
