HarborOne Bancorp Navigates Headwinds in Q1: A Look at Performance and Challenges Ahead
15min read HarborOne Bancorp (NASDAQ: HARB) reported its first quarter 2025 results, revealing a challenging start to the year amid declining mortgage activity and shifting interest rate dynamics. While the company maintained deposit growth and capital discipline, its financial performance highlighted vulnerabilities tied to macroeconomic pressures and sector-specific headwinds.
Net Income Declines Sharply, Mortgage Headwinds Persist
Net income fell to $5.5 million in Q1 2025, a 38.1% drop from Q4 2024, driven primarily by a $2.9 million collapse in mortgage banking income. HarborOne Mortgage’s loan sales dropped to $2.7 million from $4.0 million sequentially, as higher mortgage rates and softer demand curtailed activity. The mortgage servicing rights (MSR) valuation also swung to a $1.2 million loss from a $2.3 million gain in Q4, further pressuring noninterest income.
Ask Aime: What's the impact of HarborOne's Q1 2025 results on the mortgage market?
Net Interest Margin Edges Higher, but Loan Yields Weaken
The net interest margin (NIM) inched up to 2.39%, a 3-basis-point increase from Q4 2024, aided by lower deposit costs and reduced borrowing. However, loan yields declined 8 basis points as floating-rate loans repriced downward, and prepayment fees fell by $277,000. Total net interest income dropped to $31.5 million, underscoring the tension between rising deposit balances and stagnant loan growth.
Deposit Growth and Balance Sheet Resilience
Deposits rose by $68 million to $4.62 billion, with non-certificate accounts up $73.2 million, reflecting a strategic shift toward lower-cost funding. Borrowed funds fell by $117 million to $399.5 million, reducing reliance on wholesale funding and boosting liquidity. Total assets, however, contracted by $52.8 million to $5.70 billion as loan balances dipped 0.7% to $4.82 billion.
Asset Quality Worsens, Credit Losses Rise
A critical concern emerged in credit quality. Net charge-offs surged to $8.7 million (0.72% annualized), a stark contrast to the near-zero charge-offs in Q4 2024. Nonperforming assets rose to $30.9 million (0.54% of assets), driven by deteriorating commercial loans. The allowance for credit losses (ACL) on loans fell to $49.3 million (1.02% of total loans), down from $56.1 million in Q4, even as criticized and classified loans jumped to $187.1 million. This suggests heightened risk in the commercial real estate sector, where valuations remain pressured.
Capital Returns Amid Uncertainty
Despite the challenges, HarborOne increased its quarterly dividend by 12.5% and repurchased 513,855 shares, signaling confidence in its capital position. The tangible common equity (TCE) ratio rose to 9.15%, reflecting disciplined balance sheet management.
Key Risks and Outlook
The company faces significant headwinds:
- Mortgage Market Volatility: Rising rates and weak demand are squeezing mortgage banking income, a key noninterest revenue driver.
- Loan Portfolio Dynamics: Commercial real estate and construction loans declined by $44.5 million, while C&I loans grew only modestly. Sustained demand for commercial lending will be critical to offseting balance sheet contraction.
- Credit Quality: The spike in nonperforming loans and criticized assets points to potential strains in the regional economy, particularly in sectors like real estate.
Conclusion: A Mixed Picture Demands Caution
HarborOne’s Q1 results paint a company navigating a complex environment. Strengths include robust deposit growth, reduced borrowings, and disciplined capital returns. However, the sharp decline in net income, elevated charge-offs, and weakening mortgage division raise red flags. Investors should monitor two critical metrics:
1. Net Interest Margin Stability: A sustained NIM above 2.3% would signal success in deposit cost management and loan repricing.
2. Credit Metrics: A return of ACL to 1.1%+ of loans and stabilization in nonperforming assets would alleviate concerns over credit quality.
With the stock trading at 1.3x tangible book value and a dividend yield of 1.8%, HarborOne offers some value, but risks remain elevated. The regional bank’s performance hinges on stabilizing its mortgage division, improving loan growth, and maintaining credit discipline. For now, a cautious stance seems prudent until clearer signs of recovery emerge.
Data as of Q1 2025. All figures in USD.
