HarborOne's Q1 Results Highlight Mortgage Headwinds and Strategic Shifts

HarborOne Bancorp (NASDAQ: HONE) delivered a mixed set of results for the first quarter of 2025, underscoring the challenges facing regional banks reliant on mortgage-driven revenue. While the bank maintained balance sheet discipline and strategic adjustments, a sharp drop in mortgage-related income and rising credit costs painted a complex picture of its near-term prospects.

The quarter’s net income fell to $5.5 million, a 38.1% decline from the previous quarter, driven primarily by a $2.9 million collapse in mortgage banking income. This marked a stark contrast to the robust performance in late 2024, when elevated mortgage sales and servicing rights gains buoyed earnings. The shift highlights the volatility inherent in HarborOne’s business model, which remains heavily tied to housing market dynamics.

Navigating Interest Rate Pressures and Loan Mix Adjustments

HarborOne’s net interest income dipped slightly to $31.5 million, but its net interest margin (NIM) edged higher to 2.39%, a 3-basis-point improvement. This was achieved through cost reductions in deposits (-15 bps) and borrowings (-6 bps), offsetting softer loan yields (-8 bps). The decline in loan yields reflects both floating-rate repricing and reduced prepayment fees, which fell by $277,000 year-over-year.

The bank is also recalibrating its loan portfolio. While commercial real estate (CRE) and construction loans dropped $44.5 million, commercial and industrial (C&I) lending surged by $33 million, signaling a strategic pivot toward less volatile sectors. This shift aligns with CEO Joseph Casey’s emphasis on reducing CRE concentrations, though it comes amid rising criticized loans in CRE due to valuation pressures.

Mortgage Banking Challenges and Noninterest Income Volatility

Noninterest income plummeted 27.7% to $9.9 million, with HarborOne Mortgage LLC’s gains on loan sales falling to $2.7 million from $4.0 million. The decline in mortgage closings—from $179.1 million to $114.1 million—reflects broader industry trends as higher mortgage rates and limited housing inventory deterred borrowers.

The bank’s mortgage servicing rights (MSR) also struggled, contributing a $1.1 million loss compared to a $2.2 million gain in Q4 2024. This reversal was exacerbated by principal repayments on underlying loans and reduced hedging benefits, underscoring the sensitivity of this business segment to market conditions.

Asset Quality: A Cautionary Note on CRE and Healthcare

Despite a $1.4 million provision for credit losses, net charge-offs soared to $8.7 million, driven by a single $8.3 million nonperforming healthcare C&I loan. This pushed the net charge-off ratio to 0.72% of average loans, a significant jump from 0.004% in Q4 2024.

Nonperforming assets rose slightly to $30.9 million (0.54% of assets), while the allowance for loan losses dipped to 1.02% of loans. While management emphasized “improved loan balances,” the spike in criticized CRE loans—up $8.5 million—suggests lingering risks in real estate sectors.

Strategic Moves and Capital Allocation

HarborOne returned capital to shareholders despite the earnings slump, buying back $1.4 million in shares and raising its dividend by 12.5%. This signals confidence in its balance sheet: deposits rose $68 million, reducing reliance on borrowings (down $117 million), while tangible common equity (TCE) improved to 9.15%.

Conclusion: A Bank at a Crossroads

HarborOne’s Q1 results reveal both resilience and vulnerabilities. While its deposit growth, disciplined balance sheet management, and strategic pivot to C&I lending offer stability, its reliance on volatile mortgage income and exposure to CRE and healthcare credit risks pose material headwinds.

Investors should weigh these factors against the bank’s improved efficiency—deposit costs fell by 15 bps, and TCE rose to $13.27 per share—and its ability to navigate macroeconomic risks. The stock’s performance over the past year () suggests market skepticism, but the dividend hike and buybacks signal management’s optimism.

For now, HarborOne’s path to consistent earnings growth hinges on stabilizing mortgage banking income and managing CRE credit risks. Until then, investors may find the stock a mixed-bag play on regional banking resilience.

Data as of Q1 2025. Past performance does not guarantee future results.