Executive Summary / Key Takeaways

• Strategic Transformation: HarborOne Bancorp (HONE) is on the cusp of a transformative merger with Eastern Bankshares, Inc. (EBC), a pivotal event that redefines its investment profile and aims to enhance scale and market reach in the competitive New England banking landscape.
• Solid Pre-Merger Financials: The company reported a 6.7% increase in net interest and dividend income for Q2 2025, with net interest margin expanding by 21 basis points to 2.52%, reflecting effective liability management despite a challenging interest rate environment.
• Evolving Credit Landscape: While overall credit quality remains strong, a notable increase in the provision for credit losses and charge-offs, primarily related to two commercial credits, signals a need for vigilance in the commercial loan portfolio.
• Community Focus Amidst Digital Shift: HONE's historical strength in community engagement and its extensive branch network provide a distinct local advantage, yet it faces ongoing pressure from larger competitors with more advanced digital capabilities.
• Merger as a Value Catalyst: The impending merger, expected to close in Q4 2025, offers HONE shareholders a choice of stock or cash consideration, positioning them to participate in a larger, more diversified financial institution with potentially greater operational efficiencies.

A Regional Powerhouse's Strategic Pivot

HarborOne Bancorp, Inc., established in 1917 and headquartered in Brockton, Massachusetts, has long served as a cornerstone financial institution across Massachusetts and Rhode Island. The company built its foundation on a diverse range of financial services for individuals, families, small and mid-size businesses, and municipalities. Its operational footprint expanded to 30 full-service branches and commercial lending offices in key regional hubs like Boston and Providence, complemented by HarborOne Mortgage, LLC, which extended its reach into additional states for residential mortgage origination and servicing.

This deep-rooted community presence and commitment to localized service, including educational initiatives through "HarborOne U," have historically been foundational strengths. However, the regional banking sector is dynamic, marked by intense competition from larger, more technologically advanced institutions. In a strategic move to address these evolving market dynamics and enhance its competitive standing, HarborOne Bancorp entered into a definitive merger agreement with Eastern Bankshares, Inc. on April 24, 2025. This merger represents a significant pivot, aiming to integrate HONE into a larger entity with greater scale and resources.

The competitive landscape for HONE includes larger regional players such as Citizens Financial Group , Santander Bank , and Webster Financial Corporation . These competitors often boast broader geographic footprints, more extensive technological capabilities, and diversified revenue streams. For instance, CFG demonstrates robust revenue growth and solid profitability, leveraging its scale for efficiency. Santander, with its global backing, offers a wide array of products and potentially lower operating costs. Webster Financial excels in specialized business banking and wealth management. HONE's community-centric model and branch network provide a distinct advantage in personalized service and local market penetration, fostering strong customer loyalty. However, its smaller scale and potential technological gaps compared to these larger rivals present vulnerabilities, particularly in areas requiring significant investment in digital innovation and broad market reach.

Operational Foundation: Banking and Mortgage Segments

HarborOne Bancorp operates through two distinct yet complementary reportable segments: HarborOne Bank and HarborOne Mortgage. HarborOne Bank serves as the core banking operation, generating revenue primarily from interest on loans and investment securities, alongside service charges on deposit accounts. Its lending portfolio spans commercial real estate, commercial and industrial, residential mortgages, home equity lines of credit, and consumer loans.

The HarborOne Mortgage segment specializes in the origination, sale, and servicing of residential mortgage loans. This segment's performance is inherently tied to prevailing interest rates, refinancing activity, and the broader housing market. While residential real estate loans are originated by HarborOne Mortgage, they are often purchased by HarborOne Bank, illustrating a synergistic relationship between the two segments.

Technology in a Digital Age: An Evolving Landscape

In an increasingly digital financial world, HONE's engagement with technology is primarily focused on enhancing operational efficiency and improving customer experience, rather than offering proprietary, differentiated technology. The company's data processing expenses have seen an increase, driven by higher debit card processing fees and a rise in digital banking activity, indicating a growing reliance on digital channels for customer interactions. Furthermore, investments in cloud computing, reflected in increased expenses of $271,000 for Q2 2025 and $580,000 for the six months ended June 30, 2025, underscore a strategic intent to modernize its infrastructure.

While these investments are crucial for remaining competitive and meeting evolving customer expectations, they do not currently represent a unique technological moat for HONE. Larger competitors like Citizens Financial Group and Santander Bank often possess more advanced technological capabilities and greater resources for digital expansion, enabling them to offer more integrated mobile services and faster online transaction processing. HONE's focus is on maintaining robust digital banking services and efficient back-end operations to support its community-focused model, ensuring accessibility and convenience for its customer base in an environment where shifts towards digital services can significantly impact revenue.

Recent Financial Performance: A Pre-Merger Snapshot

HarborOne Bancorp's recent financial performance reflects a company managing its operations effectively in the lead-up to a significant strategic shift. For the three months ended June 30, 2025, consolidated net income rose to $8.1 million, an 11% increase from $7.3 million in the prior year period. However, year-to-date net income for 2025 stood at $13.6 million, a decrease from $14.6 million in the first six months of 2024, primarily influenced by higher credit loss provisions.

Total assets decreased by $144.1 million, or 2.5%, to $5.61 billion at June 30, 2025, compared to December 31, 2024. This reduction was largely driven by a $117.1 million decrease in net loans and a $31.3 million decrease in short-term investments. Within the loan portfolio, commercial real estate and construction loans saw a $162.9 million decline, as management prioritized payoffs over renewals for maturing loans amidst subdued lending activity. Conversely, commercial and industrial loans experienced a healthy increase of $49.5 million. Residential real estate and consumer loans collectively decreased by $12.6 million, partly due to minimal loan purchases from HarborOne Mortgage during the first quarter of 2025.

The company's net interest and dividend income on a tax equivalent basis increased by $2.1 million, or 6.7%, to $33.7 million for the three months ended June 30, 2025. This improvement was a result of rate decreases on interest-bearing liabilities outpacing the decrease in the yield on interest-earning assets by 26 basis points. Consequently, the net interest margin on a fully tax equivalent basis expanded by 21 basis points to 2.52% for the quarter. Interest expense decreased by $4.2 million, or 11.5%, to $32.4 million for the quarter, primarily reflecting lower borrowing costs.

Credit quality, while generally strong, showed some areas of concern. The provision for credit losses significantly increased to $2.124 million for the six months ended June 30, 2025, from $447,000 in the prior year period. This was primarily due to specific reserve allocations for commercial credits and qualitative factor adjustments, partially offset by a decrease in loan balances. Net charge-offs also rose to $1.7 million for Q2 2025, compared to $195,000 for Q2 2024, largely attributable to two specific commercial credits. Management is closely monitoring the commercial real estate (CRE) loan portfolio for signs of deterioration, acknowledging analyst projections of market softness. However, the portfolio's limited near-term maturity risk, with 75% of loans maturing in 2027 or later, provides a mitigating factor.

Noninterest income for the three and six months ended June 30, 2025, included an Employee Retention Tax Credit of $547,000, contributing to overall stability. Noninterest expenses increased, partly due to $1.7 million in merger-related expenses and higher cloud computing costs, alongside increased incentive plan and ESOP expenses. The HarborOne Mortgage segment, heavily influenced by interest rates and housing market activity, reported net income of $469,000 for Q2 2025, a notable improvement from a loss in the prior year, as mortgage demand picked up slightly despite low for-sale inventory.

Liquidity and Capital Strength

HarborOne maintains a robust liquidity position and strong capital base, crucial attributes as it approaches the merger. As of June 30, 2025, the company held immediate liquid resources in cash and cash equivalents of $203.1 million, primarily on deposit with the Federal Reserve Bank of Boston. This is supplemented by significant available borrowing capacity, including $693.7 million from the Federal Home Loan Bank (FHLB) and $563.8 million from the FRBB, secured by pledged loans and securities. An additional $25.0 million unsecured federal funds line with a correspondent bank further enhances its flexibility.

The company's core deposits have historically provided a stable and lower-cost funding source, though these flows are influenced by market interest rates, competition, and economic conditions. Brokered deposits are strategically utilized to supplement core deposit fluctuations and support loan growth. Both HarborOne Bancorp and HarborOne Bank exceeded all regulatory capital requirements at June 30, 2025, maintaining ratios above the minimum levels required to be considered well capitalized, including the 2.50% capital conservation buffer. This strong capital position provides a solid foundation for the impending integration.

The Competitive Arena: Standing Against Giants

HarborOne Bancorp operates in a competitive regional banking market, where its community-focused approach and extensive branch network serve as key differentiators. Compared to larger rivals like Citizens Financial Group (CFG), Santander Bank (SAN), and Webster Financial Corporation (WBS), HONE's financial performance metrics reveal a nuanced competitive standing. HONE's net profit margin of 8.56% (TTM) lags behind CFG (12%), SAN (25%), and WBS (18%), indicating that larger scale and diversified operations often translate to higher profitability.

In terms of leverage, HONE's Debt/Equity ratio of 0.76 (TTM) is higher than CFG (0.51) and WBS (0.37), but significantly lower than Santander (4.90), reflecting a more conservative capital structure than some global players but potentially less efficient use of debt than some regional peers. The company's P/E ratio of 19.31 (TTM) is higher than CFG (13.07), SAN (5.50), and WBS (12.20), which could suggest market anticipation of the merger's premium or future growth, despite current profitability metrics. HONE's dividend yield of 2.68% (TTM) is competitive within the sector, though not leading.

HONE's strategic positioning emphasizes personalized service and local market expertise, which fosters strong customer loyalty, particularly among individuals and small businesses. This contrasts with the broader, often more transactional approach of larger banks. However, HONE's smaller scale can lead to higher operating costs per customer and limit its investment capacity in rapidly evolving areas like advanced digital banking tools, where competitors like WBS and CFG have made substantial inroads. The merger with Eastern Bankshares is a direct strategic response to these competitive pressures, aiming to combine HONE's community strengths with the scale and resources of a larger entity to create a more formidable regional player.

The Road Ahead: Merger Outlook and Strategic Implications

The definitive merger agreement with Eastern Bankshares, Inc. marks a pivotal moment for HarborOne Bancorp. The transaction is anticipated to close during the fourth quarter of 2025, with a potential deferral option for Eastern until February 20, 2026, if closing conditions are met after October 31, 2025. Under the terms, HONE shareholders will have the option to receive either 0.77 shares of Eastern common stock or $12.00 in cash for each HONE share, subject to allocation procedures ensuring 75-85% stock consideration. This offers HONE shareholders an opportunity to transition their investment into a larger, more diversified financial institution.

The strategic rationale behind this merger is clear: to create a stronger, more competitive regional bank. For HONE, this means gaining access to greater capital, a broader product suite, and enhanced technological capabilities that can address its current scale and innovation vulnerabilities. The combined entity is expected to realize operational efficiencies and expand its market footprint. While the "One Big Beautiful Bill" legislation signed on July 4, 2025, is not expected to materially impact HONE's financial statements, the broader economic and regulatory environment will continue to shape the post-merger landscape.

However, the path to integration is not without risks. The pendency of the merger itself can create uncertainty, potentially affecting employee retention and customer relationships. The fixed exchange ratio for the stock consideration means the final market value for HONE shareholders will depend on Eastern's stock performance. Regulatory approvals are a prerequisite, and any conditions imposed could affect the expected benefits. Furthermore, the company is currently defending against shareholder litigations alleging a materially incomplete proxy statement, though management believes these claims are without merit. Successful integration will be critical for Eastern to realize the anticipated benefits and cost savings, requiring careful management of personnel, systems, and corporate cultures.

Conclusion

HarborOne Bancorp stands at a critical juncture, poised for a strategic merger that promises to reshape its future. Its history as a community-focused regional bank, coupled with recent solid financial performance, provides a strong foundation for this transition. While facing competitive pressures from larger, more technologically advanced rivals, the merger with Eastern Bankshares offers a compelling pathway to enhanced scale, operational efficiencies, and a broader market presence.

For investors, the narrative shifts from evaluating an independent regional bank to assessing the value proposition of a combined entity. The merger represents a strategic response to industry consolidation and the imperative for greater scale in a digital-first banking environment. Monitoring the successful completion of the merger, the integration process, and the realization of anticipated synergies will be paramount in determining the long-term value creation for shareholders.