HarborOne Bancorp, Inc. (NASDAQ: HONE) is a Massachusetts-based bank holding company that has demonstrated its ability to navigate evolving market conditions and serve the financial needs of its diverse customer base. With a strong focus on community banking, HarborOne has established a solid presence in the Northeast and is poised to capitalize on emerging opportunities in the region.
Business Overview
HarborOne Bancorp, Inc. was formed in 2016 as a bank holding company, with HarborOne Bank as its principal subsidiary. HarborOne Bank traces its roots back to 1917, when it was established as a state-chartered credit union. Over the decades, the bank has transformed into a full-service financial institution, providing a wide range of products and services to individuals, businesses, and municipalities across Massachusetts and Rhode Island.
In 2018, HarborOne Bancorp expanded its presence in the New England region through the acquisition of Coastway Bancorp, Inc. This strategic move added commercial lending offices in Boston, Massachusetts and Providence, Rhode Island, while also enhancing the company's residential mortgage banking capabilities through the addition of HarborOne Mortgage, LLC. HarborOne Mortgage maintains offices across several states and is licensed to lend in a total of ten states.
The company's operations are divided into two reportable segments: HarborOne Bank and HarborOne Mortgage. The HarborOne Bank segment is responsible for the company's consumer and business banking activities, including deposit-gathering, lending, and other financial services. The HarborOne Mortgage segment focuses on the origination, sale, and servicing of residential mortgage loans, primarily in the New England region.
Following the Great Recession, HarborOne faced challenges navigating the low interest rate environment, which put pressure on the company's net interest margin. In response, the bank focused on diversifying its revenue streams, growing its commercial lending business, and optimizing its deposit mix. Additionally, the company had to contend with increased regulatory burdens in the aftermath of the financial crisis, investing in compliance and risk management functions to ensure it operated within the evolving regulatory landscape.
Despite these challenges, HarborOne has remained committed to serving the financial needs of its customers. The company has continued to invest in its branch network, digital banking capabilities, and talent to provide a high level of customer service and stay competitive in its regional markets.
Financial Performance and Resilience
As of December 31, 2024, HarborOne Bancorp reported total assets of $5.75 billion, an increase of 1.5% from the previous year. The company's loan portfolio stood at $4.85 billion, with commercial loans comprising 47.0% of the total, residential real estate loans at 35.2%, and consumer loans accounting for the remaining 3.6%. HarborOne's deposit base grew to $4.55 billion, a 3.7% increase year-over-year, reflecting the bank's strong customer relationships and competitive deposit product offerings.
Despite the challenges posed by the current economic environment, HarborOne Bancorp has demonstrated financial resilience. For the year ended December 31, 2024, the company reported net income of $27.41 million, or $0.66 per diluted share, compared to $16.08 million, or $0.37 per diluted share, in the previous year. The increase in net income was primarily driven by growth in net interest and dividend income, which rose to $125.65 million, and a 12.0% improvement in noninterest income to $46.92 million.
HarborOne's profitability metrics remained strong, with a return on average assets of 0.47% and a return on average equity of 4.71% in 2024. The company's capital position also remained solid, with a common equity Tier 1 capital ratio of 11.80% and a total risk-based capital ratio of 13.00% as of December 31, 2024, well above the regulatory minimum requirements.
For the most recent quarter, HarborOne reported revenue of $44.3 million, representing a 14.5% year-over-year growth driven by increased residential mortgage loan production. Net income for the quarter stood at $8.9 million, a 23.6% increase compared to the same period last year, primarily due to higher net interest and noninterest income.
Diversified Revenue Streams and Lending Portfolio
HarborOne Bancorp's diversified business model has been a key factor in its ability to navigate challenging market conditions. The company's revenue streams are well-balanced, with net interest income accounting for 75.0% of total revenue in 2024 and noninterest income contributing the remaining 25.0%.
The bank's lending portfolio is also well-diversified, with commercial real estate loans (47.0% of total loans), residential real estate loans (35.2%), and commercial and industrial loans (12.2%) representing the largest segments. This diversification helps mitigate risk and provides the company with multiple avenues for growth.
HarborOne Mortgage, the company's residential mortgage banking subsidiary, has been an important contributor to its noninterest income. In 2024, the mortgage division generated $18.61 million in revenue, a 26.4% increase from the previous year, driven by higher mortgage loan origination volumes and gains on the sale of loans.
Navigating Market Challenges and Regulatory Environment
The banking industry has faced a range of challenges in recent years, including low interest rates, increased competition, and a changing regulatory landscape. HarborOne Bancorp has demonstrated its ability to adapt to these evolving market conditions and maintain its competitive edge.
The company has proactively managed its interest rate risk, utilizing various hedging strategies and adjusting its asset-liability management to mitigate the impact of interest rate fluctuations on its net interest margin. Additionally, HarborOne has leveraged its community banking focus and strong customer relationships to attract and retain a stable deposit base, reducing its reliance on higher-cost funding sources.
The banking industry is subject to a complex regulatory environment, and HarborOne Bancorp has dedicated significant resources to ensuring compliance with applicable laws and regulations. The company has a robust risk management framework in place, which includes regular reviews of its policies, procedures, and internal controls to address evolving regulatory requirements and industry best practices.
Growth Strategies and Outlook
Looking ahead, HarborOne Bancorp is well-positioned to capitalize on the growth opportunities in its core markets. The company's strategic initiatives focus on organic growth, geographic expansion, and selective acquisitions to strengthen its presence in the Northeast.
In its commercial banking segment, HarborOne is poised to continue its growth trajectory by leveraging its strong relationships with small and medium-sized businesses, as well as its expertise in commercial real estate lending. The company is also exploring opportunities to expand its consumer banking offerings and enhance its digital capabilities to better serve its retail customers.
The HarborOne Mortgage division is expected to play a crucial role in the company's future growth, as the housing market in the Northeast remains relatively strong. The division's focus on purchase mortgage originations and its ability to capitalize on the demand for jumbo and non-conforming loans should contribute to its continued success.
While the banking industry faces ongoing challenges, HarborOne Bancorp's solid financial foundation, diversified business model, and strategic vision position the company for continued success. The company's commitment to serving its local communities and its ability to adapt to changing market conditions make it a resilient player in the Northeast banking landscape.
Liquidity
HarborOne Bancorp maintains a strong liquidity position to meet its operational needs and regulatory requirements. The company's primary sources of liquidity include cash and cash equivalents, investment securities, and borrowing capacity from various sources, including the Federal Home Loan Bank of Boston and the Federal Reserve Bank of Boston.
As of December 31, 2024, HarborOne reported $231.1 million in cash and cash equivalents. The company's investment securities portfolio, which consists primarily of high-quality, liquid assets, stood at $392.1 million, or 6.8% of total assets. These liquid assets provide the bank with a buffer to meet unexpected cash needs and take advantage of potential investment opportunities.
Additionally, HarborOne maintains access to various borrowing facilities to supplement its on-balance sheet liquidity. The company had $656.2 million in available borrowing capacity from the Federal Home Loan Bank of Boston and $630.1 million from the Federal Reserve Bank of Boston based on pledged collateral as of December 31, 2024, providing further flexibility in managing its liquidity needs.
The company's debt-to-equity ratio stood at 0.90, indicating a balanced approach to leverage and financial stability.
Risks and Challenges
Like any financial institution, HarborOne Bancorp is subject to various risks and challenges that could impact its performance and future growth. These include:
1. Interest rate risk: The company's net interest margin and profitability are susceptible to changes in interest rates, which could affect the yield on its interest-earning assets and the cost of its interest-bearing liabilities.
2. Credit risk: The company's loan portfolio, particularly its commercial real estate and commercial and industrial loans, could be impacted by borrower defaults or deteriorating economic conditions in its market area.
3. Regulatory environment: Evolving banking regulations and compliance requirements could increase the company's operating expenses and require significant resources to address.
4. Competition: HarborOne faces intense competition from larger regional and national banks, as well as fintech companies, in its core markets, which could pressure its pricing and market share.
5. Technological disruption: The rapid pace of technological change in the banking industry could require significant investments in digital infrastructure and customer-facing platforms to remain competitive.
Despite these risks, HarborOne Bancorp's experienced management team, diversified business model, and commitment to risk management have allowed the company to navigate the challenges facing the banking industry.
Geographic Presence and Market Focus
HarborOne Bank's primary lending and deposit-gathering area is concentrated within its branch office communities and surrounding cities and towns in Eastern Massachusetts and Rhode Island. The bank operates 30 full-service branches across these regions, providing a strong physical presence in its core markets.
HarborOne Mortgage has expanded its geographic footprint beyond the bank's traditional markets. The mortgage division maintains offices in Massachusetts, New Hampshire, Rhode Island, Maine, New Jersey, and Florida, and is licensed to lend in five additional states. Despite this broader reach, the mortgage business remains heavily focused on its home territory, with 93% of its 2024 originations occurring in New England.
This strategic geographic focus allows HarborOne to leverage its deep understanding of local markets and maintain strong relationships with customers and communities in its core operating areas.
Conclusion
HarborOne Bancorp, Inc. is a well-established community bank that has demonstrated its ability to adapt to changing market conditions and provide valuable financial services to its customers in the Northeast. With a strong capital position, diversified revenue streams, and strategic growth initiatives, the company is poised to continue its trajectory of sustainable growth and profitability. As HarborOne Bancorp navigates the evolving banking landscape, its commitment to serving its local communities and its resilience in the face of challenges make it an attractive investment proposition for those seeking exposure to the regional banking sector.
The company's focus on its two primary business segments, HarborOne Bank and HarborOne Mortgage, has allowed it to maintain a balanced approach to growth and risk management. The Bank segment's solid loan portfolio, growing deposit base, and strong credit quality provide a stable foundation for the company's operations. Meanwhile, the Mortgage segment's ability to capitalize on market opportunities and generate noninterest income contributes to the overall diversification of the company's revenue streams.
As HarborOne Bancorp continues to execute its strategic initiatives and navigate the complex banking environment, it remains well-positioned to capitalize on growth opportunities in its core markets while maintaining its commitment to prudent risk management and community-focused banking.