8-K: HarborOne Faces Lawsuits Over Eastern Bank Merger

HarborOne Bancorp, Inc. disclosed shareholder demand letters and lawsuits challenging its proposed merger with Eastern Bankshares, Inc., alleging material omissions in the proxy statement.

Summary

• HarborOne Bancorp, Inc. (HarborOne) and Eastern Bankshares, Inc. (Eastern) are proceeding with their previously announced merger.
• HarborOne received 11 demand letters from purported shareholders between June 23, 2025, and July 31, 2025, alleging material omissions in the proxy statement/prospectus.
• Two lawsuits, William Johnson v. HarborOne Bancorp, Inc., et al. (filed July 28, 2025) and Paul Parshall v. HarborOne Bancorp, Inc., et al. (filed July 29, 2025), were filed in New York state court.
• These 'Merger Litigations' generally allege material information omissions, negligent misrepresentation, concealment, and negligence.
• The lawsuits seek an injunction enjoining the merger, rescission of the merger, and legal fees.
• HarborOne believes the cases are without merit and no supplemental disclosures are legally required.
• To avoid nuisance, cost, distraction, and potential delays, HarborOne and Eastern are making additional 'Supplemental Disclosures' to the proxy statement/prospectus.
• The Supplemental Disclosures include updated details on the background of the merger, specifically Eastern's adjusted exchange ratio proposals (0.75 shares of Eastern for each HarborOne share, valued at $12.17 on March 7, 2025; and 0.765 shares, valued at $11.12 on April 7, 2025).
• The Supplemental Disclosures also amend the financial advisor's opinion sections, including the list of selected companies for the 'Selected Companies Analysis' and the 'Discounted Cash Flow Analysis' (projected free cash flows for 2025-2029, discount rate range of 11.5%-13.5%, and a value range of $7.10 to $9.98 per share compared to the merger consideration of $11.87 per share).
• The 'Selected Transactions Analysis' section is also amended with an updated list of comparable transactions.
• The decision to make Supplemental Disclosures will not affect the merger consideration or the timing of the special shareholder meeting.

Sentiment

Score: 4

Explanation: The filing indicates a significant corporate event (merger) is proceeding, which is generally positive for strategic growth. However, the presence of multiple shareholder demand letters and lawsuits, alleging material omissions and seeking to enjoin the merger, introduces considerable legal and operational risk, dampening overall sentiment. The company's defensive stance and efforts to avoid delay suggest these are non-trivial challenges, despite their claims of lack of merit.

Positives

• HarborOne and Eastern are proceeding with the merger as planned.
• The Supplemental Disclosures are being made to avoid nuisance and delay, not due to legal necessity or materiality admission.
• The Supplemental Disclosures will not affect the merger consideration or the timing of the special shareholder meeting.
• HarborOne intends to vigorously defend against the Merger Litigations.

Negatives

• Receipt of 11 demand letters from purported shareholders alleging material omissions.
• Two lawsuits filed by purported shareholders seeking to enjoin or rescind the merger.
• Allegations of negligent misrepresentation, concealment, and negligence under New York common law.
• Potential for additional demand letters or lawsuits.
• Incurrence of costs and distraction due to litigation.

Risks

• Outcome of legal proceedings against Eastern or HarborOne.
• Delays in completing the Proposed Transaction.
• Failure to obtain necessary regulatory or shareholder approvals.
• Imposition of conditions by regulatory approvals that could adversely affect the combined company.
• Anticipated benefits of the Proposed Transaction not being realized.
• Proposed Transaction being more expensive to complete than anticipated.
• Revenues following the Proposed Transaction being lower than expected.
• Impact of restrictions during the pendency of the Proposed Transaction on business opportunities.
• Diversion of management's attention.
• Potential adverse reactions or changes to business or employee relationships.
• Dilution caused by Eastern's issuance of additional shares.
• Potential impact of general economic, political, or market factors.

Future Outlook

The merger with Eastern Bankshares, Inc. is proceeding as planned, with a special shareholder meeting scheduled for August 20, 2025. While facing ongoing litigation, HarborOne and Eastern aim to complete the transaction and integrate operations, anticipating approximately 40% cost savings from HarborOne's non-interest expenses. The companies acknowledge potential risks including delays, failure to obtain approvals, and the possibility that anticipated benefits may not be fully realized.

Management Comments

• HarborOne believes that the Johnson and Parshall cases are without merit, that no supplemental disclosures are required under applicable law, and that the requested additional disclosures are immaterial.
• HarborOne and its directors intend to vigorously defend against each Merger Litigation and any subsequently filed similar actions.
• Eastern and HarborOne deny all allegations in the Merger Litigations and the Demand Letters and believe that no additional disclosure is required in the proxy statement/prospectus.
• However, in order to moot the disclosure claims, avoid nuisance, cost and distraction, and with the goal of precluding any effort to delay the special meeting of HarborOne shareholders or the closing of the Proposed Transaction, Eastern and HarborOne hereby make additional disclosures.
• HarborOne and the HarborOne board of directors deny that they have violated any laws or breached any duties to their shareholders in connection with the proxy statement/prospectus, and none of the Supplemental Disclosures nor any other disclosure in this Current Report on Form 8-K should be construed as an admission of the legal necessity or materiality under applicable laws of any Supplemental Disclosures.

Industry Context

This filing reflects ongoing consolidation within the banking sector, particularly among regional banks, driven by factors such as the pursuit of cost efficiencies (e.g., 40% non-interest expense savings) and market conditions. The litigation highlights the increasing scrutiny on merger disclosures and corporate governance in such transactions, a common challenge in complex financial integrations.

Comparison to Industry Standards

• The 'Selected Companies Analysis' for HarborOne included 18 comparable banking institutions with assets ranging from $4.3 billion to $9.88 billion, providing metrics such as Tangible Common Equity to Total Assets (TCE/TA), Loans to Deposits, Loan Loss Reserves to Non-Performing Assets (LLRs/NPAs), Core Return on Average Assets (Core ROAA), Core Return on Average Tangible Common Equity (Core ROATCE), Net Interest Margin (NIM), Efficiency Ratio, Price to Tangible Book Value (Price/TBV), Price to Last Twelve Months Core Earnings Per Share (Price/LTM Core EPS), Price to 2025 Estimated EPS, and Price to 2026 Estimated EPS.
• Specific comparable companies listed include ConnectOne Bancorp, Inc., Flushing Financial Corporation, Univest Financial Corporation, Tompkins Financial Corporation, Kearny Financial Corp., Metropolitan Bank Holding Corp., Peapack-Gladstone Financial Corporation, Washington Trust Bancorp, Inc., TrustCo Bank Corp NY, CNB Financial Corporation, Shore Bancshares, Inc., Financial Institutions, Inc., Camden National Corporation, Northfield Bancorp, Inc., Mid Penn Bancorp, Inc., Peoples Financial Services Corp., Hingham Institution for Savings, and Arrow Financial Corporation.
• The 'Selected Transactions Analysis' included 8 recent bank mergers with announcement dates ranging from September 2023 to January 2025, providing metrics such as Price/TBV, Price/Core LTM EPS, Price/Current FY EPS, and Price/Next FY EPS.
• Specific comparable transactions listed include CNB Financial Corp. / ESSA Bancorp, Inc., Northwest Bancshares, Inc. / Penns Woods Bancorp, Inc., Independent Bank Corp. / Enterprise Bancorp, Inc., EverBank Financial Corp / Sterling Bank and Trust, FSB, NBT Bancorp Inc. / Evans Bancorp, Inc., ConnectOne Bancorp Inc. / The First of Long Island Corporation, WesBanco Inc. / Premier Financial Corp., and Eastern Bankshares Inc. / Cambridge Bancorp.
• HarborOne's valuation in the merger ($11.87 per share) is higher than the range indicated by the Discounted Cash Flow Analysis ($7.10 to $9.98 per share), suggesting a premium relative to its standalone intrinsic value based on these projections.

Corporate Governance

Legal Proceedings

• 11 demand letters received from purported HarborOne shareholders between June 23, 2025, and July 31, 2025, alleging material information omissions in the proxy statement/prospectus.
• William Johnson v. HarborOne Bancorp, Inc., et al. (No. 654471/2025) filed on July 28, 2025, in New York state court against the Company and certain board members.
• Paul Parshall v. HarborOne Bancorp, Inc., et al. (No. 654489/2025) filed on July 29, 2025, in the same court against the same defendants.
• These 'Merger Litigations' allege material information omissions, negligent misrepresentation, concealment, and negligence under New York common law.
• The lawsuits seek an injunction enjoining the merger, rescission of the merger, costs of actions (including attorneys' and experts' fees), and other relief.
• HarborOne believes the cases are without merit and intends to vigorously defend against them.
• It is possible that additional demand letters or Merger Litigations may be filed.

Stakeholder Impact

• Shareholders (HarborOne): Will receive Eastern common stock as merger consideration. Facing litigation that could potentially delay or challenge the merger. Supplemental disclosures provided to address alleged omissions.
• Shareholders (Eastern): Will experience dilution due to the issuance of new shares for the merger.
• Employees (HarborOne & Eastern): Potential for changes in employment relationships due to integration, though not explicitly detailed.
• Customers (HarborOne & Eastern): Potential for changes in banking services or branch networks post-merger, though not explicitly detailed.
• Management/Directors (HarborOne): Facing lawsuits and demand letters, requiring time and resources for defense. Two directors will join Eastern's board post-merger.

Next Steps

• Special meeting of HarborOne shareholders on August 20, 2025, to vote on the merger.
• Consummation of the Merger (HarborOne with and into Eastern).
• Bank Merger (HarborOne Bank with and into Eastern Bank) at a time to be determined by Eastern.
• Vigorously defend against current and any future Merger Litigations.

Key Dates

Recommendation

The merger itself represents a strategic move for HarborOne, offering shareholders Eastern Bankshares stock. However, the ongoing shareholder litigation introduces significant uncertainty and potential for delays or increased costs. While management asserts the lawsuits are without merit, the need for supplemental disclosures to 'moot the disclosure claims' suggests a non-trivial challenge. Investors should hold to monitor the outcome of the litigation and the successful completion of the merger, as these factors will heavily influence the stock's near-term performance and the realization of the merger's benefits.

Keywords

Merger, Acquisition, Banking, Financial Services, Litigation, Shareholder Lawsuit, SEC Filing, 8-K, Proxy Statement, Eastern Bankshares, HarborOne Bancorp