Hope Bancorp, a Los Angeles-based company focused on serving Korean Americans, will acquire Territorial Bancorp in Hawaii in an all-stock deal valued at $78.6 million, the acquiring bank announced Monday.
The $18 billion-asset Hope, which operates through its Bank of Hope subsidiary, said the acquisition will expand its footprint to Hawaii and double its residential mortgage portfolio. The deal is expected to be immediately accretive at a double-digit growth rate, and is slated to close by the end of 2024, pending regulatory approval.
Hope Chairman and CEO Kevin Kim said that the leaders of the two banks began serious conversations toward the end of 2023, and Territorial spoke to other potential buyers throughout the process.
"This transaction creates the largest U.S. regional bank catering to multi-ethnic customers across the continental United States and the Hawaiian Islands," he said Monday on the company's first-quarter earnings call. "Hope is excited to be partnering with a bank that shares our values, and we intend to preserve and continue to build on Territorial's long and storied legacy to ensure continuity of service for the customer base and employees."
Kim added that the bank will be able to grow its customer base in Hawaii, which has a large Asian American and Pacific Islander community. Territorial will continue to operate under the Territorial Savings Bank brand.
Hope operates 48 branches in nine U.S. states, and it has an outsized Southern California commercial real estate portfolio, which makes up more than one-third of its $13.7 billion loan book.
Territorial operates 28 branches across Hawaii, with total assets of $2.24 billion, $1.31 billion of loans and $1.64 billion of deposits, as of Dec. 31.
Tim Coffey, a managing director at Janney, said the deal's announcement was surprising because Bank of Hope had announced a cost restructuring plan on its fourth-quarter earnings call. He added that he thought the deal made sense, though it was "the opposite" of the company's implied plan from last quarter.
Accessing a new market and obtaining low-cost funding are beneficial to Hope, and gaining access to a larger balance sheet will be an advantage for Territorial, so that it can offer bigger loans and serve different types of clients, Coffey said. While he predicted that the deal will pay off, he thinks it will take time because of Territorial's bulk of long-term, fixed-rate mortgages.
"Financially, it does work," Coffey said. "It's going to make money for them. I think the question is, 'When is that going to happen?'"
Hope Chief Financial Officer Julianna Balicka said on the call that the company is still in the process of planning the Territorial integration, and it currently expects deal expenses to "be in the $25 million to $30 million range."
"This is not necessarily a cost-saves transaction," Balicka said. "This is a strategic market expansion transaction that provides us an excellent, high-quality core deposit base. And we are focused on making sure that the customer experience and transition period is seamless."
The transaction is expected to be about 6% dilutive to Hope's tangible book value, with a three-year earn-back period, which Coffey said "was significant for a company that was already trading below its tangible book value." But the transaction will help Hope make more money than it otherwise would have in the long term, Coffey added.
Upon close, Hope shareholders will own about 94.4% of the combined entity, and Territorial shareholders will own about 5.6%.
OnMonday, Hope's stock price dipped 9.44% to $9.92. Coffey said he thinks the market's reaction to the acquisition was due to surprise at the announcement.
Kim has overseen the combination of three major Korean-focused regional banks in the last 15 years to create what's now Hope Bancorp. In 2017, the bank was forced to
The Territorial deal takes Hope back to its roots, building an amalgamation of banks through mergers, Coffey said.
M&A activity in the banking industry has had a tepid couple of years. Experts had forecast that deals would pick up again in 2024 as interest rates were expected to fall. However, with rate cuts now seeming less likely,
In the deal announced Monday, Bank of Hope has to mark down loans by 15% and securities by 17%, although Balicka said that Territorial has strong credit quality. The large marks are due to high interest rates, Coffey said.
Recently there have been some signs that M&A activity isn't dead, such as Capital One Financial's deal to buy Discover Financial Services and Wintrust Financial's agreement to purchase Macatawa Bank Corp.
In another sign of the M&A environment thawing, UMB Financial said Monday that
Kim said on the call Monday that the Territorial deal will help diversify Hope's loan mix and grow its customer base.
"We believe that Territorial's long legacy in the state of Hawaii has established a very good market presence," Kim said. "And with our larger balance sheet and our broader array of banking products and services, I think we have really good market share expansion opportunities in Hawaii. And this will also become a very beneficial experience for the customers of Territorial."
Greenberg Traurig is legal adviser to Hope Bancorp, and D.A. Davidson's investment banking firm is its financial adviser. Territorial is being advised by the investment banking firm of Keefe, Bruyette & Woods and the law firm Luse Gorman.
