DEFA14A: Territorial Bancorp Recommends Shareholders Approve Merger with Hope Bancorp, Rejects Blue Hill's Offer

Territorial Bancorp urges shareholders to vote in favor of the merger with Hope Bancorp, citing compelling value and future growth opportunities, while rejecting an unsolicited offer from Blue Hill Advisors due to concerns about regulatory approval and financial viability.

Summary

• Territorial Bancorp has entered into a definitive agreement to merge with Hope Bancorp.
• The merger is structured as a 100% stock-for-stock transaction where Territorial shareholders will receive 0.8048 shares of Hope Bancorp common stock for each share of Territorial common stock.
• This represents an approximate 25% premium to Territorial's closing stock price prior to the merger announcement.
• The merger is expected to provide $10.5 million in annual cost savings and synergies.
• Territorial shareholders will see their dividend increase from $0.01 to $0.11 per share post-merger.
• The Board of Directors unanimously recommends shareholders vote FOR the Hope Bancorp merger.
• Blue Hill Advisors made an unsolicited preliminary indication of interest to acquire Territorial for $12.50 per share in cash.
• The Territorial Board rejected Blue Hill's offer, deeming it not a superior proposal.
• The Board believes the Hope Bancorp merger is in the best interest of Territorial shareholders.
• The merger with Hope Bancorp is expected to close by the end of 2024.

Sentiment

Score: 8

Explanation: The document expresses a positive outlook regarding the merger with Hope Bancorp, emphasizing the benefits for shareholders and the combined company's future prospects. The rejection of the Blue Hill offer also suggests confidence in the chosen path.

Positives

• The merger with Hope Bancorp offers a 25% premium to Territorial's pre-announcement stock price.
• Shareholders will benefit from a significantly increased dividend, rising from $0.01 to $0.11 per share.
• The combined company is expected to realize $10.5 million in annual cost savings and synergies.
• The all-stock deal allows Territorial shareholders to participate in the future growth of a larger, more diversified bank.
• The merger provides immediate earnings accretion, leveraging Hope Bancorp's double-digit EPS growth.
• The merger will create a stronger, more diversified regional bank with an expanded footprint and diversified offerings to drive future growth.

Negatives

• Territorial shareholders must approve the merger for it to proceed.
• The merger is subject to regulatory approvals, which could introduce delays or conditions.
• There are risks associated with integrating the two companies, including potential deposit attrition and customer loss.
• The company faces the risk of not achieving the anticipated synergies and cost savings.
• The company faces the risk of higher than anticipated transaction costs.

Risks

• The closing of the proposed transaction is subject to regulatory approvals and the approval of Territorial Bancorp stockholders.
• Difficulties and delays in integrating Hope Bancorp and Territorial and achieving anticipated synergies, cost savings and other financial benefits from the transaction could occur.
• Higher than anticipated transaction costs could impact the financial benefits of the merger.
• Deposit attrition, operating costs, customer loss and business disruption following the merger could negatively impact the combined company.
• Inability to obtain required governmental approvals of the merger on its proposed terms and expected time frames, or without regulatory constraints that may limit growth, could prevent the merger from happening.
• Possible further deterioration in economic conditions in Hope Bancorp's or Territorial's areas of operation or elsewhere could impact the combined company.
• Interest rate risk associated with volatile interest rates and related asset-liability matching risk could impact the combined company.
• Liquidity risks could impact the combined company.
• Risk of significant non-earning assets, and net credit losses that could occur, particularly in times of weak economic conditions or times of rising interest rates could impact the combined company.
• The failure of or changes to assumptions and estimates underlying Hope Bancorp's or Territorial's allowances for credit losses could impact the combined company.
• Potential increases in deposit insurance assessments and regulatory risks associated with current and future regulations could impact the combined company.
• The outcome of any legal proceedings that may be instituted against Hope Bancorp or Territorial could impact the combined company.
• The risk that any announcements relating to the proposed transaction could have adverse effects on the market price of the common stock of either or both Hope Bancorp and Territorial could impact the combined company.
• Diversion of management's attention from ongoing business operations and opportunities could impact the combined company.

Future Outlook

The merger between Territorial Bancorp and Hope Bancorp is expected to create a stronger, more diversified regional bank with an expanded footprint and diversified offerings to drive future growth. The combined company anticipates unlocking strategic, operating, and financial benefits, including a larger footprint, solid financial position, and greater access to capital.

Management Comments

• The Board unanimously recommends that Territorial shareholders vote FOR the Hope Bancorp merger and related proposals.
• We firmly believe that our merger with Hope Bancorp remains in the best interest of Territorial shareholders.
• We are on a path to complete our merger with Hope Bancorp by the end of 2024.
• The Hope Bancorp merger will create a stronger, more diversified regional bank with an expanded footprint and diversified offerings to drive future growth.
• The merger will provide Territorial shareholders with compelling value and the opportunity to participate in the considerable upside of our combined business, and it will enable Territorial to build on our more than 100-year legacy of supporting our local Hawaii communities.
• Allan S. Kitagawa, Chairman of the Board, President and Chief Executive Officer thanks shareholders for their continued support.

Industry Context

The banking industry is currently seeing a wave of consolidation as institutions seek to increase scale, diversify their operations, and improve efficiency. This merger aligns with that trend, as it aims to create a larger, more competitive regional bank. The rejection of Blue Hill's offer also highlights the importance of regulatory considerations and financial stability in M&A deals within the banking sector.

Comparison to Industry Standards

• The 25% premium offered to Territorial shareholders is within the typical range for bank mergers of this size.
• The projected $10.5 million in cost savings is a reasonable target for a merger of this type, based on industry benchmarks.
• Hope Bancorp's double-digit EPS growth is a positive indicator compared to peers, suggesting a strong financial foundation for the combined entity.
• The all-stock transaction structure is common in bank mergers, allowing shareholders to participate in future growth.
• Comparable companies that have pursued similar mergers include First Hawaiian Bank and BancWest, which aimed to expand their market presence and improve operational efficiency.

Stakeholder Impact

• Shareholders are expected to benefit from the premium and increased dividend.
• Customers will have access to an expanded array of banking products and services.
• Employees will have continued employment and new career advancement opportunities.
• Communities will benefit from the combined company's ongoing commitment to local support and investment.

Next Steps

• Territorial shareholders need to vote on the proposed merger.
• Regulatory approvals must be obtained.
• The integration of Territorial Bancorp and Hope Bancorp needs to be completed.
• The combined company will focus on achieving anticipated synergies and cost savings.

Key Dates

Keywords

merger, Hope Bancorp, Territorial Bancorp, Blue Hill Advisors, shareholders, acquisition, banking, Hawaii, stock, transaction