Hope Bancorp, a Koreatown-based bank focused on the Korean American community, will acquire the Hawaii-based Territorial Bancorp in an all-stock deal valued at $78.6 million.
Hope Bancorp, which operates through the $18 billion Bank of Hope, will expand its footprint into Hawaii after the deal’s expected close by the end of the year.
Hope Bank’s Chief Executive Kevin Kim said he’s known Territorial’s Chief Executive Allan Kitsagawa for some time, and a potential transaction between their two businesses had come up in casual conversations.
But after high interest rates persisted and banks felt the aftershocks of the regional crisis that came to a boil last March, casual remarks became serious business discussions with investment bankers last December.
“It was a very difficult situation for anyone in the banking space,” Kim said. “The reason for us to consider a possible combination has become more and more compelling as this high-rate environment continues.”
More than one third of Bank of Hope’s loan sheet is tied up in a commercial real estate portfolio in Southern California. Territorial, on the other hand, is predominately defined as a residential mortgage lender with a stable deposit base.
According to Kim, a large portion of the Hawaii-based bank’s mortgages were originated when borrowing costs were low, meaning the bank now struggles to maintain assets with lower interest income.
Bank of Hope saw Territorial’s consumer base as an opportunity to diversify its loan portfolio and reduce risk, while alleviating the Hawaiian bank’s asset squeeze.
“We have our challenges, they have their challenges in this environment, but they are very complementary,” Kim said. “If we add their mortgage book to our loan portfolio, our loan diversification is accelerated.”
Kim added the bank will reach a large Asian American and Pacific Islander community in Hawaii – adding to its competitive niche of expanding via ethnic communities.
Over the past 15 years, Kim combined three major Korean-focused banks to create Hope Bancorp.
This latest acquisition, however, caught markets by surprise and led to an initial knee-jerk stock dip following the announcement.
In its fourth-quarter earnings, Bank of Hope had announced a cost-restructuring plan to generate $40 million and maintain a prudent, savings-first mentality.
Between now and last April, the bank shed almost $2 billion in assets and slashed hundreds of employees to reduce its non-interest expenses.
The transaction with Territorial is expected to cost between $25 and $30 million, but Kim says the 7% reduction in non-interest expenses seen in this year’s first quarter proves the bank is still making positive headway on savings.
Since Bank of Hope does not currently operate in Hawaii, Kim says the bank can retain almost all employees at Territorial after the acquisition, and all branding will remain intact for the regional bank.
This acquisition is the first deal announced in the local banking industry since Banc of California and PacWest merged last year. With Territorial’s assets, Bank of Hope will likely remain the No. 5 fifth largest bank in Los Angeles, according to the Business Journal’s rankings.
