The Company applied the acquisition method of accounting for the Merger with Territorial under ASC 805 “Business Combinations”. Under the acquisition method of accounting, the acquiring entity in a business combination recognizes 100% of the assets acquired and liabilities assumed at their acquisition date fair values. Management utilized valuation techniques appropriate for the asset or liability being measured in determining these fair values. Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed was recorded as goodwill. Where amounts allocated to assets acquired and liabilities assumed was greater than the purchase price, a bargain purchase gain is recognized. Merger-related costs are expensed as incurred as merger and integration expense. The Company determined that the Merger with Territorial was not “significant” under the definition as stated in SEC rules and regulations.

On April 2, 2025, the Company completed the acquisition of Territorial Bancorp Inc., a Maryland corporation and its wholly owned subsidiary, Territorial Savings Bank, headquartered in Honolulu, Hawaii, in accordance with the Agreement and Plan of Merger by and between the Company and Territorial entered into on April 26, 2024. Under the Merger Agreement, Territorial merged with and into the Company, immediately followed by the merger of Territorial’s subsidiary bank, Territorial Savings Bank, with and into the Company’s subsidiary bank, Bank of Hope, with Bank of Hope being the surviving bank. The Company acquired Territorial to expand its domestic presence to the Hawaii market, increase its low-cost deposits base, and to further diversify the Company’s loan portfolio by acquiring Territorial’s residential mortgage loan portfolio. After acquisition accounting adjustments, $1.93 billion in assets were acquired through the transaction, including $1.07 billion in loans receivable, and $1.67 billion in deposits were assumed. Following the Merger, the Bank operates 29 branches in Hawaii under the trade name Territorial Savings.

Pursuant to the Merger Agreement, Territorial shareholders received 0.8048 shares of the Company’s common stock in exchange for each share of Territorial common stock owned, with cash paid in lieu of fractional shares. The Company issued 6,976,754 shares of the Company’s common stock to Territorial shareholders valued at $73.3 million, based on the closing price of the Company’s common stock on April 2, 2025. The pre-merger outstanding shares of the Company’s common stock remained outstanding and were not affected by the Merger.


	April 2, 2025
	(Dollars in thousands)
Consideration paid:
Hope common stock issued in exchange for Territorial common stock	$	73,326
Cash paid in lieu of fractional shares	5
Total consideration paid	$	73,331

Assets acquired:
Cash and cash equivalents	$	86,902
Investment securities AFS	18,530
Investment securities HTM	516,665
Loans receivable, net	1,067,238
FHLB and FRB stock	11,697
Premises and equipment	16,715
Accrued interest receivable	5,218
Deferred tax assets, net	82,750
BOLI	49,896
Operating lease ROU assets	22,737
Core deposit intangible (“CDI”)	46,520
Other assets	3,099
Liabilities assumed:
Deposits	(1,670,633)
Borrowings	(160,770)
Accrued interest payable	(944)
Operating lease liabilities	(21,115)
Other liabilities	(17,640)
Total identifiable net assets acquired	$	56,865
Excess of consideration paid over fair value of net assets acquired, or goodwill	$	16,466

The fair value estimates above are considered provisional and additional analysis may be performed. Fair values are primarily determined using inputs that are not observable from market-based information. Management may further adjust the provisional fair values during a measurement of up to one year from the acquisition date. Any adjustments to provisional amounts will be applied prospectively. Valuations subject to change include, but are not limited to, loans receivable, premises and equipment, deferred tax assets, other assets, accrued interest payable and other liabilities. Goodwill recorded from the Merger reflects expected cost savings and increased revenue opportunities through offering a broader array of products and services to the strategically important market of Hawaii. None of the goodwill recognized in this transaction is expected to be deductible for income tax purposes as the acquisition was accounted for as a tax-free exchange.

Investment securities - The acquired investment securities were sold immediately after the Merger. The actual sales prices of securities were used as the fair value, rather than the quoted market price, as sales prices were determined to be the best indicator of fair value as of the acquisition date.

Loans receivable - The fair value of loans was estimated on an individual basis based on the characteristics for each loan. The discounted cash flow method was used to project cash flows for each loan using assumptions for rate, remaining maturity, prepayment speeds, projected default probabilities, loss given defaults, and estimates of prevailing discount rates.

The Company has early adopted ASU 2025-08, “Financial Instruments—Credit Losses (Topic 326): Purchased Loans”, which required the Company to record a one-time adjustment on purchased seasoned loans from Territorial using the gross-up approach. The gross-up approach refers to the practice of recording certain purchased assets at the purchase price plus a Day 1 ACL. See Note 1 “Summary of Significant Accounting Policies, Accounting Pronouncements Adopted” for additional information regarding the ASU adoption.

The acquired loans totaling $1.28 billion were valued at $1.07 billion. Net discounts of $202.0 million and $3.8 million on PSL and PCD loans, respectively, were recorded as reductions to loans receivable on the Company's Consolidated Statements of Financial Condition, the noncredit balance of which will be amortized or accreted using the effective interest rate method, at an individual loan level basis, as an adjustment to loan interest income on the Consolidated Statements of Income over the remaining life of each loan.

In addition, an initial allowance for credit losses on PSL and PCD loans of $3.9 million and $63 thousand, respectively, was recorded on the Consolidated Statements of Financial Condition at the date of acquisition with no impact on the Consolidated Statements of Income, and was included in the initial amortized cost basis for the loans. The ACL on acquired loans was determined using a methodology consistent with the ACL on the Company’s existing loan receivables portfolio.

Deferred tax assets, net - Under ASC 805-740, deferred taxes were recognized for the differences between the tax bases and the amounts recognized for financial reporting purposes of the assets acquired and liabilities assumed in a business combination.

Leases - Under ASC 805, an acquiring company is required to adjust the ROU asset on operating leases to reflect favorable and unfavorable terms of the lease when compared with market terms at the point of acquisition. The adjustment represents the difference between the present value of current and future contract lease obligations and the estimated market lease rates over the remaining term of the lease. The favorable or unfavorable adjustments will be amortized or accreted on a straight-line basis over the remaining term of the lease agreements, to noninterest expense on the Consolidated Statements of Income.

Core deposit intangible (“CDI”) - The CDI represents the low cost of funding that acquired core deposits provide relative to the Company’s marginal cost of funds. The Company calculated the CDI from Territorial using the income approach, which estimates CDI valuation based on the cost savings a company will realize from acquiring low-cost, stable core deposits compared to alternative sources of funding. The Company will amortize the CDI over its estimated useful life.

Deposits - The fair values used for demand, savings and money market deposits were equal to the amount payable on demand at the acquisition date. The fair value of time deposits was estimated by discounting the estimated future cash flows using current rates offered for deposits with similar remaining maturities. Premiums and discounts were accreted on a straight-line basis as a decrease and increase, respectively, to time deposit interest expense on the Consolidated Statements of Income, over the remaining weighted average term of each category of time deposits. All premiums and discounts on the deposits acquired were fully accreted as of December 31, 2025.

Borrowings - The fair value of FHLB advances was estimated by discounting the estimated future cash flows using rates available to the Company for debt with similar remaining maturities along with applicable prepayment fees. The fair value adjustment on outstanding FHLB advances will be amortized over the remaining term of the advances.

The following unaudited combined pro forma information presents the operating results for the years ended December 31, 2025 and 2024, as if the Territorial acquisition had occurred on January 1, 2024. The pro forma results are presented for illustrative purposes only and are not intended to represent or be indicative of the actual results of operations of the merged companies that would have been achieved had the acquisitions occurred on January 1, 2024, nor are they intended to represent or be indicative of future results of operations.

The unaudited pro forma information is based on the Company’s actual pre-tax income, excluding certain merger-related items, including noninterest expenses and provision for credit losses, and applying a pro forma effective tax rate. The historical pro forma information uses Territorial’s first quarter 2025 pre-tax income as a run-rate proxy of Territorial’s contribution in the period of comparison, excluding certain merger-related items in the historical periods, and applying a pro forma effective tax rate.

The pro forma results do not include expected operating cost savings or income synergies as a result of the acquisitions. In addition, merger-related expenses shown in the section below were not included in the pro forma information. These pro forma results require significant estimates and judgments particularly as it relates to the valuation and accretion of income associated with acquired loans.

The following table presents merger-related expenses associated with the Merger, which were included in the Consolidated Statements of Income as provision for credit losses and noninterest expense. Merger-related expenses consisted primarily of salaries and benefits, professional services, and other noninterest expenses.