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Risks Related to the Pending Mergers and First Hawaiian Following Completion of the Mergers
First Hawaiian and TriCo have incurred and are expected to incur substantial costs related to the mergers.
First Hawaiian and TriCo have incurred and expect to incur a number of significant non-recurring costs associated with the mergers. These costs include legal, financial advisory, accounting, consulting and other advisory fees, severance/employee benefit-related costs, public company filing fees and other regulatory fees, printing and mailing costs and other related costs. Some of these costs are payable by either First Hawaiian or TriCo regardless of whether or not the mergers are completed.
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Combining First Hawaiian and TriCo may be more difficult, costly or time-consuming than expected, and First Hawaiian and TriCo may fail to realize the anticipated strategic benefits of the mergers.
The success of the mergers will depend, in part, on the ability to realize the anticipated strategic and financial benefits from combining the businesses of First Hawaiian and TriCo, including geographic expansion, the enhanced growth opportunities and broader product capabilities of the combined franchise. To realize the anticipated benefits from the mergers, following completion of the mergers, First Hawaiian must successfully integrate the businesses of First Hawaiian and TriCo in a manner that permits those benefits to be realized without adversely affecting current revenues and future growth. If First Hawaiian and TriCo are not able to successfully achieve these objectives, the anticipated benefits of the mergers may not be realized fully or at all or may take longer to realize than expected. In addition, any cost savings of the mergers could be less than anticipated, and integration may result in additional and unforeseen expenses.
First Hawaiian and TriCo have operated and, until the effective time, must continue to operate, independently. It is possible that the integration process could result in the loss of key employees, diminished competitive position, loan and deposit attrition, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the mergers. The conversion and migration of data, applications, systems and third-party interfaces could also be delayed or unsuccessful and could result in service interruptions, processing errors, data loss, cybersecurity or data-protection incidents, customer disruption or additional costs. Integration efforts between the companies may also divert management attention and resources. These integration matters could have an adverse effect on each of First Hawaiian and TriCo while the mergers are pending and on First Hawaiian for an undetermined period following completion of the mergers.
An inability to realize the full extent of the anticipated benefits of the mergers and the other transactions contemplated by the merger agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, levels of expenses and operating results of First Hawaiian following the completion of the mergers, which may adversely affect the value of the common stock of First Hawaiian following the completion of the mergers.
The future results of First Hawaiian following the completion of the mergers may suffer if First Hawaiian does not effectively manage its expanded operations.
Following the mergers, the size and geographic scope of the business of First Hawaiian will increase materially, including through the addition of significant branch-based retail and commercial banking operations in Northern and Central California. First Hawaiian’s future success will depend, in part, upon its ability to manage this expanded business, which may pose challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. First Hawaiian will also have greater exposure to economic, competitive, credit and other conditions affecting California. TriCo’s loan portfolio includes a substantial concentration in commercial real estate and multifamily loans, and the acquisition will increase First Hawaiian’s exposure to California real estate markets, collateral values and economic conditions. First Hawaiian may encounter challenges in maintaining TriCo’s local customer relationships and operating model while integrating the combined organization. First Hawaiian may also face increased compliance, risk-management, internal-control and supervisory complexity because of the increased size, geographic scope and complexity of its operations. There can be no assurance that First Hawaiian will be successful or that it will realize the expected operating efficiencies, revenue enhancement or other benefits currently anticipated from the mergers.
First Hawaiian may be unable to retain legacy First Hawaiian or TriCo personnel successfully after the completion of the mergers.
The success of the mergers will depend in part on First Hawaiian’s ability to retain the talent and dedication of key employees currently employed by First Hawaiian and TriCo. It is possible that these employees may decide not to remain with the applicable company while the mergers are pending or after the completion of the mergers. If First Hawaiian and TriCo are unable to retain key employees, including management, who are critical to the successful integration and future operations of First Hawaiian following the mergers, First Hawaiian and TriCo could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs. In addition, following the completion of the mergers, if key employees terminate their employment, First Hawaiian’s business activities following the mergers may be adversely affected, and management’s attention may be diverted from successfully hiring suitable replacements, all of which may cause First Hawaiian’s business following the mergers to suffer. First Hawaiian and TriCo also may not be able to locate or retain suitable replacements for key employees.
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Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on First Hawaiian following the mergers.
Before the mergers and the bank merger may be completed, various approvals, consents, waivers, and/or non-objections must be obtained from the Federal Reserve Board, the FDIC, the Hawaii DFI, the California DFPI and other regulatory authorities in the United States. These approvals could be delayed or not obtained at all, including due to an adverse development in either party’s regulatory standing or in any other factors considered by regulators when granting such approvals; governmental, political or community group inquiries, investigations or opposition; or changes in legislation or the political environment generally.
The approvals that are granted may impose terms and conditions, limitations, obligations or costs, or place restrictions on the conduct of First Hawaiian’s business following the mergers or require changes to the terms of the transactions contemplated by the merger agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the merger agreement, imposing additional material costs on or materially limiting the revenues of First Hawaiian following the mergers or otherwise reducing the anticipated benefits of the mergers if the mergers were consummated successfully within the expected time frame. In addition, there can be no assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the mergers. Additionally, the completion of the mergers is conditioned on the absence of certain orders, injunctions or decrees by any court or governmental entity of competent jurisdiction that would prohibit or make illegal the completion of any of the transactions contemplated by the merger agreement.
In addition, neither First Hawaiian nor TriCo, nor any of their respective subsidiaries, is required or, without the written consent of the other party, permitted, to take any action, commit to take any action or agree to any condition or restriction in connection with obtaining the required permits, consents, approvals and authorizations of governmental entities or regulatory agencies that would reasonably be expected to have, either individually or in the aggregate, a material adverse effect on First Hawaiian as the surviving entity and its subsidiaries, taken as a whole, after giving effect to the mergers and the bank merger (a “materially burdensome regulatory condition”).
If the requisite approvals of First Hawaiian stockholders or TriCo shareholders are not obtained, or other conditions to the closing of the mergers are not met, the merger agreement may be terminated in accordance with its terms and the mergers may not be completed.
The merger agreement is subject to a number of conditions that must be fulfilled in order to complete the mergers. Those conditions include: (i) the approval by First Hawaiian stockholders of the First Hawaiian share issuance proposal and the approval by TriCo shareholders of the TriCo merger proposal; (ii) authorization for listing on Nasdaq of the shares of First Hawaiian common stock to be issued in the merger; (iii) the receipt of requisite regulatory approvals, including approvals, waivers or non-objections, as applicable, from the Federal Reserve Board, the FDIC, the Hawaii DFI and the California DFPI, and the expiration or termination of all statutory waiting periods in respect thereof, without any such requisite regulatory approval having resulted in the imposition of any materially burdensome regulatory condition; (iv) effectiveness of First Hawaiian’s registration statement on Form S-4 relating to the mergers; and (v) the absence of any order, injunction or decree issued by any court or agency of competent jurisdiction or other law preventing or making illegal the completion of the mergers, the bank merger or any of the other transactions contemplated by the merger agreement. Each party’s obligation to complete the mergers is also subject to certain additional customary conditions, including (a) subject to applicable materiality standards, the accuracy of the representations and warranties of the other party, (b) the performance in all material respects by the other party of its obligations under the merger agreement and (c) the receipt by each party of an opinion from its counsel to the effect that the mergers, taken together, will qualify as a reorganization within the meaning of Section 368(a) of the Code. These conditions may not be fulfilled in a timely manner or at all, and, accordingly, the mergers may not be completed. In addition, the parties can mutually decide to terminate the merger agreement at any time, before or after the requisite First Hawaiian stockholder approval and TriCo shareholder approval, or First Hawaiian or TriCo may elect to terminate the merger agreement in certain other circumstances.
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Failure to complete the mergers could negatively impact First Hawaiian.
If the mergers are not completed for any reason, including as a result of First Hawaiian stockholders’ failure to approve the First Hawaiian share issuance proposal or TriCo shareholders’ failure to approve the TriCo merger proposal, there may be various adverse consequences and First Hawaiian may experience negative reactions from the financial markets and from its customers and employees. For example, First Hawaiian’s business may be adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the mergers, without realizing any of the anticipated benefits of completing the mergers. Additionally, if the merger agreement is terminated, the market price of First Hawaiian common stock could decline to the extent that current market prices reflect a market assumption that the mergers will be beneficial and will be completed. First Hawaiian also could be subject to litigation related to any failure to complete the mergers or to proceedings commenced against First Hawaiian to perform its obligations under the merger agreement. If the merger agreement is terminated under certain circumstances, either First Hawaiian or TriCo may be required to pay a termination fee of $80 million to the other party.
First Hawaiian and TriCo will be subject to business uncertainties and contractual restrictions while the mergers are pending.
Uncertainty about the effect of the mergers may have an adverse effect on First Hawaiian and TriCo. These uncertainties may impair First Hawaiian’s or TriCo’s ability to attract, retain and motivate key personnel and other employees until the mergers are completed. These uncertainties may also cause customers, suppliers, business partners and others that deal with First Hawaiian or TriCo to seek alternative relationships with third parties, seek to alter their business relationships with First Hawaiian or TriCo or fail to extend existing relationships with First Hawaiian or TriCo. In addition, subject to certain exceptions, First Hawaiian and TriCo have each agreed to operate its business in the ordinary course in all material respects and to refrain from taking certain actions that may adversely affect its ability to consummate the transactions contemplated by the merger agreement on a timely basis without the consent of the other party. These restrictions may prevent First Hawaiian and/or TriCo from pursuing attractive business opportunities that may arise prior to the completion of the mergers.
The merger agreement limits First Hawaiian’s ability to pursue alternatives to the mergers and may discourage other companies from trying to acquire First Hawaiian.
The merger agreement contains “no shop” covenants that restrict each of First Hawaiian’s and TriCo’s ability to, directly or indirectly, among other things, initiate, solicit, knowingly encourage or knowingly facilitate inquiries or proposals with respect to, or, subject to certain exceptions generally related to the exercise of fiduciary duties by each respective board of directors, engage or participate in any negotiations concerning, or provide any confidential or nonpublic information or data relating to, or have or participate in any discussions with any person relating to, any alternative acquisition proposals, subject to certain exceptions. These provisions may discourage a potential third-party acquirer that might have an interest in acquiring all or a significant part of First Hawaiian or TriCo from considering or making that acquisition proposal.
The fixed exchange ratio and the issuance of a substantial number of shares of First Hawaiian common stock will dilute existing First Hawaiian stockholders and may adversely affect the market price of First Hawaiian common stock.
The fixed exchange ratio and the issuance of a substantial number of shares of First Hawaiian common stock will dilute existing First Hawaiian stockholders and may adversely affect the market price of First Hawaiian common stock.
Under the merger agreement, each eligible share of TriCo common stock will be converted into 2.095 shares of First Hawaiian common stock. Because the exchange ratio is fixed, the number of shares of First Hawaiian common stock to be issued in the merger will not be adjusted for changes in the market price of First Hawaiian common stock or TriCo common stock. Changes in the relative market prices or business performance of First Hawaiian and TriCo before the effective time could therefore make the economic terms of the mergers less favorable to First Hawaiian and its existing stockholders than they were on the date the merger agreement was signed.
Upon completion of the mergers, existing First Hawaiian stockholders and former TriCo shareholders are expected to own approximately 65% and 35%, respectively, of the outstanding shares of First Hawaiian common stock. The actual ownership percentages will depend on the number of shares of First Hawaiian common stock and TriCo common stock outstanding and the number and treatment of applicable TriCo equity awards at the effective time. The issuance of the merger consideration will dilute the relative voting and economic interests of existing First Hawaiian stockholders and may result in fluctuations in, or a decrease in, the market price of First Hawaiian common stock.
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The mergers may result in significant goodwill and other intangible assets that could become impaired and adversely affect First Hawaiian’s results of operations.
In accordance with applicable accounting standards, First Hawaiian will account for the mergers as a business combination using the acquisition method of accounting. First Hawaiian will allocate the purchase consideration to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess recorded as goodwill. The acquisition-date valuations of the assets acquired and liabilities assumed—including loans, securities, deposits, borrowings, identifiable intangible assets and related tax items—will be based on estimates and assumptions and may change as additional information becomes available during the applicable measurement period. Changes in those valuations could affect the amount of goodwill and other assets and liabilities recorded, the amount and timing of accretion, amortization and credit-loss expense and First Hawaiian’s future financial condition and results of operations.
First Hawaiian expects to recognize goodwill and other intangible assets, including a core deposit intangible, in connection with the mergers. Goodwill will not be amortized but will be tested for impairment at least annually and upon the occurrence of events or changes in circumstances indicating that impairment may have occurred. Finite-lived intangible assets, including the core deposit intangible, will be amortized over their estimated useful lives and evaluated for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. Amortization expense and any impairment charge could adversely affect First Hawaiian’s results of operations and book value.
An impairment could result from, among other things, deterioration in the performance of the acquired business, deterioration in economic or market conditions in California or First Hawaiian’s other markets, adverse changes in laws or regulations affecting the banking industry, a decline in First Hawaiian’s stock price or the occurrence of a triggering event that compounds negative financial results, or other events or circumstances that reduce the estimated fair value of the applicable reporting unit or asset.
Stockholder or shareholder litigation related to the mergers could prevent or delay the completion of the mergers, result in the payment of damages or otherwise negatively impact the business and operations of First Hawaiian and TriCo.
Stockholders of First Hawaiian and/or shareholders of TriCo may file lawsuits against First Hawaiian, TriCo and/or the directors or officers of either company in connection with the mergers. One of the conditions to the closing is that no order, injunction or decree issued by any court or agency of competent jurisdiction or other law preventing or making illegal the consummation of the mergers, the bank merger or any of the other transactions contemplated by the merger agreement be in effect. If any plaintiff were successful in obtaining an injunction prohibiting First Hawaiian or TriCo defendants from completing the mergers, the bank merger or any of the other transactions contemplated by the merger agreement, then such injunction may delay or prevent the consummation of the mergers and could result in significant costs to First Hawaiian and/or TriCo, including any cost associated with the indemnification of directors and officers of each company. First Hawaiian and TriCo may incur costs in connection with the defense or settlement of any stockholder or shareholder lawsuits filed in connection with the mergers, the bank merger or any other transactions contemplated by the merger agreement. Such litigation could have an adverse effect on the financial condition and results of operations of First Hawaiian and could prevent or delay the completion of the mergers.