Territorial Bancorp Inc. Announces Third Quarter 2018 Results

• Net income for the three months ended September 30, 2018 was $4.79 million compared to $4.17 million for the three months ended September 30, 2017.  Net income for the three months ended September 30, 2018 rose by $613,000, or 14.69%.
• Fully diluted earnings per share rose by $0.07, or 15.91%, to $0.51 for the three months ending September 30, 2018 from $0.44 for the three months ending September 30, 2017.   
• Return on average assets and return on average equity was 0.93% and 8.03%, respectively, for the three months ended September 30, 2018 compared to 0.85% and 6.97%, respectively, for the three months ended September 30, 2017.
• Interest income on loans for the three months ended September 30, 2018 grew by $1.20 million, or 8.08%, compared to the three months ended September 30, 2017.
• Loans receivable increased by $57.76 million, or 3.88% to $1.55 billion from $1.49 billion at December 31, 2017.
• Deposits rose by 2.89% in the first nine months of 2018 to $1.64 billion at September 30, 2018.
• Board of Directors approved a quarterly cash dividend of $0.22 per share on October 25, 2018, representing Territorial Bancorp Inc.’s 36th consecutive quarterly dividend.

HONOLULU, Oct. 25, 2018 (GLOBE NEWSWIRE) -- Territorial Bancorp Inc. (NASDAQ: TBNK) (the “Company”), headquartered in Honolulu, Hawaii, the holding company parent of Territorial Savings Bank, announced net income of $4.79 million or $0.51 per diluted share for the three months ended September 30, 2018, compared to $4.17 million or $0.44 per diluted share for the three months ended September 30, 2017. 

The Company also announced that its Board of Directors approved a quarterly cash dividend of $0.22 per share.  The dividend is expected to be paid on November 21, 2018, to stockholders of record as of November 8, 2018.

Allan Kitagawa, Chairman and Chief Executive Officer, said, “We are pleased with our performance in the third quarter.  We have been able to increase the size of our loan portfolio and our net interest income while maintaining good asset quality.  We are thankful for the continuing support of our shareholders and are pleased to announce a quarterly cash dividend of $0.22 per share.”

Interest Income

Net interest income after provision for loan losses increased to $14.81 million for the three months ended September 30, 2018 from $14.61 million for the three months ended September 30, 2017, an increase of 1.41%.  Total interest income was $18.28 million for the three months ended September 30, 2018 compared to $17.18 million for the three months ended September 30, 2017. The $1.10 million growth in interest income was due to a $1.20 million increase in interest earned on loans, which resulted from the $120.83 million increase in the average balance of loans receivable for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. 

Interest Expense and Provision for Loan Losses

Total interest expense increased to $3.52 million for the three months ended September 30, 2018 from $2.52 million for the three months ended September 30, 2017.  Interest expense on deposits increased to $2.90 million for the three months ended September 30, 2018 from $2.03 million for the three months ended September 30, 2017.  The increase in interest expense on deposits occurred primarily because of an increase in the cost of certificates of deposit and a $80.84 million increase in the average balance of total deposits for the three months ended September 30, 2018 compared to the three months ended September 30, 2017.  The increase in the cost of certificates of deposit occurred primarily because of higher interest rates paid on newly opened certificates of deposit from state and local governments with terms of two years or more.  These deposits were used to reduce interest rate risk in a rising interest rate environment by extending the maturity of fixed-rate deposits.  Interest expense on advances from the Federal Home Loan Bank (FHLB) grew to $493,000 for the three months ended September 30, 2018 compared to $264,000 for the three months ended September 30, 2017.  The increase in interest expense on FHLB advances was primarily due to a $29.60 million increase in the average balance of FHLB advances for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017.  These additional borrowings, which have higher fixed interest rates and terms greater than two years, were used primarily to reduce interest rate risk in a rising interest rate environment by extending the maturity of fixed-rate borrowings.

During the quarter ended September 30, 2018, there was a $50,000 reversal in loan loss provisions compared to a $54,000 provision for the quarter ended September 30, 2017.  The reversal of loan loss provisions in 2018 resulted from improving credit quality of the Company’s loan portfolio and a reduction in loan losses. 

Noninterest Income

Noninterest income was $746,000 for the three months ended September 30, 2018 compared to $909,000 for the three months ended September 30, 2017.  The decrease in noninterest income was primarily due to a $150,000 decrease in the gain on sale of investment securities and a decrease of $20,000 in the gain on loans sold.

Noninterest Expense

Noninterest expense was $9.50 million for the three months ended September 30, 2018 compared to $8.76 million for the three months ended September 30, 2017.  The increase in noninterest expense was primarily due to a $486,000 increase in salaries and employee benefits that occurred because of a $234,000 decrease in the capitalized cost of new loan originations and an increase in the minimum average hourly wage rate we pay to $15.00 an hour.  As new loans are originated, the Company capitalizes a portion of the cost of new loan originations and reduces the salary expense attributable to such originations.  The Company originated fewer loans in the quarter ended September 30, 2018 compared to the quarter ended September 30, 2017.  The reduction in the number of loans originated lowered the capitalized cost of new loan originations and raised compensation expense.  Starting on January 1, 2018, Territorial Savings Bank also raised the minimum hourly wage rate it pays to $15.00 an hour, to share the benefits it is receiving from the reduction in the federal corporate tax rate from 35.00% in 2017 to 21.00%, effective for 2018.    Equipment expenses also rose by $179,000 during the three months ended September 30, 2018 compared to the three months ended September 30, 2017.  The increase in equipment expenses is primarily due to an increase in repairs and maintenance and information technology expenses.

Income Taxes

Income tax expense for the three months ended September 30, 2018 was $1.27 million compared to $2.58 million for the three months ended September 30, 2017.  The reduction in income tax expense for the three months ended September 30, 2018 is primarily due to the reduction of the federal corporate tax rate from 35.00% in 2017 to 21.00%, effective January 1, 2018.  Income tax expense also includes tax benefits of $336,000 from a $2.40 million contribution to the Company’s defined benefit pension plan.  The tax benefit from the pension contribution occurred as the tax deduction for the pension contribution is calculated at the 35.00% federal corporate tax rate for 2017 rather than the 21.00% corporate tax rate for 2018.

Assets and Equity

Total assets increased to $2.03 billion at September 30, 2018 from $2.00 billion at December 31, 2017.  Investment securities decreased by $23.63 million to $381.16 million at September 30, 2018.  Loans receivable grew by $57.76 million to $1.55 billion at September 30, 2018 from $1.49 billion at December 31, 2017 as residential mortgage loan originations exceeded loan repayments and sales.  The growth in loans receivable was funded primarily by a $46.10 million increase in deposits and a $23.92 million decrease investment securities.  Deposits increased by 2.89% to $1.64 billion at September 30, 2018 from $1.60 billion at December 31, 2017.  Total stockholders’ equity increased to $235.84 million at September 30, 2018 from $234.85 million at December 31, 2017.  The increase in stockholders’ equity occurred as the growth in equity from the current year’s earnings, the exercise of stock options and the allocation of employee stock ownership shares exceeded shares repurchased and the payment of dividends.  

Capital Management

The Company uses share repurchases as part of its overall program to enhance stockholder value.  On June 8, 2018, the Company announced the adoption of its eighth stock repurchase program.  This program allows the Company to repurchase up to $5,000,000 of its outstanding shares, or approximately 1.70% of its total outstanding shares.  During the quarter, the Company repurchased 69,000 shares.  The Company has repurchased 3,215,153 shares in its share repurchase programs.  The number of shares repurchased represents 26.20% of the total shares issued in its initial public offering.

As of September 30, 2018, the Company has 342,535 outstanding, exercisable stock options.  The exercise of options would increase the number of shares outstanding, which among other things, would reduce earnings per share.

Asset Quality

Total delinquent loans 90 days or more past due and not accruing totaled $879,000 (3 loans) at September 30, 2018, compared to $1.63 million (5 loans) at December 31, 2017.  Non-performing assets totaled $2.39 million at September 30, 2018 compared to $4.23 million at December 31, 2017.  The ratio of non-performing assets to total assets decreased to 0.12% at September 30, 2018 from 0.21% at December 31, 2017.  The allowance for loan losses at September 30, 2018 and December 31, 2017 was $2.56 million and represented 0.17% of total loans, compared to $2.55 million and 0.17% of total loans at December 31, 2017.

About Us

Territorial Bancorp Inc., headquartered in Honolulu, Hawaii, is the stock holding company for Territorial Savings Bank.  Territorial Savings Bank is a state chartered savings bank which was originally chartered in 1921 by the Territory of Hawaii.  Territorial Savings Bank conducts business from its headquarters in Honolulu, Hawaii and has 29 branch offices in the state of Hawaii.  For additional information, please visit the Company’s website at:  https://www.territorialsavings.net.

Forward-looking statements - this earnings release contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning. These forward-looking statements include, but are not limited to:

• statements of our goals, intentions and expectations;
• statements regarding our business plans, prospects, growth and operating strategies;
• statements regarding the asset quality of our loan and investment portfolios; and
• estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this earnings release.

The following factors, among others, including those set forth in the Company’s filings with the Securities and Exchange Commission, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

• general economic conditions, either nationally, internationally or in our market areas, that are worse than expected;
• competition among depository and other financial institutions;
• inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;
• adverse changes in the securities markets;
• changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;
• our ability to enter new markets successfully and capitalize on growth opportunities;
• our ability to successfully integrate acquired entities, if any;
• changes in consumer spending, borrowing and savings habits;
• changes in market and other conditions that would affect our ability to repurchase our shares of common stock;
• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;
• changes in our organization, compensation and benefit plans;
• changes in our financial condition or results of operations that reduce capital available to pay dividends;
• changes in the financial condition or future prospects of issuers of securities that we own;
• cyberattacks, computer viruses and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data or disable our systems; and
• technological changes that may be more difficult or expensive than expected.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Contact:  
Walter Ida               
(808) 946-1400