Territorial Bancorp Inc. Announces Second Quarter 2024 Results

Rhea-AI Summary

Territorial Bancorp Inc. (NASDAQ: TBNK) reported a net loss of $775,000, or $(0.09) per diluted share, for Q2 2024. The company announced a $0.01 per share dividend payable on August 23, 2024. Key highlights include:

- Strong capital position with tier one leverage ratio of 11.62% and risk-based capital ratio of 28.98%
- Low non-performing assets ratio of 0.06%
- Robust liquidity with $83 million in cash and access to $951 million in total liquidity
- Pending merger with Hope Bancorp, Inc. valued at approximately $78.6 million
- Net interest income decreased by $2.85 million year-over-year
- Total assets decreased to $2.17 billion from $2.24 billion in December 2023
- Deposits declined by $63.85 million to $1.57 billion

Positive

• Strong capital ratios with tier one leverage at 11.62% and risk-based capital at 28.98%
• Low non-performing assets ratio of 0.06%
• Robust liquidity position with $951 million available
• Pending merger with Hope Bancorp, Inc. valued at $78.6 million
• Increase in interest income on loans and other investments

Negative

• Net loss of $775,000 or $(0.09) per diluted share in Q2 2024
• Net interest income decreased by $2.85 million year-over-year
• Total assets decreased by $70 million from December 2023
• Deposits declined by $63.85 million to $1.57 billion
• Increase in interest expense due to rising short-term interest rates

Financial Analyst

Territorial Bancorp's Q2 2024 results paint a mixed picture. The net loss of $775,000, or $(0.09) per diluted share, is concerning. This loss is primarily driven by increased interest expenses, which rose by $3.66 million year-over-year due to higher short-term interest rates.

On the positive side, the bank maintains strong capital ratios, with a tier one leverage ratio of 11.62% and a risk-based capital ratio of 28.98%, well above regulatory requirements. The 0.06% ratio of non-performing assets to total assets is exceptionally low, indicating robust asset quality.

The pending merger with Hope Bancorp, valued at approximately $78.6 million, could provide strategic benefits, including enhanced scale and potential cost synergies. However, the $0.01 per share dividend suggests caution in cash management.

The $63.85 million decrease in deposits is a red flag, indicating potential challenges in retaining customers in a competitive rate environment. This, combined with the $43.88 million decrease in cash and cash equivalents, suggests pressure on liquidity, despite the reported strong liquidity position.

Overall, while Territorial Bancorp maintains solid asset quality and capital ratios, the net loss, deposit outflows and competitive pressures warrant close monitoring by investors.

Market Research Analyst

The banking sector is facing significant headwinds and Territorial Bancorp's results reflect these industry-wide challenges. The increase in interest expense, particularly on deposits, highlights the intense competition for customer funds in a rising rate environment. This trend is likely to continue, potentially squeezing net interest margins across the sector.

The shift from savings accounts to higher-yielding CDs ($82.08 million increase in average CD balance) indicates customers' growing rate sensitivity. This behavior could lead to higher funding costs for banks, impacting profitability. The industry may need to innovate in product offerings to retain deposits without overly compromising margins.

The $509,000 in merger-related expenses underscores the ongoing consolidation trend in the banking sector, as institutions seek scale to manage regulatory costs and invest in technology. The Hope Bancorp merger, if approved, could be a harbinger of further consolidation, especially among regional banks.

The increase in FDIC premium expenses by $147,000 reflects the regulatory response to recent banking crises. This trend may continue, adding to the cost pressures on smaller banks and potentially driving further industry consolidation.

Territorial's strong capital ratios and low non-performing assets ratio suggest that well-capitalized, conservatively managed banks can navigate the current environment. However, the sector as a whole may face challenges in balancing growth, risk management and profitability in this complex economic landscape.

• The Company’s tier one leverage and risk-based capital ratios were 11.62% and 28.98%, respectively, and the Company is considered to be “well-capitalized” at June 30, 2024.
• Ratio of non-performing assets to total assets of 0.06% at June 30, 2024.
• Strong liquidity position with $83 million in cash balances and access to liquidity totaling $951 million as of June 30, 2024.
  

HONOLULU, Hawaii, July 26, 2024 (GLOBE NEWSWIRE) -- Territorial Bancorp Inc. (NASDAQ: TBNK) (the Company), headquartered in Honolulu, Hawaii, the holding company parent of Territorial Savings Bank, announced a net loss of $775,000, or $(0.09) per diluted share, for the three months ended June 30, 2024.

The Board of Directors approved a dividend of $0.01 per share. The dividend is expected to be paid on August 23, 2024, to stockholders of record as of August 9, 2024.

Hope Bancorp, Inc. Merger Agreement

As previously announced in a joint news release issued April 29, 2024, Hope Bancorp, Inc. (NASDAQ: HOPE) (Hope Bancorp) and the Company signed a definitive merger agreement.  Under the terms of the merger agreement, Company stockholders will receive a fixed exchange ratio of 0.8048 share of Hope Bancorp common stock in exchange for each share of Company common stock they own, in a 100% stock-for-stock transaction valued at approximately $78.6 million, based on the closing price of Hope Bancorp’s common stock on April 26, 2024. The transaction is intended to qualify as a tax-free reorganization for Territorial stockholders.

Upon completion of the transaction, Hope Bancorp intends to maintain the Territorial franchise in Hawaii and preserve the 100-plus year legacy of the Territorial Savings Bank brand name, culture and commitment to the local communities. The branches will continue to do business under the Territorial Savings Bank brand, as a trade name of Bank of Hope.

The transaction is subject to regulatory approvals, the approval of Territorial stockholders, and the satisfaction of other customary closing conditions.

Interest Income

Net interest income decreased by $2.85 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Total interest income was $18.09 million for the three months ended June 30, 2024, compared to $17.29 million for the three months ended June 30, 2023. The $801,000 increase in total interest income was primarily due to a $549,000 increase in interest earned on loans and a $520,000 increase in interest earned on other investments.   The increase in interest income on other investments is primarily due to a $26.24 million increase in the average cash balance with the Federal Reserve Bank (FRB) and a 45 basis point increase in the average interest rate paid on cash balances. The $549,000 increase in interest income on loans resulted from a $4.11 million increase in the average loan balance together with a 16 basis point increase in the average loan yield. The increases in interest income on other investments and loans during the quarter was partially offset by a $268,000 decrease in interest on investment securities which occurred because of a $40.85 million decrease in the average securities balance.

Interest Expense

As a result of prolonged increases in short-term interest rates, total interest expense increased by $3.66 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Interest expense on deposits increased by $3.09 million for the three months ended June 30, 2024, primarily due to an increase in interest expense on certificates of deposit (CD) and savings accounts. Interest expense on CDs rose by $2.04 million for the three months ended June 30, 2024, due to a 100 basis point increase in the average cost of CDs and a $82.08 million increase in the average CD balance. Interest expense on savings accounts rose by $1.05 million for the three months ended June 30, 2024, due to a 62 basis point increase in the average cost of savings accounts which was offset by a $103.85 million decrease in the average savings account balance. The increase in the average cost of CDs and savings accounts occurred as interest rates were raised in response to the increase in market interest rates over that period. The increase in the average balance of CDs occurred as customers transferred balances from lower rate savings accounts to higher rate CDs.   Interest expense on FRB borrowings rose by $594,000 for the three months ended June 30, 2024, as the Company obtained a $50.00 million advance from the FRB in the fourth quarter of 2023. FRB advances were obtained in 2023 to enhance the Company’s liquidity and to fund deposit withdrawals.

Noninterest Expense

Noninterest expense increased by $474,000 for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to a $690,000 increase in general and administrative expenses. General and administrative expenses included $509,000 of merger-related legal and other consulting expenses. Federal Deposit Insurance Corporation (FDIC) premium expense rose by $147,000 for the quarter because of an increase in the FDIC insurance premium rates. The increase in other general and administrative expenses and FDIC premiums was offset by a $398,000 decrease in salaries and employee benefits during the quarter. The decrease in salaries and employee benefits occurred primarily because of decreases in compensation expense, deferred salary expense for originating new loans, supplemental executive retirement plan benefits and accruals for the Employee Stock Ownership Plan (ESOP). The decrease in compensation expense is primarily due to a decrease in the number of employees, especially managers and highly compensated employees, working at the bank. The decrease in deferred salary expense for originating new loans occurred as fewer loans were originated during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The decrease in ESOP accruals is primarily due to a decline in the Company’s share price which is used to calculate the accrual.  

Income Taxes
        
Income tax benefit for the three months ended June 30, 2024 was $285,000 with an effective tax rate of (26.89)% compared to income tax expense of $563,000 with an effective tax rate of 27.33% for the three months ended June 30, 2023. The decrease in income tax expense was primarily due to a $3.12 million decrease in income before income taxes during the quarter.

Balance Sheet

Total assets were $2.17 billion at June 30, 2024 and $2.24 billion at December 31, 2023. Cash and cash equivalents decreased by $43.88 million to $82.78 million at June 30, 2024 from $126.66 million at December 31, 2023. The decrease in cash and cash equivalents was used to fund deposit withdrawals during the quarter ended June 30, 2024. Investment securities, including available for sale securities, decreased by $20.70 million to $685.20 million at June 30, 2024 from $705.90 million at December 31, 2023. The decrease in investment securities occurred because of principal repayments on mortgage-backed securities.

Deposits decreased by $63.85 million from $1.64 billion at December 31, 2023 to $1.57 billion at June 30, 2024. The decrease in deposits occurred as customers sought higher interest rates on their deposits than what the Company offers.

Asset Quality

Credit quality continues to be extremely important as the Bank adheres to its strict underwriting standards. The Company had $87,000 in delinquent mortgage loans 90 days or more past due at June 30, 2024, compared to $227,000 at December 31, 2023. Non-performing assets totaled $1.23 million at June 30, 2024, compared to $2.26 million at December 31, 2023. The ratio of non-performing assets to total assets was 0.06% at June 30, 2024, compared to 0.10% at December 31, 2023. The allowance for credit losses was $5.12 million at June 30, 2024 and December 31,2023, representing 0.39% of total loans. The ratio of the allowance for credit losses to non-performing loans rose to 414.75% at June 30, 2024, compared to 226.59% at December 31, 2023.

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 28 branch offices in the state of Hawaii. For additional information, please visit the Company’s website at: https://www.tsbhawaii.bank.

Additional Information and Where to Find it

In connection with the proposed merger, Hope Bancorp, Inc. filed with the Securities and Exchange Commission (“SEC”) a Registration Statement on Form S-4 on June 21, 2024, which included a Proxy Statement of Territorial Bancorp Inc. that also constitutes a prospectus of Hope Bancorp, Inc. Territorial Bancorp stockholders are encouraged to read the Registration Statement and the Proxy Statement/Prospectus regarding the merger and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information about the proposed merger. Territorial Bancorp stockholders are able to obtain a free copy of the Proxy Statement/Prospectus, as well as other filings containing information about Hope Bancorp and Territorial Bancorp at the SEC’s Internet site (www.sec.gov).

Participants in Solicitation

Territorial Bancorp and its directors, executive officers, management and employees may be deemed to be participants in the solicitation of proxies in respect of the merger. Information concerning Territorial Bancorp’s participants is set forth in the Proxy Statement, dated April 16, 2024, for Territorial Bancorp’s 2024 annual meeting of stockholders as filed with the SEC on Schedule 14A. Additional information regarding the participants in the solicitation of proxies in respect of the proposed transaction and interests of participants of Territorial Bancorp in the solicitation of proxies in respect of the merger is included in the Registration Statement and Proxy Statement/Prospectus filed with the SEC.

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, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

• factors related to the proposed transaction with Hope Bancorp, including the receipt of regulatory and stockholder approvals, and other customary closing conditions;
• general economic conditions, either internationally, nationally 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;
• changes in monetary or fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board;
• our ability to enter new markets successfully and capitalize on growth opportunities;
• our ability to successfully integrate acquired entities, if any;
• changes in consumer demand, spending, borrowing and savings habits;
• 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;
• the timing and amount of revenues that we may recognize;
• the value and marketability of collateral underlying our loan portfolios;
• our ability to retain key employees;
• 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;
• technological change that may be more difficult or expensive than expected;
• the ability of third-party providers to perform their obligations to us;
• the ability of the U.S. Government to manage federal debt limits;
• the quality and composition of our investment portfolio;
• the effect of any pandemic disease, natural disaster, war, act of terrorism, accident or similar action or event;
• changes in market and other conditions that would affect our ability to repurchase our common stock; and
• changes in our financial condition or results of operations that reduce capital available to pay dividends.
  

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

Territorial Bancorp Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share data)
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2024				2023				2024				2023
Interest income:
Loans		$	12,246			$	11,697		$	24,311			$	23,151
Investment securities			4,257				4,525			8,570				9,065
Other investments			1,590				1,070			3,203				1,797
Total interest income			18,093				17,292			36,084				34,013
Interest expense:
Deposits			7,410				4,323			14,189				7,853
Advances from the Federal Home Loan Bank			1,806				1,832			3,616				2,886
Advances from the Federal Reserve Bank			594				—			1,189				—
Securities sold under agreements to repurchase			45				45			91				91
Total interest expense			9,855				6,200			19,085				10,830
Net interest income			8,238				11,092			16,999				23,183
(Reversal of provision) provision for credit losses			(26	)			212			(7	)			112
Net interest income after provision (reversal of provision) for credit losses			8,264				10,880			17,006				23,071
Noninterest income:
Service and other fees			339				414			612				724
Income on bank-owned life insurance			249				207			495				410
Net gain on sale of loans			—				9			—				10
Other			72				60			146				135
Total noninterest income			660				690			1,253				1,279
Noninterest expense:
Salaries and employee benefits			4,745				5,143			9,707				10,547
Occupancy			1,768				1,759			3,506				3,382
Equipment			1,329				1,303			2,652				2,615
Federal deposit insurance premiums			393				246			889				491
Other general and administrative expenses			1,749				1,059			3,290				2,088
Total noninterest expense			9,984				9,510			20,044				19,123
(Loss) Income before income taxes			(1,060	)			2,060			(1,785	)			5,227
Income tax (benefit) expense			(285	)			563			(528	)			1,414
Net (loss) income		$	(775	)		$	1,497		$	(1,257	)		$	3,813
Basic (loss) earnings per share		$	(0.09	)		$	0.17		$	(0.15	)		$	0.44
Diluted (loss) earnings per share		$	(0.09	)		$	0.17		$	(0.15	)		$	0.43
Cash dividends declared per common share		$	0.01			$	0.23		$	0.06			$	0.46
Basic weighted-average shares outstanding			8,605,801				8,620,643			8,596,969				8,697,213
Diluted weighted-average shares outstanding			8,664,806				8,658,927			8,657,731				8,740,699

Territorial Bancorp Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, except per share data)
		June 30,				December 31,
		2024				2023
ASSETS
Cash and cash equivalents		$	82,782			$	126,659
Investment securities available for sale, at fair value			19,095				20,171
Investment securities held to maturity, at amortized cost (fair value of $535,799 and $568,128 at June 30, 2024 and December 31, 2023, respectively)			666,103				685,728
Loans held for sale			312				—
Loans receivable			1,301,057				1,308,552
Allowance for credit losses			(5,118	)			(5,121	)
Loans receivable, net of allowance for credit losses			1,295,939				1,303,431
Federal Home Loan Bank stock, at cost			12,007				12,192
Federal Reserve Bank stock, at cost			3,185				3,180
Accrued interest receivable			6,039				6,105
Premises and equipment, net			7,133				7,185
Right-of-use asset, net			12,063				12,371
Bank-owned life insurance			49,133				48,638
Income taxes receivable			1,063				344
Deferred income tax assets, net			2,799				2,457
Prepaid expenses and other assets			7,760				8,211
Total assets		$	2,165,413			$	2,236,672
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits		$	1,572,751			$	1,636,604
Advances from the Federal Home Loan Bank			237,000				242,000
Advances from the Federal Reserve Bank			50,000				50,000
Securities sold under agreements to repurchase			10,000				10,000
Accounts payable and accrued expenses			22,699				23,334
Lease liability			17,613				17,297
Advance payments by borrowers for taxes and insurance			6,183				6,351
Total liabilities			1,916,246				1,985,586
Stockholders' Equity:
Preferred stock, $0.01 par value; authorized 50,000,000 shares, no shares issued or outstanding			—				—
Common stock, $0.01 par value; authorized 100,000,000 shares; issued and outstanding
8,832,210 shares at June 30, 2024 and 8,826,613 shares at December 31, 2023			88				88
Additional paid-in capital			48,105				48,022
Unearned ESOP shares			(2,203	)			(2,447	)
Retained earnings			209,909				211,644
Accumulated other comprehensive loss			(6,732	)			(6,221	)
Total stockholders’ equity			249,167				251,086
Total liabilities and stockholders’ equity		$	2,165,413			$	2,236,672

	Territorial Bancorp Inc. and Subsidiaries
	Selected Financial Data (Unaudited)
								Three Months Ended
								June 30,
									2024				2023
	Performance Ratios (annualized):
		Return on average assets							(0.14%)				0.27%
		Return on average equity							(1.24%)				2.37%
		Net interest margin on average interest earning assets							1.56%				2.09%
		Efficiency ratio (1)							112.20%				80.72%
								At				At
								March				December
									31, 2024				31, 2023
	Selected Balance Sheet Data:
		Book value per share (2)						$28.21				$28.45
		Stockholders' equity to total assets							11.51%				11.23%
	Asset Quality
	(Dollars in thousands):
		Delinquent loans 90 days past due and not accruing						$87				$227
		Non-performing assets (3)						$1,234				$2,260
		Allowance for credit losses						$5,118				$5,121
		Non-performing assets to total assets							0.06%				0.10%
		Allowance for credit losses to total loans							0.39%				0.39%
		Allowance for credit losses to non-performing assets							414.75%				226.59%
	Note:
	(1) Efficiency ratio is equal to noninterest expense divided by the sum of net interest income and noninterest income
	(2) Book value per share is equal to stockholders' equity divided by number of shares issued and outstanding
	(3) Non-performing assets consist of non-accrual loans and real estate owned. Amounts are net of charge-offs

FAQ

What was Territorial Bancorp's (TBNK) net income for Q2 2024?

Territorial Bancorp Inc. (TBNK) reported a net loss of $775,000, or $(0.09) per diluted share, for the second quarter of 2024.

What dividend did Territorial Bancorp (TBNK) announce for Q2 2024?

Territorial Bancorp (TBNK) announced a dividend of $0.01 per share, expected to be paid on August 23, 2024, to stockholders of record as of August 9, 2024.

What are the details of Territorial Bancorp's (TBNK) merger agreement with Hope Bancorp?

Territorial Bancorp (TBNK) signed a merger agreement with Hope Bancorp, Inc. (HOPE) on April 29, 2024. TBNK stockholders will receive 0.8048 share of Hope Bancorp stock for each TBNK share, in a transaction valued at approximately $78.6 million.

How did Territorial Bancorp's (TBNK) interest income change in Q2 2024?

Territorial Bancorp's (TBNK) total interest income increased by $801,000 to $18.09 million in Q2 2024, primarily due to increases in interest earned on loans and other investments.

What was Territorial Bancorp's (TBNK) asset quality as of June 30, 2024?

As of June 30, 2024, Territorial Bancorp (TBNK) had a low non-performing assets ratio of 0.06%, with non-performing assets totaling $1.23 million. The allowance for credit losses was $5.12 million, representing 0.39% of total loans.