Territorial Bancorp Inc. Announces Third Quarter 2024 Results

Rhea-AI Summary

Territorial Bancorp (NASDAQ: TBNK) reported a net loss of $1.32 million ($0.15 per diluted share) for Q3 2024. The company announced a $0.01 per share dividend payable on November 22, 2024. Key financial metrics include: tier one leverage ratio of 11.57%, risk-based capital ratio of 29.07%, and non-performing assets ratio of 0.11%. Total assets were $2.20 billion, with deposits increasing by $33.68 million to $1.67 billion. The previously announced merger with Hope Bancorp continues to progress, with stockholders set to receive 0.8048 shares of Hope Bancorp stock for each TBNK share in a transaction valued at approximately $78.60 million.

Positive

• Strong capital ratios with tier one leverage at 11.57% and risk-based capital at 29.07%
• Excellent asset quality with non-performing assets ratio at just 0.11%
• Deposits increased by $33.68 million to $1.67 billion
• Interest income increased by $929,000 to $18.31 million

Negative

• Net loss of $1.32 million ($0.15 per diluted share) in Q3 2024
• Net interest income decreased by $2.55 million year-over-year
• Interest expense increased by $3.48 million year-over-year
• Loans receivable decreased by $20.86 million to $1.29 billion

Insights

Financial Analyst

The Q3 2024 results reveal significant challenges for Territorial Bancorp. The company reported a $1.318 million net loss ($0.15 per share) and slashed its dividend to $0.01 per share. Net interest income declined by $2.55 million year-over-year, primarily due to rising interest expenses. The pending merger with Hope Bancorp, valued at approximately $78.60 million, offers a strategic exit amid these headwinds.

Key metrics show mixed signals: strong capital ratios (tier one leverage at 11.57% and risk-based at 29.07%) indicate stability, but declining loan volume and increasing interest expenses suggest ongoing operational pressures. The 0.11% non-performing assets ratio remains healthy, though asset quality metrics have slightly deteriorated from December 2023.

Banking Operations Expert

The shift in deposit composition and rising funding costs are concerning operational trends. Customers are moving funds from savings to higher-yielding CDs, increasing interest expenses by $3.48 million. The $107.30 million increase in CD balances, coupled with higher rates, has significantly pressured margins. The bank's decision to maintain $50 million in FRB borrowings for liquidity support, while reducing FHLB advances, indicates careful balance sheet management but at a higher cost structure.

• The Company’s tier one leverage and risk-based capital ratios were 11.57% and 29.07%, respectively, and the Company is considered to be “well-capitalized” at September 30, 2024.
• Ratio of non-performing assets to total assets of 0.11% at September 30, 2024.

HONOLULU, Oct. 28, 2024 (GLOBE NEWSWIRE) -- Territorial Bancorp Inc. (NASDAQ: TBNK) (the Company), headquartered in Honolulu, Hawaii, the holding company parent of Territorial Savings Bank, reported a net loss of $1,318,000, or $0.15 per diluted share, for the three months ended September 30, 2024.

The Board of Directors approved a dividend of $0.01 per share. The dividend is expected to be paid on November 22, 2024, to stockholders of record as of November 8, 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 $78.60 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 $2.55 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Total interest income was $18.31 million for the three months ended September 30, 2024, compared to $17.38 million for the three months ended September 30, 2023. The $929,000 increase in total interest income was primarily due to an $850,000 increase in interest earned on other investments and a $343,000 increase in interest earned on loans. The increase in interest income on other investments is primarily due to a $58.03 million increase in the average cash balance with the Federal Reserve Bank of San Francisco (FRB) and a 30 basis point increase in the average interest rate paid on cash balances. The $343,000 increase in interest income on loans resulted from a 15 basis point increase in the average loan yield, partially offset by a $14.74 million decrease in the average loan balance. The increases in interest income on other investments and loans during the quarter were partially offset by a $264,000 decrease in interest on investment securities, which occurred because of a $41.07 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 $3.48 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Interest expense on deposits increased by $3.06 million for the three months ended September 30, 2024, primarily due to an increase in interest expense on certificates of deposit (CD) and savings accounts. Interest expense on CDs rose by $2.01 million for the three months ended September 30, 2024, due to a 66 basis point increase in the average cost of CDs and a $107.30 million increase in the average CD balance. The increase in the average cost of CDs and savings accounts occurred as interest rates were raised in response to the increases in market interest rates over that period. Interest expense on savings accounts rose by $1.06 million for the three months ended September 30, 2024, due to a 65 basis point increase in the average cost of savings accounts which was partially offset by a $82.46 million decrease in the average savings account balance. The increase in the average balance of CDs and the decrease in the average balance of savings accounts occurred as customers transferred balances from lower rate savings accounts to higher rate CDs. Interest expense on FRB borrowings rose by $600,000 for the three months ended September 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 $333,000 for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to a $398,000 increase in general and administrative expenses. General and administrative expenses included $324,000 of merger-related legal and consulting expenses and the write off of $135,000 of currency destroyed in the Lahaina wildfire. Federal Deposit Insurance Corporation (FDIC) premium expense rose by $146,000 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 $277,000 decrease in salaries and employee benefits during the quarter. The decrease in salaries and employee benefits occurred primarily because of decreases in compensation expense, supplemental executive retirement plan benefits, Employee Stock Ownership Plan (ESOP) expenses, health insurance and payroll taxes. The decrease in compensation expenses, payroll taxes and health insurance expenses is primarily due to a decrease in the number of employees. The decrease in ESOP expenses is primarily due to a decline in the Company’s share price which is used to calculate the accrual. The decrease in these compensation and employee benefit expenses was partially offset by a decrease in deferred salary expense for originating new loans as fewer loans were originated during the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Income Taxes

Income tax benefit for the three months ended September 30, 2024 was $611,000 with an effective tax rate of (31.67)% compared to income tax expense of $335,000 with an effective tax rate of 27.57% for the three months ended September 30, 2023. The decrease in income tax expense was primarily due to a $3.14 million decrease in income before income taxes during the quarter.

Balance Sheet

Total assets were $2.20 billion at September 30, 2024 and $2.24 billion at December 31, 2023. Investment securities, including available for sale securities, decreased by $31.63 million to $674.27 million at September 30, 2024 from $705.90 million at December 31, 2023. The decrease in investment securities occurred because of principal repayments on mortgage-backed securities. Loans receivable decreased by $20.86 million to $1.29 billion at September 30, 2024 from $1.31 billion at December 31, 2023. The decrease in loans receivable occurred as loan repayments and sales exceeded new loan originations. Cash and cash equivalents increased by $16.47 million to $143.13 million at September 30, 2024 from $126.66 million at December 31, 2023 due to increases in deposits and principal repayments on mortgage-backed securities and on loans receivable.

Deposits increased by $33.68 million from $1.64 billion at December 31, 2023 to $1.67 billion at September 30, 2024. The increase in deposits is primarily due to deposits from state and local governments. The increase in deposits was used with principal repayments on mortgage-backed securities and loans receivable to pay off $65.00 million of maturing Federal Home Loan Bank (FHLB) advances during the quarter. FHLB advances decreased by $65.00 million to $177.00 million at September 30, 2024 from $242.00 million at December 31, 2023.

Asset Quality

Credit quality continues to be extremely important as the Bank adheres to its strict underwriting standards. The Company had no delinquent mortgage loans 90 days or more past due at September 30, 2024, compared to $227,000 at December 31, 2023. Non-performing assets totaled $2.34 million at September 30, 2024, compared to $2.26 million at December 31, 2023. The ratio of non-performing assets to total assets was 0.11% at September 30, 2024, compared to 0.10% at December 31, 2023. The allowance for credit losses was $5.06 million at September 30, 2024, compared to $5.12 million at December 31, 2023, representing 0.39% of total loans for both periods. The ratio of the allowance for credit losses to non-performing loans was 216.12% at September 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).

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								Nine Months Ended
		September 30,								September 30,
		2024				2023				2024			2023
Interest income:
Loans		$	12,229			$	11,886		$	36,540		$	35,037
Investment securities			4,183				4,447			12,753			13,512
Other investments			1,901				1,051			5,104			2,848
Total interest income			18,313				17,384			54,397			51,397
Interest expense:
Deposits			8,469				5,408			22,658			13,261
Advances from the Federal Home Loan Bank			1,714				1,896			5,330			4,782
Advances from the Federal Reserve Bank			600				—			1,789			—
Securities sold under agreements to repurchase			46				46			137			137
Total interest expense			10,829				7,350			29,914			18,180
Net interest income			7,484				10,034			24,483			33,217
Provision (reversal of provision) for credit losses			29				(259	)		22			(147	)
Net interest income after provision (reversal of provision) for credit losses			7,455				10,293			24,461			33,364
Noninterest income:
Service and other fees			273				298			885			1,022
Income on bank-owned life insurance			255				218			750			628
Net gain on sale of loans			19				—			19			10
Other			69				73			215			208
Total noninterest income			616				589			1,869			1,868
Noninterest expense:
Salaries and employee benefits			4,899				5,176			14,606			15,723
Occupancy			1,813				1,819			5,319			5,201
Equipment			1,335				1,263			3,987			3,878
Federal deposit insurance premiums			392				246			1,281			737
Other general and administrative expenses			1,561				1,163			4,851			3,251
Total noninterest expense			10,000				9,667			30,044			28,790
(Loss) Income before income taxes			(1,929	)			1,215			(3,714	)		6,442
Income tax (benefit) expense			(611	)			335			(1,139	)		1,749
Net (loss) income		$	(1,318	)		$	880		$	(2,575	)	$	4,693
Basic (loss) earnings per share		$	(0.15	)		$	0.10		$	(0.30	)	$	0.54
Diluted (loss) earnings per share		$	(0.15	)		$	0.10		$	(0.30	)	$	0.53
Cash dividends declared per common share		$	0.01			$	0.23		$	0.07		$	0.69
Basic weighted-average shares outstanding			8,618,155				8,577,632			8,604,082			8,656,915
Diluted weighted-average shares outstanding			8,618,155				8,610,289			8,604,082			8,705,784

Territorial Bancorp Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, except per share data)
		September 30,				December 31,
		2024				2023
ASSETS
Cash and cash equivalents		$	143,128			$	126,659
Investment securities available for sale, at fair value			19,920				20,171
Investment securities held to maturity, at amortized cost (fair value of $552,222 and $568,128 at September 30, 2024 and December 31, 2023, respectively)			654,349				685,728
Loans receivable			1,287,688				1,308,552
Allowance for credit losses			(5,055	)			(5,121	)
Loans receivable, net of allowance for credit losses			1,282,633				1,303,431
Federal Home Loan Bank stock, at cost			9,307				12,192
Federal Reserve Bank stock, at cost			3,187				3,180
Accrued interest receivable			6,056				6,105
Premises and equipment, net			7,257				7,185
Right-of-use asset, net			11,613				12,371
Bank-owned life insurance			49,388				48,638
Income taxes receivable			1,832				344
Deferred income tax assets, net			2,465				2,457
Prepaid expenses and other assets			7,297				8,211
Total assets		$	2,198,432			$	2,236,672
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits		$	1,670,281			$	1,636,604
Advances from the Federal Home Loan Bank			177,000				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			22,176				23,334
Lease liability			17,090				17,297
Advance payments by borrowers for taxes and insurance			3,148				6,351
Total liabilities			1,949,695				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 and 8,826,613 shares at September 30, 2024 and December 31, 2023, respectively			88				88
Additional paid-in capital			48,163				48,022
Unearned ESOP shares			(2,079	)			(2,447	)
Retained earnings			208,504				211,644
Accumulated other comprehensive loss			(5,939	)			(6,221	)
Total stockholders’ equity			248,737				251,086
Total liabilities and stockholders’ equity		$	2,198,432			$	2,236,672

	Territorial Bancorp Inc. and Subsidiaries
	Selected Financial Data (Unaudited)
								Three Months Ended
								September 30,
									2024				2023
	Performance Ratios (annualized):
		Return on average assets							(0.24%	)			0.16%
		Return on average equity							(2.09%	)			1.39%
		Net interest margin on average interest earning assets							1.42%				1.90%
		Efficiency ratio (1)							123.46%				91.00%
								At				At
								September				December
									30, 2024				31, 2023
	Selected Balance Sheet Data:
		Book value per share (2)						$	28.16			$	28.45
		Stockholders' equity to total assets							11.31%				11.23%
	Asset Quality
	(Dollars in thousands):
		Delinquent loans 90 days past due and not accruing						$	0			$	227
		Non-performing assets (3)						$	2,339			$	2,260
		Allowance for credit losses						$	5,055			$	5,121
		Non-performing assets to total assets							0.11%				0.10%
		Allowance for credit losses to total loans							0.39%				0.39%
		Allowance for credit losses to non-performing assets							216.12%				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) Q3 2024 earnings per share?

Territorial Bancorp reported a loss of $0.15 per diluted share for Q3 2024.

What is the exchange ratio for TBNK shares in the Hope Bancorp merger?

TBNK stockholders will receive 0.8048 shares of Hope Bancorp common stock for each TBNK share they own.

What dividend did TBNK declare for Q3 2024?

TBNK declared a dividend of $0.01 per share, payable on November 22, 2024, to stockholders of record as of November 8, 2024.

What was TBNK's non-performing assets ratio as of September 30, 2024?

TBNK's non-performing assets ratio was 0.11% as of September 30, 2024.