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                         
                             
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