Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
TBNK > SEC Filings for TBNK > Form 10-Q on 8-Aug-2013All Recent SEC Filings

Show all filings for TERRITORIAL BANCORP INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for TERRITORIAL BANCORP INC.


8-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report 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 Quarterly Report.

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:

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;

our ability to enter new markets successfully and capitalize on growth opportunities;


Table of Contents

our ability to successfully integrate acquired entities, if any;

changes in consumer 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;

changes in our financial condition or results of operations that reduce capital available to pay dividends; and

changes in the financial condition or future prospects of issuers of securities that we own.

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.

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in Territorial Bancorp Inc.'s Annual Report on Form 10-K for the year ended December 31, 2012.

Comparison of Financial Condition at June 30, 2013 and December 31, 2012

Assets. At June 30, 2013, our assets were $1.562 billion, a decrease of $12.2 million, or 0.8%, from $1.575 billion at December 31, 2012. The decrease in assets was primarily the result of a decrease in cash and cash equivalents, which was partially offset by increases in loans receivable and investment securities.

Cash and Cash Equivalents. Cash and cash equivalents were $87.2 million at June 30, 2013, a decrease of $95.6 million since December 31, 2012. During the six months ended June 30, 2013, cash was used to fund a $47.7 million increase in total loans and a $28.0 million increase in investment securities, and to pay off $5.0 million of FHLB advances and $5.0 million of securities sold under agreements to repurchase. In addition, the Company repurchased $7.7 million of common stock and paid $2.6 million of common stock dividends.

Loans. Total loans, including $3.0 million of loans held for sale, were $824.7 million at June 30, 2013, or 52.8% of total assets. During the six months ended June 30, 2013, the loan portfolio increased by $47.7 million, or 6.1%. The increase in the loan portfolio occurred as the production of new one- to four-family residential loans exceeded principal repayments and loan sales. The continued high level of loan originations is due primarily to the current interest rate environment.

Securities. At June 30, 2013, our securities portfolio totaled $582.7 million, or 37.3% of total assets. At June 30, 2013, all of such securities were classified as held-to-maturity and none of the underlying collateral consisted of subprime or Alt-A (traditionally defined as nonconforming loans having less than full documentation) loans. During the six months ended June 30, 2013, our securities portfolio increased by $28.0 million, or 5.0%, as purchases exceeded repayments and sales.


Table of Contents

At June 30, 2013, we owned trust preferred securities with a carrying value of $536,000. This portfolio consists of two securities, which represent investments in a pool of debt obligations issued primarily by holding companies for Federal Deposit Insurance Corporation-insured financial institutions.

The trust preferred securities market is considered to be inactive as only three transactions have occurred over the past 18 months in the same tranche of securities owned by the Company. The Company used a discounted cash flow model to determine whether these securities are other-than-temporarily impaired. The assumptions used in preparing the discounted cash flow model include the following: estimated discount rates, estimated deferral and default rates on collateral, and estimated cash flows. We used a discount rate equal to three-month LIBOR plus 20.00% and calculated a fair value estimate of $15.13 per $100 of par value for PreTSL XXIII.

Based on the Company's review, the Company's investment in trust preferred securities did not incur additional impairment during the quarter ending June 30, 2013.

It is reasonably possible that the fair values of the trust preferred securities could decline in the near term if the overall economy and the financial condition of some of the issuers continue to deteriorate and the liquidity of these securities remains low. As a result, there is a risk that the Company's remaining amortized cost basis of $1.1 million on its trust preferred securities could be credit-related other-than-temporarily impaired in the near term. The impairment could be material to the Company's consolidated statements of income.

Deposits. Deposits remained steady at $1.235 billion at June 30, 2013, a decrease of $2.4 million from $1.238 billion at December 31, 2012.

Borrowings. Our borrowings consist of advances from the Federal Home Loan Bank of Seattle and funds borrowed under securities sold under agreements to repurchase. During the six months ended June 30, 2013, our borrowings decreased by $10.0 million, or 11.1%, to $80.0 million due to the net pay off of $5.0 million of FHLB advances and $5.0 million of securities sold under agreements to repurchase. We have not required any other borrowings to fund our operations. Instead, we have primarily funded our operations with the net proceeds from our stock offering, additional deposits, proceeds from loan and security sales and principal repayments on loans and mortgage-backed securities.

Average Balances and Yields

The following tables set forth average balance sheets, average yields and rates, and certain other information at and for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of net deferred costs, discounts and premiums that are amortized or accreted to interest income.


Table of Contents

                                           For the Three Months Ended June 30,
                                       2013                                   2012
                         Average                                Average
                       Outstanding                  Yield/    Outstanding                  Yield/
                         Balance       Interest    Rate (1)     Balance       Interest    Rate (1)
                                                 (Dollars in thousands)

Interest-earning
assets:
Loans:
Real estate loans:
First mortgage:
One- to four-family
residential (2)        $    773,771   $    8,691    4.49%     $    681,732   $    8,521    5.00%
Multi-family
residential                   5,702           83     5.82            6,896          106     6.15
Construction,
commercial and other         12,963          152     4.69           12,724          172     5.41
Home equity loans
and lines of credit          14,976          202     5.40           16,023          235     5.87
Other loans                   4,673           71     6.08            5,010           76     6.07
Total loans                 812,085        9,199     4.53          722,385        9,110     5.04
Investment
securities:
U.S. government
sponsored
mortgage-backed
securities (2)              567,134        4,518     3.19          639,096        6,293     3.94
Trust preferred
securities                      458            0     0.00               32            0     0.00
Total securities            567,592        4,518     3.18          639,128        6,293     3.94
Other                       127,222           66     0.21          158,320           87     0.22
Total
interest-earning
assets                    1,506,899       13,783     3.66        1,519,833       15,490     4.08
Non-interest-earning
assets                       60,197                                 54,369
Total assets           $  1,567,096                           $  1,574,202

Interest-bearing
liabilities:
Savings accounts       $    887,430   $      756    0.34%     $    842,987   $    1,155    0.55%
Certificates of
deposit                     190,265          311     0.65          218,181          417     0.76
Money market
accounts                        774            1     0.52              497            1     0.80
Checking and Super
NOW accounts                127,346            6     0.02          115,316            9     0.03
Total
interest-bearing
deposits                  1,205,815        1,074     0.36        1,176,981        1,582     0.54
Federal Home Loan
Bank advances                13,406           65     1.94           20,002          104     2.08
Securities sold
under agreements to
repurchase                   65,000          471     2.90          100,300          831     3.31
Total
interest-bearing
liabilities               1,284,221        1,610     0.50        1,297,283        2,517     0.78
Non-interest-bearing
liabilities                  62,209                                 58,146
Total liabilities         1,346,430                              1,355,429
Stockholders' equity        220,666                                218,773
Total liabilities
and stockholders'
equity                 $  1,567,096                           $  1,574,202

Net interest income                   $   12,173                             $   12,973
Net interest rate
spread (3)                                          3.16%                                  3.30%
Net interest-earning
assets (4)             $    222,678                           $    222,550
Net interest margin
(5)                                                 3.23%                                  3.41%
Interest-earning
assets to
interest-bearing
liabilities                  117.34 %                               117.16 %



(1) Annualized

(2) Average balance includes loans or investments available for sale.

(3) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(5) Net interest margin represents net interest income divided by average total interest-earning assets.


Table of Contents

                                            For the Six Months Ended June 30,
                                       2013                                   2012
                         Average                                Average
                       Outstanding                  Yield/    Outstanding                  Yield/
                         Balance       Interest    Rate (1)     Balance       Interest    Rate (1)
                                                 (Dollars in thousands)

Interest-earning
assets:
Loans:
Real estate loans:
First mortgage:
One- to four-family
residential (2)        $    761,986   $   17,371    4.56%     $    672,628   $   16,946    5.04%
Multi-family
residential                   6,273          182     5.80            6,719          207     6.16
Construction,
commercial and other         13,363          329     4.92           11,980          342     5.71
Home equity loans
and lines of credit          14,910          406     5.45           16,494          485     5.88
Other loans                   4,705          141     5.99            5,190          159     6.13
Total loans                 801,237       18,429     4.60          713,011       18,139     5.09
Investment
securities:
U.S. government
sponsored
mortgage-backed
securities (2)              556,132        9,072     3.26          642,259       12,809     3.99
Trust preferred
securities                      440            0     0.00               32            0     0.00
Total securities            556,572        9,072     3.26          642,291       12,809     3.99
Other                       152,971          164     0.21          157,036          171     0.22
Total
interest-earning
assets                    1,510,780       27,665     3.66        1,512,338       31,119     4.12
Non-interest-earning
assets                       58,283                                 53,605
Total assets           $  1,569,063                           $  1,565,943

Interest-bearing
liabilities:
Savings accounts       $    885,111   $    1,544    0.35%     $    833,048   $    2,246    0.54%
Certificates of
deposit                     194,026          635     0.65          219,881          887     0.81
Money market
accounts                        710            1     0.28              514            1     0.39
Checking and Super
NOW accounts                124,945           14     0.02          112,582           18     0.03
Total
interest-bearing
deposits                  1,204,792        2,194     0.36        1,166,025        3,152     0.54
Federal Home Loan
Bank advances                16,685          168     2.01           20,001          208     2.08
Securities sold
under agreements to
repurchase                   65,746          948     2.88          103,855        1,735     3.34
Total
interest-bearing
liabilities               1,287,223        3,310     0.51        1,289,881        5,095     0.79
Non-interest-bearing
liabilities                  61,890                                 58,298
Total liabilities         1,349,113                              1,348,179
Stockholders' equity        219,950                                217,764
Total liabilities
and stockholders'
equity                 $  1,569,063                           $  1,565,943

Net interest income                   $   24,355                             $   26,024
Net interest rate
spread (3)                                          3.15%                                  3.33%
Net interest-earning
assets (4)             $    223,557                           $    222,457
Net interest margin
(5)                                                 3.22%                                  3.44%
Interest-earning
assets to
interest-bearing
liabilities                  117.37 %                               117.25 %



(1) Annualized

(2) Average balance includes loans or investments available for sale.

(3) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(5) Net interest margin represents net interest income divided by average total interest-earning assets.


Table of Contents

Comparison of Operating Results for the Three Months Ended June 30, 2013 and 2012

General. Net income decreased by $185,000, or 4.8%, to $3.7 million for the three months ended June 30, 2013 from $3.8 million for the three months ended June 30, 2012. The decrease in net income was primarily caused by a $1.7 million decrease in interest and dividend income, a $63,000 increase in provision for loan losses, a $97,000 increase in non-interest expense and a $129,000 increase in income taxes. This was partially offset by a $907,000 decrease in interest expense and a $904,000 increase in noninterest income.

Net Interest Income. Net interest income decreased by $800,000, or 6.2%, to $12.2 million for the three months ended June 30, 2013 compared to $13.0 million for the three months ended June 30, 2012. Interest and dividend income decreased by $1.7 million, or 11.0%, due primarily to a 42 basis point decrease in the average yield on interest-earning assets and a $12.9 million decrease in the average balance of interest-earning assets. Interest expense decreased by $907,000, or 36.0%, due to a 28 basis point decrease in the average cost of interest-bearing liabilities and a $13.1 million decrease in the average balance. The interest rate spread and net interest margin were 3.16% and 3.23%, respectively, for the three months ended June 30, 2013, compared to 3.30% and 3.41%, respectively, for the three months ended June 30, 2012.

Interest and Dividend Income. Interest and dividend income decreased by $1.7 million, or 11.0%, to $13.8 million for the three months ended June 30, 2013 from $15.5 million for the three months ended June 30, 2012. Interest income on investment securities decreased by $1.8 million, or 28.2%, to $4.5 million for the three months ended June 30, 2013 from $6.3 million for the three months ended June 30, 2012. The decrease in interest income on securities occurred primarily because of a 76 basis point decrease in the average securities yield and a $71.5 million decrease in the average securities balance. The decline in the average yield on investments occurred as repayments and sales of higher yielding mortgage-backed securities were reinvested at lower yields. Interest income on loans increased by $89,000, or 1.0%, to $9.2 million for the three months ended June 30, 2013 from $9.1 million for the three months ended June 30, 2012. The increase in interest income on loans occurred because the average balance of loans grew by $89.7 million, or 12.4%, as new loan originations exceeded loan repayments and loan sales. The increase in average balance was partially offset by a 51 basis point decline in the average loan yield to 4.53% for the three months ended June 30, 2013 compared to 5.04% for the three months ended June 30, 2012. The decline in the average yield on loans occurred because of repayments on higher-yielding loans and additions of new loans with lower yields to the loan portfolio.

Interest Expense. Interest expense decreased by $907,000, or 36.0%, to $1.6 million for the three months ended June 30, 2013 compared to $2.5 million for the three months ended June 30, 2012. Interest expense on deposits decreased by $508,000, or 32.1%, to $1.1 million for the three months ended June 30, 2013 from $1.6 million for the three months ended June 30, 2012. During the three months ended June 30, 2013, interest expense on savings accounts and certificates of deposit declined by $399,000 and $106,000, respectively, compared to the three months ended June 30, 2012. During the three months ended June 30, 2013, the average interest rate on savings accounts and certificates of deposit decreased by 21 and 11 basis points, respectively, compared to the three months ended June 30, 2012. We lowered the rates we pay on savings accounts and certificates of deposit due to declining market interest rates and increased liquidity from principal repayments on loans and mortgage-backed securities. However, the interest rates on our savings accounts are still higher than market interest rates in Hawaii. The decrease in the average interest rate on deposits was partially offset by a $28.8 million, or 2.4%, increase in the average balance of deposit accounts. Interest expense on securities sold under agreements to repurchase decreased by $360,000, or 43.3%, during the three months ended June 30, 2013 compared to the three


Table of Contents

months ended June 30, 2012. The decrease was caused by a $35.3 million, or 35.2%, decrease in the average outstanding balance and a 41 basis point decrease in the average interest rate to 2.90% for the three months ended June 30, 2013 compared to 3.31% for the three months ended June 30, 2012. The decrease in the average outstanding balance was due to the payoff of $25.3 million of borrowings since June 30, 2012. Interest expense on FHLB advances decreased by $39,000, or 37.5%, during the three months ended June 30, 2013 compared to the three months ended June 30, 2012. The decrease was caused by a $6.6 million, or 33.0%, decrease in the average outstanding balance and a 14 basis point decrease in the average interest rate to 1.94% for the three months ended June 30, 2013 compared to 2.08% for the three months ended June 30, 2012. The decrease in the average outstanding balance occurred when $10.0 million of maturing advances were paid off and a new $5.0 million advance was obtained during the three months ended June 30, 2013.

Provision for Loan Losses. We recorded reversals of provisions for loan losses of $16,000 and $79,000 for the three months ended June 30, 2013 and 2012, respectively. The reversals of provisions for loan losses reflected a net charge-off of $29,000 for the three months ended June 30, 2013 and a net recovery of $7,000 for the three months ended June 30, 2012. The reversals recorded resulted in ratios of the allowance for loan losses to total loans of 0.20% at June 30, 2013 and 2012. Nonaccrual loans totaled $5.4 million at June 30, 2013, or 0.65% of total loans at that date, compared to $2.9 million of nonaccrual loans at June 30, 2012, or 0.39% of total loans at that date. Nonaccrual loans as of June 30, 2013 and 2012 consisted primarily of one- to four-family residential real estate loans. To the best of our knowledge, we have provided for all losses that are both probable and reasonable to estimate at June 30, 2013 and 2012. For additional information see footnote (6), "Loans Receivable and Allowance for Loan Losses" in our Notes to Consolidated Financial Statements.

Noninterest Income. The following table summarizes changes in noninterest income between the three months ended June 30, 2013 and 2012.

                               Three Months Ended
                                    June 30,                          Change
                             2013             2012           $ Change         % Change
                                                 (In thousands)

Service fees on loan
and deposit accounts     $         568    $         480    $          88            18.3 %
Income on bank-owned
life insurance                     258              234               24            10.3 %
Gain on sale of
investment securities            1,024              172              852           495.3 %
Gain on sale of loans              380              406              (26 )          (6.4 )%
Other                               81              115              (34 )         (29.6 )%
Total                    $       2,311    $       1,407    $         904            64.3 %

Noninterest income rose by $904,000 for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. During the three months ended June 30, 2013 and 2012, we sold $14.5 million and $2.8 million, respectively, of held-to-maturity investment securities and recognized gains of $1.0 million and $172,000, respectively. The sale of these securities, for which the Company had already received a substantial portion of the outstanding principal (at least 85%), is in accordance with the Investment topic of the FASB ASC and will not affect the historical cost basis used to account for the remaining securities in the held-to-maturity portfolio.


Table of Contents

Noninterest Expense. The following table summarizes changes in noninterest expense between the three months ended June 30, 2013 and 2012.

                               Three Months Ended
                                    June 30,                          Change
                             2013             2012           $ Change         % Change
                                                 (In thousands)

Salaries and employee
benefits                 $       5,012    $       5,041    $         (29 )          (0.6 )%
Occupancy                        1,333            1,290               43             3.3 %
Equipment                          851              811               40             4.9 %
Federal deposit
insurance premiums                 191              192               (1 )          (0.5 )%
Loss on
extinguishment of
debt                                 0              198             (198 )        (100.0 )%
Other general and
administrative
expenses                         1,208              966              242            25.1 %
Total                    $       8,595    $       8,498    $          97             1.1 %

Noninterest expense rose by $97,000 for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. Other general and administrative expenses increased by $242,000 to $1.2 million for the three months ended June 30, 2013 from 966,000 for the three months ended June 30, . . .

  Add TBNK to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for TBNK - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.