Territorial Bancorp Inc. Announces 2015 Results

Territorial Bancorp Inc. (NASDAQ:TBNK) (the “Company”), headquartered in Honolulu, Hawaii, the holding company parent of Territorial Savings Bank, announced net income of $3.70 million or $0.40 per diluted share for the three months ended December 31, 2015, compared to $3.45 million or $0.37 per diluted share for the three months ended December 31, 2014.

The Company also announced that its Board of Directors approved an increase in the quarterly cash dividend from $0.17 per share to $0.18 per share. The dividend is expected to be paid on February 25, 2016 to stockholders of record as of February 11, 2016.

Allan Kitagawa, Chairman and Chief Executive Officer, said, “In 2015, loans and deposits continued to grow. The growth of Hawaii’s economy has allowed us to expand our customer base by offering mortgage loans and deposits with attractive interest rates. Our net interest income has increased because of the growth in our balance sheet. Our strong performance will allow us to pay our 25th consecutive quarterly dividend on February 25, 2016.”

Interest Income

Net interest income after provision for loan losses increased to $14.32 million for the three months ended December 31, 2015 from $13.36 million for the three months ended December 31, 2014. Total interest and dividend income was $16.22 million for the three months ended December 31, 2015 compared to $15.09 million for the three months ended December 31, 2014. The $1.14 million growth in interest and dividend income was primarily due to a $1.84 million increase in interest earned on loans which resulted from the $220.44 million increase in loans receivable. The increase in interest income on loans was offset by a $719,000 decline in interest income from investment securities due to a $79.86 million decline in our investment securities portfolio that occurred as repayments and sales exceeded securities purchased.

Interest Expense and Provision for Loan Losses

Total interest expense increased to $1.82 million for the three months ended December 31, 2015 from $1.56 million for the three months ended December 31, 2014. Total interest expense on deposits increased to $1.34 million for the three months ended December 31, 2015 from $1.14 million for the three months ended December 31, 2014 due to an $85.42 million increase in total deposits. Interest expense on advances from the Federal Home Loan Bank rose by $192,000 due to a $54.00 million increase in Federal Home Loan Bank advances. Interest expense on securities sold under agreements to repurchase declined by $125,000 because of a $17.00 million decrease in these borrowings. During the quarter ended December 31, 2015, the provision for loan losses was $89,000 compared to $172,000 for the quarter ended December 31, 2014.

Noninterest Income

Noninterest income was $1.23 million for the three months ended December 31, 2015 compared to $1.14 million for the three months ended December 31, 2014. The increase in noninterest income was primarily due to a $140,000 increase in service fees on loan and deposit accounts. The increase in service fees on loans and deposit accounts was offset by a $50,000 decrease in the gain on sale of loans for the three months ended December 31, 2015 as compared to the three months ended December 31, 2014.

Noninterest Expense

Noninterest expense was $9.39 million for the three months ended December 31, 2015 compared to $8.62 million for the three months ended December 31, 2014. Salaries and employee benefits was $5.74 million for the three months ended December 31, 2015 compared to $4.87 million for the three months ended December 31, 2014. The increase in salaries and employee benefits expense was due to higher loan officer compensation that resulted primarily from the increase in new loan originations and the hiring of additional staff to originate loans and to handle the additional workload associated with an increase in regulatory requirements. The rise in these expenses was offset by a decrease of $167,000 in other general and administrative expenses.

Year Ended December 31, 2015 Results

Net income for 2015 was $14.75 million compared to $14.10 million in 2014. The increase in net income can be attributed primarily to an increase in net interest income, which was partially offset by a decrease in non-interest income and increases in noninterest expense and income taxes.

For the year ended December 31, 2015, net interest income was $56.58 million compared to $53.50 million for the year ended December 31, 2014. Total interest and dividend income increased to $63.09 million for the year ended December 31, 2015 from $59.62 million for the year ended December 31, 2014. Interest income on loans grew by $6.28 million to $45.90 million for the year ended December 31, 2015, primarily because of a $220.44 million increase in the loan portfolio. This increase was offset by a reduction of $2.88 million in interest earned on investment securities which occurred due to a $79.86 million reduction in our investment securities as security repayments and sales exceeded purchases. Total interest expense increased to $6.52 million for the year ended December 31, 2015 from $6.12 million for the year ended December 31, 2014, primarily due to an increase in interest paid on deposits and on Federal Home Loan Bank advances. Interest expense on deposits rose by $347,000 to $4.82 million for the year ended December 31, 2015 because of the $85.42 million growth in deposits. Interest expense on FHLB advances grew by $431,000 to $697,000 for the year ended December 31, 2015 because of a $54.00 million increase in advances. The increase in interest expense on deposits and FHLB advances were partially offset by a $381,000 decrease in interest expense on securities sold under agreements to repurchase, as we paid-off $17.00 million of these borrowings. Provision for loan losses increased to $455,000 for the year ended December 31, 2015 compared to $360,000 for the year ended December 31, 2014 primarily because of the growth in our loan portfolio.

Noninterest income was $4.91 million for the year ended December 31, 2015 compared to $5.18 million for the year ended December 31, 2014. This decrease in noninterest income was primarily due to a reduction in the gain on sale of investment securities. The decrease in gain on sale of investments was partially offset by an increase in the gains on sale of loans, service fees on loan and deposit accounts and other noninterest income.

Noninterest expense was $36.50 million for the year ended December 31, 2015 compared to $35.31 million for the year ended December 31, 2014. The increase in noninterest expense was primarily due to an increase in salaries and employee benefits, which resulted from the increase in loan officer compensation for new loan originations, the hiring of additional staff to originate new loans and to handle the additional workload associated with an increase in regulatory requirements. The increase in loan originations and the hiring of additional staff also contributed to an increase in occupancy, equipment and other general and administrative expenses.

Assets and Equity

Total assets increased to $1.821 billion at December 31, 2015 from $1.692 billion at December 31, 2014. Loans receivable grew by $220.44 million or 22.8% to $1.189 billion at December 31, 2015 from $968.21 million at December 31, 2014 as residential mortgage loan originations exceeded loan repayments and sales. The growth in loans receivable was funded primarily by an $85.42 million increase in deposits, $79.86 million received from the net repayments and sales of investment securities and a $54.00 million increase in Federal Home Loan Bank advances. Securities sold under agreements to repurchase decreased to $55.00 million at December 31, 2015 from $72.00 million at December 31, 2014. Deposits increased to $1.445 billion at December 31, 2015 from $1.360 billion at December 31, 2014. Total stockholders’ equity increased to $219.64 million at December 31, 2015 from $216.38 million at December 31, 2014. The increase in stockholders’ equity occurred as the Company’s net income for the year exceeded share repurchases and dividends paid to shareholders.

Share Repurchases

As of December 31, 2015, the Company had completed its sixth share buyback program and had repurchased 3,099,253 shares of stock or 25.33% of the shares issued in its initial public offering in 2009. The Company uses share repurchases as part of its overall program to enhance shareholder value. In evaluating our share buyback programs, the Company considers the impact of repurchases on its tangible book value per share. At the Company’s current share price level, the amount of dilution to tangible book value may limit the Company’s repurchasing of shares. The Company continues to closely monitor this issue and depending on market and other conditions, will decide if and when it makes financial sense to adopt another share buyback program.

Asset Quality

Total delinquent loans 90 days or more past due and not accruing totaled $1.62 million (7 loans) at December 31, 2015, compared to $758,000 (4 loans) at December 31, 2014. Non-performing assets totaled $5.42 million at December 31, 2015 compared to $4.45 million at December 31, 2014. The ratio of non-performing assets to total assets rose to 0.30% at December 31, 2015 from 0.26% at December 31, 2014 but continues to remain one of the lowest in the country. The allowance for loan losses at December 31, 2015 was $2.17 million and represented 0.18% of total loans compared to $1.69 million and 0.17% of total loans as of December 31, 2014.

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.territorialsavings.net.

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

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

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

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

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

TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)

			Three Months Ended				Year Ended
			December 31				December 31
				2015		2014		2015		2014
Interest and dividend income:
	Loans		$	12,142	$	10,300	$	45,903	$	39,620
	Investment securities			3,978		4,697		16,873		19,752
	Other investments			103		90		316		243
		Total interest and dividend income		16,223		15,087		63,092		59,615
Interest expense:
	Deposits			1,335		1,142		4,821		4,474
	Advances from the Federal Home Loan Bank			259		67		697		266
	Securities sold under agreements to repurchase			221		346		997		1,378
		Total interest expense		1,815		1,555		6,515		6,118
		Net interest income		14,408		13,532		56,577		53,497
Provision for loan losses				89		172		455		360
		Net interest income after provision for loan losses		14,319		13,360		56,122		53,137
Noninterest income:
	Service fees on loan and deposit accounts			584		444		2,161		2,022
	Income on bank-owned life insurance			256		263		1,026		1,060
	Gain on sale of investment securities			225		216		701		1,263
	Gain on sale of loans			63		113		503		396
	Other			101		106		520		436
		Total noninterest income		1,229		1,142		4,911		5,177
Noninterest expense:
	Salaries and employee benefits			5,738		4,870		21,497		20,932
	Occupancy			1,461		1,456		5,809		5,761
	Equipment			971		926		3,894		3,701
	Federal deposit insurance premiums			223		206		857		808
	Other general and administrative expenses			993		1,160		4,442		4,106
		Total noninterest expense		9,386		8,618		36,499		35,308
		Income before income taxes		6,162		5,884		24,534		23,006
Income taxes				2,463		2,430		9,786		8,909
		Net income	$	3,699	$	3,454	$	14,748	$	14,097

Basic earnings per share			$	0.41	$	0.37	$	1.63	$	1.53
Diluted earnings per share			$	0.40	$	0.37	$	1.59	$	1.51
Cash dividends declared per common share			$	0.27	$	0.26	$	0.76	$	0.70
Basic weighted-average shares outstanding				9,033,055		9,273,524		9,073,015		9,211,409
Diluted weighted-average shares outstanding				9,300,228		9,426,484		9,263,267		9,317,323

TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, except share data)
ASSETS			12/31/2015			12/31/2014
Cash and cash equivalents			$	65,919		$	75,060
Investment securities held to maturity, at amortized cost
	(fair value of $497,982 and $586,710 at December 31, 2015 and 2014, respectively)			493,059			572,922
Loans held for sale				2,139			1,048
Loans receivable, net				1,188,649			968,212
Federal Home Loan Bank stock, at cost				4,790			11,234
Federal Reserve Bank stock, at cost				3,022			2,925
Accrued interest receivable				4,684			4,436
Premises and equipment, net				4,903			5,629
Real estate owned				-			-
Bank-owned life insurance				42,328			41,303
Current income taxes receivable				-			-
Deferred income taxes receivable				9,378			7,254
Prepaid expenses and other assets				2,270			1,874
		Total assets	$	1,821,141		$	1,691,897
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
	Deposits		$	1,445,103		$	1,359,679
	Advances from the Federal Home Loan Bank			69,000			15,000
	Securities sold under agreements to repurchase			55,000			72,000
	Accounts payable and accrued expenses			25,178			24,098
	Current income taxes payable			2,095			826
	Advance payments by borrowers for taxes and insurance			5,124			3,916
		Total liabilities		1,601,500			1,475,519

Stockholders' Equity:
	Preferred stock, $.01 par value; authorized 50,000,000 shares, no shares issued or outstanding			-			-
	Common stock, $.01 par value; authorized 100,000,000 shares; issued and outstanding 9,659,685 and 9,919,064 shares at December 31, 2015 and 2014, respectively			96			99
	Additional paid-in capital			70,118			75,229
	Unearned ESOP shares			(6,361	)		(6,851	)
	Retained earnings			161,024			153,289
	Accumulated other comprehensive loss			(5,236	)		(5,388	)
		Total stockholders' equity		219,641			216,378
		Total liabilities and stockholders' equity	$	1,821,141		$	1,691,897

	TERRITORIAL BANCORP INC. AND SUBSIDIARIES
	Selected Financial Data (Unaudited)



		Three Months Ended
		December 31,
			2015			2014
Performance Ratios (annualized):

Return on average assets			0.81	%		0.82	%
Return on average equity			6.71	%		6.30	%
Net interest margin on average interest earning assets			3.30	%		3.35	%


		At December			At December
			31, 2015			31, 2014
Selected Balance Sheet Data:

Book value per share (1)		$	22.74		$	21.81
Stockholders' equity to total assets			12.06	%		12.79	%


Asset Quality
(Dollars in thousands):

Delinquent loans 90 days past due and not accruing (2)		$	1,625		$	758
Non-performing assets (2)		$	5,415		$	4,453
Allowance for loan losses		$	2,166		$	1,692
Non-performing assets to total assets			0.30	%		0.26	%
Allowance for loan losses to total loans			0.18	%		0.17	%
Allowance for loan losses to non-performing assets			40.00	%		38.00	%


Note:

(1) Book value per share is equal to stockholders' equity divided by number of shares issued and outstanding
(2) Amounts are net of charge-offs