Territorial Bancorp Inc.’s longtime business model has been to focus on residential loans.
It continued to serve the state’s fifth-largest bank well in the second quarter as earnings rose 13.6 percent behind strong loan growth and improved quality in its mortgage portfolio.
The parent of Territorial Savings Bank said Thursday it had net income of $3.8 million, or 37 cents a share, compared with $3.4 million, or 30 cents a share, a year ago. Analysts were forecasting 32 cents a share.
Territorial’s loans jumped nearly 10 percent to $726.2 million from $661.4 million a year ago, while the bank also added $79,000 to income that previously had been set aside for potential loan losses. Territorial generates about 95 percent of its loans from residential mortgages.
"Our loan portfolio grew mainly due to increased loan originations," Territorial Chairman and CEO Allan Kitagawa said. "We also generated additional gains on sales of loans. As we generate a higher volume of loans, we cannot keep all of our loans. We do sell some of the loans to the secondary market — Freddie Mac and Fannie Mae. We try to keep as much as we can."
The bank, which has 27 branches statewide, had only 10 delinquent loans 90 days or more past due during the quarter. The value of those loans was $1.9 million. At the end of 2011, Territorial had nine delinquent loans totaling $2.3 million. The ratio of nonperforming assets to total assets decreased to 0.20 percent last quarter from 0.22 percent as of Dec. 31.
"We’re very careful how we underwrite," Kitagawa said. "We try to make loans to people who can qualify for the loan instead of just giving it to anybody."
Deposits also increased 9.6 percent to $1.21 billion from $1.11 billion a year ago as the bank grew its core deposit base.
Like all banks nationwide, the low-interest-rate environment squeezed Territorial’s net interest margin, which is the spread between its lending rates and deposit rates. Net interest margin contracted to 3.41 percent from 3.56 percent a year ago. Net interest income edged up 0.8 percent to $13 million from $12.9 million.
However, noninterest income, which includes service charges and fees, rose 15 percent to $1.4 million from $1.2 million.
Total assets grew 5.3 percent to $1.57 billion from $1.49 billion a year ago.
Analyst Jacque Chimera said it was "a very positive" quarter for the bank.
"Territorial is very unique in its pristine credit quality," said Chimera of San Francisco-based investment bank Keefe, Bruyette & Woods.
Analyst Aaron Deer of San Francisco-based investment bank Sandler O’Neill & Partners LP said he was impressed by the bank’s origination activity.
"One of the areas that banks (nationwide) have seen some strength in is the mortgage business," Deer said. "There’s refinance activity and home purchase activity, and Territorial is no exception."
Kitagawa said he couldn’t comment on whether there has been interest from other banks in buying Territorial, which last month became eligible to be acquired after the third anniversary marking its conversion from a mutual holding company to a publicly traded corporation. Federal law prevents the takeover of thrifts that undergo mutual conversions for three years.
Chimera said she’s received a few calls from investors who monitor mutual conversions that expressed interest in buying Territorial’s stock ahead of a potential takeover.
"I think they can continue to be a profitable franchise on their own," she said. "I also think they’re a desirable franchise, and the possibility exists for them to receive an offer. The question is whether the offer will be (favorably) received or not. I think they’re equally fine continuing to be their own entity."
Territorial’s stock closed up 42 cents, or 1.8 percent, at $23.19 Thursday on the Nasdaq Stock Market.
