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Charting new territory


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POSTED: Saturday, July 04, 2009

Sometime in the next two weeks, the parent of Territorial Savings Bank will become the first Hawaii company to go public on a major exchange since 2005.

It will be another big step for the 88-year-old company that reorganized into a mutual holding company in 2002 and surpassed $1 billion in assets for the first time in 2003.

The conversion to a stock organization will raise from $78.6 million to $122.3 million upon issuing 7.9 million to 12.2 million shares to its depositors, who anted up $10 a share for the right to participate in the initial public offering. The company will trade as Territorial Bancorp Inc. under the ticker symbol TBNK on the Nasdaq.

Despite the uncertain economic climate for financial institutions, banking analyst Brett Rabatin, who covers Bank of Hawaii Corp. and Central Pacific Financial Corp. for Birmingham, Ala.-based Sterne Agee, said he expects Territorial's stock offering to be “;well received.”;

“;This isn't the best market to be doing an IPO or for a mutual to be doing this,”; Rabatin said. “;But Territorial is unique relative to other mutuals, just given it's in a better market than any institutions from a residential loan portfolio perspective. It also operates in a market that has fewer banking-type competitors.”;

Rabatin said he expects the stock to have “;a first-day pop.”;

“;These things come out at $10 and they don't stay there long,”; Rabatin said. “;It could go to $13 or $14 in the first day or week. When you have a mutual conversion, it goes up quite a bit.”;

Non-depositors with Territorial weren't allowed to participate in the offering because the bank received enough response from its own members. However, once it begins trading, the shares will be open to anyone.

Territorial, which has 24 branches and is preparing to open its 25th this quarter in Kihei, Maui, is the fifth-largest bank in the state in terms of assets with $1.2 billion. Its first-quarter net income of $2.7 million was up 47.3 percent from $1.8 million in the year-earlier period and its revenue increased 30.9 percent to $11.9 million from $9.1 million.

The bank has not reported its second-quarter income yet since the period just ended on Tuesday.

Douglas Reidel, managing director for Keefe, Bruyette & Woods Inc., the marketing agent for the offering, said he isn't too concerned about the timing of the IPO because the bank is converting from a mutual holding company.

“;There's always some concern in doing an IPO,”; Reidel said. “;However, a number of financial institutions have recently come to market to raise capital and have done so successfully. An IPO where a mutual savings bank converts is different than a normal bank going out and raising capital. It's a regulated process and a thorough appraisal of the company is done and submitted to the regulators for approval. The pricing of an offering like this is generally discounted to a peer group of comparable financial institutions.”;

Allan Kitagawa, chairman, president and chief executive of Territorial, declined to comment on the IPO because the company is in a “;quiet period,”; a waiting period in which the U.S. Securites and Exchange Commission limits what information can be released to the public. However, in the past he said Territorial has performed well financially and attracted depositors because of its low loan-delinquency rate and its above-market passbook rates.

Nick Griffin, commissioner of the state Division of Financial Institutions, said he expects Territorial's shift to a publicly traded company to have little impact on the market.

“;It's a good competitor and probably will remain a good competitor and a key player in the financial services industry,”; he said.

Territorial said in its prospectus that the primary reasons for its IPO is to raise additional capital to support its internal growth through lending and the establishment of new branches. The bank said it intends to open one new branch per year over the next three years.

In addition, the bank said it will use the proceeds to assist it in the management of interest rate risk; repay trust preferred securities and short-term borrowings; provide additional financial resources to possibly pursue future acquisitions; provide better capital management tools, including the ability to pay dividends and to repurchase shares; retain and attract qualified personnel by establishing stock-based benefit plans for management and employees; and enable the bank to take advantage of business opportunities.

 

In the money

Financial highlights

                                                                                                                                                   
 March 31, 2009Dec. 31, 2008
       
Total assets$1.22 billion$1.22 billion
Total loans$640.3 million$642.1 million
Total deposits$941.6 million$923.9 million

By the years

                                                                                                                                                                                                                           
 Net incomeAssets
       
2008$7.2 million$1.22 billion
2007$5.8 million$1.16 billion
2006$7.7 million$1.30 billion
2005$13 million$1.24 billion
2004$14 million$1.21 billion

 

The competition

Hawaii-based banks/thrifts by assets:

                                                                                                                                                                                                                                                                                                                                       
CompanyHawaii branches Assets*
1. First Hawaiian Bank58**$13.4 billion
2. Bank of Hawaii73***$11.4 billion
3. Central Pacific Financial39$5.4 billion
4. American Savings Bank61$5.2 billion
5. Territorial Savings Bank24$1.2 billion
6. Hawaii National Bank15$536.4 million
7. Pacific Rim Bank1$129.0 million
8. Ohana Pacific Bank1$65.5 million

Others (excluding credit unions)

                                                                                                                                                   
CompanyHawaii branches Assets*
Finance Factors14#$705.4 million
HomeStreet Bank (Seattle based)3##$79.4 million
Bank of the Orient (San Francisco based)2###$33 million

* As of March 31, 2009. Assets for entire company except where noted

** 63 overall including out of state

*** 85 overall including out of state

# Classified as a depository financial services loan company

## It has $3.1 billion in total assets and 20 branches overall. The $79.4 million in Hawaii assets are as of Dec. 31, 2008.

### It has $743 million in total assets and 11 branches overall.

Source: Federal Deposit Insurance Corp., Securities & Exchange Commission, company Web sites and individual banks