Charges hurt Territorial


POSTED: Saturday, November 14, 2009

Territorial Bancorp Inc., parent company of the state's fifth-largest bank, posted a 69.4 percent decline in third-quarter earnings largely due to two nonrecurring charges totaling more than $3.2 million.

Net income at Territorial Savings Bank fell in the quarter to $729,000, or 6 cents a share, compared with $2.4 million a year ago before the company went public.

Excluding these items, Territorial's net income for the three months ended Sept. 30 would have been $2.7 million, or 24 cents a share.

“;If it wasn't for those two accounting charges, we would have done quite well,”; Allan Kitagawa, chairman, president and chief executive officer of Territorial, said yesterday. “;But all of those things were disclosed in the prospectus when we had the (mutual to stock ownership) conversion.”;

Territorial's stock has risen 67 percent since its initial public offering on July 13, when it was priced at $10 a share. Its shares closed yesterday up 11 cents to $16.70. Its all-time closing high was $17.15 on Monday.





        Third-quarter net


Year-earlier net
        $2.4 million




The bank said the largest of its two charges was the result of a $2.7 million decrease in the carrying value of an investment in trust preferred securities. Even though the bank had taken a $2.5 million charge in the fourth quarter of 2008 for the same trust preferred securities package, it was required by accounting rules to take the same $2.5 million charge last quarter as part of the $2.7 million reduction.

Kitagawa said the trust preferred securities package was debt issued by other financial institutions.

“;They pool all those debts together, and it's very common that other financial institutions purchase the debt, and because of the rash of failures of financial institutions, the value has decreased significantly and we have to write it down based on those values,”; he said.

“;We actually wrote this one down in 2008, but there was an accounting change that somehow we had to write it off again in 2009. So we got stung twice on this thing.”;

Kitagawa said the trust preferred securities package was one of two $3.5 million packages that it held. One package has now been completely written off, he said, while to date there is no impairment on the second package.

Territorial also had a debt extinguishment charge of $507,000 last quarter after it paid off the remaining balance of subordinated debentures totaling $24.7 million.

The bank's net interest income, reflecting the difference between what Territorial pays depositors and what it brings in from loans, rose 9.4 percent last quarter to $10.4 million from $9.5 million a year ago.

Noninterest income, which includes fees and service charges, came to a loss of $1.4 million compared with income of $1.2 million a year ago. Excluding the $2.7 million charge, noninterest income was $1.3 million.

The bank's assets rose 10.8 percent to $1.4 billion from $1.2 billion at the end of 2008. Deposits increased 6.7 percent to $985.6 million from $923.9 million on Dec. 31. And total loans were $614.9 million as of Sept. 30, down $27.2 million, or 4.2 percent, from the beginning of the year.

Territorial's credit quality remained strong with the ratio of nonperforming assets to total assets being 0.23 percent on Sept. 30 compared with 0.02 percent as of Dec. 31.

The bank set aside just $10,000 for potential loan losses compared with a reversal of $13,000 (a provision it did not need) in the year-earlier period.

“;We are a very conservative lender,”; Kitagawa said. “;It's worked out quite well. All of our lending is in the state of Hawaii because we know the area best.”;