Territorial earnings
triple in quarter

Low interest rates lead
to a doubling in loan volume
at the local savings bank

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By Dave Segal
dsegal@starbulletin.com

Territorial Savings Bank, unveiling its financial results for the first time, said yesterday third-quarter earnings more than tripled and loan volume nearly doubled as low interest rates continued to beef up the bank's coffers.

The 17-branch institution, which last month converted from a state-chartered savings and loan association to a federally chartered savings bank, said third-quarter net income surged 214 percent to a record $2.7 million from $860,000 a year ago.

Loan volume nearly doubled to more than $101 million from $59 million as the bank, which deals nearly exclusively in residential home loans, experienced just six delinquencies during the quarter. Currently, the bank has just one delinquency, according to Allan S. Kitagawa, chairman and chief executive officer of Territorial.

"Delinquency is nonexistent," Kitagawa said. "We have no problem assets."

Kitagawa also said an increase in net interest margin, which is the difference between the rate at which the bank lends out money the rate it pays to depositors, rose to 3.75 percent last quarter from 3.25 percent a year ago.

"If a loan portfolio is $600 million, and your net interest margin increases by 50 basis points, that's an increase of $3 million before taxes," Kitagawa said.

At the end of the third quarter, Territorial had total assets of $662.6 million, up 25 percent from $532.1 million a year ago, while total deposits rose more than 31 percent to $582.6 million from $443.7 million.

In addition, the company said earnings for the first nine months of the year gained 132 percent to $5.8 million from $2.5 million in the comparable period of 2001.

Kitagawa said the main reason for restructuring the institution was to raise capital so the company could grow. He said the bank, which has 170 employees, has increased capital by $13.5 million and that its net worth ratio to assets is now 7.6 compared with 5.6 percent prior to receiving the additional funds.

He said the bank has received approval to put up a branch in Kapahulu and is looking to open three other branches in Honolulu by the middle of next year.

Kitagawa also said Territorial is well-positioned to absorb any interest-rate increases next year by the Federal Reserve that theoretically could cut into the bank's margins.

"The way we've structured our liability, the impact would not affect us immediately," he said. "In fact, it initially would give us a better interest margin because we would raise our mortgage loan rates."