Territorial
net doublesEarnings at the local savings
bank jump to $3.8 million
Territorial Savings Bank, riding a wave of refinancings and benefiting from depositors' quest for higher passbook rates, posted a 111 percent jump in net income during the second quarter.
The privately held bank, which has 18 branches in the state, hasn't shown any signs of slowing down even though a company's growth typically decelerates as it gets larger. Earnings in the quarter were $3.8 million compared with $1.8 million in the year-ago period.
"It's still going crazy," Allan Kitagawa, chairman and chief executive officer of Territorial, said yesterday. "We're still offering the best passbook rate in town. That's why there so many deposits coming in. The regular passbook pays 1.65 percent; everyone else is paying a half-percent or less. That's why we're still getting this phenomenal growth."
Territorial's total assets in the quarter ended June 30 soared 48.9 percent to $913 million from $613 million. Total deposits jumped 40.2 percent to $774 million from $552 million a year earlier. And mortgage loans and mortgage-backed securities increased 43.2 percent to $815 million form $569 million. Mortgage-backed securities are loans that are 100 percent guaranteed by federal agencies Freddie Mac, Freddie Mae and Ginnie Mae.
"It's been really busy," Kitagawa said. "We've financed quite a large amount of loans -- the bulk of them refinances -- because rates have dropped so drastically. We have people with a 1 percent differential already refinancing. One percent makes sense because it takes two years to recover if you assume 2 points."
Despite the additional fees refinancing brings, Kitagawa said he doesn't want to see interest rates go any lower because it compresses the net interest margin a bank can make between what it pays depositors and what it brings in from loans. He said he'd actually like the see a little uptick in rates.
"If you're paying 1 percent to your depositors and you're getting 5 percent on your loans, you have a 4 percent net spread," Kitagawa said. "If your floor on deposits is 1 percent and now the rates go to 4.5 percent, your spread is down to 3.5 percent.
"Some (banks) at a half percent (for deposits) are wondering how much lower they can go if the lending side continues to drop. It becomes a problem when the rates go too low. I think the key is to have good quality loans and to keep your expenses under control."
Territorial, a wholly owned subsidiary of Territorial Mutual Holding Co., saw its net interest margin in the second quarter rise to 3.57 percent from 3.42 percent a year earlier. The bank's efficiency ratio, which measures in percentages how much it costs the bank to make a dollar of revenue, improved to 48 percent, or 48 cents, from 64 percent, or 64 cents.
"Our efficiency rate is low so our operating expenses are low," Kitagawa said. "We don't have any problem loans (foreclosures) and hardly any delinquencies (five). Our branches are efficient because they're not large. We operate with only three to four people in each branch."
Territorial's return on equity, a measure of how well it used reinvested earnings to generate additional earnings, improved to 24.8 percent from 18.7 percent a year earlier. Its return on assets ratio, which indicates how many dollars of profits it achieves for each dollar of assets it controls, was 1.69 percent from 1.04 percent a year earlier.
Kitagawa, who said there hasn't been any recent discussion about taking the bank public, is still planning on opening two more branches this year. He said the bank is negotiating for a site in Pearl City and also is planning to put a branch in Mililani.
