Territorial grows net
on deposits increase
First-quarter earnings jumped 25 percent at Territorial Savings Bank as deposits continued to grow at a strong rate.
The privately held bank, which in the fourth quarter surpassed $1 billion in assets for the first time, said yesterday it posted net income of $4.1 million compared with $3.3 million a year ago.
Territorial's net income grew more than 65 percent in 2003.
"What I'm looking for is steady growth, " said Allan Kitagawa, chairman and chief executive officer of Territorial. "I'm looking for a 10 to 15 percent quarterly earnings increase, and we had a good quarter up 25 percent. I'm very happy."
Territorial, which in January launched its first large-scale television advertising campaign in more than a decade, saw assets rise 29 percent to $1.1 billion from $821.3 million in the year-ago quarter. Deposits jumped 30 percent to $900 million from $692.2 million. Mortgage loans and mortgage-backed securities grew nearly 16 percent to $907.1 million from $782.4 million. Mortgage-backed securities are loans guaranteed by federally sponsored agencies Freddie Mac, Freddie Mae and Ginnie Mae.
"Deposits-wise, we were doing well before the ad campaign," Kitagawa said. "But the ad campaign has given us more visibility. People recognize us much more than before. I have heard a lot of favorable comments."
The television spots feature employees and other individuals running through the streets of downtown Honolulu holding butterfly nets that are symbolic of people chasing their dreams.
Territorial Senior Vice President Stanley Tanaka said demand for loans has ebbed and flowed with the interest rates.
"I think the loan customers are very selective and watch the rates closely," he said. "When we had a drop in the mortgage rates recently, we had good demand. But since they've increased, there's been a slowdown."
Kitagawa said the bank, which has 18 branches, has targeted June for opening a new branch in Pearl City and September for another branch in Mililani.
"We're going to just try to grow gradually unless an opportunity comes around, but as of now I don't see any possible acquisition -- anybody who could be acquired or merged."
Conversely, Kitagawa said the only way Territorial could be acquired under federal law would be if its parent, Territorial Mutual Holding Co., converted to a public company or merged with another mutual institution. He said no such moves are being discussed.
Kitagawa said the slippage of some of Territorial's performance numbers from year-ago comparisons was a function of the bank's results "coming back down to earth.
"Because our net worth is getting bigger, we expect the percentages to drop because they were too high at the beginning," Kitagawa said.
Territorial's net interest margin, which reflects the difference of what a bank pays depositors and what it brings in from loans, slipped to 3.61 percent from 3.75 percent due to the continued low interest rate environment.
The bank's return on equity, a measure of how well it used reinvested earnings to generate additional earnings, fell to 21.02 percent from 24.21 percent. Kitagawa said he's looking for a 10 to 15 percent ratio on a normalized annual basis.
Territorial's return on assets ratio, which indicates how many dollars of profits it achieves for each dollar of assets it controls, dropped to 1.58 percent from 1.68 percent.
Kitagawa said he would be comfortable with 1.20 percent on an ongoing basis.
Territorial's efficiency ratio improved to 45.98 percent from 46.06 percent.
The efficiency ratio measures in percentage terms how much it costs the bank to make a dollar of revenue.
