Territorial earnings
fall 3.6 percent

The bank recently opened its 20th branch
in Mililani and plans to open two more in '05

Territorial Savings Bank's fourth-quarter net income dropped 3.6 percent to $3.6 million as it moved into shorter-term investments in anticipation of rising interest rates, the bank said yesterday.

Still, the state's sixth-largest bank in terms of assets has been on a growth track that boosted total deposits and total assets in the quarter.

Territorial opened its 20th branch in Mililani in the third quarter and expects to open branches in Kahala and Kapolei this year.

"The branches have made us much more visible to people now and that's very good," said Stanley Tanaka, vice president of research and development.

The bank began trying to capitalize on its growth last year with television spots that feature employees and other individuals running through the streets of downtown Honolulu holding butterfly nets.

"Everybody's chasing a butterfly, which is basically chasing a dream," Tanaka said.

For the year, Territorial posted a 4.6 percent increase in net income as earnings rose to $15.2 million from $14.5 million.

Total deposits rose 19 percent to $1.03 billion during the fourth quarter, which in turn helped raise total assets by 19.6 percent to $1.2 billion.

Territorial, whose assets hit the $1 billion mark for the first time in 2003, will now strive to hit the $1.5 billion benchmark, Tanaka said.

"We are very pleased with the growth of our assets," he said. "Anytime you go over 10 percent it's considered good and we've grown by double-digits for the past three years."

The bank's new loan volume increased about 16 percent to 1.02 billion compared with the fourth quarter of 2003.

The bank capitalized on interest-rate fluctuations by making gains on the sale of mortgage-backed securities, which are loans guaranteed by federally sponsored companies Freddie Mac, Fannie Mae and Ginnie Mae, Tanaka said.

However, loan production decreased as demand for mortgage loans fell during the year because of declining home inventory and rising interest rates, he said. Territorial's net interest margin, which is the difference between what it earns from loans and what it pays depositors, rose to 3.51 percent from 3.18 percent in the fourth quarter 2003. Net interest margin for the year dropped to 4.07 percent.

The bank's return on equity, which measures how well it used reinvested earnings to generate additional earnings, declined to 16.22 percent from 20.77 percent. Return on equity dropped to 21.2 percent for the year.

The bank's efficiency ratio, a measure of how much it costs the bank to make a dollar of revenue, worsened from 50.7 percent to 49.4 percent.

Tanaka said the efficiency ratio could face further strain as the bank spends on its expansion.

"It takes awhile for new branches to become profitable," he said.