10-Q 1 tbnk-20220331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended March 31, 2022

or

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from               to               

Commission File Number  001-34403

TERRITORIAL BANCORP INC.

(Exact Name of Registrant as Specified in Charter)

Maryland

26-4674701

(State or Other Jurisdiction of Incorporation)

(I.R.S. Employer Identification No.)

1132 Bishop Street, Suite 2200, Honolulu, Hawaii

96813

(Address of Principal Executive Offices)

(Zip Code)

(808) 946-1400

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and formal fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common stock

TBNK

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No .

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No .

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 9,239,149 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of April 30, 2022.

PART I

ITEM 1.     FINANCIAL STATEMENTS

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)

(Dollars in thousands, except share data)

 

 

March 31,

 

December 31,

 

 

 

2022

 

2021

 

ASSETS

Cash and cash equivalents

$

65,784

$

99,859

Investment securities available for sale, at fair value

5,268

Investment securities held to maturity, at amortized cost (fair value of $615,381 and $634,987 at March 31, 2022 and December 31, 2021, respectively)

 

663,826

 

636,442

Loans held for sale

 

1,009

 

Loans receivable, net

 

1,295,355

 

1,302,824

Federal Home Loan Bank stock, at cost

 

8,197

 

8,173

Federal Reserve Bank stock, at cost

3,163

3,158

Accrued interest receivable

 

5,849

 

5,786

Premises and equipment, net

 

3,886

 

4,065

Right-of-use asset, net

14,080

9,982

Bank-owned life insurance

 

47,189

 

51,423

Deferred income tax assets, net

 

1,732

 

1,927

Prepaid expenses and other assets

 

12,622

 

6,963

Total assets

$

2,127,960

$

2,130,602

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:

Deposits

$

1,675,568

$

1,681,828

Advances from the Federal Home Loan Bank

 

141,000

 

141,000

Securities sold under agreements to repurchase

 

10,000

 

10,000

Accounts payable and accrued expenses

 

22,539

 

22,638

Lease liability

14,840

10,744

Income taxes payable

 

2,473

 

1,863

Advance payments by borrowers for taxes and insurance

 

3,558

 

6,207

Total liabilities

 

1,869,978

 

1,874,280

Commitments and contingencies

Stockholders’ Equity:

Preferred stock, $0.01 par value; authorized 50,000,000 shares, no shares issued or outstanding

 

 

Common stock, $0.01 par value; authorized 100,000,000 shares; issued and outstanding 9,285,990 and 9,324,060 shares at March 31, 2022 and December 31, 2021, respectively

 

93

 

93

Additional paid-in capital

 

55,937

 

56,951

Unearned ESOP shares

 

(3,303)

 

(3,425)

Retained earnings

 

210,882

 

208,227

Accumulated other comprehensive loss

 

(5,627)

 

(5,524)

Total stockholders’ equity

 

257,982

 

256,322

Total liabilities and stockholders’ equity

$

2,127,960

$

2,130,602

See accompanying notes to consolidated financial statements.

1

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share data)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

2021

 

Interest income:

Loans

$

11,357

$

13,049

Investment securities

3,423

1,825

Other investments

 

176

 

231

Total interest income

 

14,956

 

15,105

Interest expense:

Deposits

 

597

 

1,317

Advances from the Federal Home Loan Bank

 

511

 

536

Securities sold under agreements to repurchase

 

44

 

46

Total interest expense

 

1,152

 

1,899

Net interest income

 

13,804

 

13,206

Reversal of provision for loan losses

 

(168)

 

(913)

Net interest income after reversal of provision for loan losses

 

13,972

 

14,119

Noninterest income:

Service and other fees

 

341

 

995

Income on bank-owned life insurance

 

197

 

188

Gain on sale of investment securities

 

 

526

Gain on sale of loans

 

18

 

420

Other

 

1,097

 

110

Total noninterest income

 

1,653

 

2,239

Noninterest expense:

Salaries and employee benefits

 

5,613

 

5,523

Occupancy

 

1,594

 

1,647

Equipment

 

1,196

 

1,130

Federal deposit insurance premiums

 

141

 

141

Other general and administrative expenses

 

1,054

 

1,113

Total noninterest expense

 

9,598

 

9,554

Income before income taxes

 

6,027

 

6,804

Income taxes

 

1,317

 

1,791

Net income

$

4,710

$

5,013

Basic earnings per share

$

0.52

$

0.55

Diluted earnings per share

$

0.52

$

0.55

Cash dividends declared per common share

$

0.23

$

0.23

Basic weighted-average shares outstanding

 

8,980,135

 

9,130,777

Diluted weighted-average shares outstanding

 

9,014,454

 

9,153,450

See accompanying notes to consolidated financial statements.

2

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

2021

 

Net income

$

4,710

$

5,013

Unrealized loss on securities, net of tax

 

(103)

 

(86)

Other comprehensive loss, net of tax

 

(103)

 

(86)

Comprehensive income

$

4,607

$

4,927

See accompanying notes to consolidated financial statements.

3

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity (Unaudited)

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common

 

 

 

 

Additional

 

Unearned

 

 

 

 

Other

 

Total

 

 

 

Shares

 

Common

 

Paid-in

 

ESOP

 

Retained

 

Comprehensive

 

Stockholders’

 

 

 

Outstanding

 

Stock

 

Capital

 

Shares

 

Earnings

 

Loss

 

Equity

 

Balances at December 31, 2020

9,513,867

$

95

$

61,153

$

(3,915)

$

200,066

$

(8,691)

$

248,708

Net income

 

5,013

5,013

Other comprehensive loss

 

(86)

(86)

Cash dividends declared ($0.23 per share)

 

(2,094)

(2,094)

Share-based compensation

20,437

 

113

113

Allocation of 12,234 ESOP shares

 

194

123

317

Repurchase of shares of common stock

(11,471)

(319)

(319)

Balances at March 31, 2021

9,522,833

$

95

$

61,141

$

(3,792)

$

202,985

$

(8,777)

$

251,652

See accompanying notes to consolidated financial statements.

4

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity (Unaudited)

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Common

 

 

 

 

Additional

 

Unearned

 

 

 

 

Other

 

Total

 

 

Shares

 

Common

 

Paid-in

 

ESOP

 

Retained

 

Comprehensive

 

Stockholders’

 

 

Outstanding

 

Stock

 

Capital

 

Shares

 

Earnings

 

Loss

 

Equity

Balances at December 31, 2021

9,324,060

$

93

$

56,951

$

(3,425)

$

208,227

$

(5,524)

$

256,322

Net income

 

4,710

4,710

Other comprehensive loss

 

(103)

(103)

Cash dividends declared ($0.23 per share)

 

(2,055)

(2,055)

Share-based compensation

15,671

 

134

134

Allocation of 12,234 ESOP shares

 

182

122

304

Repurchase of shares of common stock

(53,741)

 

(1,330)

(1,330)

Balances at March 31, 2022

9,285,990

$

93

$

55,937

$

(3,303)

$

210,882

$

(5,627)

$

257,982

See accompanying notes to consolidated financial statements.

5

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

2021

 

Cash flows from operating activities:

Net income

$

4,710

$

5,013

Adjustments to reconcile net income to net cash from operating activities:

Reversal of provision for loan losses

 

(168)

 

(913)

Depreciation and amortization

 

317

 

296

Deferred income tax expense

 

232

 

478

Amortization of fees, discounts, and premiums, net

 

43

 

(134)

Amortization of right-of-use asset

700

776

Origination of loans held for sale

 

(3,032)

 

(10,136)

Proceeds from sales of loans held for sale

 

1,988

 

12,498

Gain on sale of loans, net

 

(7)

 

(420)

Gain on sale of investment securities available for sale

(106)

Gain on sale of investment securities held to maturity

 

 

(420)

ESOP expense

 

304

 

317

Share-based compensation expense

 

134

 

113

Net (increase) decrease in accrued interest receivable

 

(63)

 

142

Net increase in bank-owned life insurance

 

(197)

 

(188)

Net increase in prepaid expenses and other assets

 

(5,661)

 

(2,709)

Net decrease in accounts payable and accrued expenses

 

(233)

 

(342)

Net decrease in lease liability

(702)

(765)

Net decrease in advance payments by borrowers for taxes and insurance

 

(2,649)

 

(3,020)

Net increase in income taxes payable

 

610

 

881

Net cash from operating activities

 

(3,674)

 

1,361

Cash flows from investing activities:

Purchases of investment securities held to maturity

 

(46,832)

 

(83,539)

Purchases of investment securities available for sale

(5,408)

Principal repayments on investment securities held to maturity

 

19,403

 

30,293

Principal repayments on investment securities available for sale

193

Proceeds from sale of investment securities held to maturity

 

 

5,248

Proceeds from sale of investment securities available for sale

1,049

Principal repayments on loans receivable, net of loan originations

 

7,680

 

68,527

Purchases of Federal Home Loan Bank stock

(24)

(29)

Purchases of Federal Reserve Bank stock

(5)

(7)

Proceeds from bank-owned life insurance

4,431

Purchases of premises and equipment

 

(138)

 

(59)

Net cash from investing activities

 

(20,893)

 

21,676

(Continued)

6

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

 

 

Three Months Ended

 

 

March 31,

 

 

2022

 

2021

Cash flows from financing activities:

Net (decrease) increase in deposits

$

(6,260)

$

27,322

Repurchases of common stock

 

(1,135)

 

Cash dividends paid

 

(2,113)

 

(3,109)

Net cash from financing activities

 

(9,508)

 

24,213

Net (decrease) increase in cash and cash equivalents

 

(34,075)

 

47,250

Cash and cash equivalents at beginning of the period

 

99,859

 

363,543

Cash and cash equivalents at end of the period

$

65,784

$

410,793

Supplemental disclosure of cash flow information:

Cash paid for:

Interest on deposits and borrowings

$

1,141

$

1,892

Income taxes

 

475

 

432

Supplemental disclosure of noncash investing and financing activities:

Company stock repurchased through stock swap and net settlement transactions

$

194

$

319

Establishment of right-of-use asset, net of incentives and modifications

4,798

2,438

Establishment of lease liability, net of modifications

4,798

2,438

See accompanying notes to consolidated financial statements.

7

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(1)      Organization

Territorial Bancorp Inc. (the Company) is a Maryland corporation and is the holding company for Territorial Savings Bank (the Bank). Territorial Savings Bank is a Hawaii state-chartered bank headquartered in Honolulu, Hawaii and is a member of the Federal Reserve System. Territorial Savings Bank has an inactive subsidiary, Territorial Financial Services, Inc. During 2021, another inactive subsidiary, Territorial Real Estate Co., was dissolved.

(2)      Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements of Territorial Bancorp Inc. have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited interim condensed consolidated financial statements and notes should be read in conjunction with the Company’s consolidated financial statements and notes thereto filed as part of the Annual Report on Form 10-K for the year ended December 31, 2021. In the opinion of management, all adjustments necessary for a fair presentation have been made and consist only of normal recurring adjustments. Interim results of operations are not necessarily indicative of results to be expected for the year. 

.

(3)      Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) amended various sections of the FASB Accounting Standards Codification (ASC) related to the accounting for credit losses on financial instruments. The amendment changes the threshold for recognizing losses from a “probable” to an “expected” model. The new model is referred to as the current expected credit loss model and applies to loans, leases, held-to-maturity investments, loan commitments and financial guarantees. The amendment requires the measurement of all expected credit losses for financial assets as of the reporting date (including historical experience, current conditions and reasonable and supportable forecasts) and enhanced disclosures that will help financial statement users understand the estimates and judgments used in estimating credit losses and evaluating the credit quality of an organization’s portfolio. The amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In November 2019, the FASB issued an update that delays the effective date of the amendment for smaller reporting companies, as defined by the Securities and Exchange Commission, to fiscal years beginning after December 15, 2022. The Company is a smaller reporting company. The Company will apply the amendment’s provisions as a cumulative-effect adjustment to retained earnings at the beginning of the first period the amendment is effective. The Company has formed a team that is working on an implementation plan to adopt the amendment. The implementation plan will include developing policies, procedures and internal controls over the model. The Company is also working with a software vendor to measure expected losses required by the amendment. The Company is currently evaluating the effects that the adoption of this amendment will have on its consolidated financial statements and expects that the portfolio composition and economic conditions at the time of adoption will influence the accounting adjustment made at the time the amendment is adopted.

8

(4)      Cash and Cash Equivalents

The table below presents the balances of cash and cash equivalents:

 

 

March 31,

 

December 31,

 

 

(Dollars in thousands)

 

2022

 

2021

 

 

Cash and due from banks

$

11,243

$

11,662

Interest-earning deposits in other banks

 

54,541

 

88,197

Cash and cash equivalents

$

65,784

$

99,859

Interest-earning deposits in other banks consist primarily of deposits at the Federal Reserve Bank of San Francisco.

(5)      Investment Securities

The amortized cost and fair values of investment securities are as follows:

Amortized

Gross Unrealized

Estimated

 

(Dollars in thousands)

    

Cost

    

Gains

    

Losses

    

Fair Value

 

March 31, 2022:

Available-for-sale:

U.S. government-sponsored mortgage-backed securities

$

5,409

$

 

$

(141)

$

5,268

Total

$

5,409

$

 

$

(141)

$

5,268

Held-to-maturity:

U.S. government-sponsored mortgage-backed securities

$

663,826

$

239

 

$

(48,684)

$

615,381

Total

$

663,826

$

239

 

$

(48,684)

$

615,381

December 31, 2021:

Held-to-maturity:

U.S. government-sponsored mortgage-backed securities

$

636,442

$

5,699

 

$

(7,154)

$

634,987

Total

$

636,442

$

5,699

 

$

(7,154)

$

634,987

The amortized cost and estimated fair value of investment securities by maturity date at March 31, 2022 are shown below. Incorporated in the maturity schedule are mortgage-backed securities, which are allocated using the contractual maturity as a basis. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

    

Amortized

    

Estimated

 

(Dollars in thousands)

 

Cost

 

Fair Value

 

Available-for-sale:

Due after 10 years

5,409

 $

5,268

Total

$

5,409

$

5,268

Held-to-maturity:

Due within 5 years

$

15

$

15

Due after 5 years through 10 years

 

25

 

24

Due after 10 years

 

663,786

 

615,342

Total

$

663,826

$

615,381

9

Realized gains and losses and the proceeds from sales of held-to-maturity and available-for-sale securities are shown in the table below.

 

Three Months Ended

March 31,

(Dollars in thousands)

 

2022

 

2021

 

 

Proceeds from sales

$

$

6,297

Gross gains

 

 

526

Gross losses

 

 

The Company did not sell any held-to-maturity mortgage-backed securities during the three months ended March 31, 2022. During the three months ended March 31, 2021, the Company sold $4.8 million of held-to-maturity mortgage-backed securities and recorded gains of $420,000. The sale of the mortgage-backed securities, for which the Company had already collected a substantial portion of the outstanding purchased principal (at least 85%), were in accordance with the Investments – Debt and Equity Securities topic of the FASB ASC and do not taint management’s assertion of its intent to hold the remaining securities in the held-to-maturity portfolio to maturity.

The Company did not sell any available-for-sale mortgage-backed securities during the three months ended March 31, 2022. During the three months ended March 31, 2021, the Company sold $943,000 of available-for-sale mortgage-backed securities and recorded gains of $106,000.

Investment securities with amortized costs of $146.1 million and $140.6 million at March 31, 2022 and December 31, 2021, respectively, were pledged to secure deposits made by state and local governments, securities sold under agreements to repurchase and transaction clearing accounts.

Provided below is a summary of investment securities which were in an unrealized loss position at March 31, 2022 and December 31, 2021. The Company does not intend to sell securities until such time as the value recovers or the securities mature and it is not more likely than not that the Company will be required to sell the securities prior to recovery of value or the securities mature.

 

 

Less Than 12 Months

 

12 Months or Longer

 

Total

 

 

 

 

 

 

Unrealized

 

 

 

 

Unrealized

 

Number of

 

 

 

 

Unrealized

 

Description of securities

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Securities

 

Fair Value

 

Losses

 

(Dollars in thousands)

 

March 31, 2022:

Available-for-sale:

U.S. government-sponsored mortgage-backed securities

$

5,268

$

(141)

$

$

 

1

$

5,268

$

(141)

Held-to-maturity:

U.S. government-sponsored mortgage-backed securities

$

552,642

$

(42,932)

$

43,751

$

(5,752)

 

111

$

596,393

$

(48,684)

December 31, 2021:

Held-to-maturity:

U.S. government-sponsored mortgage-backed securities

$

482,629

$

(6,976)

$

3,681

$

(178)

 

43

$

486,310

$

(7,154)

Mortgage-Backed Securities. The unrealized losses on the Company’s investment in mortgage-backed securities were caused by increases in market interest rates subsequent to purchase. All of the mortgage-backed securities are guaranteed by Freddie Mac or Fannie Mae, which are U.S. government-sponsored enterprises, or Ginnie Mae, which is a U.S. government agency. Since the decline in market value is attributable to changes in interest rates and not credit quality, and the Company does not intend to sell these investments until maturity and it is not more likely than not that the Company will be required to sell such investments prior to recovery of its cost basis, the Company does not consider these investments to be other-than-temporarily impaired as of March 31, 2022 and December 31, 2021.

10