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Surging loan volume boosts Territorial's earnings 22.1%

By Dave Segal


Low mortgage rates are fueling a rush of new loans at Territorial Savings Bank.

The parent of the state's fifth-largest bank said Thursday that third-quarter earnings jumped 22.1 percent, easily beating analysts' forecasts, as higher mortgage loan originations boosted both interest income and the gains on loan sales.

Territorial Bancorp Inc. also boosted its dividend by 1 cent — the third time this year the bank has increased its quarterly payout.

Net income jumped to $3.6 million, or 36 cents a share, compared with $3 million, or 28 cents a share, in the year-earlier period.

Analysts' consensus estimate for last quarter was 33 cents, according to equity research firm Thomson First Call.

The bank said it is raising its dividend to 12 cents a share from 11 cents. It will be payable Nov. 29 to stockholders of record as of Nov. 15.

"Our loan portfolio continues to grow because of increasing loan originations, which are being funded by an increase in our core deposits," Territorial Chairman and CEO Allan Kita­gawa said in a statement.

Territorial's loans receivable grew 12.7 percent to $746.9 million from $662.7 million in the year-earlier period, while overall deposits rose 7.7 percent to $1.23 billion from $1.14 billion.

"Rates have been so low that we're getting a lot of refinances and new purchases," Kita­gawa said in a phone interview.

Demand for housing has been stimulated by stable prices. "For some reason, Hawaii prices don't seem to be going down in the central and east part of Hono­lulu, so people are bidding above the asking price compared to the Leeward site, which seems to be stabilizing now," Kita­gawa said.

Kitagawa said the bank's loan volume has "increased significantly" over the last year due to the low rates.

"We feel good about the mortgage market and feel (the demand is) going to be here for a while," he said.

Territorial has been able to dodge the challenges of the commercial market by focusing the majority of its loans on single-family homes. As of June 30, residential mortgages made up 94.5 percent of its loan portfolio.

Analyst Jacque Chimera said Territorial's financial performance continues to exceed her expectations.

"I was surprised by the loan generation," said Chimera, of San Francisco-based investment bank Keefe Bruyette & Woods Inc. "Their loan growth has continued to outpace my expectations each quarter. In this environment, banks are trying to protect their net interest income, in which loan growth helps."

Territorial's net interest margin, the spread between its lending and deposit rates, decreased to 3.33 percent from 3.53 percent in the year-earlier quarter.

"We are being squeezed like everybody else, so we've just got to originate more loans. That's the key," Kita­gawa said.

The bank's net interest income slipped 4 percent to $12.4 million from $13 million.

Noninterest income, which includes service charges and fees, jumped 64.6 percent to $1.9 million from $1.2 million primarily due to a $531,000 increase in loan sales and a $355,000 gain from the sale of investment securities.

Total assets rose 3.1 percent to $1.56 billion from $1.52 billion.

Territorial's stock slipped 13 cents Thursday to $22.47 on the Nasdaq Stock Market. Earnings were released after the market closed.

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