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Territorial Savings’ loan reserve reversal helps boost earnings

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Territorial Savings Bank released $679,000 from its loan-loss reserve during the fourth quarter to help boost earnings 9.5% and blow past analysts’ estimates.

The state’s fifth-largest bank said Thursday it also paid nonmanagement employees a $1,000 year-end bonus for their work during the pandemic.

“2020 has been a very challenging year for the residents and businesses in Hawaii,” Territorial Bancorp Inc. Chairman and CEO Allan Kitagawa said in a statement. “The decline in interest rates that occurred during the pandemic have decreased asset yields and created challenges in the banking industry. Despite these obstacles, we had a successful year, primarily because of our asset quality and strong capital position.”

Territorial earned $5.5 million, or 60 cents a share, during the quarter to beat estimates of 43 cents a share. A year earlier Territorial reported earnings of $5 million, or 54 cents a share.

For the year, Territorial’s net income fell 15.4% to $18.6 million, or $2.01 a share, from $22 million, or $2.34 a share, in 2019.

Territorial said the reversal of its loan-loss provision was primarily due to a decrease in the size of the bank’s mortgage loan portfolio and a decrease in Hawaii’s unemploy- ment rate. Loans receivable fell 11.2% to $1.41 billion in the fourth quarter from $1.58 billion in the year-ago period. Hawaii’s unemployment rate has decreased three months in a row and ended December at 9.3%.

Territorial said that as of Dec. 31 it had outstanding loan payment deferrals on $130.8 million of loans, which represented 9.3% of total loans receivable. The bank said $126.3 million of those deferrals were for one-to-four family residential mortgage loans, or 9% of the total loans receivable. Residential mortgages comprise 97% of the bank’s total loan portfolio.

The bank also granted loan payment deferrals on $4.5 million of commercial mortgage, commercial and industrial and home equity lines of credit loans, representing 0.3% of total loans receivable at the end of the fourth quarter.

The total amount of loans in the payment deferral program decreased from $142.2 million as of Sept. 30 to $130.8 million as of Dec. 31.

At year-end, $92.2 million, or 73.1% of mortgage loans in the payment deferral program, had resumed making full principal and interest payments. By contrast, $304,000, or 0.2% of the mortgage loans in the payment deferral program, had their six-month forbearance period end and had not resumed making loan payments.

The bank said it had $240,000 of delinquent mortgage loans 90 days or more past due as of Dec. 31, compared with no delinquent mortgage loans 90 days or more past due at the end of 2019. Delinquent loans exclude loans that are receiving loan payment deferrals because of COVID-19.

Nonperforming assets — delinquent loans not accruing interest and foreclosed real estate — totaled $4.41 million as of Dec. 31, compared with $736,000 a year earlier.

Territorial’s net interest income, which is the difference between what the bank generates from loans and pays out in deposits, fell 4.6% to $13.8 million from $14.5 million. Its net interest margin worsened to 2.73% compared with 2.88% in the year-earlier quarter.

The bank’s noninterest income, which includes charges and fees, more than doubled to $2.5 million from $1 million. The increase was primarily due to a $462,000 increase in the gain on sale of investment securities, a $436,000 increase in service fees on loans and deposit accounts and a $310,000 increase in the gain on sale of loans.

Deposits rose 1.7% to $1.66 billion from $1.63 billion.

Territorial also maintained its quarterly dividend of 23 cents a share. It will be payable Feb. 25 to stockholders of record as of Feb. 11.

Shares of the company closed down 71 cents, or 2.8%, to $25.04 before earnings were announced.

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