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Territorial Bancorp Inc. (TBNK)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 delivered a net loss of $1.32M and diluted EPS of $(0.15), driven by higher deposit and borrowing costs and merger-related expenses; NIM compressed to 1.42% and the efficiency ratio deteriorated to 123.46% .
  • Board approved a $0.01 dividend (payable Nov 22, record Nov 8), maintaining minimal payouts amid earnings pressure .
  • Capital remained strong: tier 1 leverage at 11.57% and total risk-based capital at 29.07%, supporting “well-capitalized” status; asset quality stable with NPA/Assets at 0.11% .
  • Merger with Hope Bancorp (0.8048 HOPE shares per TBNK share) remains the central strategic catalyst; competing investors publicly urged voting against the sale and advanced an alternative tender proposal, increasing event risk around the upcoming shareholder vote .

What Went Well and What Went Wrong

What Went Well

  • Capital strength and regulatory ratios remained robust: tier one leverage 11.57% and total risk-based capital 29.07% (“well-capitalized”) .
  • Asset quality resilient: NPA/Assets 0.11% with allowance coverage of 216% of NPLs, and no 90+ delinquent mortgage loans at quarter-end .
  • Liquidity improved sequentially: cash and equivalents rose to $143.13M, supported by deposit inflows (notably state/local deposits) and MBS principal repayments .

“Credit quality continues to be extremely important as the Bank adheres to its strict underwriting standards.”
“FRB advances were obtained in 2023 to enhance the Company’s liquidity and to fund deposit withdrawals.”

What Went Wrong

  • Core profitability under pressure: net interest income fell to $7.48M vs $10.03M YoY; deposit costs (CDs + savings) and FRB borrowing costs drove interest expense up $3.48M YoY .
  • Operating efficiency deteriorated: efficiency ratio rose to 123.46% (vs 91.00% YoY), reflecting revenue pressure and higher FDIC premiums and merger-related G&A .
  • Nonrecurring headwinds: $324K merger-related legal/consulting and $135K write-off of currency destroyed in the Lahaina wildfire increased noninterest expense .

Financial Results

Summary Metrics vs Prior Periods and Prior Year

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Diluted EPS ($)$0.10 $(0.06) $(0.09) $(0.15)
Net Interest Income ($MM)$10.03 $8.76 $8.24 $7.48
Noninterest Income ($MM)$0.59 $0.59 $0.66 $0.62
Net Interest Margin (%)1.90% 1.65% 1.56% 1.42%
Efficiency Ratio (%)91.00% 107.55% 112.20% 123.46%

Interest Income/Expense Detail (YoY Drivers)

  • Total interest income: $18.31M in Q3 2024 vs $17.38M in Q3 2023 (benefit from higher FRB cash yields and loan yields) .
  • Total interest expense: $10.83M in Q3 2024 vs $7.35M in Q3 2023 (higher CDs/savings costs and FRB advances) .

KPIs and Balance Sheet

KPIQ3 2023Q1 2024Q2 2024Q3 2024
Deposits ($000)$1,636,604 $1,600,148 $1,572,751 $1,670,281
Loans Receivable ($000)$1,308,552 $1,309,712 $1,301,057 $1,287,688
Cash & Equivalents ($000)$126,659 $90,059 $82,782 $143,128
FHLB Advances ($000)$242,000 $242,000 $237,000 $177,000
FRB Advances ($000)$50,000 $50,000 $50,000 $50,000
NPA / Total Assets (%)0.10% 0.10% 0.06% 0.11%
Allowance / Total Loans (%)0.39% 0.39% 0.39% 0.39%
Tier 1 Leverage (%)11.69% (Dec 2023, co.) [Internet: https://www.sec.gov/Archives/edgar/data/1447051/000155837024015476/tbnk-20240930x10q.htm]——11.57%
Total Risk-Based Capital (%)28.89% (Dec 2023, co.) [Internet: https://www.sec.gov/Archives/edgar/data/1447051/000155837024015476/tbnk-20240930x10q.htm]——29.07%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per ShareQ4 2024 payout$0.01 (Q2 2024 dividend) $0.01 (payable Nov 22; record Nov 8) Maintained
Revenue, EPS, Margins, OpEx, OI&E, Tax RateFY/QuarterNot provided Not provided N/A

No formal quantitative guidance was issued; management reiterated capital and asset quality positioning and merger status .

Earnings Call Themes & Trends

An earnings call transcript for Q3 2024 was not located; themes below reflect management’s press release disclosures across Q1–Q3.

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3 2024)Trend
Interest Rate/Margin PressureRising deposit costs; FRB/FHLB borrowing costs; NIM 1.65% (Q1), 1.56% (Q2) NIM down to 1.42%; interest expense +$3.48M YoY Continued compression
Deposit Mix ShiftSavings balances declined; CD balances rose as customers sought higher rates Savings balance down YoY; CD balances higher; total deposits up sequentially via state/local inflows Mix to higher-cost CDs persists
LiquidityQ1/Q2 used cash to fund withdrawals; access to ~$902–$951M liquidity Cash & equivalents increased to $143M; FHLB advances reduced Improving liquidity
Asset QualityNPA/Assets 0.10% (Q1); 0.06% (Q2) NPA/Assets 0.11%; no 90+ delinquent mortgage loans Stable/low losses
Regulatory CostsFDIC premium increases (retroactive rate change in Q1; higher in Q2) FDIC premiums up +$146K YoY in Q3 Elevated
Strategic/M&AHOPE merger announced Apr 29; S-4 filed/effective Merger terms reaffirmed; external investors publicly push alternative tender Event risk rising

Management Commentary

  • Interest Expense Drivers: “Interest expense on CDs rose by $2.01 million… due to a 66 basis point increase in the average cost of CDs and a $107.30 million increase in the average CD balance… savings accounts rose by $1.06 million due to a 65 basis point increase… partially offset by an $82.46 million decrease in the average savings account balance.”
  • Liquidity Actions: “FRB advances were obtained in 2023 to enhance the Company’s liquidity and to fund deposit withdrawals.”
  • Noninterest Expense Items: “General and administrative expenses included $324,000 of merger-related legal and consulting expenses and the write off of $135,000 of currency destroyed in the Lahaina wildfire.”
  • Asset Quality Emphasis: “Credit quality continues to be extremely important as the Bank adheres to its strict underwriting standards.”
  • Merger Update: Reiterated HOPE transaction terms and intent to preserve Territorial brand in Hawaii; subject to regulatory and shareholder approvals .

Q&A Highlights

No earnings call transcript was available; management commentary is sourced from the Q3 2024 8-K press release .

Estimates Context

  • Wall Street consensus estimates via S&P Global were unavailable for TBNK for Q3 2024 due to a mapping issue; therefore, comparison to consensus could not be performed at this time. Values retrieved from S&P Global.*

Where estimates are later available, the key comparison points should include diluted EPS vs consensus, net interest income vs expectations, and NIM trajectory vs modeled compression.

Key Takeaways for Investors

  • Profitability remains challenged by deposit repricing and elevated borrowing costs; NIM compression and an efficiency ratio above 120% point to near-term earnings headwinds absent rate relief or mix changes .
  • Liquidity and capital are strong, providing resilience; sequential cash build and FHLB paydown reduce funding risk, while capital ratios support “well-capitalized” status .
  • Asset quality is a bright spot, with minimal delinquencies and robust allowance coverage, reducing credit tail risk amid macro uncertainty .
  • Merger event path is the primary stock catalyst: shareholder vote dynamics and activist investor proposals could introduce volatility and potential valuation outcomes divergent from HOPE exchange terms .
  • Near-term trading: stock likely sensitive to rate path signals, deposit pricing trends, and any updates to merger timing/approvals; monitor FDIC premium trajectory and G&A related to M&A .
  • Medium-term thesis: earnings recovery hinges on funding cost normalization and improved asset yields; strategic combination with HOPE could accelerate operating synergies but faces shareholder engagement scrutiny .
  • Dividend remains nominal; payout discipline aligned with capital preservation amid negative earnings, limiting income appeal until profitability normalizes .