10-K: Territorial Bancorp Inc. Reports Full Year 2024 Results; Merger with Hope Bancorp Awaits Final Approval

Territorial Bancorp Inc. reports a net loss for 2024, impacted by decreased net interest income and increased noninterest expense, while awaiting the completion of its merger with Hope Bancorp.

Summary

• Territorial Bancorp Inc. reported a net loss of $4.3 million for the year ended December 31, 2024, compared to a net income of $5.0 million for the prior year.
• The decrease in net income was primarily due to a $10.9 million decrease in net interest income and a $2.7 million increase in noninterest expense.
• Total assets decreased by $67.0 million, or 3.0%, to $2.2 billion at December 31, 2024.
• Deposits increased by $81.1 million, or 5.0%, to $1.7 billion at December 31, 2024.
• The merger agreement with Hope Bancorp, Inc., announced on April 29, 2024, is pending completion, with all required regulatory approvals received as of March 3, 2025.
• The company's nonperforming assets remained low at 0.09% of total assets.
• The company is subject to a franchise tax imposed under Hawaii law at a rate of 7.92% of pre-tax income.
• The company had an estimated gross net operating loss carry forward of $6.7 million for federal income tax purposes and $5.5 million for state franchise tax purposes at December 31, 2024.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While the pending merger with Hope Bancorp and low nonperforming assets are positive, the net loss and decreased profitability metrics indicate a challenging year. The sentiment is cautiously neutral.

Positives

• Deposits increased by $81.1 million, or 5.0%, to $1.7 billion.
• Nonperforming assets remained low at 0.09% of total assets.
• The company's additional borrowing capacity at the FHLB and FRB was $389.5 million and $114.4 million, respectively, as of December 31, 2024.
• The number of single-family homes sold on Oahu increased by 9.1% compared to 2023.
• The median price paid on Oahu for a single-family home in 2024 was $1.1 million, an increase of 4.8% compared to the median price in 2023.

Negatives

• Territorial Bancorp Inc. experienced a net loss of $4.3 million in 2024, a significant decrease from the $5.0 million net income in 2023.
• Net interest income decreased by $10.9 million, or 25.7%, to $31.7 million.
• Noninterest expense increased by $2.7 million, or 7.0%, to $40.9 million, primarily due to merger-related legal and professional fees.
• Total assets decreased by $67.0 million, or 3.0%, to $2.2 billion.
• The number of condominium sales on Oahu decreased by 2.5% compared to sales in 2023.

Risks

• The company's vulnerability to increases in interest rates, as interest-bearing liabilities mature or reprice more quickly than interest-earning assets.
• Intense competition in the market area for both loans and deposits.
• Potential cybersecurity incidents that could disrupt business operations or compromise sensitive data.
• The impact of economic conditions in Hawaii, particularly the visitor industry and federal spending.
• The effects of climate change and societal, investor and governmental responses to climate change.

Future Outlook

The company is focused on completing the merger with Hope Bancorp, Inc., subject to customary closing conditions. The company will continue to manage interest rate risk and maintain strong capital and liquidity positions.

Management Comments

• Management believes it has enough sources of liquidity to satisfy shortand long-term liquidity needs as of December 31, 2024.
• Management believes it is more likely than not the Company will realize the benefits of deductible differences.

Industry Context

The report provides insights into the competitive landscape of the Hawaiian banking market, including competition from commercial banks, credit unions, and fintech companies. It also highlights the impact of the visitor industry and federal spending on the local economy.

Comparison to Industry Standards

• The report mentions that Territorial Savings Bank ranked fifth in FDIC-insured deposit market share in the State of Hawaii as of June 30, 2024, with a 2.9% market share.
• The report compares the company's return on average equity to the SNL Bank Index for performance-based restricted stock units.
• The report compares the company's three-year average total stock return to a peer group of other banks for performance-based restricted stock units.

Legal Proceedings

• At December 31, 2024, we were not involved in any legal proceedings, the outcome of which we believe would be material to our financial condition or results of operations.

Related Party Transactions

• In the normal course of business, the Company has made loans to certain directors and executive officers under terms which management believes are consistent with the Company's general lending policies.
• In the normal course of business, certain directors and executive officers (and their associated and affiliated parties) maintain deposit accounts with the Company.

Stakeholder Impact

• Shareholders: The net loss and pending merger could impact shareholder value.
• Employees: The merger may result in changes to employment and benefits.
• Customers: The merger could lead to changes in products and services.
• Community: The company's commitment to community reinvestment is ongoing.

Next Steps

• Complete the merger with Hope Bancorp, Inc.
• Continue efforts to manage interest rate risk.
• Monitor and adjust investments in liquid assets.
• Monitor and adjust the Information Security Program considering any relevant changes in technology.

Key Dates

Keywords

Territorial Bancorp, Hope Bancorp, Merger, Financial Results, Net Loss, Deposits, Loans, Hawaii, Regulatory Approvals, Interest Rates, Risk Management, Cybersecurity