Table of Contents
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 September 30, 2020
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: 9,513,867 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of October 31, 2020.
Form 10-Q Quarterly Report
PART I
ITEM 1.
FINANCIAL STATEMENTS
1
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
30
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
46
ITEM 4.
CONTROLS AND PROCEDURES
47
PART II
LEGAL PROCEEDINGS
48
ITEM 1A.
RISK FACTORS
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
DEFAULTS UPON SENIOR SECURITIES
MINE SAFETY DISCLOSURES
ITEM 5.
OTHER INFORMATION
ITEM 6.
EXHIBITS
SIGNATURES
50
ITEM 1. FINANCIAL STATEMENTS
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, except share data)
September 30,
December 31,
2020
2019
ASSETS
Cash and cash equivalents
$
237,498
44,806
Investment securities available for sale, at fair value
3,959
8,628
Investment securities held to maturity, at amortized cost (fair value of $309,471 and $371,305 at September 30, 2020 and December 31, 2019, respectively)
292,528
363,883
Loans held for sale
834
470
Loans receivable, net
1,482,639
1,584,784
Federal Home Loan Bank stock, at cost
8,144
8,723
Federal Reserve Bank stock, at cost
3,145
3,128
Accrued interest receivable
7,214
5,409
Premises and equipment, net
4,937
4,370
Right-of-use asset, net
13,375
11,580
Bank-owned life insurance
45,720
45,113
Deferred income tax assets, net
3,290
2,619
Prepaid expenses and other assets
3,034
2,800
Total assets
2,106,317
2,086,313
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits
1,662,706
1,631,933
Advances from the Federal Home Loan Bank
141,000
156,000
Securities sold under agreements to repurchase
10,000
Accounts payable and accrued expenses
25,304
23,038
Lease liability
14,130
12,183
Income taxes payable
2,411
2,305
Advance payments by borrowers for taxes and insurance
4,108
6,964
Total liabilities
1,859,659
1,842,423
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 9,513,867 and 9,681,493 shares at September 30, 2020 and December 31, 2019, respectively
95
97
Additional paid-in capital
60,905
65,057
Unearned ESOP shares
(4,037)
(4,404)
Retained earnings
197,562
190,808
Accumulated other comprehensive loss
(7,867)
(7,668)
Total stockholders’ equity
246,658
243,890
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended
Nine Months Ended
Interest income:
Loans
14,628
15,864
45,310
47,475
Investment securities
2,264
2,865
7,654
8,583
Other investments
239
219
753
709
Total interest income
17,131
18,948
53,717
56,767
Interest expense:
1,897
3,382
7,385
10,120
724
973
2,448
2,425
42
137
173
Total interest expense
2,667
4,397
9,970
12,718
Net interest income
14,464
14,551
43,747
44,049
Provision for loan losses
692
111
2,304
65
Net interest income after provision for loan losses
13,772
14,440
41,443
43,984
Noninterest income:
Service fees on loan and deposit accounts
728
504
1,716
1,427
Income on bank-owned life insurance
204
215
607
632
Gain on sale of investment securities
261
123
858
2,910
Gain on sale of loans
321
1,205
987
1,211
Other
63
55
171
635
Total noninterest income
1,577
2,102
4,339
6,815
Noninterest expense:
Salaries and employee benefits
5,346
5,586
16,294
17,002
Occupancy
1,701
1,610
4,972
4,780
Equipment
1,155
1,039
3,439
3,150
Federal deposit insurance premiums
138
212
288
Other general and administrative expenses
1,046
1,165
2,978
3,466
Total noninterest expense
9,386
9,401
27,895
28,686
Income before income taxes
5,963
7,141
17,887
22,113
Income taxes
1,645
1,775
4,805
5,163
Net income
4,318
5,366
13,082
16,950
Basic earnings per share
0.47
0.58
1.43
1.83
Diluted earnings per share
0.57
1.42
1.81
Cash dividends declared per common share
0.23
0.22
0.69
0.76
Basic weighted-average shares outstanding
9,104,079
9,212,119
9,144,463
9,184,741
Diluted weighted-average shares outstanding
9,134,089
9,295,729
9,201,882
9,309,420
2
Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in thousands)
Change in unrealized (loss) gain on securities, net of tax
(4)
(21)
(199)
588
Other comprehensive (loss) gain, net of tax
Comprehensive income
4,314
5,345
12,883
17,538
3
Consolidated Statements of Stockholders’ Equity (Unaudited)
Accumulated
Common
Additional
Unearned
Total
Shares
Paid-in
ESOP
Retained
Comprehensive
Stockholders’
Outstanding
Stock
Capital
Earnings
Loss
Equity
Balance at June 30, 2019
9,664,793
64,335
(4,649)
189,189
(7,200)
241,772
Other comprehensive loss
Cash dividends declared ($0.22 per share)
(2,035)
Share-based compensation
Allocation of 12,233 ESOP shares
227
350
Repurchase of shares of common stock
(11,071)
(321)
Exercise of options for common stock
21,200
368
Balances at September 30, 2019
9,674,922
64,732
(4,526)
192,520
(7,221)
245,602
Balances at December 31, 2018
9,645,955
65,090
(4,893)
182,594
(7,809)
235,079
Other comprehensive income
Adoption of lease accounting standard
(10)
Cash dividends declared ($0.76 per share)
(7,014)
6,541
494
Allocation of 36,699 ESOP shares
661
367
1,028
Repurchase shares of common stock
(180,944)
(2)
(5,042)
(5,044)
203,370
3,529
3,531
4
Balance at June 30, 2020
9,513,867
60,606
(4,159)
195,348
(7,863)
244,027
Cash dividends declared ($0.23 per share)
(2,104)
157
142
122
264
Balances at September 30, 2020
Balances at December 31, 2019
9,681,493
Cash dividends declared ($0.69 per share)
(6,328)
18,875
523
538
905
(268,328)
(3)
(6,633)
(6,636)
81,827
1,420
1,421
5
Consolidated Statements of Cash Flows (Unaudited)
Cash flows from operating activities:
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization
899
876
Deferred income tax (benefit) expense
(599)
874
Amortization of fees, discounts, and premiums, net
(228)
(419)
Amortization of right-of-use asset
2,238
2,076
Origination of loans held for sale
(22,605)
(3,845)
Proceeds from sales of loans held for sale
22,822
3,631
Gain on sale of loans, net
(987)
(1,211)
Gain on sale of investment securities available for sale
(290)
(153)
Gain on sale of investment securities held to maturity
(568)
(2,757)
Net gain on disposal of premises and equipment
ESOP expense
Share-based compensation expense
Increase in accrued interest receivable
(1,805)
(220)
Net increase in bank-owned life insurance
(607)
(631)
Net (increase) decrease in prepaid expenses and other assets
(96)
54
Net increase in accounts payable and accrued expenses
2,080
245
Net decrease in lease liability
(2,146)
(2,000)
Net decrease in advance payments by borrowers for taxes and insurance
(2,856)
(3,087)
Net increase (decrease) in income taxes payable
106
(232)
Net cash from operating activities
12,168
11,738
Cash flows from investing activities:
Purchases of investment securities held to maturity
(7,845)
Principal repayments on investment securities held to maturity
71,118
28,043
Principal repayments on investment securities available for sale
1,013
917
Proceeds from sale of investment securities held to maturity
10,429
3,527
Proceeds from sale of investment securities available for sale
3,668
5,117
Principal repayments on loans receivable, net of loan originations
90,780
(47,118)
Purchases of Federal Home Loan Bank stock
(21,642)
Proceeds from redemption of Federal Home Loan Bank stock
600
19,896
Purchases of Federal Reserve Bank stock
(17)
(14)
Proceeds from bank-owned life insurance
788
Purchases of premises and equipment
(1,466)
(383)
Proceeds from disposals of premises and equipment
Net cash from investing activities
176,108
(18,714)
(Continued)
6
Cash flows from financing activities:
Net increase (decrease) in deposits
30,773
(23,970)
Proceeds from advances from the Federal Home Loan Bank
539,100
Repayments of advances from the Federal Home Loan Bank
(15,000)
(497,400)
Proceeds from securities sold under agreements to repurchase
5,000
Repayments of securities sold under agreements to repurchase
(5,000)
(20,000)
Purchases of Fed Funds
10
Sales of Fed Funds
Proceeds from issuance of common stock
170
Repurchases of common stock
(1,597)
Cash dividends paid
(6,357)
(6,980)
Net cash from financing activities
4,416
(10,677)
Net increase (decrease) in cash and cash equivalents
192,692
(17,653)
Cash and cash equivalents at beginning of the period
47,063
Cash and cash equivalents at end of the period
29,410
Supplemental disclosure of cash flow information:
Cash paid for:
Interest on deposits and borrowings
10,268
12,772
6,208
4,521
Supplemental disclosure of noncash investing and financing activities:
Company stock acquired through stock swap and net settlement transactions
3,361
Company stock repurchased through stock swap and net settlement transactions
1,636
3,447
Loans receivable transferred to held for sale
29,229
Loans securitized into investment securities
9,431
30,145
Dividends declared, not yet paid
(29)
34
Establishment of right-of-use asset, net of incentives
4,033
13,254
Establishment of lease liability
4,093
13,733
Transfer of securities from held-to-maturity to available-for-sale
11,390
7
Notes to Consolidated Financial Statements
(Unaudited)
(1) Organization
In 2009, Territorial Savings Bank (the Bank) completed a conversion from a mutual holding company to a stock holding company and Territorial Bancorp Inc. (the Company) became the holding company for Territorial Savings Bank. Upon completion of the conversion and reorganization, a special “liquidation account” was established in an amount equal to the total equity of Territorial Mutual Holding Company as of December 31, 2008. The liquidation account is to provide eligible account holders and supplemental eligible account holders who maintain their deposit accounts with Territorial Savings Bank after the conversion with a liquidation interest in the unlikely event of the complete liquidation of Territorial Savings Bank after the conversion.
In 2014, Territorial Savings Bank converted from a federal savings bank to a Hawaii state-chartered savings bank and became a member of the Federal Reserve System.
(2) Basis of Presentation
The accompanying unaudited 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, 2019. 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
In August 2018, the FASB amended the Fair Value Measurement topic of the FASB ASC. The amendment affects disclosures only, and includes additions, deletions and modifications of the disclosures of assets and liabilities reported in the fair value hierarchy. The amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Entities are allowed to early adopt any removed or modified disclosures while delaying adoption of any added disclosures until the effective date. The Company adopted this amendment as of January 1, 2020 and it did not have a material effect on its consolidated financial statements.
In August 2018, the FASB amended the Compensation – Retirement Benefits topic of the FASB ASC. The amendment affects disclosures related to defined benefit pension or other post retirement plans and includes additions, deletions and clarifications of disclosures. The amendment is effective for fiscal years ending after December 15, 2020, with early adoption permitted. The Company does not expect the adoption of this amendment to have a material effect on its consolidated financial statements.
See Note (6), “Loans Receivable and Allowance for Loan Losses” in our Notes to Consolidated Financial Statements for a change in the treatment of troubled debt restructuring in the CARES Act.
(4) Cash and Cash Equivalents
The table below presents the balances of cash and cash equivalents:
Cash and due from banks
10,873
9,571
Interest-earning deposits in other banks
226,625
35,235
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
Cost
Gains
Losses
Fair Value
September 30, 2020:
Available-for-sale:
U.S. government-sponsored mortgage-backed securities
3,534
425
Held-to-maturity:
16,945
309,471
December 31, 2019:
7,905
723
8,436
(1,014)
371,305
9
The amortized cost and estimated fair value of investment securities by maturity date at September 30, 2020 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.
Due within 5 years
Due after 5 years through 10 years
Due after 10 years
62
61
292,466
309,410
Realized gains and losses and the proceeds from sales of held-to-maturity and available-for-sale securities are shown in the table below.
Proceeds from sales
5,737
4,308
14,097
8,644
Gross gains
Gross losses
During the nine months ended September 30, 2020, the Company sold $9.9 million of held-to-maturity mortgage-backed securities and recorded a gain of $568,000. During the nine months ended September 30, 2019, the Company sold its $75,000 investment in its trust preferred security, PreTSL XXIII, and recorded a gain of $2.7 million and sold $746,000 of held-to-maturity mortgage-backed securities and recorded a gain of $40,000. The sale of the trust preferred security, which had a significant deterioration in the issuer’s credit rating, and 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.
During the nine months ended September 30, 2020, the Company sold $3.4 million of available-for-sale mortgage-backed securities and recorded a gain of $290,000. During the nine months ended September 30, 2019, the Company sold $5.0 million of available-for-sale mortgage-backed securities and recorded a gain of $153,000.
As of January 1, 2019, the Company transferred securities with an amortized cost of $11.4 million from held-to-maturity to available-for-sale with the adoption of ASU 2017-12 on derivatives and hedging.
Investment securities with amortized costs of $217.5 million and $188.9 million at September 30, 2020 and December 31, 2019, 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 that were in an unrealized loss position at September 30, 2020 and December 31, 2019. The Company does not intend to sell held-to-maturity and available-for-sale 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
Unrealized
Number of
Description of securities
Securities
958
(1)
962
55,882
(302)
34,492
(712)
90,374
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 September 30, 2020 and December 31, 2019.
During the nine months ended September 30, 2020, the Company securitized fixed-rate first mortgage loans with a book value of $9.4 million into Freddie Mac mortgage-backed securities to increase liquidity. The securitization transaction increased investment securities and lowered loans receivable. The securitization transaction was accounted for by recording the mortgage-backed securities at a fair value of $9.8 million in accordance with the Transfers and Servicing topic of the FASB ASC. Mortgage servicing assets of $78,000 were also recorded on the transaction and a net gain of $377,000 was recognized on the securitization and recorded in gain on sale of loans in the consolidated statements of income.
(6) Loans Receivable and Allowance for Loan Losses
The components of loans receivable are as follows:
Real estate loans:
First mortgages:
One- to four-family residential
1,436,900
1,536,781
Multi-family residential
8,897
9,965
Construction, commercial and other
22,250
23,382
Home equity loans and lines of credit
9,704
10,084
Total real estate loans
1,477,751
1,580,212
Other loans:
Loans on deposit accounts
272
235
Consumer and other loans
11,475
9,484
Total other loans
11,747
9,719
Less:
Net unearned fees and discounts
(1,917)
(2,435)
Allowance for loan losses
(4,942)
(2,712)
Total unearned fees, discounts and allowance for loan losses
(6,859)
(5,147)
11
The table below presents the activity in the allowance for loan losses by portfolio segment:
Construction,
Home
Commercial
and Other
Loans and
Residential
Mortgage
Lines of
Consumer
Credit
Unallocated
Totals
Three months ended September 30, 2020:
Balance, beginning of period
3,020
459
197
579
4,256
Provision (reversal of provision) for loan losses
988
(273)
4,008
457
176
306
4,948
Charge-offs
(6)
Recoveries
Net charge-offs
Balance, end of period
4,942
Nine months ended September 30, 2020:
1,741
511
405
2,712
2,267
(54)
200
(99)
(9)
254
5,016
(86)
12
Net recoveries (charge-offs)
(84)
(74)
Three months ended September 30, 2019:
1,769
411
44
391
2,616
(Reversal of provision) provision for loan losses
(11)
90
15
17
1,758
501
59
408
2,727
(5)
56
2,724
Nine months ended September 30, 2019:
1,797
443
354
2,642
(57)
58
1,740
57
2,707
18
20
38
Management considers the allowance for loan losses at September 30, 2020 to be at an appropriate level to provide for probable losses that can be reasonably estimated based on general and specific conditions at that date. While the Company uses the best information it has available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations. To the extent actual outcomes differ from the estimates, additional provisions for credit losses may be required that would reduce future earnings. In addition, as an integral part of their examination process, the bank regulators periodically review the allowance for loan losses and may require the Company to increase the allowance based on their analysis of information available at the time of their examination.
The loan loss provision for the nine months ended September 30, 2020 was $2.3 million compared to $65,000 for the nine months ended September 30, 2019. The increase in the loan loss provision occurred primarily from an increase in the qualitative factors used to calculate the allowance for loan losses. The qualitative factors increased because Hawaii’s unemployment rate increased due to layoffs that resulted from government mandates to minimize the spread of COVID-19.
The table below presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method:
Allowance for loan losses:
Ending allowance balance:
Individually evaluated for impairment
Collectively evaluated for impairment
Total ending allowance balance
Loans:
Ending loan balance:
2,732
23
2,755
1,441,193
22,191
9,682
11,760
1,484,826
Total ending loan balance
1,443,925
9,705
1,487,581
1,224
89
1,313
1,543,125
23,326
9,997
9,735
1,586,183
1,544,349
10,086
1,587,496
The table below presents the balance of impaired loans individually evaluated for impairment by class of loans:
Unpaid
Recorded
Principal
Investment
Balance
With no related allowance recorded:
One- to four-family residential mortgages
3,164
32
3,196
1,615
178
1,793
13
The table below presents the average recorded investment and interest income recognized on impaired loans by class of loans:
For the Three Months Ended
For the Nine Months Ended
Average
Interest
Income
Recognized
2020:
2,745
2,770
25
24
2,769
2,795
2019:
1,364
1,391
96
100
1,460
1,491
There were no loans individually evaluated for impairment with a related allowance for loan loss as of September 30, 2020 or December 31, 2019. Loans individually evaluated for impairment do not have an allocated allowance for loan loss because they are written down to fair value at the time of impairment.
The Company had eight nonaccrual loans with a book value of $2.2 million as of September 30, 2020 and six nonaccrual loans with a book value of $736,000 as of December 31, 2019. The Company collected interest on nonaccrual loans of $40,000 and $51,000 during the nine months ended September 30, 2020 and 2019, respectively, but due to accounting and regulatory requirements, the Company recorded the interest as a reduction of principal. The Company would have recognized additional interest income of $68,000 and $51,000 during the nine months ended September 30, 2020 and 2019, respectively, had the loans been accruing interest. The Company did not have any loans 90 days or more past due and still accruing interest as of September 30, 2020. At December 31, 2019, the Company had one loan for $1,000 that was 90 days or more past due and still accruing interest.
14
The table below presents the aging of loans and accrual status by class of loans, net of unearned fees and discounts:
90 Days
or More
30 - 59
60 - 89
90 Days or
Past Due
Days Past
More
Total Past
Loans Not
Nonaccrual
and Still
Due
Accruing
140
262
1,434,781
1,435,043
2,163
Multi-family residential mortgages
8,882
Construction, commercial and other mortgages
Consumer and other
11,482
11,488
163
291
1,487,290
2,186
959
1,533,446
1,534,405
647
9,944
26
10,060
33
35
9,465
9,500
986
1,020
1,586,476
736
The Company primarily uses the aging of loans and accrual status to monitor the credit quality of its loan portfolio. When a mortgage loan becomes seriously delinquent (90 days or more contractually past due), it displays weaknesses that may result in a loss. As a loan becomes more delinquent, the likelihood of the borrower repaying the loan decreases and the loan becomes more collateral-dependent. A mortgage loan becomes collateral-dependent when the proceeds for repayment can be expected to come only from the sale or operation of the collateral and not from borrower repayments. Generally, appraisals are obtained after a loan becomes collateral-dependent or is four months delinquent. The carrying value of collateral-dependent loans is adjusted to the fair value of the collateral less selling costs. Any commercial real estate, commercial, construction or equity loan that has a loan balance in excess of a specified amount is also periodically reviewed to determine whether the loan exhibits any weaknesses and is performing in accordance with its contractual terms.
There were no loans modified in a troubled debt restructuring during the nine months ended September 30, 2020 or 2019. There were no new troubled debt restructurings within the 12 months ended September 30, 2020 or 2019 that subsequently defaulted.
The table below summarizes troubled debt restructurings by class of loans:
Accrual
Status
568
481
1,049
577
525
1,102
64
589
1,166
There were no delinquent troubled debt restructurings as of September 30, 2020 or December 31, 2019. Restructurings include deferrals of interest and/or principal payments and temporary or permanent reductions in interest rates due to the financial difficulties of the borrowers. At September 30, 2020, we had no commitments to lend any additional funds to these borrowers.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress and signed into law by the President on March 27, 2020. The CARES Act provides relief to financial institutions from categorizing eligible loan modifications as troubled debt restructurings over the remaining life of the modified loan. In addition, Interagency Statements were issued on March 22, 2020 and April 7, 2020 by bank regulatory agencies to encourage financial institutions to work prudently with borrowers who may be unable to meet their contractual payment obligations because of the effects of COVID-19. The Company will be using the provisions of the CARES Act and the Interagency Statements to account for the loans receiving modifications.
The Company has granted loan deferrals to borrowers who have been affected by COVID-19. As of September 30, 2020, the Company granted loan deferrals on $146.2 million of loans, which represent 9.9% of total loans receivable. $140.9 million of these loan deferrals consist of one- to four-family residential mortgage loans, which represent 9.5% of the total loans receivable. The Company believes these loans are currently well secured as the ratio of the current loan balance to the current tax-assessed value of the property securing these mortgage loans averages 54.9%. One- to four-family residential mortgage loans represent 96.9% of the Company’s total loan portfolio balance. All of our residential mortgage loans are secured by real estate in Hawaii. The Company believes that the total one- to four-family residential mortgage loans are also well-secured as the ratio of the current loan balance to the current tax-assessed value of the property securing these loans averages 45.5%. The Company has also granted loan deferrals of $5.3 million on other non-residential mortgage loans, which represent 0.4% of the total balance of loans receivable. The loans on which the Company has granted loan deferrals are included in the ALLL calculation. Loans performing under a loan deferral agreement are not contractually past due and are excluded from the past due statistics above.
The Company had no real estate owned as of September 30, 2020 or December 31, 2019. There were no loans in the process of foreclosure at September 30, 2020 and December 31, 2019.
Nearly all of our real estate loans are collateralized by real estate located in the State of Hawaii. Loan-to-value ratios on these real estate loans generally do not exceed 80% at the time of origination.
During the nine months ended September 30, 2020 and 2019, the Company sold mortgage loans held for sale with principal balances of $22.3 million and $3.6 million, respectively, and recognized gains of $610,000 and $18,000, respectively. The Company had two loans held for sale totaling $834,000 at September 30, 2020 and one loan held for sale for $470,000 at December 31, 2019.
During the nine months ended September 30, 2020, the Company securitized fixed-rate first mortgage loans with a book value of $9.4 million and received mortgage-backed securities with a fair market value of $9.8 million. The
16
Company retained the servicing of these loans and recorded mortgage servicing assets with a fair market value of $78,000. A net gain of $377,000 was recognized on the transaction.
The Company serviced loans for others with principal balances of $62.7 million at September 30, 2020 and $65.1 million at December 31, 2019. Of these amounts, $40.1 million and $37.8 million of loan balances relate to securitizations for which the Company continues to hold the related mortgage-backed securities at September 30, 2020 and December 31, 2019, respectively. The amount of contractually specified servicing fees earned for the nine months ended September 30, 2020 and 2019 was $134,000 and $71,000, respectively. The amount of contractually specified servicing fees earned for the three months ended September 30, 2020 and 2019 was $43,000 and $31,000, respectively. The fees are reported in service fees on loan and deposit accounts in the consolidated statements of income.
(7) Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are treated as financings and the obligations to repurchase the identical securities sold are reflected as a liability with the securities collateralizing the agreements classified as an asset. Securities sold under agreements to repurchase are summarized as follows:
September 30, 2020
December 31, 2019
Weighted
Repurchase
Liability
Rate
Maturing:
1 year or less
%
1.65
Over 4 year to 5 years
1.88
1.77
Below is a summary comparing the carrying value and fair value of securities pledged to secure repurchase agreements, the repurchase liability, and the amount at risk at September 30, 2020. The amount at risk is the greater of the carrying value or fair value over the repurchase liability and refers to the potential loss to the Company if the secured lender fails to return the security at the maturity date of the agreement. All the agreements to repurchase are with JP Morgan Securities and the securities pledged are mortgage-backed securities issued and guaranteed by U.S. government-sponsored enterprises. The repurchase liability cannot exceed 90% of the fair value of securities pledged. In the event of a decline in the fair value of securities pledged to less than the required amount due to market conditions or principal repayments, the Company is obligated to pledge additional securities or other suitable collateral to cure the deficiency.
Carrying
Fair
Value of
Amount
Months to
at Risk
Maturity
Over 90 days
10,001
10,994
994
51
(8) Offsetting of Financial Liabilities
The following table presents our securities sold under agreements to repurchase that are subject to a right of offset in the event of default. See Note 7, Securities Sold Under Agreements to Repurchase, for additional information.
Net Amount of
Gross Amount Not Offset in the
Gross Amount
Liabilities
Balance Sheet
of Recognized
Offset in the
Presented in the
Financial
Cash Collateral
Instruments
Pledged
Net Amount
(9) Employee Benefit Plans
The Company has a noncontributory defined benefit pension plan (Pension Plan) that covers most employees with at least one year of service. Effective December 31, 2008, under approved changes to the Pension Plan, there were no further accruals of benefits for any participants and benefits will not increase with any additional years of service. Net periodic benefit cost, subsequent to December 31, 2008, has not been significant and is not disclosed in the table below.
The Company also sponsors a Supplemental Employee Retirement Plan (SERP), a noncontributory supplemental retirement benefit plan, which covers certain current and former employees of the Company for amounts in addition to those provided under the Pension Plan.
The components of net periodic benefit cost were as follows:
SERP
Net periodic benefit cost for the period:
Service cost
22
66
77
Interest cost
43
41
130
Expected return on plan assets
Amortization of prior service cost
Recognized actuarial loss
Recognized curtailment loss
Net periodic benefit cost
67
196
199
The service cost component of net periodic benefit cost is included with salaries and employee benefits in the consolidated statements of income. The other components of net periodic benefit cost are included in other general and administrative expenses.
(10) Employee Stock Ownership Plan
Effective January 1, 2009, Territorial Savings Bank adopted an Employee Stock Ownership Plan (ESOP) for eligible employees. The ESOP borrowed $9.8 million from the Company and used those funds to acquire 978,650 shares, or 8%, of the total number of shares issued by the Company in its initial public offering. The shares were acquired at a price of $10.00 per share.
The loan is secured by the shares purchased with the loan proceeds and will be repaid by the ESOP over the 20-year term of the loan with funds from Territorial Savings Bank’s contributions to the ESOP and dividends payable on the shares. The interest rate on the ESOP loan is an adjustable rate equal to the prime rate, as published in The Wall Street Journal. The interest rate adjusts annually and will be the prime rate on the first business day of the calendar year.
Shares purchased by the ESOP are held by a trustee in an unallocated suspense account, and shares are released annually from the suspense account on a pro-rata basis as principal and interest payments are made by the ESOP to the Company. The trustee allocates the shares released among participants on the basis of each participant’s proportional share of compensation relative to all participants. As shares are committed to be released from the suspense account, Territorial Savings Bank reports compensation expense based on the average fair value of shares released with a corresponding credit to stockholders’ equity. The shares committed to be released are considered outstanding for earnings per share computations. Compensation expense recognized for the three months ended September 30, 2020 and 2019 amounted to $264,000 and $350,000, respectively. Compensation expense recognized for the nine months ended September 30, 2020 and 2019 amounted to $905,000 and $1.0 million, respectively.
Shares held by the ESOP trust were as follows:
Allocated shares
495,070
466,807
Unearned shares
403,698
440,397
Total ESOP shares
898,768
907,204
Fair value of unearned shares, in thousands
8,167
13,626
The ESOP restoration plan is a nonqualified plan that provides supplemental benefits to certain executives who are prevented from receiving the full benefits contemplated by the ESOP’s benefit formula. The supplemental cash payments consist of payments representing shares that cannot be allocated to the participants under the ESOP due to IRS limitations imposed on tax-qualified plans. We accrue for these benefits over the period during which employees provide services to earn these benefits. For the three months ended September 30, 2020 and 2019, we accrued $5,000 and $67,000, respectively, for the ESOP restoration plan. For the nine months ended September 30, 2020 and 2019, we accrued $79,000 and $246,000, respectively, for the ESOP restoration plan.
(11) Share-Based Compensation
On August 19, 2010, Territorial Bancorp Inc. adopted the 2010 Equity Incentive Plan, which provides for awards of stock options and restricted stock to key officers and outside directors. In accordance with the Compensation – Stock Compensation topic of the FASB ASC, the cost of the 2010 Equity Incentive Plan is based on the fair value of the awards on the grant date. The fair value of restricted stock is based on the closing price of the Company’s stock on the grant date. The fair value of stock options is estimated using a Black-Scholes option pricing model using assumptions for dividend yield, stock price volatility, risk-free interest rate and option term. These assumptions are based on our judgments regarding future events, are subjective in nature, and cannot be determined with precision. The cost of the awards will be recognized on a straight-line basis over the three, five- or six-year vesting period during which participants are required to provide services in exchange for the awards.
The Company recognized compensation expense, measured as the fair value of the share-based award on the date of grant, on a straight-line basis over the vesting period. Share-based compensation is recorded in the statement of income as a component of salaries and employee benefits with a corresponding increase in stockholders’ equity. The table below presents information on compensation expense and the related tax benefit for all share-based awards:
(In thousands)
Compensation expense
Income tax benefit
143
135
19
Shares of our common stock issued under the 2010 Equity Incentive Plan shall come from authorized shares. The maximum number of shares that will be awarded under the plan will be 1,862,637 shares.
Stock Options
The table below presents the stock option activity for the nine months ended September 30, 2020 and 2019:
Aggregate
Remaining
Intrinsic
Exercise
Contractual
Value
Options
Price
Life (years)
(in thousands)
Options outstanding at December 31, 2019
116,409
17.53
0.72
1,562
Granted
Exercised
17.36
725
Forfeited
Expired
31,497
Options outstanding at September 30, 2020
3,085
23.62
1.92
Options outstanding at December 31, 2018
337,654
17.51
1.74
2,859
2,282
Options outstanding at September 30, 2019
134,284
17.74
1.10
1,455
Options vested and exercisable at September 30, 2020
The following summarizes certain stock option activity of the Company:
Intrinsic value of stock options exercised
251
Proceeds received from stock options exercised
Tax benefits realized from stock options exercised
60
158
484
Total fair value of stock options that vested
During the nine months ended September 30, 2020, we issued 27,194 shares of common stock, net, in exchange for 81,827 stock options and 54,633 shares of common stock. Pursuant to the provisions of our equity incentive plan, optionees are permitted to use the value of our common stock they own in a net settlement to pay the exercise price of stock options.
As of September 30, 2020, the Company had no unrecognized compensation costs related to the stock option plan.
Restricted Stock
Restricted stock awards are accounted for as fixed grants using the fair value of the Company’s stock at the time of grant. Unvested restricted stock may not be disposed of or transferred during the vesting period. Restricted stock carries the right to receive dividends, although dividends attributable to restricted stock are retained by the Company until the shares vest, at which time they are paid to the award recipient. Unvested restricted stock that is time-based contain nonforfeitable dividend rights. Accrued dividends on restricted stock that do not vest based on performance or market conditions are forfeited.
The table below presents the restricted stock activity:
Average Grant
Restricted
Date Fair
Unvested at December 31, 2019
20,249
28.78
13,444
21.05
Vested
9,998
29.16
Unvested at September 30, 2020
23,695
24.24
Unvested at December 31, 2018
16,424
30.26
10,366
27.30
30.14
Unvested at September 30, 2019
During the nine months ended September 30, 2020, the Company issued 13,444 shares of restricted stock to certain members of executive management under the 2019 Equity Incentive Plan. The fair value of the restricted stock is based on the value of the Company’s stock on the date of grant. Restricted stock will vest over three years from the date of grant.
As of September 30, 2020, the Company had $410,000 of unrecognized compensation costs related to restricted stock.
During the nine months ended September 30, 2020, the Company issued 16,129 performance-based restricted stock units (PRSUs) to certain members of executive management under the 2019 Equity Incentive Plan. These PRSUs will vest in the first quarter of 2023 after our Compensation Committee determines whether a performance condition that compares the Company’s return on average equity to the SNL Bank Index is achieved. Depending on the Company’s performance, the actual number of these PRSUs that are issued at the end of the vesting period can vary between 0% and 150% of the target award. For the PRSUs, an estimate is made of the number of shares expected to vest based on the probability that the performance criteria will be achieved to determine the amount of compensation expense to be recognized. This estimate is re-evaluated quarterly and total compensation expense is adjusted for any change in the current period.
The table below presents the PRSUs that will vest on a performance condition:
Performance-
Based Restricted
Stock Units
Based on a
Performance
Condition
35,976
16,129
7,680
29.53
3,840
40,585
25.83
23,538
12,438
21
The fair value of these PRSUs is based on the fair value of the Company’s stock on the date of grant. As of September 30, 2020, the Company had $428,000 of unrecognized compensation costs related to these PRSUs. Performance will be measured over a three-year performance period and will be cliff vested.
During the nine months ended September 30, 2020, the Company issued 4,032 of PRSUs to certain members of executive management under the 2019 Equity Incentive Plan. These PRSUs will vest in the first quarter of 2023 after our Compensation Committee determines whether a market condition that compares the Company’s total stock return to the SNL Bank Index is achieved. The number of shares that will be expensed will not be adjusted for performance. The fair value of these PRSUs is based on a Monte Carlo valuation of the Company’s stock on the date of grant. The assumptions which were used in the Monte Carlo valuation of the PRSUs are:
Grant date: March 12, 2020
Performance period: January 1, 2020 to December 31, 2022
2.80 year risk-free rate on grant date: 0.56%
December 31, 2019 closing price: $30.94
Closing stock price on the date of grant: $21.05
Annualized volatility (based on 2.82 year historical volatility as of the grant date): 18.02%
The table below presents the PRSUs that will vest on a market condition:
Monte Carlo
Valuation of
the Company's
Market Condition
8,994
25.74
4,032
22.16
1,197
24.44
1,682
10,147
24.69
5,884
26.42
3,110
24.45
As of September 30, 2020, the Company had $90,000 of unrecognized compensation costs related to the PRSUs that are based on a market condition. Performance will be measured over a three-year performance period and will be cliff vested.
(12) Earnings Per Share
Holders of unvested restricted stock accrue dividends at the same rate as common shareholders and they both share equally in undistributed earnings. Unvested restricted stock awards that are time-based contain nonforfeitable rights to dividends or dividend equivalents and are considered to be participating securities in the earnings per share computation using the two-class method. Under the two-class method, earnings are allocated to common shareholders and participating securities according to their respective rights to earnings. Unvested restricted stock awards that vest based on performance or market conditions are not considered to be participating securities in the earnings per share calculation because accrued dividends on shares that do not vest are forfeited.
The table below presents the information used to compute basic and diluted earnings per share:
Income allocated to participating securities
(23)
(38)
(47)
(112)
Net income available to common shareholders
4,295
5,328
13,035
16,838
Weighted-average number of shares used in:
Dilutive common stock equivalents:
Stock options and restricted stock units
30,010
83,610
57,419
124,679
Net income per common share, basic
Net income per common share, diluted
(13) Other Comprehensive Income and Loss
The table below presents the changes in the components of accumulated other comprehensive income and loss, net of taxes:
Unfunded
Pension
(Gain)/Loss on
Three months ended September 30, 2020
Balances at beginning of period
8,178
(315)
7,863
Other comprehensive loss, net of taxes
Amounts reclassified from other comprehensive income, net of taxes
Net current period other comprehensive loss
Balances at end of period
(311)
7,867
Three months ended September 30, 2019
7,721
(521)
7,200
Other comprehensive income, net of taxes
(70)
91
(500)
7,221
Nine months ended September 30, 2020
(510)
7,668
(22)
221
Nine months ended September 30, 2019
88
7,809
(711)
Net current period other comprehensive income
(588)
The table below presents the tax effect on each component of accumulated other comprehensive income and loss:
Three Months Ended September 30,
Pretax
After Tax
Tax
Unrealized loss (gain) on securities
(95)
Amount reclassified from other comprehensive income
(32)
28
(7)
Nine Months Ended September 30,
Unrealized gain on securities
(30)
(969)
258
301
(80)
167
(44)
271
(72)
(802)
214
(14) Revenue Recognition
The Company’s contracts with customers are generally short-term in nature, with cycles of one year or less. These can range from an immediate term for services such as wire transfers, foreign currency exchanges and cashier’s check purchases, to several days for services such as processing annuity and mutual fund sales. Some contracts may be of an ongoing nature, such as providing deposit account services, including ATM access, check processing, account analysis and check ordering. However, provision of an assessable service and payment for such service is usually concurrent or closely timed. Contracts related to financial instruments, such as loans, investments and debt, are excluded from the scope of this reporting requirement.
After analyzing the Company’s revenue sources, including the amount of revenue received, the timing of services rendered and the timing of payment for these services, the Company has determined that the rendering of services and the payment for such services are generally closely matched. Any differences are not material to the Company’s consolidated financial statements. Accordingly, the Company generally records income when payment for services is received.
Revenue from contracts with customers is reported in service fees on loan and deposit accounts and in other noninterest income in the consolidated statements of income. The table below reconciles the revenue from contracts with customers and other revenue reported in those line items:
Service Fees on
Loan and Deposit
Accounts
Revenue from contracts with customers
275
310
Other revenue
453
791
347
37
384
175
559
918
1,006
798
83
881
1,887
1,047
1,184
380
498
878
2,062
(15) Leases
The Company leases most of its premises and some vehicles and equipment under operating leases expiring on various dates through 2030. The majority of lease agreements relate to real estate and generally provide that the Company pay taxes, insurance, maintenance and certain other operating expenses applicable to the leased premises. Variable lease components and nonlease components are not included in the Company’s computation of the right-of-use (ROU) asset or lease liability. The Company also does not include short-term leases in the computation of the ROU asset or lease liability. Short-term leases are leases with a term at commencement of 12 months or less. Short-term lease
expense is recorded on a straight-line basis over the term of the lease. Lease agreements do not contain any residual value guarantees or restrictive covenants.
Certain leases have renewal options at the expiration of the lease terms. Generally, option periods are not included in the computation of the lease term, ROU asset or lease liability because the Company is not reasonably certain to exercise renewal options at the expiration of the lease terms. The Company has elected to use the package of practical expedients to: a) not reassess whether any expired or existing contracts are or contain leases, b) not reassess the lease classification for any expired or existing leases, and c) not reassess initial direct costs for any existing leases. The Company has also chosen the option to not restate comparative periods prior to the adoption of the new lease accounting standard.
Because the discount rates implicit in our leases are not known, discount rates have been estimated using the rates for fixed-rate, amortizing advances from the Federal Home Loan Bank (FHLB) for the approximate terms of the leases. FHLB advances are collateralized by a blanket pledge of the Bank’s assets that are not otherwise pledged.
The table below presents lease costs and other information for the periods indicated:
Lease Costs:
Operating lease costs
777
2,509
2,342
Short-term lease costs
Variable lease costs
40
115
93
Total lease costs
921
838
2,641
2,472
Cash paid for amounts included in measurement of lease liabilities
808
721
2,414
2,266
ROU assets obtained in exchange for new operating lease liabilities
2,247
246
At September 30, 2020, future minimum rental commitments under noncancellable operating leases are as follows:
820
2021
2,974
2022
2,690
2023
2,339
2024
2,060
Thereafter
4,294
15,177
Less present value discount
Present value of leases
The table below presents other lease related information:
Weighted-average remaining lease term (years)
6.00
6.23
Weighted-average discount rate
2.45
2.90
(16) Fair Value
In accordance with the Fair Value Measurements and Disclosures topic of the FASB ASC, the Company groups its assets and liabilities measured or disclosed at fair value into three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value as follows:
In accordance with the Fair Value Measurements and Disclosures topic, the Company bases its fair values on the price that it would expect to receive if an asset were sold or the price that it would expect to pay to transfer a liability in an orderly transaction between market participants at the measurement date. Also as required, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when developing fair value measurements.
The Company uses fair value measurements to determine fair value disclosures. Investment securities held for sale and derivatives are recorded at fair value on a recurring basis. From time to time, the Company may be required to record other assets at fair value on a nonrecurring basis, such as loans held for sale, impaired loans and investments, and mortgage servicing assets. These nonrecurring fair value adjustments typically involve application of the lower of cost or fair value accounting or write-downs of individual assets.
Investment Securities Available for Sale. The estimated fair values of U.S. government-sponsored mortgage-backed securities are considered Level 2 inputs because the valuation for investment securities utilized pricing models that varied based on asset class and included trade, bid and other observable market information.
27
Interest Rate Contracts. The Company may enter into interest rate lock commitments with borrowers on loans intended to be sold. To manage interest rate risk on the lock commitments, the Company may also enter into forward loan sale commitments. The interest rate lock commitments and forward loan sale commitments are treated as derivatives and are recorded at their fair value determined by referring to prices quoted in the secondary market for similar contracts. The fair value inputs are considered Level 2 inputs. Interest rate contracts that are classified as assets are included with prepaid expenses and other assets on the consolidated balance sheet while interest rate contracts that are classified as liabilities are included with accounts payable and accrued expenses.
The estimated fair values of the Company’s financial instruments are as follows:
Fair Value Measurements Using
Level 1
Level 2
Level 3
Assets
Investment securities available for sale
Investment securities held to maturity
870
1,562,422
FHLB stock
FRB stock
794
6,401
Interest rate contracts
1,667,045
1,285,438
381,607
145,623
10,484
Accrued interest payable
99
480
1,627,903
952
4,425
1,632,741
1,167,990
464,751
156,906
9,968
397
At September 30, 2020 and December 31, 2019, neither the commitment fees received on commitments to extend credit nor the fair value thereof was material to the consolidated financial statements of the Company.
The table below presents the balance of assets and liabilities measured at fair value on a recurring basis:
Interest rate contracts — assets
Interest rate contracts — liabilities
(60)
The table below presents the balance of assets measured at fair value on a nonrecurring basis as of September 30, 2020 and December 31, 2019 and the related losses for the nine months ended September 30, 2020 and the year ended December 31, 2019:
Adjustment Date
Total Losses
Mortgage servicing assets
9/30/2020
452
(53)
9/30/2019
(16)
Mortgage servicing assets are valued using a discounted cash flow model. Assumptions used in the model include mortgage prepayment speeds, discount rates and cost of servicing. Losses on mortgage servicing assets are included in service fees on loan and deposit accounts in the consolidated statements of income.
The table below presents the significant unobservable inputs for Level 3 nonrecurring fair value measurements. The discount rates and prepayment speeds have been weighted by the relative notional amounts.
Unobservable
Range
Valuation Technique
Input
(Weighted Average)
Discounted cash flow
Discount rate
9.25% - 11.25% (10.25%)
Prepayment speed (CPR)
9.36 - 18.16 (13.54)
Annual cost to service (per loan, in dollars)
75
11.09 - 14.24 (12.58)
29
(17) Subsequent Events
On October 29, 2020, the Board of Directors of Territorial Bancorp Inc. declared a quarterly cash dividend of $0.23 per share of common stock. The dividend is expected to be paid on November 25, 2020 to stockholders of record as of November 12, 2020.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Information
This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may,” “continue” and words of similar meaning. These forward-looking statements include, but are not limited to:
These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. You should not place undue reliance on such statements. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
In addition, given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:
31
Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
Overview
We have historically operated as a traditional thrift institution. The significant majority of our assets consist of long-term, fixed-rate residential mortgage loans and mortgage-backed securities, which we have funded primarily with deposit inflows, cash balances at the Federal Reserve Bank, loan and security repayments, advances from the Federal Home Loan Bank, our capital, proceeds from securities sold under agreements to repurchase and proceeds from loan and security sales. As a result, we may be vulnerable to increases in interest rates, as our interest-bearing liabilities mature or reprice more quickly than our interest-earning assets.
The State of Hawaii has been affected by COVID-19. Like other states, Hawaii mandated that many non-essential businesses close temporarily and the public self-quarantine to limit the spread of COVID-19. When the pandemic started, Hawaii also imposed a 14-day quarantine for any out-of-state visitors and residents returning to the State. The 14-day quarantine reduced the number of visitors to the State from 30,000 per day during the same period last year to a few hundred per day. The tourism industry is the largest sector of Hawaii’s economy and the reduction in the number of visitors to the State and the stay-at-home mandate resulted in the layoff and furlough of workers and increased the State’s unemployment rate. As of October 15, 2020, visitors to the State and returning residents would not be subject to a 14-day quarantine provided they tested negative for COVID-19 within 72 hours prior to the departure of their final leg of travel.
To assist customers during COVID-19, we have:
because of COVID-19;
To qualify for the Bank’s loan deferral program, a borrower’s financial difficulties must be related to COVID-19 and the loan must not be more than 30 days past due as of December 31, 2019. In the loan payment deferral program, borrowers are allowed to defer loan payments for six months. For residential mortgage loans, the deferred interest will be payable within five years after the six-month deferral period ends. The term of the loan will be extended by six months to allow the loan to fully amortize. At the end of the six month deferral period, the Bank will be working with customers on a payment resumption plan.
During the payment deferral period, the borrowers are required to continue to make their escrow payments, which include insurance and property tax payments. Through October 19, 2020, all of the borrowers who received loan payment deferrals have made their escrow payments.
As of October 19, 2020, we have granted loan payment deferrals on $142.5 million of loans, which represent 9.6% of total loans receivable as of September 30, 2020. $136.9 million of these loan payment deferrals are on one- to four-family residential mortgage loans, which represent 9.2% of the total loans receivable as of September 30, 2020. We believe these loans are currently well secured as the ratio of the current loan balance to the current tax-assessed value of the property securing these mortgage loans averages 55.1%. One- to four-family residential mortgage loans represent 96.9% of our total loan portfolio balance with a ratio of the current loan balance to the current tax-assessed value of the property securing these loans averaging 45.5%. We have also granted loan payment deferrals on $5.3 million of commercial mortgage, commercial and industrial and home equity line of credit loans, which represent 0.4% of the total balance of loans receivable as of September 30, 2020.
As of October 19, 2020, we have $66.3 million of loans, or 4.4% of total loans receivable as of September 30, 2020, resume loan payments. $71.2 million of loans, or 4.9% of total loans receivable as of September 30, 2020, have their first payment date on or after November 1, 2020.
One- to Four-Family Residential
Other Loans
(commercial
One- to Four-
mortgage,
Family
commercial
Six Month
and industrial
Percentage
Deferral Ends
Mortgage Loans
and home
of Total
On or Before
On or After
on Payment
equity lines
10/1/2020
11/1/2020
Deferral
of credit)
at 9/30/20
(Dollars in millions)
Loan payment deferrals granted
66.0
70.9
136.9
5.3
142.2
9.6
Loans resuming payment currently on accrual
61.3
(a)
1.7
63.0
4.2
Loans continuing to pay escrow only
2.1
0.0
0.1
Loans currently working on payment resumption plan
2.6
0.2
Loans resuming payment early before deferral period ends and currently on accrual
3.3
Total loans on deferral with first payment on or after November 1, 2020
67.6
3.6
71.2
4.9
(a) to be determined as deferral period ends on or after 11/1/20
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress and signed into law by the President on March 27, 2020. The CARES Act provides relief to financial institutions from categorizing eligible loan modifications as troubled debt restructurings over the remaining life of the modified loan. In addition, Interagency Statements were issued on March 22, 2020 and April 7, 2020 by bank regulatory agencies to encourage financial institutions to work prudently with borrowers. We will be using the provisions of the CARES Act and the Interagency Statements to account for the loans receiving modifications.
Since the beginning of the year, and through September 30, 2020, we have not seen an increase in loan delinquencies, significant changes in deposits or significant drawdowns on any lines of credit. Loan delinquencies do not include loans requesting payment deferral because of COVID-19. We do not have any commercial loans to hotels, businesses in the transportation industry, restaurants or retail establishments.
Our ninth share repurchase program was completed on April 21, 2020. Due to the uncertainty surrounding COVID-19, we have not announced a new share repurchase program.
We have continued our focus on originating one- to four-family residential real estate loans. Our emphasis on conservative loan underwriting has resulted in continued low levels of nonperforming assets. Our nonperforming assets, which can include nonaccrual loans and real estate owned, totaled $2.2 million, or 0.10% of total assets at September 30, 2020 compared to $736,000 or 0.04% of total assets at December 31, 2019. We recorded $2.3 million in provisions for loan losses for the nine months ended September 30, 2020 and $65,000 of provisions for loan losses for the nine months ended September 30, 2019. The increase in the loan loss provision occurred primarily from an increase in the qualitative factors used to calculate the allowance for loan losses. The qualitative factors were raised primarily because Hawaii’s
unemployment rate increased due to layoffs that resulted from government mandates to minimize the spread of COVID-19.
Other than our loans for the construction of one- to four-family residential homes, we do not offer “interest only” mortgage loans (where the borrower pays only interest for an initial period, after which the loan converts to a fully amortizing loan) on one- to four-family residential properties. We also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on their loan, resulting in an increased principal balance during the life of the loan. We do not offer “subprime loans” (loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (traditionally defined as nonconforming loans having less than full documentation). We also do not own any private label mortgage-backed securities that are collateralized by Alt-A, low or no documentation or subprime mortgage loans.
We sold fixed-rate mortgage loans with principal balances of $22.3 million and $3.6 million during the nine months ended September 30, 2020 and 2019, respectively. During the nine months ended September 30, 2020, we also securitized fixed-rate first mortgage loans with a book value of $9.4 million and received mortgage-backed securities with a fair market value of $9.8 million. Federal Home Loan Bank advances decreased by $15.0 million to $141.0 million for the nine months ended September 30, 2020 and increased by $41.7 million to $183.9 million for the nine months ended September 30, 2019. The $41.7 million increase in Federal Home Loan Bank advances during the nine months ended September 30, 2019 was done to reduce interest rate risk. Securities sold under agreements to repurchase remained constant at $10.0 million for the nine months ended September 30, 2020 and decreased by $20.0 million to $10.0 million for the nine months ended September 30, 2019.
Our investments in mortgage-backed securities have been issued by Freddie Mac or Fannie Mae, which are U.S. government-sponsored enterprises, or Ginnie Mae, which is a U.S. government agency. These entities guarantee the payment of principal and interest on our mortgage-backed securities. As of September 30, 2020 and December 31, 2019, we owned $296.5 million and $372.5 million, respectively, of mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae.
Critical Accounting Policies
There are no material changes to the critical accounting policies disclosed in Territorial Bancorp Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019.
Comparison of Financial Condition at September 30, 2020 and December 31, 2019
Assets. Our total assets increased by $20.0 million, or 1.0%, to $2.1 billion at September 30, 2020. The increase in assets was primarily due to a $192.7 million increase in cash and cash equivalents, which was partially offset by a $101.8 million decrease in total loans receivable and a $76.0 million decrease in total investment securities.
Cash and Cash Equivalents. Cash and cash equivalents were $237.5 million at September 30, 2020, an increase of $192.7 million since December 31, 2019. The increase in cash and cash equivalents was primarily caused by a $101.8 million decrease in total loans receivable, a $76.0 million decrease in total investment securities and a $30.8 million increase in deposits. These increases were partially offset by a $15.0 million decrease in Federal Home Loan advances.
Loans. Total loans, including $834,000 of loans held for sale, were $1.5 billion at September 30, 2020, or 70.4% of total assets. During the nine months ended September 30, 2020, the loan portfolio, including loans held for sale, decreased by $101.8 million, or 6.4%. The decrease in the loan portfolio primarily occurred as principal repayments, loan sales and loan securitizations exceeded the originations of new loans. We securitized fixed-rate mortgage loans with a book value of $9.4 million into Freddie Mac mortgage-backed securities during the nine months ended September 30, 2020 to increase our liquid assets. The securitization transaction lowered the loan receivable balance and increased the securities balance.
Securities. At September 30, 2020, our securities portfolio totaled $296.5 million, or 14.1% of total assets. During the nine months ended September 30, 2020, the securities portfolio decreased by $76.0 million, or 20.4%. The decrease in the securities balance occurred as principal repayments and the sale of securities exceeded the securitization of loans.
At September 30, 2020, none of the underlying collateral consisted of subprime or Alt-A (traditionally defined as nonconforming loans having less than full documentation) loans.
Deposits. Deposits were $1.7 billion at September 30, 2020, an increase of $30.8 million, or 1.9%, since December 31, 2019. The growth in deposits was primarily due to increases of $74.7 million in savings accounts and $35.8 million in checking accounts. These increases were partially offset by an $86.7 million decrease in certificates of deposit during the nine months ended September 30, 2020. The decrease in certificates of deposit included a $48.9 million planned decrease in public deposits.
Borrowings. Our borrowings consist of advances from the Federal Home Loan Bank and funds borrowed under securities sold under agreements to repurchase. During the nine months ending September 30, 2020 total borrowings decreased to $151.0 million at September 30, 2020 from $166.0 million at December 31, 2019. Federal Home Loan Bank advances decreased by $15.0 million while securities sold under agreements to repurchase remained constant. During the three months ended September 30, 2020, we restructured $55.0 million of FHLB advances. This transaction lowered the average cost of FHLB advances from 2.28% to 1.54% and extended the average maturity date by 1.6 years. We have not required any additional borrowings to fund our operations. Instead we have primarily funded our operations with additional deposits, proceeds from loan sales and principal repayments on loans and mortgage-backed securities.
Stockholders’ Equity. Total stockholders’ equity increased to $246.7 million at September 30, 2020 from $243.9 million at December 31, 2019. The increase in stockholders’ equity occurred primarily due to net income of $13.1 million and stock issuances of $2.3 million, which were offset by the repurchase of $6.6 million of common stock and the declaration of $6.3 million of dividends.
Average Balances and Yields
The following tables set forth average balance sheets, average yields and rates, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances and are included with accrual loans in the tables. However, no interest income was attributed to nonaccrual loans. The yields set forth below include the effect of net deferred costs, discounts and premiums that are amortized or accreted to interest income.
For the Three Months Ended September 30,
Yield/Rate
Interest-earning assets:
First mortgage:
One- to four-family residential (2)
1,468,756
14,041
3.82
1,547,792
15,201
3.93
8,943
101
4.52
12,434
4.57
21,922
4.47
21,357
4.76
9,777
119
4.87
11,597
5.62
Other loans
11,294
4.32
8,038
104
5.18
Total loans
1,520,692
3.85
1,601,218
3.96
Investment securities:
U.S. government sponsored mortgage-backed securities (2)
318,158
2.85
368,981
3.11
Total securities
166,191
36,489
2.40
Total interest-earning assets
2,005,041
3.42
2,006,688
3.78
Non-interest-earning assets
79,273
75,890
2,084,314
2,082,578
Interest-bearing liabilities:
Savings accounts
962,882
536
923,933
1,135
0.49
Certificates of deposit
377,256
1,342
446,081
2,232
2.00
Money market accounts
5,855
0.41
4,716
0.42
Checking and Super NOW accounts
233,128
0.02
189,720
Total interest-bearing deposits
1,579,121
0.48
1,564,450
0.86
Federal Home Loan Bank advances
141,001
2.05
163,110
2.39
1.84
1.68
Total interest-bearing liabilities
1,730,122
0.62
1,737,561
1.01
Non-interest-bearing liabilities
106,925
99,861
1,837,047
1,837,422
Stockholders’ equity
247,267
245,156
Net interest rate spread (3)
2.80
2.77
Net interest-earning assets (4)
274,919
269,127
Net interest margin (5)
2.89
Interest-earning assets to interest-bearing liabilities
115.89
115.49
36
For the Nine Months Ended September 30,
1,499,486
43,400
3.86
1,540,522
45,579
3.94
9,297
318
4.56
12,347
426
4.60
22,262
765
4.58
20,792
734
4.71
10,024
461
6.13
11,353
5.65
10,560
366
4.62
6,496
255
5.23
1,551,629
3.89
1,591,510
3.98
346,095
2.95
369,853
3.09
Trust preferred securities
369,857
115,354
0.87
35,960
2.63
2,013,078
3.56
1,997,327
3.79
78,856
77,320
2,091,934
2,074,647
930,607
2,048
0.29
948,626
3,470
430,356
5,284
1.64
444,133
6,603
1.98
5,147
0.44
5,121
217,887
189,450
1,583,997
1,587,330
0.85
146,712
2.22
131,276
2.46
13,755
1,740,709
1,732,361
0.98
105,026
100,054
1,845,735
1,832,415
246,199
242,232
2.81
272,369
264,966
2.94
115.65
115.30
Comparison of Operating Results for the Three Months Ended September 30, 2020 and 2019
General. Net income decreased by $1.0 million, or 19.5%, to $4.3 million for the three months ended September 30, 2019 from $5.4 million for the three months ended September 30, 2019. The decrease in net income was primarily due to a $581,000 increase in provision for loan losses, a $525,000 decrease in noninterest income and an $87,000 decrease in net interest income. These decreases to net income were partially offset by decreases of $130,000 and $15,000 in income tax and noninterest expense, respectively.
Net Interest Income. Net interest income decreased by $87,000, or 0.6%, to $14.5 million for the three months ended September 30, 2020 from $14.6 million for the three months ended September 30, 2019. Interest income decreased by $1.8 million, or 9.6%, primarily due to a 36 basis point decrease in the average yield on average interest-earning assets and a $1.6 million decrease in the average balance of interest-earning assets. Interest expense decreased by $1.7 million, or 39.3%, due to a 39 basis point decrease in the cost of average interest-bearing liabilities and a $7.4 million decrease in the average balance of interest-bearing liabilities. The interest rate spread and net interest margin were 2.80% and 2.89%, respectively, for the three months ended September 30, 2020, compared to 2.77% and 2.90% respectively, for the three months ended September 30, 2019. The changes in the interest rate spread and in the net interest margin are attributable to a 36 basis point decrease in the cost of average interest-earning liabilities and a 39 basis point decrease in the yield of average interest-bearing assets.
Interest Income. Interest income decreased by $1.8 million, or 9.6%, to $17.1 million for the three months ended September 30, 2020 from $18.9 million for the three months ended September 30, 2019. Interest income on loans decreased by $1.2 million, or 7.8%, to $14.6 million for the three months ended September 30, 2020 from $15.9 million for the three months ended September 30, 2019. The decrease in interest income on loans occurred because of an $80.5 million, or 5.0%, decrease in the average loan balances and an 11 basis point decrease in the average loan yield. The decrease in the average loan balances occurred as loan repayments and loan sales exceeded new loan originations. Interest income on securities decreased by $601,000, or 21.0%, to $2.3 million for the three months ended September 30, 2020 from $2.9 million for the three months ended September 30, 2019. The decrease in interest income on securities occurred because the average balance of securities decreased by $50.8 million, or 13.8%, and because of a 26 basis point decline in the average securities yield, which occurred as higher yielding securities were paid off or sold. The decrease in the average security balance was due to security repayments and sales.
Interest Expense. Interest expense decreased by $1.7 million, or 39.3%, to $2.7 million for the three months ended September 30, 2020 from $4.4 million for the three months ended September 30, 2019. The decrease in interest expense occurred because interest expense on interest-bearing deposits decreased by $1.5 million, or 43.9%, to $1.9 million for the three months ended September 30, 2020 from $3.4 million for the three months ended September 30, 2019. The decrease in interest expense on interest-bearing deposits was due to a 38 basis point decrease in the average rate on interest-bearing deposits, which was partially offset by a $14.7 million, or 0.9%, increase in the average interest-bearing deposit balance. The average rate paid on interest-bearing deposits decreased to 0.48% for the three months ended September 30, 2020 compared to 0.86% for the three months ended September 30, 2019. The decrease in the average rate paid on interest-bearing deposits was primarily due to lower interest rates offered on savings accounts and certificates of deposit. The average rate paid on savings accounts decreased to 0.22% for the three months ended September 30, 2020 from 0.49% for the three months ended September 30, 2019. The average rate paid on certificates of deposit decreased to 1.42% for the three months ended September 30, 2020 from 2.00% for the three months ended September 30, 2019. The increase in the average balance of deposits was primarily due to an increase in the average balance of checking and Super NOW accounts and savings accounts, which was partially offset by a decrease in certificates of deposit. The average balance of checking and Super NOW accounts increased by $43.4 million, or 22.9%, to $233.1 million from $189.7 million. The average balance of savings accounts increased by $38.9 million, or 4.2%, to $962.9 million from $923.9 million. The average balance of certificates of deposit decreased by $68.8 million, or 15.4%, to $377.3 million from $446.1 million. Interest expense on FHLB advances decreased by $249,000 to $724,000 for the three months ended September 30, 2020 from $973,000 for the three months ended September 30, 2019. The decrease in interest expense on FHLB advances occurred because of a 34 basis point decrease in the average cost of advances and by a $22.1 million decrease in the average FHLB advance balance. The decrease in the average cost of advances occurred as we restructured $82.0 million of FHLB advances at lower interest rates. The decrease in FHLB advance balance occurred as maturing advances were paid off.
Provision for Loan Losses. We recorded provisions for loan losses of $692,000 and $111,000 for the three months ended September 30, 2020 and September 30, 2019, respectively. The increase in provisions in 2020 resulted primarily from an increase in the qualitative factors used to calculate the allowance for loan losses. The qualitative factors were raised because Hawaii’s unemployment rate increased due to layoffs that occurred as a result of government mandates to minimize the spread of COVID-19. The provisions recorded resulted in ratios of the allowance for loan losses to total loans of 0.33% at September 30, 2020 and 0.17% at September 30, 2019. Nonaccrual loans totaled $2.2 million at September 30, 2020, or 0.15% of total loans at that date, compared to $864,000 of nonaccrual loans at September 30, 2019, or 0.05% of total loans at that date. Nonaccrual loans as of September 30, 2020 and 2019 consisted primarily of one- to four-family residential real estate loans. To the best of our knowledge, we have provided for all losses that are both probable and reasonable to estimate at September 30, 2020 and 2019. For additional information see Note (6), “Loans Receivable and Allowance for Loan Losses” in our Notes to Consolidated Financial Statements.
Noninterest Income. The following table summarizes changes in noninterest income between the three months ended September 30, 2020 and 2019.
Change
$ Change
% Change
224
44.4
(5.1)
112.2
(884)
(73.4)
14.5
(525)
(25.0)
Noninterest income decreased by $525,000 for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. During the three months ended September 30, 2020, we sold $10.0 million of mortgage loans held for sale and recognized gains of $321,000. During the three months ended September 30, 2019, we securitized fixed-rate first mortgage loans with a book values of $29.2 million into mortgage-backed securities with a fair value of $30.1 million. Mortgage servicing assets of $265,000 were recorded on the transaction and a net gain of $1.2 million was recognized on the securitization. Service fees on loan and deposit accounts increased due to an increase in broker fees. During the three months ended September 30, 2020, we also sold $5.5 million of mortgage-backed securities and recorded gains of $261,000 compared to $4.2 million of mortgage-backed securities sold during the three months ended September 31, 2019 with recorded gains of $123,000.
Noninterest Expense. The following table summarizes changes in noninterest expense between the three months ended September 30, 2020 and 2019.
(240)
(4.3)
5.7
116
11.2
13,700.0
(119)
(10.2)
(15)
(0.2)
Noninterest expense decreased by $15,000 for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The decrease in salaries and employee benefits was primarily due to an increase in the capitalized cost of new loan originations and a decrease in the expense for our employee stock ownership plan. As new loans are originated, salary expense is reduced due to the capitalization of the cost of new loans. More loans were
39
originated in the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The increase in the number of new loans originated resulted in an increase in loan capitalization and an offset to salary expense for the three months ended September 30, 2020. The decrease in employee stock ownership plan expense is primarily due to a decline in our stock price, which is used to calculate this expense. The decrease in other general and administrative expenses was primarily due to decreases in advertising expense and accounting and auditing expenses. The decrease in federal deposit insurance premiums was due to a credit received in the three months ended September 30, 2019 because the FDIC insurance fund was over-capitalized. The increase in equipment expense was primarily due to an increase in service bureau expense.
Income Tax Expense. Income taxes were $1.6 million for the three months ended September 30, 2020, reflecting an effective tax rate of 27.6%, compared to $1.8 million for the three months ended September 30, 2019, reflecting an effective tax rate of 24.9%. Income tax expense for the three months ended September 30, 2019 included tax benefits of $34,000 related to the exercise of stock options. The increase in the effective tax rate for the three months ended September 30, 2020 is also attributed to an increase in income tax expense related to executive compensation plans.
Comparison of Operating Results for the Nine Months Ended September 30, 2020 and 2019
General. Net income decreased by $3.9 million, or 22.8%, from $17.0 million for the nine months ended September 30, 2019 to $13.1 million for the nine months ended September 30, 2020. The decrease in net income was due to a $2.5 million decrease in noninterest income, a $2.2 million increase in loan loss provisions and a $302,000 decrease in net interest income. These decreases in net income were partially offset by a $791,000 decrease in noninterest expense and a $358,000 decrease in income tax expense.
Net Interest Income. Net interest income decreased by $302,000, or 0.7%, to $43.7 million for the nine months ended September 30, 2020 from $44.0 million for the nine months ended September 30, 2019. Interest income decreased by $3.1 million, or 5.4%, due to a 23 basis point decrease in the average yield of interest-earning assets, which was partially offset by a $15.8 million increase in the average balance of interest-earning assets. Interest expense decreased by $2.7 million, or 21.6%, due to a 22 basis point decrease in the cost of average interest-bearing liabilities, which was partially offset by a $8.3 million increase in the average balance of interest-bearing liabilities. The interest rate spread and net interest margin were 2.80% and 2.90% respectively, for the nine months ended September 30, 2020, compared to 2.81% and 2.94%, respectively, for the nine months ended September 30, 2019. The decreases in the interest rate spread and in the net interest margin are attributable to the 23 basis point decrease in the yield on average interest-bearing assets that was partially offset by the 22 basis point decrease in the cost of average interest-earning liabilities.
Interest Income. Interest income decreased by $3.1 million, or 5.4%, to $53.7 million for the nine months ended September 30, 2020 from $56.8 million for the nine months ended September 30, 2019. Interest income on loans decreased by $2.2 million, or 4.6%, to $45.3 million for the nine months ended September 30, 2020 from $47.5 million for the nine months ended September 30, 2019. The decrease in interest income on loans occurred because the average balance of loans decreased by $39.9 million, or 2.5%, and the average loan yield decreased by nine basis points. The decrease in the average balance occurred as loan repayments, loan sales and loan securitizations exceeded new loan originations. Interest income on securities decreased by $929,000, or 10.8%, to $7.7 million for the nine months ended September 30, 2020 from $8.6 million for the nine months ended September 30, 2019. The decrease in interest income on securities occurred because the average balance of securities decreased by $23.8 million, or 6.4%, as security repayments and sales exceeded security purchases and loan securitizations. The decrease in interest income on securities was augmented by a 14 basis point decrease in the average yield on securities, which occurred as higher yielding securities were paid off or sold.
Interest Expense. Interest expense decreased by $2.7 million, or 21.6%, to $10.0 million for the nine months ended September 30, 2020 from $12.7 million for the nine months ended September 30, 2019. Interest expense on interest-bearing deposits decreased by $2.7 million, or 27.0%, from $10.1 million for the nine months ended September 30, 2019 to $7.4 million for the nine months ended September 30, 2020. The decrease in interest expense on interest-bearing deposits was due to a 23 basis point decrease in the average rate paid on interest-bearing deposits and a $3.3
million, or 0.2%, decrease in the average interest-bearing deposit balance. The decrease in the average rate paid on interest bearing deposits was primarily due to lower interest rates offered on certificates of deposit and savings accounts. During the nine months ended September 30, 2020, the average rate paid on certificates of deposit decreased by 34 basis points as average rates dropped from 1.98% to 1.64% as higher rate certificates of deposit matured. The average rate paid on savings accounts decreased by 20 basis points as average rates dropped from 0.49% to 0.29%. The decrease in average interest bearing deposit balance was primarily due to an $18.0 million decrease in the average balance of savings accounts and a $13.8 million decrease in the average balance of certificate of deposits, which was partially offset by a $28.4 million increase in the average balance of checking and Super NOW accounts.
Provision for Loan Losses. We recorded provisions for loan losses of $2.3 million and $65,000 for the nine months ended September 30, 2020 and 2019, respectively. The increase in provisions in 2020 resulted primarily from an increase in the qualitative factors used to calculate the allowance for loan losses. The qualitative factors were raised because Hawaii’s unemployment rate increased due to layoffs that occurred as a result of government mandates to minimize the spread of COVID-19. The provisions recorded resulted in ratios of the allowance for loan losses to total loans of 0.33% and 0.17% at September 30, 2020 and 2019, respectively. Nonaccrual loans totaled $2.2 million at September 30, 2020, or 0.15% of total loans at that date, compared to $864,000 of nonaccrual loans at September 30, 2019, or 0.05% of total loans at that date. Nonaccrual loans as of September 30, 2020 and 2019 consisted primarily of one- to four-family residential real estate loans. To the best of our knowledge, we have provided for all losses that are both probable and reasonable to estimate at September 30, 2020 and 2019. For additional information see Note (6), “Loans Receivable and Allowance for Loan Losses” in our Notes to Consolidated Financial Statements.
Noninterest Income. The following table summarizes changes in noninterest income between the nine months ended September 30, 2020 and 2019.
289
20.3
(25)
(4.0)
(2,052)
(70.5)
(224)
(18.5)
(464)
(73.1)
(2,476)
(36.3)
Noninterest income decreased by $2.5 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The decrease in gain on sale of investment securities was primarily due to the sale of our investment in a trust preferred security in the nine months ended September 30, 2019 where we recognized a gain of $2.7 million. The sale of this trust preferred security, which had a significant deterioration in the issuer’s credit rating, is in accordance with the Investments – Debt and Equity Securities topic of the FASB ASC and does not taint management’s assertion of its intent to hold to maturity the remaining securities in the held-to-maturity portfolio. During the nine months ended September 30, 2020, we securitized fixed-rate first mortgage loans with a book value of $9.4 million into mortgage-backed securities with a fair value of $9.8 million. We retained the servicing of these loans and recorded mortgage servicing assets with a fair market value of $78,000 and recognized total gains of $377,000 on the securitization transaction. During the nine months ended September 30, 2020, we sold mortgage loans held for sale with principal balances of $22.3 million and recognized gains of $610,000. During the nine months ended September 30, 2019, we securitized fixed-rate first mortgage loans with a book value of $29.2 million into mortgage-backed securities with a fair value of $30.1 million. Mortgage servicing assets of $265,000 were recorded on the transaction and a net gain of $1.2 million was recognized on the securitization. Other income decreased primarily due to bank-owned life insurance proceeds received in the nine months ended September 30, 2019. Service fees on loan and deposit accounts increased due to an increase in broker fees.
Noninterest Expense. The following table summarizes changes in noninterest expense between the nine months ended September 30, 2020 and 2019.
(708)
(4.2)
192
4.0
9.2
(76)
(26.4)
(488)
(14.1)
(791)
(2.8)
Noninterest expense decreased by $791,000 for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The decrease in salaries and employee benefits was primarily due to an increase in the capitalized cost of new loan originations and a decrease in the expense for our employee stock ownership plan. As new loans are originated, salary expense is reduced due to the capitalization of the cost of new loans. More loans were originated in the first nine months of 2020 compared to the first nine months of 2019. The increase in the number of new loans originated resulted in an increase in loan capitalization and an offset to salary expense for the nine months ended September 30, 2020. The decrease in employee stock ownership plan expense is primarily due to a decline in our stock price, which is used to calculate this expense. The decrease in other general and administrative expenses was primarily due to decreases in advertising expense and accounting and auditing expenses. The reduction in federal deposit insurance premiums occurred when we received credits in the nine months ended September 30, 2019 because the FDIC insurance fund was overcapitalized. The increase in equipment expense was primarily due to an increase in service bureau expense. The increase in occupancy expense was primarily due to an increase in rent expense.
Income Tax Expense. Income taxes were $4.8 million for the nine months ended September 30, 2020, reflecting an effective tax rate of 26.9%, compared to $5.2 million for the nine months ended September 30, 2019, reflecting an effective tax rate of 23.3%. The effective tax rate increased due to tax benefits related to the exercise of stock options decreasing to $63,000 for the nine months ended September 30, 2020 compared to $266,000 for the nine months ended September 30, 2019. Income tax expense for the nine months ended September 30, 2019 also included $419,000 in bank-owned life insurance proceeds that was not taxable, which lowered the effective tax rate. The increase in the effective tax rate for the nine months ended September 30, 2020 can also be attributed to an increase in income tax expense related to executive compensation plans.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations. Our primary sources of funds consist of deposit inflows, cash balances at the Federal Reserve Bank, loan and security repayments, advances from the Federal Home Loan Bank, proceeds from securities sold under agreements to repurchase and proceeds from loan and security sales. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage and mortgage-backed security prepayments are greatly influenced by general interest rates, economic conditions and competition. We have established an Asset/Liability Management Committee, consisting of our President and Chief Executive Officer, our Vice Chairman and Co-Chief Operating Officer, our Senior Vice President and Chief Financial Officer and our Vice President and Controller, which is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we have enough sources of liquidity to satisfy our short- and long-term liquidity needs as of September 30, 2020.
We regularly monitor and adjust our investments in liquid assets based upon our assessment of:
Excess liquid assets are invested generally in interest-earning deposits or securities and may also be used to pay off short-term borrowings.
Our most liquid asset is cash. The amount of this asset is dependent on our operating, financing, lending and investing activities during any given period. At September 30, 2020, our cash and cash equivalents totaled $237.5 million. On that date, we had $10.0 million in securities sold under agreements to repurchase outstanding and $141.0 million of Federal Home Loan Bank advances outstanding with the ability to borrow an additional $798.8 million under Federal Home Loan Bank advances. We have securities with a market value of $15.4 million pledged to the Federal Reserve Bank and have the ability to borrow up to $14.5 million using these securities as collateral. There has been no change in our borrowing capacity since September 30, 2020.
Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows included in our Consolidated Financial Statements.
At September 30, 2020, we had $19.9 million in loan commitments outstanding for fixed-rate loans and had $22.3 million in unused lines of credit to borrowers. Certificates of deposit due within one year at September 30, 2020 totaled $266.2 million, or 16.0% of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including loan and security sales, brokered deposits, securities sold under agreements to repurchase and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2021. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.
Our primary investing activities are originating loans and purchasing mortgage-backed securities. During the nine months ended September 30, 2020 and 2019 we originated $190.9 million and $175.0 million of loans, respectively. During the nine months ended September 30, 2020, we did not purchase any investment securities. We purchased $38.0 million of securities in the nine months ended September 30, 2019.
Financing activities consist primarily of activity in deposit accounts, Federal Home Loan Bank advances, securities sold under agreements to repurchase, stock repurchases and dividend payments. We experienced a net increase in deposits of $30.8 million and a net decrease in deposits of $24.0 million for the nine months ended September 30, 2020 and 2019, respectively. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, and by other factors.
Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank, which provide an additional source of funds. Federal Home Loan Bank advances were $141.0 million at September 30, 2020 and $156.0 million at December 31, 2019. We had the ability to borrow up to an additional $798.8 million and $727.5 million from the Federal Home Loan Bank as of September 30, 2020 and December 31, 2019, respectively. We also utilize securities sold under agreements to repurchase as another borrowing source. Securities sold under agreements to repurchase were $10.0 million at September 30, 2020 and December 31, 2019.
At September 30, 2020, we did not have any standby letters of credit from the Federal Home Loan Bank. At December 31, 2019, we had $55.0 million in standby letters of credit from the Federal Home Loan Bank pledged as collateral for State of Hawaii deposits.
Territorial Bancorp Inc. is a separate legal entity from Territorial Savings Bank and must provide for its own liquidity to pay dividends, repurchase shares of its common stock and for other corporate purposes. Territorial Bancorp Inc.’s primary source of liquidity is dividend payments from Territorial Savings Bank. The ability of Territorial Savings Bank to pay dividends to Territorial Bancorp Inc. is subject to regulatory requirements. At September 30, 2020, Territorial Bancorp Inc. (on an unconsolidated, stand-alone basis) had liquid assets of $12.6 million.
Territorial Savings Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. Territorial Bancorp Inc. is not subject to regulatory capital requirements because its total assets are less than $3.0 billion. At September 30, 2020, Territorial Savings Bank exceeded all of its regulatory capital requirements and is considered to be “well capitalized” under regulatory guidelines.
The tables below present the fully-phased in capital required to be considered “well-capitalized” and meet the regulatory capital conservation buffer requirement as a percentage of total and risk-weighted assets and the percentage and the total amount of capital maintained for Territorial Savings Bank and the Company at September 30, 2020 and December 31, 2019:
Required Ratio
Actual Amount
Actual Ratio
Tier 1 Leverage Capital
Territorial Savings Bank
5.00
241,509
11.61
Territorial Bancorp Inc.
254,524
12.23
Common Equity Tier 1 Risk-Based Capital (1)
9.00
26.30
27.74
Tier 1 Risk-Based Capital (1)
10.50
Total Risk-Based Capital (1)
12.50
246,571
26.85
259,586
28.29
227,507
10.92
251,558
12.06
23.31
25.77
230,304
23.59
254,355
26.06
Prompt Corrective Action provisions define specific capital categories based on an institution’s capital ratios. However, the regulators may impose higher minimum capital standards on individual institutions or may downgrade an institution from one capital category to a lower category because of safety and soundness concerns. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements.
Prompt Corrective Action provisions impose certain restrictions on institutions that are undercapitalized. The restrictions imposed become increasingly more severe as an institution’s capital category declines from “undercapitalized” to “critically undercapitalized.”
At September 30, 2020 and December 31, 2019, the Bank’s capital ratios exceeded the minimum capital thresholds for a “well-capitalized” institution. There are no conditions or events that have changed the institution’s category under the capital guidelines.
Depending on the amount of dividends to be paid, the Bank is required to either notify or make application to the Federal Reserve Bank before dividends are paid to the Company.
45
Legislation enacted in 2018 requires the federal banking agencies, including the Federal Reserve Board, to establish a “community bank leverage ratio” between 8% to 10% of average total consolidated assets for qualifying institutions with assets of less than $10 billion. Institutions with capital meeting the specified requirements and electing to follow the alternative framework would be deemed to comply with the applicable regulatory capital requirements, including the risk based requirements. The federal regulators have adopted 9% as the applicable ratio, effective March 31, 2020, and reduced the ratio to 8% in response to the effects of COVID-19. We have not adopted the alternative framework, with the applicable regulatory requirements.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. In addition, we enter into commitments to sell mortgage loans.
Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities and agreements with respect to investments. Except for a decrease of $86.7 million in certificates of deposit and an increase of $11.2 million in loan commitments between December 31, 2019 and September 30, 2020, there have not been any material changes in our contractual obligations and funding needs since December 31, 2019.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our net interest income to changes in market interest rates. Our Board of Directors has established an Asset/Liability Management Committee, which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors.
Because we have historically operated as a traditional thrift institution, the significant majority of our assets consist of long-term, fixed-rate residential mortgage loans and mortgage-backed securities, which we have funded primarily with deposit inflows, cash balances at the Federal Reserve Bank, loan and security repayments, advances from the Federal Home Loan Bank, our capital, proceeds from securities sold under agreements to repurchase and proceeds from loan and security sales. In addition, there is little demand for adjustable-rate mortgage loans in the Hawaii market area. This has resulted in our being particularly vulnerable to increases in interest rates, as our interest-bearing liabilities mature or reprice more quickly than our interest-earning assets. We sold $22.3 million and $3.6 million of fixed-rate mortgage loans during the nine months ended September 30, 2020 and 2019, respectively, to reduce our interest rate risk.
Our policies do not permit hedging activities, such as engaging in futures, options or swap transactions, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage-backed securities.
Economic Value of Equity. We use an interest rate sensitivity analysis that computes changes in the economic value of equity (EVE) of our cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. EVE represents the market value of portfolio equity and is equal to the present value of assets minus the present value of liabilities, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in market-risk-sensitive instruments in the event of an instantaneous and sustained 100 to 400 basis point increase or a 100 basis point decrease in market interest rates with no effect given to any steps that we might take to counter the effect of that interest rate movement. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below. Given the current relatively low level of market interest rates, an EVE calculation for an interest rate decrease of greater than 100 basis points has not been prepared.
The following table presents our internal calculations of the estimated changes in our EVE as of June 30, 2020 (the latest date for which we have available information) that would result from the designated instantaneous changes in the interest rate yield curve.
Increase
(Decrease) in
EVE Ratio as a
Change in
Percent of
Interest Rates
Estimated EVE
Present Value
Present Value of
(bp) (1)
EVE
Change in EVE
of Assets (3)(4)
Assets (3)(4)
+400
137,726
(112,802)
(45.03)
8.08
(3.73)
+300
171,908
(78,620)
(31.38)
9.53
(2.28)
+200
210,846
(39,682)
(15.84)
11.01
(0.80)
+100
244,390
(6,138)
(2.45)
12.05
0.24
0
250,528
11.81
-100
188,196
(62,332)
(24.88)
8.76
(3.05)
Interest rates on Freddie Mac mortgage-backed securities have decreased by 25 basis points between June 30, 2020 and September 30, 2020. The decrease in mortgage interest rates is not expected to have a significant effect on estimated EVE.
Certain shortcomings are inherent in the methodologies used in determining interest rate risk through changes in EVE. Modeling changes in EVE requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the EVE table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the EVE table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our EVE and net interest income and will differ from actual results.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chairman of the Board, President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2020. Based on that evaluation, the Company’s management, including the Chairman of the Board, President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
During the quarter ended September 30, 2020, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to various legal actions that are considered ordinary, routine litigation incidental to the business of the Company, and no claim for money damages exceeds ten percent of the Company’s consolidated assets. In the opinion of management, based on currently available information, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s results of operations.
ITEM 1A. RISK FACTORS
Except as previously disclosed in our Form 10-Q for the period ended March 31, 2020, there have been no material changes to the risk factors as described in our Annual Report on Form 10-K for the period ended December 31, 2019 filed with the Securities and Exchange Commission.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Stock Repurchases. There were no repurchases of our shares of common stock during the three months ended September 30, 2020. On June 6, 2019, the Company announced its ninth repurchase program. Under this share repurchase program, the Company was authorized to repurchase up to $5,000,000 of our common stock based on certain price assumptions. The Company completed its ninth repurchase program on April 21, 2020.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
The exhibits required by Item 601 of Regulation S-K are included with this Quarterly Report on Form 10-Q and are listed below.
INDEX TO EXHIBITS
Exhibit
Number
Description
31.1
Certification of Allan S. Kitagawa, Chairman of the Board, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
31.2
Certification of Melvin M. Miyamoto, Senior Vice President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
Certification of Allan S. Kitagawa, Chairman of the Board, President and Chief Executive Officer, and Melvin M. Miyamoto, Senior Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
The following materials from Territorial Bancorp Inc.’s Form 10-Q report for the quarter ended September 30, 2020, formatted in Inline XBRL pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Stockholders’ Equity (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (formatted as inline XBRL document and contained in Exhibit 101)
49
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
Date: November 9, 2020
/s/ Allan S. Kitagawa
Allan S. Kitagawa
Chairman of the Board, President and
Chief Executive Officer
/s/ Melvin M. Miyamoto
Melvin M. Miyamoto
Senior Vice President and Chief Financial Officer