Update: Territorial Bancorp Earnings

| About: Territorial Bancorp (TBNK)


Territorial Bancorp reported Q2 2014 earnings.

In line with my original thesis, strategic share repurchases below book value, coupled with net income growth are driving EPS higher.

With only 4 loans 90 days or more past due and not accruing, the bank's clean portfolio maximizes every little bit of the recent NIM improvements.

After falling, falling, and falling some more, Territorial Bancorp (NASDAQ:TBNK) announced this quarter's earnings came with a higher net interest margin, up 4.95% to 3.39%. In addition to providing a good excuse for traveling to Hawaii every year, the increased NIMs and loan growth (portfolio up 5.4% YTD) seen this quarter helped bring up earnings by more than I recently projected. I, however, do not appear to be alone, as Q2 EPS of $0.40 beat analysts' projections by $0.06.

With this year's earnings of $7.2 million, the company has paid out $3.9 million in share repurchases and returned $2.8 million through dividend payments. With such a low asset-to-equity ratio, the bank will continue to produce low return percentages, but the 3% dividend yield is covered several times over, and I think it may actually be the thing that slowly drives shares up to a higher valuation.

Future stress could come in the form of higher provisions. The bank has one of the smallest balance of nonperforming loans that I've seen from a bank with a $200 million market cap (4 loans totaling $795 thousand), but the allowance account is equally low at $1.5 million (0.17% of total loans). This means nonperforming loans are fully covered, but provisions increased to $156 thousand this quarter, and it's hard to imagine that this is anything but a more regular run rate. Going forward, the portfolio could start to deteriorate some, which is normal in the course of business, but the low allowance account means we could see some wild swings in provision charges. Nothing to worry about now, but I can't help starting to look for holes when everything looks as good as it has been at Territorial.

Disclosure: The author is long TBNK. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.