Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period ended March 31, 2014

 

or

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For transition period from             to             

 

Commission File Number  1-34403

 

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 or former address, if changed since last report)

 

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 x  No o.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes x  No o.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

 

Large accelerated filer o

 

Accelerated filer x

 

Non-accelerated filer o

 

Smaller reporting company  o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x.

 

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock as of the latest practicable date.

 

9,880,383 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of April 30, 2014.

 

 

 



Table of Contents

 

TERRITORIAL BANCORP INC.

 

Form 10-Q Quarterly Report

 

Table of Contents

 

 

PART I

 

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

1

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

26

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

34

ITEM 4.

CONTROLS AND PROCEDURES

35

 

 

 

 

PART II

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

36

ITEM 1A.

RISK FACTORS

36

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

36

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

36

ITEM 4.

MINE SAFETY DISCLOSURES

36

ITEM 5.

OTHER INFORMATION

37

ITEM 6.

EXHIBITS

37

 

 

 

SIGNATURES

38

 



Table of Contents

 

PART I

 

ITEM 1.                                                FINANCIAL STATEMENTS

 

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)

 (Dollars in thousands, except share data)

 

 

 

March 31,

 

December 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

72,147

 

$

75,365

 

Investment securities held to maturity, at amortized cost (fair value of $617,078 and $598,007 at March 31, 2014 and December 31, 2013, respectively)

 

623,609

 

613,436

 

Federal Home Loan Bank stock, at cost

 

11,579

 

11,689

 

Loans held for sale

 

1,017

 

2,210

 

Loans receivable, net

 

872,631

 

856,542

 

Accrued interest receivable

 

4,419

 

4,310

 

Premises and equipment, net

 

6,058

 

6,056

 

Bank-owned life insurance

 

40,510

 

40,243

 

Deferred income taxes receivable

 

5,734

 

5,075

 

Prepaid expenses and other assets

 

2,303

 

1,978

 

 

 

 

 

 

 

Total assets

 

$

1,640,007

 

$

1,616,904

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Liabilities:

 

 

 

 

 

Deposits

 

$

1,317,308

 

$

1,288,709

 

Advances from the Federal Home Loan Bank

 

15,000

 

15,000

 

Securities sold under agreements to repurchase

 

72,000

 

72,000

 

Accounts payable and accrued expenses

 

21,082

 

23,933

 

Current income taxes payable

 

806

 

1,414

 

Advance payments by borrowers for taxes and insurance

 

2,417

 

3,708

 

 

 

 

 

 

 

Total liabilities

 

1,428,613

 

1,404,764

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

Preferred stock, $.01 par value; authorized 50,000,000 shares, no shares issued or outstanding

 

 

 

Common stock, $.01 par value; authorized 100,000,000 shares; issued and outstanding 9,880,383 and 10,051,377 shares at March 31, 2014 and December 31, 2013, respectively

 

99

 

101

 

Additional paid-in capital

 

74,266

 

77,340

 

Unearned ESOP shares

 

(7,218

)

(7,340

)

Retained earnings

 

147,959

 

145,826

 

Accumulated other comprehensive loss

 

(3,712

)

(3,787

)

 

 

 

 

 

 

Total stockholders’ equity

 

211,394

 

212,140

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

1,640,007

 

$

1,616,904

 

 

See accompanying notes to consolidated financial statements.

 

1



Table of Contents

 

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share data)

 

 

 

Three Months Ended
March 31,

 

 

 

2014

 

2013

 

Interest and dividend income:

 

 

 

 

 

Investment securities

 

$

5,074

 

$

4,554

 

Loans

 

9,540

 

9,230

 

Other investments

 

43

 

98

 

Total interest and dividend income

 

14,657

 

13,882

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Deposits

 

1,091

 

1,120

 

Advances from the Federal Home Loan Bank

 

66

 

103

 

Securities sold under agreements to repurchase

 

343

 

477

 

Total interest expense

 

1,500

 

1,700

 

 

 

 

 

 

 

Net interest income

 

13,157

 

12,182

 

Provision for loan losses

 

9

 

18

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

13,148

 

12,164

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

Service fees on loan and deposit accounts

 

499

 

501

 

Income on bank-owned life insurance

 

268

 

221

 

Gain on sale of investment securities

 

346

 

888

 

Gain on sale of loans

 

79

 

645

 

Other

 

166

 

105

 

Total noninterest income

 

1,358

 

2,360

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

Salaries and employee benefits

 

5,363

 

5,352

 

Occupancy

 

1,422

 

1,251

 

Equipment

 

914

 

872

 

Federal deposit insurance premiums

 

199

 

190

 

Other general and administrative expenses

 

966

 

1,051

 

Total noninterest expense

 

8,864

 

8,716

 

 

 

 

 

 

 

Income before income taxes

 

5,642

 

5,808

 

Income taxes

 

2,180

 

2,167

 

Net income

 

$

3,462

 

$

3,641

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.38

 

$

0.37

 

Diluted earnings per share

 

$

0.37

 

$

0.36

 

Cash dividends declared per common share

 

$

0.14

 

$

0.12

 

Basic weighted-average shares outstanding

 

9,187,540

 

9,917,359

 

Diluted weighted-average shares outstanding

 

9,380,160

 

10,117,034

 

 

See accompanying notes to consolidated financial statements.

 

2



Table of Contents

 

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

 (Dollars in thousands)

 

 

 

Three Months Ended
March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Net income

 

$

3,462

 

$

3,641

 

 

 

 

 

 

 

Change in unrealized loss on securities

 

3

 

8

 

Noncredit related gains on securities not expected to be sold

 

72

 

22

 

Other comprehensive income

 

75

 

30

 

 

 

 

 

 

 

Comprehensive income

 

$

3,537

 

$

3,671

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity (Unaudited)

(Dollars in thousands, except per share data)

 

 

 

Common
Stock

 

Additional
Paid-in

Capital

 

Unearned
ESOP
Shares

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
(Loss)/Income

 

Total
Stockholders’
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2012

 

$

108

 

$

93,616

 

$

(7,829

)

$

137,410

 

$

(4,333

)

$

218,972

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

3,641

 

 

3,641

 

Other comprehensive income

 

 

 

 

 

30

 

30

 

Cash dividends declared ($0.12 per share)

 

 

 

 

(1,239

)

 

(1,239

)

Share-based compensation

 

 

660

 

 

 

 

660

 

Allocation of 12,233 ESOP shares

 

 

163

 

122

 

 

 

285

 

Repurchase of 151,160 shares of company common stock

 

(1

)

(3,410

)

 

 

 

(3,411

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at March 31, 2013

 

$

107

 

$

91,029

 

$

(7,707

)

$

139,812

 

$

(4,303

)

$

218,938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2013

 

$

101

 

$

77,340

 

$

(7,340

)

$

145,826

 

$

(3,787

)

$

212,140

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

3,462

 

 

3,462

 

Other comprehensive income

 

 

 

 

 

75

 

75

 

Cash dividends declared ($0.14 per share)

 

 

 

 

(1,329

)

 

(1,329

)

Share-based compensation

 

 

660

 

 

 

 

660

 

Allocation of 12,233 ESOP shares

 

 

151

 

122

 

 

 

273

 

Repurchase of 170,994 shares of company common stock

 

(2

)

(3,885

)

 

 

 

(3,887

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at March 31, 2014

 

$

99

 

$

74,266

 

$

(7,218

)

$

147,959

 

$

(3,712

)

$

211,394

 

 

See accompanying notes to consolidated financial statements.

 

4



Table of Contents

 

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

3,462

 

$

3,641

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

Provision for loan losses

 

9

 

18

 

Depreciation and amortization

 

328

 

288

 

Deferred income tax benefit

 

(707

)

(95

)

Amortization of fees, discounts, and premiums

 

(106

)

192

 

Origination of loans held for sale

 

(8,590

)

(25,230

)

Proceeds from sales of loans held for sale

 

9,862

 

25,324

 

Gain on sale of loans, net

 

(79

)

(645

)

Purchases of investment securities held for trading

 

(5,041

)

 

Proceeds from sale of investment securities held for trading

 

5,071

 

 

Gain on sale of investment securities held for trading

 

(30

)

 

Gain on sale of investment securities held to maturity

 

(316

)

(888

)

ESOP expense

 

273

 

285

 

Share-based compensation expense

 

660

 

660

 

Increase in accrued interest receivable

 

(109

)

(43

)

Net increase in bank-owned life insurance

 

(267

)

(221

)

Net increase in prepaid expenses and other assets

 

(325

)

(145

)

Net decrease in accounts payable and accrued expenses

 

(2,326

)

(2,047

)

Net decrease in advance payments by borrowers for taxes and insurance

 

(1,291

)

(1,191

)

Net decrease in income taxes payable

 

(608

)

(218

)

Net cash used in operating activities

 

(130

)

(315

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of investment securities held to maturity

 

(27,926

)

(74,568

)

Principal repayments on investment securities held to maturity

 

14,419

 

60,306

 

Proceeds from sale of investment securities held to maturity

 

3,724

 

13,630

 

Loan originations, net of principal repayments on loans receivable

 

(15,943

)

(18,494

)

Proceeds from redemption of Federal Home Loan Bank stock

 

110

 

110

 

Purchases of premises and equipment

 

(330

)

(104

)

Net cash used in investing activities

 

(25,946

)

(19,120

)

 

(Continued)

 

5



Table of Contents

 

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net increase (decrease) in deposits

 

$

28,599

 

$

(613

)

Repayments of securities sold under agreements to repurchase

 

 

(5,000

)

Purchases of company stock

 

(4,412

)

(3,411

)

Cash dividends paid

 

(1,329

)

(1,239

)

Net cash provided by (used in) financing activities

 

22,858

 

(10,263

)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(3,218

)

(29,698

)

 

 

 

 

 

 

Cash and cash equivalents at beginning of the period

 

75,365

 

182,818

 

 

 

 

 

 

 

Cash and cash equivalents at end of the period

 

$

72,147

 

$

153,120

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest on deposits and borrowings

 

$

1,467

 

$

1,718

 

Income taxes

 

3,495

 

2,480

 

 

See accompanying notes to consolidated financial statements.

 

6



Table of Contents

 

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

(1)                     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 financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.  These interim condensed consolidated financial statements and notes should be read in conjunction with Territorial Bancorp Inc.’s consolidated financial statements and notes thereto filed as part of the Annual Report on Form 10-K for the year ended December 31, 2013.  In the opinion of management, all adjustments necessary for a fair presentation have been made and include all normal recurring adjustments.  Interim results of operations are not necessarily indicative of results to be expected for the year.

 

(2)                     Organization

 

On November 4, 2008, the Board of Directors of Territorial Mutual Holding Company (MHC) approved a plan of conversion and reorganization under which MHC would convert from a mutual holding company to a stock holding company.  The conversion to a stock holding company was approved by the depositors and borrowers of Territorial Savings Bank and the Office of Thrift Supervision (OTS) and included the filing of a registration statement with the U.S. Securities and Exchange Commission.  Upon the completion of the conversion and reorganization on July 10, 2009, Territorial Mutual Holding Company and Territorial Savings Group, Inc. ceased to exist as separate legal entities and Territorial Bancorp Inc. became the holding company for Territorial Savings Bank. A total of 12,233,125 shares were issued in the conversion at $10 per share, raising $122.3 million of gross proceeds.  Approximately $3.7 million of conversion expenses were offset against the gross proceeds.  Territorial Bancorp Inc.’s common stock began trading on the NASDAQ Global Select Market under the symbol “TBNK” on July 13, 2009.

 

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.  The liquidation account will be reduced annually to the extent that eligible account holders and supplemental eligible account holders have reduced their qualifying deposits.  Subsequent increases will not restore an eligible account holder’s or supplemental eligible account holder’s interest in the liquidation account.  In the event of a complete liquidation of Territorial Savings Bank, and only in such event, each account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The balance of the liquidation account at December 31, 2013 was $17.6 million.

 

(3)                     Recently Adopted Accounting Pronouncements

 

In January 2014, the Financial Accounting Standards Board (FASB) amended the Receivables topic of the FASB Accounting Standards Codification (ASC).  The amendment clarifies when an in substance repossession or foreclosure occurs and when a mortgage loan should be derecognized and the related real property recognized.  The amendment also requires disclosures about the amount of foreclosed residential real property held and the recorded investment in mortgage loans collateralized by residential real property in the process of foreclosure.  The amendment is effective for interim and annual periods beginning after December 15, 2014, with early adoption allowed.  The Company does not expect the adoption of this amendment to have a material effect on its consolidated financial statements.

 

7



Table of Contents

 

(4)                     Cash and Cash Equivalents

 

The table below presents the balances of cash and cash equivalents:

 

 

 

March 31,

 

December 31,

 

(Dollars in thousands)

 

2014

 

2013

 

 

 

 

 

 

 

Cash and due from banks

 

$

8,723

 

$

9,962

 

Interest-earning deposits in other banks

 

63,424

 

65,403

 

Cash and cash equivalents

 

$

72,147

 

$

75,365

 

 

Interest-earning deposits in other banks consist primarily of deposits at the Federal Reserve Bank.

 

(5)                     Investment Securities

 

The amortized cost and fair values of investment securities are as follows:

 

 

 

Carrying

 

Gross Unrealized

 

Estimated

 

(Dollars in thousands)

 

Value

 

Gains

 

Losses

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

March 31, 2014:

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

U.S. government-sponsored mortgage-backed securities

 

$

622,954

 

$

9,908

 

$

(16,439

)

$

616,423

 

Trust preferred securities

 

655

 

 

 

655

 

Total

 

$

623,609

 

$

9,908

 

$

(16,439

)

$

617,078

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013:

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

U.S. government-sponsored mortgage-backed securities

 

$

612,899

 

$

7,979

 

$

(23,408

)

$

597,470

 

Trust preferred securities

 

537

 

 

 

537

 

Total

 

$

613,436

 

$

7,979

 

$

(23,408

)

$

598,007

 

 

The carrying and estimated fair value of investment securities at March 31, 2014 are shown below. Incorporated in the maturity schedule are mortgage-backed and trust preferred 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.

 

 

 

Carrying

 

Estimated

 

(Dollars in thousands)

 

Value

 

Fair Value

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

Due within 5 years

 

$

485

 

$

485

 

Due after 5 years through 10 years

 

81

 

86

 

Due after 10 years

 

623,043

 

616,507

 

Total

 

$

623,609

 

$

617,078

 

 

8



Table of Contents

 

Realized gains and losses and the proceeds from sales of securities available for sale, held to maturity and trading are shown in the table below.  All sales of securities were U.S. government-sponsored mortgage-backed securities.

 

 

 

For the Three Months Ended
March 31,

 

(Dollars in thousands)

 

2014

 

2013

 

Proceeds from sales

 

$

8,795

 

$

13,630

 

Gross gains

 

346

 

888

 

Gross losses

 

 

 

 

During the three months ended March 31, 2014, the Company received proceeds of $3.7 million from the sale of $3.4 million of held-to-maturity debt securities, resulting in gross realized gains of $316,000.  During the three months ended March 31, 2013, the Company received proceeds of $13.6 million from the sale of $12.7 million of held-to-maturity debt securities, resulting in gross realized gains of $888,000.  The sale of these securities, for which the Company had already collected a substantial portion of the outstanding principal (at least 85%), is in accordance with the Investment topic of the FASB ASC and will not affect the historical cost basis used to account for the remaining securities in the held-to-maturity portfolio.

 

Investment securities with carrying values of $273.1 million and $273.2 million at March 31, 2014 and December 31, 2013, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and transaction clearing accounts.

 

Provided below is a summary of investment securities which were in an unrealized loss position at March 31, 2014 and December 31, 2013. The Company does not intend to sell these 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

 

Total

 

Description of Securities

 

 

 

Unrealized

 

 

 

Unrealized

 

Number of

 

 

 

Unrealized

 

(Dollars in thousands)

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

Securities

 

Fair Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

311,457

 

$

13,303

 

$

39,564

 

$

3,136

 

67

 

$

351,021

 

$

16,439

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

361,445

 

$

21,678

 

$

22,010

 

$

1,730

 

69

 

$

383,455

 

$

23,408

 

 

9



Table of Contents

 

Mortgage-Backed Securities.  The unrealized losses on the Company’s investment in mortgage-backed securities were caused by increases in market interest rates.  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 amortized cost basis, the Company does not consider these investments to be other-than-temporarily impaired as of March 31, 2014 and December 31, 2013.

 

Trust Preferred Securities.  At March 31, 2014, the Company owns two trust preferred securities, PreTSL XXIII and XXIV. The trust preferred securities represent investments in a pool of debt obligations issued primarily by holding companies for Federal Deposit Insurance Corporation-insured financial institutions.  Both of these securities are classified in the Bank’s held-to-maturity investment portfolio.

 

The trust preferred securities market is considered to be inactive as only three transactions have occurred over the past 27 months in the same tranche of securities owned by the Company.  The Company used a discounted cash flow model to determine whether these securities are other-than-temporarily impaired.  The assumptions used in preparing the discounted cash flow model include the following: estimated discount rates, estimated deferral and default rates on collateral, and estimated cash flows.

 

Based on the Company’s review, the Company’s investment in trust preferred securities did not incur additional impairment during the quarter ending March 31, 2014.

 

PreTSL XXIV has a book value of $0 at March 31, 2014.  PreTSL XXIII has a book value of $655,000 at March 31, 2014.  The difference between the book value of $655,000 and the remaining amortized cost basis of $1.1 million is reported as other comprehensive loss and is related to noncredit factors such as the trust preferred securities market being inactive.

 

It is reasonably possible that the fair values of the trust preferred securities could decline in the near term if the overall economy and the financial condition of some of the issuers continue to deteriorate and the liquidity of these securities remains low.  As a result, there is a risk that the Company’s remaining amortized cost basis of $1.1 million on its trust preferred securities could be credit-related other-than-temporarily impaired in the near term.  The impairment could be material to the Company’s consolidated statements of income.

 

The table below provides a cumulative roll forward of credit losses recognized in earnings for debt securities held and not intended to be sold:

 

(Dollars in thousands)

 

2014

 

2013

 

Balance at January 1,

 

$

5,885

 

$

5,885

 

Credit losses on debt securities for which other-than-temporary impairment was not previously recognized

 

 

 

Balance at March 31,

 

$

5,885

 

$

5,885

 

 

The table below shows the components of comprehensive loss, net of taxes, resulting from other-than-temporarily impaired securities:

 

 

 

March 31,

 

(Dollars in thousands)

 

2014

 

2013

 

Noncredit losses on other-than-temporarily impaired securities, net of taxes

 

$

305

 

$

423

 

 

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Table of Contents

 

(6)                     Loans Receivable and Allowance for Loan Losses

 

The components of loans receivable are as follows:

 

 

 

March 31,

 

December 31,

 

(Dollars in thousands)

 

2014

 

2013

 

Real estate loans:

 

 

 

 

 

First mortgages:

 

 

 

 

 

One- to four-family residential

 

$

836,837

 

$

823,273

 

Multi-family residential

 

4,835

 

4,877

 

Construction, commercial, and other

 

16,577

 

13,554

 

Home equity loans and lines of credit

 

15,963

 

16,524

 

Total real estate loans

 

874,212

 

858,228

 

Other loans:

 

 

 

 

 

Loans on deposit accounts

 

321

 

342

 

Consumer and other loans

 

4,256

 

4,307

 

Total other loans

 

4,577

 

4,649

 

Less:

 

 

 

 

 

Net unearned fees and discounts

 

(4,673

)

(4,849

)

Allowance for loan losses

 

(1,485

)

(1,486

)

Total unearned fees, discounts and allowance for loan losses

 

(6,158

)

(6,335

)

Loans receivable, net

 

$

872,631

 

$

856,542

 

 

11



Table of Contents

 

The activity in the allowance for loan losses on loans receivable is as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

(Dollars in thousands)

 

2014

 

2013

 

Balance, beginning of period

 

$

1,486

 

$

1,672

 

Provision for loan losses

 

9

 

18

 

 

 

1,495

 

1,690

 

Charge-offs

 

(17

)

(52

)

Recoveries

 

7

 

29

 

Net charge-offs

 

(10

)

(23

)

Balance, end of period

 

$

1,485

 

$

1,667

 

 

The table below presents the activity in the allowance for loan losses by portfolio segment:

 

(Dollars in thousands)

 

Residential
Mortgage

 

Construction,
Commercial
and Other
Mortgage
Loans

 

Home
Equity
Loans and
Lines of
Credit

 

Consumer
and Other

 

Unallocated

 

Totals

 

Three months ended March 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

376

 

$

799

 

$

10

 

$

229

 

$

72

 

$

1,486

 

Provision (reversal of allowance) for loan losses

 

58

 

24

 

(4

)

(65

)

(4

)

9

 

 

 

434

 

823

 

6

 

164

 

68

 

1,495

 

Charge-offs

 

 

 

 

(17

)

 

(17

)

Recoveries

 

 

 

1

 

6

 

 

7

 

Net charge-offs

 

 

 

1

 

(11

)

 

(10

)

Balance, end of period

 

$

434

 

$

823

 

$

7

 

$

153

 

$

68

 

$

1,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

590

 

$

818

 

$

35

 

$

107

 

$

122

 

$

1,672

 

Provision (reversal of allowance) for loan losses

 

(26

)

 

(3

)

47

 

 

18

 

 

 

564

 

818

 

32

 

154

 

122

 

1,690

 

Charge-offs

 

(1

)

 

 

(51

)

 

(52

)

Recoveries

 

22

 

 

3

 

4

 

 

29

 

Net charge-offs

 

21

 

 

3

 

(47

)

 

(23

)

Balance, end of period

 

$

585

 

$

818

 

$

35

 

$

107

 

$

122

 

$

1,667

 

 

Management considers the allowance for loan losses at March 31, 2014 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 Office of the Comptroller of the Currency will periodically review the allowance for loan losses.  The Office of the Comptroller of the Currency may require the Company to increase the allowance based on their analysis of information available at the time of their examination.

 

12



Table of Contents

 

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:

 

(Dollars in thousands)

 

Residential
Mortgage

 

Construction,
Commercial
and Other
Mortgage
Loans

 

Home
Equity
Loans and
Lines of
Credit

 

Consumer
and Other

 

Unallocated

 

Totals

 

March 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

 

$

 

$

 

$

 

$

 

$

 

Collectively evaluated for impairment

 

434

 

823

 

7

 

153

 

68

 

1,485

 

Total ending allowance balance

 

$

434

 

$

823

 

$

7

 

$

153

 

$

68

 

$

1,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending loan balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

7,212

 

$

 

$

157

 

$

 

$

 

$

7,369

 

Collectively evaluated for impairment

 

829,805

 

16,551

 

15,814

 

4,577

 

 

866,747

 

Total ending loan balance

 

$

837,017

 

$

16,551

 

$

15,971

 

$

4,577

 

$

 

$

874,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

 

$

 

$

 

$

 

$

 

$

 

Collectively evaluated for impairment

 

376

 

799

 

10

 

229

 

72

 

1,486

 

Total ending allowance balance

 

$

376

 

$

799

 

$

10

 

$

229

 

$

72

 

$

1,486

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending loan balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

8,373

 

$

 

$

160

 

$

 

$

 

$

8,533

 

Collectively evaluated for impairment

 

814,960

 

13,514

 

16,372

 

4,649

 

 

849,495

 

Total ending loan balance

 

$

823,333

 

$

13,514

 

$

16,532

 

$

4,649

 

$

 

$

858,028

 

 

The table below presents the balance of impaired loans and the related amount of allocated loan loss allowances:

 

(Dollars in thousands)

 

March 31,
2014

 

December 31,
2013

 

Loans with no allocated allowance for loan loss

 

$

7,369

 

$

8,533

 

Loans with allocated allowance for loan loss

 

 

 

Total impaired loans

 

$

7,369

 

$

8,533

 

 

 

 

 

 

 

Amount of allocated loan loss allowance

 

$

 

$

 

 

13



Table of Contents

 

The table below presents the balance of impaired loans individually evaluated for impairment by class of loans:

 

(Dollars in thousands)

 

Recorded
Investment

 

Unpaid
Principal
Balance

 

March 31, 2014:

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

One- to four-family residential mortgages

 

$

7,212

 

$

7,546

 

Home equity loans and lines of credit

 

157

 

165

 

Total

 

$

7,369

 

$

7,711

 

 

 

 

 

 

 

December 31, 2013:

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

One- to four-family residential mortgages

 

$

8,373

 

$

8,716

 

Home equity loans and lines of credit

 

160

 

165

 

Total

 

$

8,533

 

$

8,881

 

 

The table below presents the average recorded investment and interest income recognized on impaired loans by class of loans:

 

 

 

For the Three Months Ended
March 31,

 

(Dollars in thousands)

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

2014:

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

One- to four-family residential mortgages

 

$

7,248

 

$

32

 

Home equity loans and lines of credit

 

158

 

 

Total

 

$

7,406

 

$

32

 

 

 

 

 

 

 

2013:

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

One- to four-family residential mortgages

 

$

7,475

 

$

34

 

Home equity loans and lines of credit

 

160

 

 

Total

 

$

7,635

 

$

34

 

 

There were no loans individually evaluated for impairment with a related allowance for loan loss as of March 31, 2014 or December 31, 2013.  Loans individually evaluated for impairment do not have an allocated allowance for loan loss because they are written down to fair value.

 

14



Table of Contents

 

The table below presents the aging of loans and accrual status by class of loans:

 

(Dollars in thousands)

 

30 — 59
Days Past
Due

 

60 — 89
Days Past
Due

 

90 Days or
Greater
Past Due

 

Total Past
Due

 

Loans Not
Past Due

 

Total
Loans

 

Nonaccrual
Loans

 

Loans
More
Than 90
Days Past
Due and
Still
Accruing

 

March 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family residential mortgages

 

$

273

 

$

1,069

 

$

1,033

 

$

2,375

 

$

829,832

 

$

832,207

 

$

4,964

 

$

 

Multi-family residential mortgages

 

 

 

 

 

4,810

 

4,810

 

 

 

Construction, commercial and other mortgages

 

 

 

 

 

16,551

 

16,551

 

 

 

Home equity loans and lines of credit

 

37

 

 

 

37

 

15,934

 

15,971

 

157

 

 

Loans on deposit accounts

 

 

 

 

 

321

 

321

 

 

 

Consumer and other

 

7

 

1

 

 

8

 

4,248

 

4,256

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

317

 

$

1,070

 

$

1,033

 

$

2,420

 

$

871,696

 

$

874,116

 

$

5,121

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family residential mortgages

 

$

376

 

$

612

 

$

1,577

 

$

2,565

 

$

815,917

 

$

818,482

 

$

5,840

 

$

 

Multi-family residential mortgages

 

 

 

 

 

4,851

 

4,851

 

 

 

Construction, commercial and other mortgages

 

 

 

 

 

13,514

 

13,514

 

 

 

Home equity loans and lines of credit

 

 

 

 

 

16,532

 

16,532

 

160

 

 

Loans on deposit accounts

 

 

 

 

 

342

 

342

 

 

 

Consumer and other

 

11

 

4

 

 

15

 

4,292

 

4,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

387

 

$

616

 

$

1,577

 

$

2,580

 

$

855,448

 

$

858,028

 

$

6,000

 

$

 

 

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 five 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.

 

The Company had 16 nonaccrual loans with a book value of $5.1 million at March 31, 2014 and 19 nonaccrual loans with a book value of $6.0 million as of December 31, 2013.  The Company collected interest on nonaccrual loans of $52,000 and $32,000 during the three months ended March 31, 2014 and 2013, respectively, but due to regulatory requirements, we recorded it as a reduction of principal.  The Company would have recognized additional interest income of $70,000 and $92,000 during the three months ended March 31, 2014 and 2013, respectively, had the loans been accruing interest.  The Company did not have any loans more than 90 days past due and still accruing interest as of March 31, 2014 and December 31, 2013.

 

There were no loans modified in a troubled debt restructuring during the three months ended March 31, 2014 or 2013. There were no new troubled debt restructurings within the past 12 months that subsequently defaulted.

 

15



Table of Contents

 

The Company had 18 troubled debt restructurings totaling $5.2 million as of March 31, 2014 that were considered to be impaired.  This total included 17 one- to four-family residential mortgage loans totaling $5.0 million and one home equity loan for $157,000.  Six of the loans, totaling $2.1 million, were performing in accordance with their restructured terms and accruing interest at March 31, 2014.  One of the loans, for $193,000, was 59 days delinquent and accruing interest at March 31, 2014.  Eleven of the loans, totaling $2.9 million, were performing in accordance with their restructured terms but not accruing interest at March 31, 2014.  The Company had 20 troubled debt restructurings totaling $5.8 million as of December 31, 2013 that were considered to be impaired.  This total included 19 one- to four-family residential mortgage loans totaling $5.6 million and one home equity loan for $160,000.  Eight of the loans, totaling $2.5 million, were performing in accordance with their restructured terms and accruing interest at December 31, 2013.  Twelve of the loans, totaling $3.3 million, were performing in accordance with their restructured terms but not accruing interest at December 31, 2013.  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.  We have no commitments to lend any additional funds to these borrowers.

 

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 three months ended March 31, 2014 and 2013, the Company sold $9.9 million and $24.9 million, respectively, of mortgage loans held for sale and recognized gains of $79,000 and $645,000, respectively.  The Company had four loans held for sale totaling $1.0 million at March 31, 2014 and six loans held for sale totaling $2.2 million at December 31, 2013.

 

The Company serviced loans for others of $67.3 million at March 31, 2014 and $68.4 million at December 31, 2013. Of these amounts, $2.6 million and $3.1 million relate to securitizations for which the Company continues to hold the related mortgage-backed securities at March 31, 2014 and December 31, 2013, respectively.  The amount of contractually specified servicing fees earned for the three-month periods ended March 31, 2014 and 2013 was $47,000 and $58,000, 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 dollar amount of securities underlying the agreements remaining in the asset accounts.  Securities sold under agreements to repurchase are summarized as follows:

 

 

 

March 31, 2014

 

December 31, 2013

 

 

 

 

 

Weighted

 

 

 

Weighted

 

 

 

Repurchase

 

Average

 

Repurchase

 

Average

 

(Dollars in thousands)

 

Liability

 

Rate

 

Liability

 

Rate

 

Maturing:

 

 

 

 

 

 

 

 

 

1 year or less

 

$

37,000

 

2.15%

 

$

 

—%

 

Over 1 year to 2 years

 

10,000

 

1.94

 

47,000

 

2.11

 

Over 3 years to 4 years

 

25,000

 

1.48

 

25,000

 

1.46

 

Total

 

$

72,000

 

1.88%

 

$

72,000

 

1.88%

 

 

16



Table of Contents

 

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 March 31, 2014.  The amount at risk is the greater of the carrying value or fair value over the repurchase liability.  All the agreements to repurchase are with JP Morgan Securities and the securities pledged are issued and guaranteed by U.S. government-sponsored enterprises.

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

Carrying

 

Fair

 

 

 

 

 

Average

 

 

 

Value of

 

Value of

 

Repurchase

 

Amount

 

Months to

 

(Dollars in thousands)

 

Securities

 

Securities

 

Liability

 

at Risk

 

Maturity

 

Maturing:

 

 

 

 

 

 

 

 

 

 

 

Over 90 days

 

$

81,576

 

$

79,941

 

$

72,000

 

$

9,576

 

22

 

 

(8)                     Offsetting of Financial Liabilities

 

Securities sold under agreements to repurchase are subject to a conditional right of offset in the event of default. See Footnote 7, Securities Sold Under Agreements to Repurchase, for additional information.

 

 

 

Gross Amount

 

Gross Amount

 

Net Amount of
Liabilities

 

Gross Amount Not Offset in the
Balance Sheet

 

 

 

(Dollars in thousands)

 

of Recognized
Liabilities

 

Offset in the
Balance Sheet

 

Presented in the
Balance Sheet

 

Financial
Instruments

 

Cash Collateral
Pledged

 

Net Amount

 

March 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold under agreements to repurchase

 

$

72,000

 

$

 

$

72,000

 

$

72,000

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold under agreements to repurchase

 

$

72,000

 

$

 

$

72,000

 

$

72,000

 

$

 

$

 

 

(9)                     Employee Benefit Plans

 

The Company has a noncontributory defined benefit pension plan (Pension Plan) that covers substantially all 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.

 

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The components of net periodic benefit cost were as follows:

 

 

 

SERP

 

 

 

Three Months Ended

 

 

 

March 31,

 

(Dollars in thousands)

 

2014

 

2013

 

Net periodic benefit cost for the period

 

 

 

 

 

Service cost

 

$

25

 

$

41

 

Interest cost

 

30

 

28

 

Expected return on plan assets

 

 

 

Amortization of prior service cost

 

 

 

Recognized actuarial loss

 

 

 

Recognized curtailment loss

 

 

 

Net periodic benefit cost

 

$

55

 

$

69

 

 

(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 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 March 31, 2014 and 2013 amounted to $240,000 and $262,000, respectively.

 

Shares held by the ESOP trust were as follows:

 

 

 

March 31,

 

December 31,

 

 

 

2014

 

2013

 

Allocated shares

 

251,474

 

239,241

 

Unearned shares

 

721,756

 

733,989

 

Total ESOP shares

 

973,230

 

973,230

 

Fair value of unearned shares, in thousands

 

$

15,590

 

$

17,029

 

 

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 employee stock ownership plan’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 March 31, 2014 and 2013, we accrued $74,000 and $89,000, respectively, for the ESOP restoration plan.

 

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(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 is being recognized on a straight-line basis over the 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 shareholders’ equity. The table below presents information on compensation expense and the related tax benefit for all share-based awards:

 

 

 

For the Three Months Ended
March 31,

 

(In thousands)

 

2014

 

2013

 

Compensation expense

 

$

660

 

$

660

 

Income tax benefit

 

313

 

338

 

 

Shares of our common stock issued under the 2010 Equity Incentive Plan shall be authorized but unissued shares. The maximum number of shares that will be awarded under the plan will be 1,712,637 shares.

 

Stock Options

 

The table below presents the stock option activity for the three months ended March 31, 2014 and 2013:

 

 

 

Options

 

Weighted
Average
Exercise
Price

 

Remaining
Contractual
Life (Years)

 

Aggregate
Intrinsic
Value
(in thousands)

 

Options outstanding at December 31, 2013

 

832,954

 

$

17.38

 

6.68

 

$

4,845

 

Granted

 

 

 

 

 

Exercised

 

 

 

 

 

Forfeited

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding at March 31, 2014