EDGAR 10-K Filing

Company CIK: 1447051
Filing Year: 2025
Filename: 1447051_10-K_2025_0001558370-25-004141.json

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ITEM 1. BUSINESS
ITEM 1.
Business
Territorial Bancorp Inc.
Territorial Bancorp Inc. (the Company) is a Maryland corporation and owns 100% of the outstanding common stock of Territorial Savings Bank (the Bank). In 2009, we completed our initial public offering of common stock in connection with the mutual-to-stock conversion of Territorial Mutual Holding Company. Since the completion of our initial public offering, we have not engaged in any significant business activity other than owning the common stock of and having savings deposits in Territorial Savings Bank, paying dividends and repurchasing shares of our common stock. At December 31, 2024, we had consolidated assets of $2.2 billion, consolidated deposits of $1.7 billion and consolidated stockholders’ equity of $248.4 million.
Our executive offices are located at 1003 Bishop Street, Pauahi Tower Suite 500, Honolulu, Hawaii 96813. Our telephone number at this address is (808) 946-1400.
Territorial Savings Bank
Territorial Savings Bank is a Hawaii state-chartered savings bank headquartered in Honolulu, Hawaii. Territorial Savings Bank was organized in 1921 and reorganized into the mutual holding company structure in 2002. Territorial Savings Bank is currently the wholly-owned subsidiary of Territorial Bancorp Inc. 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. We provide financial services to individuals, families and businesses through our 28 banking offices located throughout the State of Hawaii.
Territorial Savings Bank’s executive offices are located at 1003 Bishop Street, Pauahi Tower Suite 500, Honolulu, Hawaii 96813. Our telephone number at this address is (808) 946-1400.
Available Information
Territorial Bancorp Inc. is a public company, and files current, quarterly and annual reports with the Securities and Exchange Commission. These reports and any amendments to these reports are available for free on our website, www.territorialsavings.net as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Information on our website should not be considered a part of this Annual Report on Form 10-K. The Securities and Exchange Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC (http://www.sec.gov).
General
Territorial Savings Bank’s business consists primarily of accepting deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, in one- to four-family residential mortgage loans and investment securities. To a much lesser extent, we also originate home equity loans and lines of credit, construction, commercial and other nonresidential real estate loans, consumer loans, multi-family mortgage loans and other loans. Territorial Savings Bank offers a variety of deposit accounts, including passbook and statement savings accounts, certificates of deposit, money market accounts, commercial and regular checking accounts and Super NOW accounts. We also offer various non-deposit investments to our customers, including annuities and mutual funds, through a third-party broker-dealer.
Hope Bancorp, Inc. Merger Agreement
As previously announced in a joint news release issued April 29, 2024, Hope Bancorp, Inc. (Hope Bancorp) and the Company signed a definitive merger agreement. Under the terms of the merger agreement, Company stockholders will receive a fixed exchange ratio of 0.8048 share of Hope Bancorp common stock in exchange for each share of Company common stock they own, in a 100% stock-for-stock transaction valued at approximately $78.60 million, based on the closing price of Hope Bancorp’s common stock on April 26, 2024. The transaction is intended to qualify as a tax-free reorganization for Company stockholders.
The transaction is subject to regulatory approvals and the satisfaction of other customary closing conditions.
Market Area
We conduct business from our corporate offices and from our 28 full-service branch offices located throughout the State of Hawaii.
The largest sector of Hawaii’s economy is the visitor industry. The Hawaii Tourism Authority reported that total visitors were 9.7 million for 2024, a 0.3% decrease compared to 2023. Total visitor spending for 2024 totaled $20.7 billion, a 0.2% decrease compared to 2023. Most of the visitors to the state in 2024 were from the continental United States.
Public sector construction projects continue to provide large scale jobs such as renovations and expansions of airports, roads and public utilities, including the Honolulu rail project. Residential construction is expected to continue to grow and expand to meet Maui’s rebuilding needs and a continued strong demand for homes on all islands.
Federal spending is the second largest contributor to Hawaii’s economy and accounts for 8.9% of the state’s gross domestic product. In December 2023, the U.S. Senate and U.S. House approved a new defense spending bill that includes $1.6 billion for infrastructure projects in Hawaii. Hawaii is expected to continue to play a major role in any future U.S. military plans because of Hawaii’s central location in the Pacific region and emerging threats to national defense from North Korea and China.
The number of single-family homes sold on the island of Oahu, the largest real estate market in Hawaii, totaled 2,793 units in 2024, an increase of 9.1% compared to sales in 2023. The median price paid on Oahu for a single-family home in 2024 was $1.1 million, an increase of 4.8% compared to the median price in 2023. The number of condominium sales, a notable portion of the overall housing market, totaled 4,459 units in 2024, a decrease of 2.5% compared to sales in 2023. The median price paid on Oahu for condominiums in 2024 was $515,000, an increase of 1.3% compared to the median price in 2023. High mortgage rates, rising home prices, and homeownership costs, such as maintenance fees and insurance, have created challenges for home buyers and slowed home sales.
Maui County is the second largest real estate market in Hawaii. Single-family homes sold in Maui county totaled 754 units in 2024, an increase of 3.1% compared to the number of units sold in 2023. The median price paid for a single-family home in Maui County in 2024 was $1.3 million, an increase of 8.5% compared to the median price in 2023. The number of condominium sales totaled 851 units in 2024, a decrease of 12.3% compared to the number of units sold in 2023. The median price paid for a condominium in Maui County in 2024 was $900,000, an increase of 8.3% compared to the median price in 2023. The median price of single-family homes and condominium prices in Maui County continued to rise in 2024 because of the strong demand for housing and the reduction in the existing inventory of homes available for sale due to the wildfires that occurred in Maui in 2023.
Competition
We face intense competition in our market area both in making loans and attracting deposits. We compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, Fintech, mutual funds, insurance companies and investment banking firms. Some of our competitors have greater name recognition and market presence that benefit them in attracting business, and offer certain services that we do not or cannot provide.
Our deposit sources are primarily concentrated in the communities surrounding our banking offices, located in all four counties in the State of Hawaii. As of June 30, 2024 (the latest date for which information is publicly available), we ranked fifth in FDIC-insured deposit market share in the State of Hawaii (out of 13 banks and thrift institutions with offices in Hawaii), with a 2.9% market share. As of that date, our largest market share was in the County of Hawaii, where we ranked fifth in deposit market share (out of eight banks and thrift institutions with offices in the County) with a 4.4% market share.
Lending Activities
Our primary lending activity is the origination of one- to four-family residential mortgage loans. To a much lesser extent, we also originate home equity loans and lines of credit, construction, commercial and other nonresidential real estate loans, consumer loans, multi-family mortgage loans and commercial business loans.
One- to Four-Family Residential Mortgage Loans. At December 31, 2024, $1.2 billion, or 96.9% of our total loan portfolio, consisted of one- to four-family residential mortgage loans. We offer conforming, fixed-rate and adjustable-rate residential mortgage loans with maturities generally up to 30 years. Historically, there has been little demand for adjustable-rate mortgage loans in our market area.
One- to four-family residential mortgage loans are generally underwritten according to Freddie Mac guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate both fixed- and adjustable-rate mortgage loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency, which was $1,149,825 for single-family homes located in the State of Hawaii for 2024. We also originate loans above this amount, which are referred to as “jumbo loans.” We generally originate fixed-rate jumbo loans with terms of up to 30 years. We have not originated significant amounts of adjustable-rate jumbo loans in recent years due to customer preference for fixed-rate loans in our market area. We generally underwrite jumbo loans in a manner similar to conforming loans. Jumbo loans are not uncommon in our market area.
We may originate loans with loan-to-value ratios in excess of 80%, up to and including a loan-to-value ratio of 100%. We generally require private mortgage insurance for loans with loan-to-value ratios in excess of 80%. During the year ended December 31, 2024, we originated $560,000 of one- to four-family residential mortgage loans with loan-to-
value ratios in excess of 80%. We offer a variety of credit programs for low- to moderate-income and first-time home purchasers. These include our first time home purchaser program, where the borrower will receive up to a 50 basis point reduction in points charged in connection with the loan. We also originate first mortgage loans to lower-income individuals who reside in rural census tracts where the U.S. Department of Agriculture will issue a second mortgage and complete the underwriting of the loan, subject to our review before origination. We also offer both Federal Housing Administration (FHA) and Veterans Administration (VA) fixed-rate loans.
Other than our loans for the construction of one- to four-family residential mortgage loans (described under “-Nonresidential Real Estate Loans”), we currently do not originate new “interest only” mortgage loans on one- to four-family residential properties (where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan). 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).
Nonresidential Real Estate Loans. Our nonresidential real estate loans consist primarily of commercial real estate loans and construction loans for residential real estate projects. These loans totaled $11.6 million, or 0.9% of our loan portfolio as of December 31, 2024. The commercial real estate properties primarily include owner-occupied light industrial properties. We generally seek to originate commercial real estate loans with initial principal balances of $1.0 million or less. Loans secured by commercial real estate totaled $8.2 million, or 0.6%, of our total loan portfolio at December 31, 2024, and consisted of ten loans outstanding with an average loan balance of approximately $822,000. All of our nonresidential real estate loans are secured by properties located in our primary market area. At December 31, 2024, our largest commercial real estate loan had a principal balance of $2.6 million and was secured by real property and improvements utilized as an office building. During the COVID-19 pandemic, this loan was modified to allow for the deferral of six months of interest to the maturity date of the loan in 2030. This loan was performing in accordance with its modified loan terms at December 31, 2024.
Commercial real estate loans generally carry higher interest rates and have shorter terms than one- to four-family residential mortgage loans. Commercial real estate loans, however, entail greater credit risks compared to one- to four-family residential mortgage loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment of loans secured by income-producing properties typically depends, in large part, on sufficient income from the property to cover operating expenses and debt service. Changes in economic conditions that are not in the control of the borrower or lender could affect the value of the collateral for the loan or the future cash flow of the property. Additionally, any decline in real estate values may be more pronounced for commercial real estate than for residential properties.
We also originate a limited amount of construction loans to experienced developers, almost exclusively for the construction of residential real estate projects. Construction loans are also made to individuals for the construction of their personal residences. Construction loans to individuals are generally “interest-only” loans during the construction period, and convert to permanent, amortizing loans following the completion of construction. At December 31, 2024 construction loans totaled $2.4 million, or 0.2% of total loans receivable. At December 31, 2024, the additional unadvanced portion of these construction loans totaled $3.5 million.
Construction financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost is inaccurate, we may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project is inaccurate, the borrower may hold a property with a value that is insufficient to assure full repayment of the construction loan upon the sale of the property. In the event we make a land acquisition loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. We currently do not have any land acquisition development and construction loans. Construction loans also
expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated.
Loan Originations, Purchases, Sales and Servicing. All mortgage loans that we originate are underwritten pursuant to our policies and procedures, which incorporate standard Freddie Mac underwriting guidelines. We originate both adjustable-rate and fixed-rate loans. However, in our market area, customer demand is primarily for fixed-rate loans. Our loan origination and sales activity may be adversely affected by a rising interest rate environment that typically results in decreased loan demand. Most of our one- to four-family residential mortgage loan originations are generated by our branch managers and employees located in our banking offices and our additional commissioned loan officers located in our corporate headquarters. We also advertise throughout our market area. We also receive loans from mortgage brokers, mortgage bankers and other financial institutions that work with our staff to process and close these loans. We underwrite and approve all of these loans. We also obtain mortgage loan applications and refer these applications to other financial institutions and mortgage bankers for a fee. Mortgage loan applications are referred to other financial institutions and mortgage bankers because these companies may not require a full-appraisal of the property being mortgaged as we do, may offer better loan terms and may be able to close the loan faster. In addition, we may decide to refer the loan application to another company because we do not want to add a loan with the applicable type of credit quality or collateral to our loan portfolio. In 2024, we referred $1.7 million of mortgage loans to other financial institutions and mortgage bankers and received fees of $11,000.
We sell loans to assist us in managing interest rate risk. We sold residential mortgage loans held for sale (all fixed-rate loans, with terms of 10 years or longer) with principal balances of $877,000 and $827,000 during the years ended December 31, 2024 and 2023, respectively. We had no loans classified as held for sale at December 31, 2024 or 2023.
We sell our loans without recourse, except for normal representations and warranties provided in sales transactions. We primarily sell loans on a servicing released basis where servicing is transferred to a third party at the time the loan is sold. At December 31, 2024, we were servicing loans owned by others with a principal balance of $30.6 million. Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent borrowers, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans. We retain a portion of the interest paid by the borrower on the loans we service as consideration for our servicing activities. For the year ended December 31, 2024, we received servicing fees of $83,000. At December 31, 2024, substantially all of the loans serviced for Freddie Mac and Fannie Mae were performing in accordance with their contractual terms and we believe that there are no material repurchase obligations associated with these loans.
Loan Approval Procedures and Authority. Our lending activities follow written, nondiscriminatory underwriting standards and loan origination procedures established by our Board of Directors. The loan approval process is intended to assess the borrower’s ability to repay the loan and value of the property that will secure the loan. To assess the borrower’s ability to repay, we review the borrower’s employment and credit history and information on the historical and projected income and expenses of the borrower.
Our policies and loan approval limits are established by the Board of Directors. Aggregate lending relationships in amounts up to $5.0 million can be approved by designated individual officers or officers acting together with specific lending approval authority. Relationships in excess of $5.0 million require the approval of the Loan Committee of the Board of Directors.
Territorial Savings Bank also uses automated systems to underwrite one- to four-family residential mortgage loans up to the maximum conforming loan limits as established by the Federal Housing Finance Agency, which was $1,149,825 in the State of Hawaii for 2024. We generally require appraisals of all real property securing one- to four-family residential real estate loans, and on property securing home equity loans and lines of credit. All appraisers are licensed appraisers and all third-party appraisers are approved by the Board of Directors annually.
Investments
Our Board of Directors has primary responsibility for establishing and overseeing our investment policy. The Board of Directors has delegated authority to implement the investment policy to our Investment Committee, consisting of our President and Chief Executive Officer, our Vice Chairman and Co-Chief Operating Officer, our Executive Vice President and Chief Financial Officer, our Executive Vice President of Finance, and our Vice President and Senior Treasury Analyst. The investment policy is reviewed at least annually by the Investment Committee, and any changes to the policy are subject to approval by the full Board of Directors. The overall objectives of the investment policy are to maintain a portfolio of high quality and diversified investments to maximize interest income over the long term and to minimize risk, to provide collateral for borrowings, to provide additional earnings when loan production is low, and to reduce our tax liability. The policy dictates that investment decisions give consideration to the safety of principal, liquidity requirements and potential returns. Our Executive Vice President and Chief Financial Officer executes our securities portfolio transactions as directed by the Investment Committee. All purchase and sale transactions are reported to the Board of Directors on a monthly basis.
Our current investment policy permits investments in securities issued by the United States Government as well as mortgage-backed securities and direct obligations of Fannie Mae, Freddie Mac and Ginnie Mae. The investment policy also permits, with certain limitations, investments in certificates of deposit, bank-owned life insurance, collateralized mortgage obligations, municipal securities and stock in the Federal Home Loan Bank (FHLB) and the Federal Reserve Bank (FRB). We purchase stock in the FHLB in order to obtain services such as demand deposit accounts, certificates of deposit, security safekeeping services and borrowings in the form of advances. As a member of the Federal Reserve System, we are required to hold stock in the FRB.
Our current 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. As of December 31, 2024, we held no asset-backed securities other than mortgage-backed securities. As a state savings bank, Territorial Savings Bank is not permitted to invest in equity securities. This general restriction does not apply to Territorial Bancorp Inc.
The Investments - Debt and Equity Securities topic of the Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) requires that, at the time of purchase, we designate a security as either held-to-maturity, available-for-sale, or trading, based upon our ability and intent to hold the security until maturity. Securities in the available-for-sale and trading classifications are reported at fair market value and securities in the held-to-maturity classification are reported at amortized cost. A periodic review and evaluation of the available-for-sale and held-to-maturity securities portfolios is conducted to determine if the fair market value of any security has declined below its carrying value and whether an allowance for credit losses, charge to earnings or other comprehensive loss is necessary. We utilize the current expected credit losses (CECL) methodology to estimate expected credit losses with respect to held-to-maturity securities. Available-for-sale securities in an unrealized loss position are evaluated for impairment. If we do not have the intent to sell a security and it is not more likely than not that we will be required to sell a security, impairment occurs when the present value of the remaining cash flows is less than the remaining amortized cost basis. The difference between the present value of remaining cash flows and the remaining amortized cost basis is considered a credit loss. If a credit loss has occurred, impairment is recorded by writing down the value of a security to the present value of remaining cash flows as a charge to earnings. The difference between the book value of the security after the write down and the fair market value is considered an other comprehensive loss, which is a reduction of stockholders’ equity.
Our investment securities at December 31, 2024 consisted of held-to-maturity and available-for-sale mortgage-backed securities with a carrying value of $645.7 million and $18.5 million, respectively. At December 31, 2024, all of our mortgage-backed securities were issued by Fannie Mae, Freddie Mac or Ginnie Mae. At December 31, 2024, none of the collateral underlying our securities portfolio was considered subprime or Alt-A, and we did not hold any common or preferred stock issued by Freddie Mac or Fannie Mae as of that date. The fair values of our securities are usually based on published or securities dealers’ market values.
Mortgage-backed securities are securities issued in the secondary market that are collateralized by pools of mortgages. Certain types of mortgage-backed securities are commonly referred to as “pass-through” certificates because
the principal and interest of the underlying loans is “passed through” to investors, net of certain costs, including servicing and guarantee fees. Mortgage-backed securities typically are collateralized by pools of one- to four-family or multi-family mortgages. We invest primarily in mortgage-backed securities backed by one- to four-family mortgages. The interest rate of the security is lower than the interest rates of the underlying loans to allow for payment of servicing and guarantee fees. Ginnie Mae, a United States Government agency, and government-sponsored enterprises, such as Fannie Mae and Freddie Mac, either guarantee the payments or guarantee the timely payment of principal and interest to investors. Mortgage-backed securities are more liquid than individual mortgage loans since there is an active trading market for such securities. In addition, mortgage-backed securities may be used to collateralize public deposits and borrowings. Investments in mortgage-backed securities involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretion of any discount relating to such interests, thereby affecting the net yield on our securities.
Sources of Funds
General. Deposits traditionally have been our primary source of funds for our investment and lending activities. We also borrow from the FHLB and the FRB to supplement cash flow needs, to lengthen the maturities of liabilities for interest rate risk management purposes and to manage our cost of funds. Our additional sources of funds are loan and security repayments, maturing investments, retained earnings, income on other earning assets and the proceeds of loan and security sales.
Deposits. At December 31, 2024, deposits totaled $1.7 billion, or 89.4% of total liabilities. We offer a variety of deposit accounts with a range of interest rates and terms. Our deposit accounts consist of savings accounts, certificates of deposit, commercial and regular checking accounts, Super NOW accounts, and money market accounts. Historically, we have not accepted, and do not currently have, brokered deposits. We accept deposits primarily from the areas in which our offices are located. We rely on our competitive pricing and products, convenient locations and quality customer service to attract and retain deposits.
Interest rates paid, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies, market interest rates, liquidity requirements and our deposit growth goals.
Borrowings. At December 31, 2024, our borrowings consisted of FHLB advances totaling $160.0 million, or 8.3% of total liabilities. At December 31, 2024, we had access to additional FHLB and FRB advances of up to $389.5 million and $114.4 million, respectively. Advances from the FHLB are secured by our investment in the common stock of the FHLB as well as by a blanket pledge on our assets not otherwise pledged. Advances from the FRB are secured by mortgage-backed securities.
Subsidiary Activities
Territorial Savings Bank had one subsidiary, Territorial Financial Services, Inc., that was dissolved during the year ended December 31, 2024.
Personnel
As of December 31, 2024, we had 233 full-time employees and nine part-time employees. Our employees are not represented by any collective bargaining group. Management believes that we have a good working relationship with our employees.
We view our employees as our most important asset. We recognize that our success depends on training and developing our employees. We provide job training and personal development opportunities by offering classes which can be attended online or in person.
We provide a competitive compensation and benefits program to help meet the needs of our employees. In addition to salaries, these programs include an employee stock ownership plan, a 401(k) Plan, healthcare and insurance
benefits, flexible spending accounts, paid time off, family leave and an employee assistance program. These programs may also include annual bonuses and a 401(k) Plan employer matching and annual contributions.
FEDERAL AND STATE TAXATION
Federal Taxation
General. Territorial Bancorp Inc. and Territorial Savings Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to Territorial Bancorp Inc. and Territorial Savings Bank.
Federal Tax. Territorial Bancorp Inc. is subject to a federal tax rate of 21.00% on its pre-tax income.
Method of Accounting. For federal income tax purposes, Territorial Bancorp Inc. currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31st for filing its consolidated federal income tax returns.
Net Operating Loss Carryovers. For net operating losses generated beginning January 1, 2021, there are no carry backs allowed. Net operating losses can be carried forward for an unlimited period until the loss is fully recovered. Net operating losses can be used to reduce the current year’s taxable income by 80%. At December 31, 2024, the Company had a estimated gross net operating loss carry forward of $6.7 million for federal income tax purposes and $5.5 million for state franchise tax purposes.
Corporate Dividends. We may exclude from our income 100% of dividends received from Territorial Savings Bank as a member of the same affiliated group of corporations.
Audit of Tax Returns. Territorial Bancorp Inc.’s federal income tax returns have not been audited in the five-year period ended December 31, 2024. Tax years 2021 to 2023 currently remain subject to examination by the Internal Revenue Service (the IRS).
Stock Repurchases. As a result of the Inflation Reduction Act, which was signed into law in 2022, publicly traded corporations like Territorial Bancorp Inc. are subject to a 1% excise tax on stock repurchases.
State Taxation
Territorial Bancorp Inc. and Territorial Savings Bank are subject to a franchise tax imposed under Hawaii law at a rate of 7.92% of pre-tax income. The pre-tax income to which the tax rate is applied is determined in a manner consistent with the taxable income determined for federal purposes with some adjustments. The principal adjustment to federal taxable income is the exclusion of dividends received on Federal Home Loan Bank and Federal Reserve Bank stock.
Territorial Bancorp Inc.’s state franchise tax returns have not been audited in the five-year period ended December 31, 2024. Tax years 2021 and after currently remain subject to examination by the Department of Taxation of the State of Hawaii.
SUPERVISION AND REGULATION
General
Territorial Savings Bank is a Hawaii state-chartered savings bank and a member of the Federal Reserve System. Accordingly, Territorial Savings Bank is examined and supervised by, and subject to the enforcement authority of, the Hawaii Division of Financial Institutions, as its primary state regulator, and by the Board of Governors of the Federal Reserve System, or Federal Reserve Board, as its primary federal regulator. Territorial Savings Bank is also subject to examination by the Federal Deposit Insurance Corporation, its deposit insurer, under certain circumstances. This
regulation and supervision establishes a comprehensive framework of activities in which Territorial Savings Bank may engage and is intended primarily for the protection of the Federal Deposit Insurance Corporation’s Deposit Insurance Fund and depositors, and not for the protection of security holders. Under this system of state and federal regulation, financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity, and sensitivity to market interest rates. The Hawaii Division of Financial Institutions and the Federal Reserve Board examine Territorial Savings Bank and prepare reports for the consideration of the Bank’s Board of Directors on any operating deficiencies. Territorial Savings Bank’s relationship with its depositors and borrowers also is regulated to a great extent by federal law and, to a much lesser extent, state law, especially in matters concerning the ownership of deposit accounts and the form and content of Territorial Savings Bank’s loan documents.
Any change in these laws or regulations, whether by the Hawaii Division of Financial Institutions, the Federal Reserve Board, the Federal Deposit Insurance Corporation, or Congress, could have a material adverse impact on Territorial Bancorp Inc., Territorial Savings Bank, and their operations.
Territorial Bancorp Inc. maintained its status as a savings and loan holding company in connection with Territorial Savings Bank’s 2014 conversion from a federal to a Hawaii savings bank charter. Accordingly, Territorial Bancorp Inc. is required to file certain reports with, is subject to examination by, and otherwise must comply with the rules and regulations of the Federal Reserve Board. Territorial Bancorp Inc. is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.
Certain regulatory requirements that are applicable to Territorial Savings Bank and Territorial Bancorp Inc. are described below. This description of statutes and regulations is not intended to be a complete description of such statutes and regulations and their effects on Territorial Savings Bank and Territorial Bancorp Inc., and is qualified in its entirety by reference to the actual statutes and regulations.
Federal Banking Regulation
Capital Requirements. Federal regulations require that federally insured depository institutions meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%; a Tier 1 capital to risk-based assets ratio of 6.0%; a total capital to risk-based assets ratio of 8%; and a 4% Tier 1 capital to total assets leverage ratio. The current capital requirements were effective January 1, 2015 and are the result of a final rule implementing recommendations of the Basel Committee on Banking Supervision (BASEL III) and certain requirements of the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock, and subordinated debt. Also included in Tier 2 capital is the allowance for credit losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of accumulated other comprehensive income, up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Territorial Savings Bank has chosen not to make an opt-out election. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the Federal Reserve Board takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.
At December 31, 2024, Territorial Savings Bank’s regulatory capital exceeded that required by the capital requirements.
Legislation enacted in 2018 required federal banking agencies to establish a “community bank leverage ratio” of between 8 to 10% of average total consolidated assets for qualifying institutions with assets of less than $10 billion and the ratio has currently been set at 9%. Institutions with capital meeting the specified requirements and electing to follow the alternative framework are deemed to comply with the applicable regulatory capital requirements, including the risk based requirements, and are considered well-capitalized under the prompt corrective action framework discussed below. A qualifying institution may opt in and out of the community bank leverage ratio on its quarterly call report. Territorial Savings Bank did not opt into the community bank leverage ratio framework.
Prompt Corrective Action Regulations. Under prompt corrective action regulations, the Federal Reserve Board is authorized and, under certain circumstances, required to take supervisory actions against undercapitalized member banks. The extent of supervisory action depends upon the degree of the institution’s undercapitalization. For this purpose, a member bank is placed in one of the following five categories based on the bank’s capital:
• well-capitalized (at least 5% leverage capital, 8% Tier 1 risk-based capital, 10% total risk-based capital, and 6.5% common equity Tier 1 risk-based capital);
• adequately capitalized (at least 4% leverage capital, 6% Tier 1 risk-based capital, 8% total risk-based capital, and 4.5% common equity Tier 1 risk-based capital);
• undercapitalized (less than 4% leverage capital, 6% Tier 1 risk-based capital, 8% total risk-based capital, or 4.5% common equity Tier 1 risk-based capital);
• significantly undercapitalized (less than 3% leverage capital, 4% Tier 1 risk-based capital, 6% total risk-based capital, or 3% common equity Tier 1 risk-based capital); and
• critically undercapitalized (equal to or less than 2% tangible capital).
At December 31, 2024, Territorial Savings Bank met the criteria for being considered “well-capitalized.”
Capital Distributions. State member banks must receive the prior approval of the Federal Reserve Board to pay dividends: (i) if the total amount of all dividends declared during the calendar year (including the proposed dividend) exceeds the sum of the bank’s net income during the calendar year and retained net income of the prior two calendar years or (ii) in an amount that would exceed the bank’s undivided profits. Even if an application is not otherwise required, every savings bank that is a subsidiary of a savings and loan holding company must file a notice with the Federal Reserve Board at least 30 days before the Board of Directors declares a dividend.
The Federal Reserve Board may disapprove a notice or application if:
• the savings bank would be undercapitalized following the distribution;
• the proposed dividend raises safety and soundness concerns; or
• the dividend would violate a prohibition contained in any statute, regulation, formal or informal enforcement action, or agreement with or condition imposed by a federal banking agency.
In addition, the Federal Deposit Insurance Act provides that an insured depository institution shall not make any capital distribution if, after making such distribution, the institution would be undercapitalized within the meaning of the prompt corrective action regulations.
Community Reinvestment Act (CRA) and Fair Lending Laws. All institutions with Federal Deposit Insurance Corporation deposit insurance have a responsibility under the CRA and related federal regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. In connection with its examination of a state member bank, the Federal Reserve Board is required to assess the savings bank’s record of compliance with the CRA. A savings bank’s failure to comply with the provisions of the CRA could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. The CRA requires all Federal Deposit Insurance Corporation-insured institutions to publicly disclose their rating. Territorial Savings Bank received a “satisfactory” CRA rating in its most recent federal examination. On October 24, 2023, the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of the Comptroller of the Currency (“OCC”) issued a final rule to strengthen and modernize the CRA regulations. Under the final rule, banks with assets of at least $2 billion as of December 31 in both of the prior two calendar years will be a “large bank.” The agencies will evaluate large banks under four performance tests: the Retail Lending Test, the Retail Services and Products Test, the Community Development Financing Test, and the Community Development Services Test. The applicability date for the majority of the provisions in the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027. On March 29, 2024, a federal court in the Northern District of Texas issued a preliminary injunction of the new CRA regulations, enjoining the federal banking agencies from enforcing the regulations against the plaintiff bank industry trade groups, and extending the regulations’ implementation dates day-for-day for each day the injunction is in place.
In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Federal Reserve Board, as well as other federal regulatory agencies and the Department of Justice.
Insurance of Deposit Accounts. Territorial Savings Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation. Deposit insurance per account owner is $250,000 per account ownership category.
The Federal Deposit Insurance Corporation charges insured depository institutions premiums to maintain the Deposit Insurance Fund. Under the Federal Deposit Insurance Corporation’s risk-based assessment system, institutions deemed less risky pay lower assessments. Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of failure within three years.
The Federal Deposit Insurance Corporation has authority to increase initial base deposit insurance assessment rates and did so by three basis points beginning in the fourth quarterly assessment period of 2023. As a result, effective January 1, 2024, assessment rates for institutions of Territorial Savings Bank’s size range from 2.5 to 32 basis points. Any significant future increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of Territorial Savings Bank. Management cannot predict what insurance assessment rates will be in the future.
Federal Home Loan Bank System. Territorial Savings Bank is a member of the Federal Home Loan Bank System, which consists of eleven regional Federal Home Loan Banks. The FHLB System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending. As a member of the FHLB of Des Moines, Territorial Savings Bank is required to acquire and hold shares of capital stock in the FHLB. As of December 31, 2024, Territorial Savings Bank held $8.5 million of capital stock in the FHLB of Des Moines and was in compliance with this requirement.
Hawaii Banking Law and Regulation
Hawaii law authorizes state-chartered savings banks to, among other things, accept and hold deposits, borrow from any source, make loans and extensions of credit of any kind, invest in service corporation subsidiaries engaged in activities permissible for service corporations of federal savings banks, and engage in other activities that are usual or incidental to the business of a savings bank. Hawaii law requires that at least 50% of a savings bank’s loans and extensions of credit be secured by real estate. In addition, certain commercial loans are limited to 15% of the savings bank’s assets and education loans are limited to 10% of assets. Federal law may limit some of the authority provided to Hawaii savings banks by Hawaii law.
Hawaii law generally limits a savings bank’s capital distributions to the amount of its retained earnings.
Hawaii has a parity statute, which provides Hawaii savings banks with authority to engage in any activity permitted by federal law for federal savings banks, upon receiving the approval of the Commissioner of Financial Institutions. Territorial Savings Bank received such approval when it converted from a federal savings bank to a Hawaii savings bank.
Other Laws and Regulations
Territorial Savings Bank’s operations are also subject to federal laws and regulations applicable to credit transactions, such as the:
• Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
• Real Estate Settlement Procedures Act, requiring that borrowers for mortgage loans for one- to four-family residential real estate receive various disclosures, including good faith estimates of settlement costs, lender servicing and escrow account practices, and prohibiting certain practices that increase the cost of settlement services;
• Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;
• Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed, or other prohibited factors in extending credit;
• Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;
• fair lending laws;
• Laws and regulations prohibiting unfair or deceptive acts or practices;
• Fair Debt Collection Practices Act, governing the manner in which consumer debts may be collected by collection agencies;
• Truth in Savings Act; and
• other regulations of the various federal agencies charged with the responsibility of implementing such federal laws.
The operations of Territorial Savings Bank are further subject to the:
• Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;
• Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;
• Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper checks;
• Bank Secrecy Act and the USA PATRIOT Act and their implementing regulations, which require financial institutions to, among other things, establish anti-money laundering compliance programs, customer identification programs, and customer due diligence policies and controls, in order to detect and prevent money laundering and terrorist financing;
• Regulations of the Office of Foreign Assets Control that enforce economic and trade sanctions programs based on United States foreign policy and national security goals; and
• Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties.
Holding Company Regulation
General. Territorial Bancorp Inc. is a nondiversified savings and loan holding company within the meaning of the Home Owners’ Loan Act. As such, Territorial Bancorp Inc. is registered with the Federal Reserve Board and subject to Federal Reserve Board regulations, examinations, supervision, and reporting requirements. In addition, the Federal Reserve Board has enforcement authority over Territorial Bancorp Inc. and its subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings institution.
Permissible Activities. The business activities of savings and loan holding companies are generally limited to those activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the Federal Reserve Board, and certain additional activities authorized by Federal Reserve Board regulations, unless the holding company has elected “financial holding company” status. A financial holding company may engage in activities that are financial in nature, including underwriting equity securities and insurance as well as activities that are incidental to financial activities or complementary to a financial activity. Territorial Bancorp Inc. has not elected financial holding company status. Federal law generally prohibits the acquisition of more than 5% of a class of voting stock of a company engaged in impermissible activities.
Federal law prohibits a savings and loan holding company, including Territorial Bancorp Inc., from directly or indirectly, or through one or more subsidiaries, acquiring more than 5% of another savings institution or holding company thereof, without prior written approval of the Federal Reserve Board. In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Board must consider, among other factors, the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the federal deposit insurance fund, the convenience and needs of the community, and competitive factors.
The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.
Capital. Consolidated regulatory capital requirements identical to those applicable to the subsidiary depository institutions apply to savings and loan holding companies. However, consolidated assets of $3 billion is the threshold of the “small holding company” exception to the applicability of consolidated holding company capital requirements. Consequently, holding companies with less than $3 billion of consolidated assets, including Territorial Bancorp Inc., are generally not subject to the requirements unless otherwise advised by the Federal Reserve Board.
Source of Strength. The Dodd-Frank Act also extended the “source of strength” doctrine to savings and loan holding companies. The Federal Reserve Board has issued regulations requiring that all bank and savings and loan holding companies serve as a source of strength to their subsidiary depository institutions by providing capital, liquidity, and other support in times of financial stress.
Dividends and Stock Repurchases. The Federal Reserve Board has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank and savings and loan holding companies. In general, the policy provides that dividends should be paid out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality, and overall financial condition. Regulatory guidance provides for prior regulatory review of capital distributions in certain circumstances, such as where the holding company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend, or where the holding company’s overall rate of earnings retention is inconsistent with its capital needs and overall financial condition. The guidance also provides for prior consultation with supervisory staff for material increases in the amount of a holding company’s common stock dividend. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized.
The Federal Reserve Board policy statement also provides for regulatory review prior to a holding company redeeming or repurchasing regulatory capital instruments when the holding company is experiencing financial weaknesses or redeeming or repurchasing common stock or perpetual preferred stock that would result in a net reduction in the amount of such equity instruments outstanding as of the end of a quarter compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies could affect the ability of Territorial Bancorp Inc. to pay dividends, repurchase shares of common stock, or otherwise engage in capital distributions.
Qualified Thrift Lender Test
Territorial Bancorp Inc. maintained its status as a savings and loan holding company in connection with Territorial Savings Bank’s 2014 conversion from a federal to a Hawaii savings bank charter. In order for Territorial Bancorp Inc. to remain regulated as a savings and loan holding company (rather than a bank holding company), Territorial Savings Bank is required to continue to satisfy the same qualified thrift lender (QTL) test that was applicable to it as a federal savings bank. The QTL test requires Territorial Savings Bank to either qualify as a “domestic building and loan association,” as defined by the Internal Revenue Code, or maintain at least 65% of “portfolio assets” in “qualified thrift investments,” primarily residential mortgages and related investments, including mortgage-backed and related securities. Territorial Savings Bank was in compliance with the QTL test at December 31, 2024.
Change in Control Regulations
Under the Change in Bank Control Act, no person may acquire control of a savings and loan holding company such as Territorial Bancorp Inc. unless the Federal Reserve Board has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under the Change in Bank Control Act, means ownership, control of or power to vote 25% or more of any class of voting stock. Acquisition of more than 10% of any class of a savings and loan holding company’s voting stock constitutes a rebuttable presumption of control under the regulations under certain circumstances including where, as is the case with Territorial Bancorp Inc., the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934.
Federal Securities Laws
Territorial Bancorp Inc.’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Territorial Bancorp Inc. is subject to the information, proxy solicitation, insider trading restrictions, and other requirements under the Securities Exchange Act of 1934.
Territorial Bancorp Inc. common stock held by persons who are affiliates (generally officers, directors, and principal shareholders) of Territorial Bancorp Inc. may not be resold without registration unless sold in accordance with certain resale restrictions. If Territorial Bancorp Inc. meets specified current public information requirements, each
affiliate of Territorial Bancorp Inc. is able to sell in the public market, without registration, a limited number of shares in any three-month period.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. We have policies, procedures, and systems designed to ensure compliance with the Sarbanes-Oxley Act and related regulations.

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ITEM 1A. RISK FACTORS
ITEM 1A.
Risk Factors
Not applicable to a smaller reporting company.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B.Unresolved Staff Comments
Not applicable.
ITEM 1CCybersecurity Risk Management, Strategy and Governance
Cybersecurity is a significant and integrated component of Territorial Savings Bank’s risk management strategy. As a financial services company, cyber threats are present and growing, and the potential exists for a cybersecurity incident to occur, which could disrupt business operations or compromise sensitive data. To date, Territorial Savings Bank has not, to its knowledge, experienced an incident materially affecting or reasonably likely to materially affect Territorial Savings Bank.
To prepare and respond to incidents, Territorial Savings Bank has implemented a multi-layered cybersecurity strategy, integrating people, technology, and processes. This includes employee training, the use of innovative technologies, and the implementation of policies and procedures in the areas of Information Security, Data Governance, Business Continuity and Disaster Recovery, Vendor Management, and Incident Response. Territorial Savings Bank engages third-party consultants and independent auditors to, among other things, conduct penetration tests and perform cybersecurity risk assessments and audits.
The Information Security Department of Territorial Savings Bank is primarily responsible for identifying, assessing and managing material risks from cybersecurity threats. The Information Security Department is managed by the Board-appointed Information Security Officer (the “ISO”) who reports directly to Territorial Savings Bank’s Executive Vice President of Administration. The ISO has five years of experience with Territorial Savings Bank and an additional 23 years of experience in the information technology (“IT”) field. The ISO also oversees Territorial Savings Bank’s Information Security Program, which is governed by various information security and cybersecurity, systems development, change control, disaster recovery/business continuity and physical asset classification and control policies. The Information Security Program identifies data sources, threats and vulnerabilities and ensures awareness, accountability, and oversight for data protection throughout Territorial Savings Bank and with trusted third parties to ensure that data is protected and able to be recovered in the event of a breach or failure (technical or other disaster). The Information Security Department provides on-going technology and IT threat updates to ensure the latest threats are addressed. In addition, the ISO participates in penetration testing, business continuity/ disaster recovery testing, and incident response plan testing. The ISO presents information security and cybersecurity updates at least quarterly to Territorial Savings Bank’s Information Technology Steering Committee, which consists of the Executive Vice President of Administration, the Senior Vice President of Electronic Banking, the Information Technology Manager, the Information Security Officer, information technology staff, and staff from other departments within the organization. The committee minutes are reviewed by the Board of Directors after each meeting.
The Information Security Department provides oversight, from a risk perspective, of IT security practices. As referenced above, the ISO provides information security updates to the Information Technology Steering Committee at each Information Technology Steering Committee meeting. Additional information security training to the Board of Directors is provided through targeted training overseen by the ISO. In addition, as discussed below, Territorial Savings
Bank has implemented an Incident Response Plan to provide a structured and systematic incident response process for information security incidents that affect any of the information technology systems, network, or data of Territorial Savings Bank. The Incident Response Plan is implemented and maintained by the ISO. Cybersecurity metrics are reported to management committees at least monthly and are summarized in annual reporting to the Board of Directors.
The Board of Directors recognizes the importance of the Interagency Guidelines Establishing Standards for Safeguarding Customer Information and has incorporated those elements in its ongoing oversight of the Information Security Program.
Risk Assessment. On a periodic basis, but not less than annually, the Information Security Officer (the “ISO”) identifies and documents internal and external vulnerabilities that could result in unauthorized disclosure, misuse, alteration, or destruction of customer information or customer records. Based on the results of the risk assessment, Territorial Savings Bank’s Information Security Program may be revised to protect against any anticipated threats or hazards to the security or integrity of such information. The Board of Directors reviews changes to the program designed to monitor, measure, and respond to vulnerabilities identified.
Response to Security Vulnerabilities. In response to identified risks, management may take certain steps to correct and respond to security vulnerabilities, which may include:
● Applying vendor-provided software fixes, commonly called patches.
● Implementing documented, approved, and tested changes to security configurations.
● Ensuring that exploitable files and services are assessed and removed or disabled based upon known vulnerabilities and business needs.
● Updating vulnerability scanning and intrusion detection tools to identify known vulnerabilities and related unauthorized activities.
● Conducting subsequent penetration testing and vulnerability assessments, as warranted.
● Reviewing performance with service providers to ensure security maintenance and reporting responsibilities are operating according to contract provisions and that service providers provide notification of system security breaches that may affect Territorial Savings Bank.
Internal Controls, Audit, and Testing. Regular internal monitoring is integral to Territorial Savings Bank’s risk assessment process, which includes regular testing of internal key controls, systems, and procedures. In addition, independent third-party penetration testing to test the effectiveness of security controls and preparedness measures is conducted at least annually or more often, if warranted by the risk assessment or other external factors. Management determines the scope and objectives of the penetration analysis.
Service Providers. Like many companies, Territorial Savings Bank relies on third-party vendor solutions to support its operations. Many of these vendors, especially in the financial services industry, have access to sensitive and proprietary information. In order to mitigate the operational, informational and other risks associated with the use of vendors, Territorial Savings Bank maintains a risk-based Vendor Management Program designed to identify, measure, monitor, and control risks related to outsourced vendor relationships. The Vendor Management Program is implemented through a Vendor Management Program Policy and includes a detailed onboarding process and periodic reviews of vendors with access to sensitive Territorial Savings Bank data. The Vendor Management Program Policy applies to any business arrangement between Territorial Savings Bank and another individual or entity, by contract or otherwise, in compliance with the Interagency Guidance on Third-Party Relationships: Risk Management. The Vendor Management Program is reviewed as part of Territorial Savings Bank’s annual Internal Audit Risk Assessment.
Employees and Training. Employees are the first line of defense against cybersecurity events. Each employee is responsible for protecting Territorial Savings Bank and client information. Employees are provided training at initial onboarding and thereafter regarding information security and cybersecurity-related policies and procedures applicable to their respective roles within the organization. In addition, employees are subjected to regular simulated phishing assessments, designed to sharpen threat detection and reporting capabilities. In addition to training, employees are supported with solutions designed to identify, prevent, detect, respond to, and recover from incidents. Notable technologies include firewalls, intrusion detection systems, managed endpoint detection and response, digital risk
protection services, data loss prevention scanning, user behavior analytics, multi-factor authentication, data backups, and business continuity applications. Notable services include 24/7 security monitoring and response, weekly vulnerability scanning, third-party monitoring, and threat intelligence.
Board Reporting. At least annually, the ISO reports to the Board the overall status of the Information Security Program and Territorial Savings Bank’s compliance with the Interagency Guidelines for Safeguarding Customer Information. Any material findings related to the risk assessment, risk management and control decisions, service provider arrangements, results of testing, security breaches or violations are discussed as are management’s responses and any recommendations for program changes.
Program Adjustments. The ISO monitors, evaluates, and adjusts the Information Security Program considering any relevant changes in technology, the sensitivity of its customer information, internal or external threats to information, and changing business arrangements, such as mergers and acquisitions, alliances and joint ventures, outsourcing arrangements, and changes to customer information systems.
Incident Response Plan. To ensure that information security incidents can be recovered from quickly and with the least impact to Territorial Savings Bank and its customers, Territorial Savings Bank maintains a structured and systematic incident response plan (the “IRP”) for all information security incidents that affect any of the IT systems, network, or data of Territorial Savings Bank, including Territorial Savings Bank’s data held, or IT services provided by third-party vendors or other service providers. The ISO is responsible for implementing and maintaining the IRP, which includes:
● Identifying the incident response team (“IRT”) and any appropriate sub-teams to address specific information security incidents, or categories of information security incidents.
● Coordinating IRT activities, including developing, maintaining, and following appropriate procedures to respond to and document identified information security incidents.
● Conducting post-incident reviews to gather feedback on information security incident response procedures and address any identified gaps in security measures.
● Providing training and conducting periodic exercises to promote employee and stakeholder preparedness and awareness of the IRP.
● Reviewing the IRP at least annually, or whenever there is a material change in Territorial Savings Bank’s business practices that may reasonably affect its cyber incident response procedures.
ITEM 2.
Properties
We operate from our corporate office in Honolulu, Hawaii, and from our 28 full-service branches located in the State of Hawaii. Of our 28 branches, 23 are located on the island of Oahu, and all but one of our branches are leased properties. The net book value of our premises, land and equipment was $7.2 million at December 31, 2023.
ITEM 3.
Legal Proceedings
From time to time, we are involved as plaintiff or defendant in various legal proceedings arising in the ordinary course of business. At December 31, 2024, we were not involved in any legal proceedings, the outcome of which we believe would be material to our financial condition or results of operations.
ITEM 4.
Mine Safety Disclosures
Not applicable.
PART II
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a)Market, Holder and Dividend Information. Our common stock is traded on the NASDAQ Global Select Market under the symbol “TBNK.” The approximate number of holders of record of Territorial Bancorp Inc.’s common stock as of February 29, 2025 was 984. Certain shares of Territorial Bancorp Inc. are held in “nominee” or “street” name and, accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.
(b)Sales of Unregistered Securities. Not applicable.
(c)Use of Proceeds. Not applicable.
(d)Securities Authorized for Issuance Under Equity Compensation Plans. See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
(e)Stock Repurchases. There were no repurchases of our shares of common stock during the three months ended December 31, 2024.
ITEM 6.[Reserved]
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The objective of this section is to help readers understand our views on our results of operations and financial condition. You should read this discussion in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements that appear elsewhere in this Annual Report on Form 10-K.
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 (FRB), loan and securities repayments, advances from the Federal Home Loan Bank of Des Moines (FHLB) and the Federal Reserve Bank, 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, as occurred in 2023.
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 include nonaccrual loans, totaled $1.9 million, or 0.09% of total assets at December 31, 2024, compared to $2.3 million, or 0.10% of total assets at December 31, 2023. We recorded a provision for credit losses of $73,000 and a reversal of provision for credit losses of $3,000 for the years ended December 31, 2024 and 2023, respectively. The provision for credit losses in 2024 occurred primarily due to an increase in provisions for the consumer loan portfolio that was partially offset by decreases in provisions for the commercial and real estate portfolio. The increase in provisions for the consumer loan portfolio was primarily due to an increase in home equity loans and lines of credit. The decrease in provisions in the commercial loan portfolio was primarily due to an increase in forecasted prepayments, that was partially offset by an increase in forecasted charge-offs. The decrease in provisions in the real estate portfolio was primarily due to a decrease in the mortgage loan portfolio that was partially offset by a decrease in the forecasted prepayments. The reversal of provision for credit losses in 2023 was primarily due to a decrease in our real estate portfolio’s forecasted charge-offs that was partially offset by a decrease in its forecasted prepayments.
All of Territorial Savings Bank’s investments in mortgage-backed securities and collateralized mortgage obligations 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 agencies guarantee the payment of principal and interest on the Bank’s mortgage-backed securities. We do not own any preferred stock issued by Fannie Mae or Freddie Mac. As of December 31, 2024, our additional borrowing capacity at the FHLB and FRB was $389.5 million and $114.4 million, respectively. As of December 31, 2023, our additional borrowing capacity at the FHLB and FRB was $612.6 million and $207.2 million, respectively.
Critical Accounting Policies and Estimates
We consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income, to be critical accounting policies. We consider the following to be our critical accounting policies:
Allowance for Credit Losses (ACL) on Loans and Securities. Our determination of the amount of our allowance for credit loss (ACL) is a critical accounting estimate and includes Management’s estimate of future credit losses. Loans are charged-off against the ACL when management believes a loan is uncollectable and credited if subsequent recoveries are made. Changes in the ACL, and the related loan loss provision, can materially affect net income.
The estimate of the allowance for credit losses using the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of loans. The historical loss experience is the starting point for estimating expected credit losses. We consider whether the historical loss experience should be adjusted for asset specific risk characteristics or current conditions at the reporting date that did not exist over the historical reporting period. These qualitative adjustments can include changes in the economy, loan underwriting standards, delinquency trends, or other factors. We then consider future economic conditions as part of the
one-year reasonable and supportable forecast period. The one-year reasonable and supportable forecast period includes estimates of economic conditions which affects the performance of the loan portfolios. After the one-year reasonable and supportable forecast period, losses are based on historical loss rates, or reversion rate, for the remaining expected life of the loan. We use a discounted cash flow methodology to calculate our allowance for credit losses.
Our loan portfolio is segmented into three pools for estimating our allowance for credit losses on loans: real estate, commercial, and consumer loans. They were established upon the adoption of ASU 2016-13. Only three pools are used to segment our loan portfolio because loans within the pools share similar risk characteristics and were originated using similar underwriting standards. Loans that do not share similar risk characteristics would be evaluated on an individual basis and excluded from the collective evaluation. Historically, we have disclosed information about our loans and allowance based on class of financing receivable. The portfolio segments align with the class of financing receivables as follows:
● Real estate: One- to four-family residential, multi-family residential, and commercial mortgage
● Commercial: Commercial loans other than mortgage loans
● Consumer: Home equity loans, loans on deposit accounts, and all other consumer loans
Collateral dependent loans are not considered to share the same risk characteristics with the three pools discussed above. A loan is considered to be collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For loans which are considered to be collateral dependent, we have elected to estimate the expected credit loss based on the fair value of the collateral less selling costs. If the fair value of the collateral less selling costs is less than the loan’s amortized cost basis, we record a partial charge-off to reduce the loan’s amortized cost basis for the difference between the collateral fair value less selling costs and the amortized cost basis.
The historical loss experience of the real estate and consumer loan pools were determined using a vintage method. This method tracks loss and prepayment activity of loans that are originated during a specified time period, or vintage, over the course of the loan’s term. The pool’s loss and prepayment reversion rates are calculated as a percentage of the net loss and prepayments to the original loan balance. The historical loss experience of the commercial loan pool was determined using a reporting period method. This method measures historical losses incurred during a specified reporting period. The pool’s loss and prepayment reversion rates are calculated as a percentage of the beginning balance of the reporting period.
The amortized cost of the real estate pool totaled $1.3 billion at December 31, 2024 and represented 98.3% of our total loans. The amortized cost of the consumer and commercial loan pools totaled $22.5 million at December 31, 2024 and represented 1.8% of our total loans.
The allowance for credit losses is generally sensitive to economic conditions and assumptions built into the model that estimates credit losses. Since the residential real estate pool represents 98.9% of the Bank’s loans, changes in economic factors for the consumer and commercial pools would not have a material impact on the allowance. For the residential real estate portfolio, the 30-year fixed mortgage rate is used to project net charge-offs. A negative change in the forecasted 30-year fixed mortgage rate from 6.8% to 7.5% would lead to a small increase in the rate of delinquencies and consequently charge-offs for these borrowers. For the allowance on December 31, 2024, this change would increase the quantitative forecast component of the allowance for these loans from 0.005% to 0.019% and increase the dollar losses by $25,000 over a 12-month forecast. The net charge-offs on the residential real estate pool was based on the 2007 to 2009 Great Recession period. If the 2007 to 2008 period was used to calculate the net charge-offs on the residential real estate pool, the allowance for credit losses at December 31, 2024 would increase by approximately $312,000. Due to the low historical loss rates, small changes in the economic cycle will have nominal impacts on the overall allowance. This sensitivity analysis is hypothetical and provided only to indicate the potential impact changes in economic conditions and the effect these assumptions may have on the allowance estimate. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others.
We are required to utilize the CECL methodology to estimate expected credit losses with respect to held-to-maturity (HTM) investment securities. Since all of our HTM investment securities were issued by U.S. government agencies or U.S. government-sponsored enterprises, which include the explicit and/or implicit guarantee of the U.S. government and have a long history of no credit losses, we have not recorded a credit loss on these securities. The
unrealized losses on these securities were due to changes in interest rates, relative to when the securities were purchased, and are not due to decreases in the credit quality of the securities.
Available for sale (AFS) investment securities in an unrealized loss position are evaluated for impairment. We first assess whether we intend to sell, or it is more likely than not that we will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the investment securities amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the investment security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income. We have not recorded an ACL related to our AFS investment securities.
See Note 2(i) of the Notes to Consolidated Financial Statements for further information on the ACL.
Deferred Tax Assets. Deferred tax assets and liabilities are recognized for the estimated future tax effects attributable to temporary differences and carryforwards. A valuation allowance may be required if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences. There was no valuation allowance for deferred tax assets as of December 31, 2024 and 2023.
Defined Benefit Retirement Plan. Defined benefit plan obligations and related assets of our defined benefit retirement plan are presented in Note 17 of the Notes to Consolidated Financial Statements. Effective December 31, 2008, the defined benefit retirement plan was frozen and all plan benefits were fixed as of that date. Plan assets, which consist primarily of marketable equity securities and mutual funds, are typically valued using market quotations. Plan obligations and the annual pension expense are determined by an independent actuary through the use of a number of assumptions. Key assumptions in measuring the plan obligations include the discount rate and the expected long-term rate of return on plan assets. In determining the discount rate, we utilize a yield that reflects the top 50% of the universe of bonds, ranked in the order of the highest yield. These bonds provide cash flows that match the timing of expected benefit payments. Asset returns are based upon the anticipated average rate of earnings expected on the invested funds of the plans.
At December 31, 2024, we used weighted-average discount rates of 5.46% and 5.10% for calculating annual pension expense and projected plan liabilities, respectively, and an expected long-term rate of return on plan assets of 6.75% for calculating annual pension expense. For both the discount rate and the asset return rate, a range of estimates could reasonably have been used, which would affect the amount of pension expense and pension liability recorded.
A decrease in the discount rate or an increase in the asset return rate would have reduced our pension expense in 2024, while an increase in the discount rate or a decrease in the asset return rate would have the opposite effect. A 25 basis point decrease in the discount rate assumptions would have decreased our 2024 pension expense by $3,000 and would have increased our year-end 2024 pension liability by $343,000, while a 25 basis point decrease in the asset return rate would have increased our 2024 pension expense by $49,000.
Selected Financial Data
At December 31,
(In thousands)
Selected Financial Condition Data:
Total assets
$
2,169,715
$
2,236,672
Cash and cash equivalents
123,523
126,659
Investment securities available for sale, at fair value
18,492
20,171
Investment securities held to maturity at amortized cost
645,669
685,728
Loans receivable, net of allowance for credit losses
1,281,548
1,303,431
Bank-owned life insurance
49,645
48,638
Deposits
1,717,663
1,636,604
Advances from the Federal Home Loan Bank
160,000
242,000
Advances from the Federal Reserve Bank
-
50,000
Securities sold under agreements to repurchase
-
10,000
Total stockholders’ equity
248,351
251,086
Year Ended December 31,
(In thousands)
Selected Operating Data:
Interest income
$
72,305
$
69,088
Interest expense
40,613
26,457
Net interest income
31,692
42,631
Provision (reversal of provision) for credit losses
(3)
Net interest income after provision (reversal of provision) for credit losses
31,619
42,634
Noninterest income
2,611
2,471
Noninterest expense
40,944
38,268
(Loss) income before income taxes
(6,714)
6,837
Income tax (benefit) expense
(2,415)
1,810
Net (loss) income
$
(4,299)
$
5,027
At or for the Year Ended December 31,
Selected Financial Ratios (expressed as percentages) and Other Data:
Performance Ratios:
Return on average assets (ratio of net (loss) income to average total assets)
(0.20)
%
0.23
%
Return on average equity (ratio of net (loss) income to average equity)
(1.71)
%
1.99
%
Interest rate spread (1)
1.21
%
1.83
%
Net interest margin (2)
1.50
%
2.02
%
Efficiency ratio (3)
119.36
%
84.85
%
Noninterest expense to average total assets
1.86
%
1.74
%
Average interest-earning assets to average interest-bearing liabilities
115.18
%
115.37
%
Average equity to average total assets
11.43
%
11.48
%
Basic (loss) earnings per share
$
(0.50)
$
0.58
Diluted (loss) earnings per share
$
(0.50)
$
0.57
Dividend payout ratio (4)
(16.00)
%
129.82
%
Asset Quality Ratios:
Nonperforming assets to total assets
0.09
%
0.10
%
Nonperforming loans to total loans
0.15
%
0.17
%
Allowance for credit losses to nonperforming loans
264.56
%
226.59
%
Allowance for credit losses to total loans
0.40
%
0.39
%
Capital Ratios (bank-level only):
Total capital (to risk-weighted assets)
27.26
%
26.87
%
Common equity Tier 1 capital (to risk-weighted assets)
26.69
%
26.31
%
Tier I capital (to risk-weighted assets)
26.69
%
26.31
%
Tier I capital (to total assets)
10.98
%
10.86
%
Other Data:
Number of full-service offices
Full-time equivalent employees
(1) The average interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities for the year.
(2) The net interest margin represents net interest income as a percent of average interest-earning assets for the year.
(3) The efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income.
(4) The dividend payout ratio represents cash dividends declared per share divided by diluted (loss) earnings per share.
Balance Sheet Analysis
Assets. At December 31, 2024, our assets were $2.2 billion, a decrease of $67.0 million, or 3.0%, from December 31, 2023. The decrease was primarily caused by a $41.7 million decrease in total investment securities, a $21.9 million decrease in total loans, and a $3.1 million decrease in cash and cash equivalents.
Cash and Cash Equivalents. At December 31, 2024, our cash and cash equivalents were $123.5 million, a decrease of $3.1 million, or 2.5%, from $126.7 million at December 31, 2023. The decrease was primarily due to a $82.0 million decrease in FHLB advances, a $50.0 million decrease in FRB advances, a $10.0 million decrease in securities sold under agreements to repurchase, and $7.5 million of net cash used in operating activities. These decreases were partially offset by an $81.1 million increase in deposits, a $41.7 million decrease in total investment securities, and a $21.9 million decrease in total loans.
Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio at the dates indicated.
At December 31,
Amount
Percent
Amount
Percent
(Dollars in thousands)
Real estate loans:
First mortgage:
One- to four-family residential
$
1,248,171
96.87
%
$
1,277,544
97.48
%
Multi-family residential
5,148
0.40
5,855
0.45
Construction, commercial and other
11,620
0.90
11,631
0.89
Home equity loans and lines of credit
14,851
1.15
7,058
0.54
Other loans
8,704
0.68
8,453
0.64
Total loans
1,288,494
100.00
%
1,310,541
100.00
%
Other items:
Unearned fees and discounts, net
(1,832)
(1,989)
Allowance for credit losses
(5,114)
(5,121)
Loans receivable, net
$
1,281,548
$
1,303,431
Total loans decreased by $22.0 million as loan repayments and sales exceeded new loan originations.
Loan Portfolio Maturities and Yields. The following table summarizes the scheduled maturities of our loan portfolio at December 31, 2024. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.
One- to four-family
Multi-family residential
Construction, commercial
Home equity loans and
residential real estate
real estate
and other real estate
lines of credit
Other loans
Total
Weighted
Weighted
Weighted
Weighted
Weighted
Weighted
Due During the Years
Average
Average
Average
Average
Average
Average
Ending December 31,
Amount
Rate
Amount
Rate
Amount
Rate
Amount
Rate
Amount
Rate
Amount
Rate
(Dollars in thousands)
$
5.25
%
$
6.50
%
$
1,044
5.12
%
$
10.02
%
$
6.64
%
$
2,138
6.12
%
2026 to 2029
3,330
3.77
-
2,064
3.98
1,572
10.18
2,569
6.08
9,535
5.49
2030 to 2039
34,402
4.16
4,554
4.56
6,144
4.21
6.94
5,075
3.39
50,562
4.15
2040 and beyond
1,210,435
3.72
4.25
2,368
6.61
12,747
5.69
5.03
1,226,259
3.75
Total
$
1,248,171
3.73
%
$
5,148
4.55
%
$
11,620
4.74
%
$
14,851
6.24
%
$
8,704
4.55
%
$
1,288,494
3.78
%
The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at December 31, 2024 that are contractually due after December 31, 2025.
Due After December 31, 2025
Fixed
Adjustable
Total
(In thousands)
Real estate loans:
First mortgage:
One- to four-family residential
$
1,247,949
$
$
1,248,167
Multi-family residential
5,102
-
5,102
Construction, commercial and other
9,308
1,268
10,576
Home equity loans and lines of credit
1,106
13,600
14,706
Other loans
6,458
1,347
7,805
Total loans
$
1,269,923
$
16,433
$
1,286,356
Securities. At December 31, 2024, our securities portfolio totaled $664.2 million, or 30.6% of assets. The securities portfolio decreased from $705.9 million at December 31, 2023 primarily due to principal repayments. All of the mortgage-backed securities were issued by Fannie Mae, Freddie Mac or Ginnie Mae. At December 31, 2024, none of the underlying collateral consisted of subprime or Alt-A loans (traditionally defined as nonconforming loans having less than full documentation). At December 31, 2024, we held no common or preferred stock of Fannie Mae or Freddie Mac.
Any unrealized loss on individual mortgage-backed securities as of December 31, 2024 and 2023 was caused by increases in market interest rates subsequent to purchase. All of our mortgage-backed securities are guaranteed by U.S. government-sponsored enterprises or a U.S. government agency. Since the decline in market value has been attributable to changes in interest rates and not credit quality, we continue to have the intent not to sell these investments, and it is not more likely than not that we will be required to sell such investments prior to the recovery of the amortized cost basis. No allowance for credit losses was recorded for these securities as of December 31, 2024 and 2023.
Portfolio Maturities and Coupons. The composition and maturities of the investment securities portfolio at December 31, 2024 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. No tax-equivalent adjustments have been made, as we did not hold any tax-free investment securities at December 31, 2024.
More than One Year
More than Five Years
One Year or Less
through Five Years
through Ten Years
More than Ten Years
Total Securities
Weighted
Weighted
Weighted
Weighted
Weighted
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Average
Cost
Coupon
Cost
Coupon
Cost
Coupon
Cost
Coupon
Cost
Fair Value
Coupon
(Dollars in thousands)
Available-for-sale:
Mortgage-backed securities issued by U.S. government-sponsored enterprises:
Fannie Mae
$
-
-
%
$
-
-
%
$
-
-
%
$
4,123
3.00
%
$
4,123
$
3,558
3.00
%
Freddie Mac
-
-
-
-
-
-
17,371
2.99
17,371
14,934
2.99
Total available-for-sale
$
-
-
%
$
-
-
%
$
-
-
%
$
21,494
2.99
%
$
21,494
$
18,492
2.99
%
Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or government-sponsored enterprises:
Fannie Mae
$
-
-
%
$
6.93
%
$
5.87
%
$
351,726
2.26
%
$
351,740
$
274,342
2.26
%
Freddie Mac
-
-
-
-
-
-
276,216
2.52
276,216
223,554
2.52
Collateralized mortgage obligations (1)
-
-
-
-
-
-
1,034
1.62
1,034
1.62
Ginnie Mae
-
-
4.63
-
-
16,677
3.35
16,679
14,689
3.35
Total held-to-maturity
$
-
-
%
$
6.36
%
$
5.87
%
$
645,653
2.40
%
$
645,669
$
513,499
2.40
%
Total
$
-
-
%
$
6.36
%
$
5.87
%
$
667,147
2.42
%
$
667,163
$
531,991
2.42
%
(1) All of our collateralized mortgage obligations have been issued by Fannie Mae or Ginnie Mae.
Bank-Owned Life Insurance. We invest in bank-owned life insurance to provide us with a funding source for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is nontaxable. Interagency federal guidance generally limits our investment in bank-owned life insurance to 25% of the Bank’s Tier 1 capital plus our allowance for credit losses. At December 31, 2024, this limit was $60.7 million, and we had invested $49.6 million in bank-owned life insurance at that date.
Deposits. At December 31, 2024, deposits totaled $1.7 billion, or 89.4% of total liabilities. We offer a variety of deposit accounts with a range of interest rates and terms. Our deposit accounts consist of savings accounts, certificates of deposit, commercial and regular checking accounts, Super NOW accounts, and money market accounts. Historically, we have not accepted, and do not currently have, brokered deposits. We accept deposits primarily from the areas in which our offices are located. We rely on our competitive pricing and products, convenient locations and quality customer service to attract and retain deposits.
Interest rates paid, maturity terms, service fees, and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies, market interest rates, liquidity requirements, and our deposit growth goals.
During the year ended December 31, 2024, our deposits increased by $81.1 million, or 5.0%. The increase in deposits was primarily due to an increase of $173.7 million in certificates of deposit, which was partially offset by decreases of $63.6 million in passbook savings and $26.4 million in checking accounts during the year ended December 31, 2024. The increase in certificates of deposit included a $161.4 million increase in state and local government deposits. The decrease in savings and checking occurred primarily as customers transferred their funds to certificates of deposit, which had higher interest rates, or sought higher interest rates elsewhere.
At December 31, 2024, we had a total of $706.1 million in certificates of deposit, of which $685.8 million had remaining maturities of one year or less. We have the ability to attract and retain deposits by adjusting the interest rates offered.
The following table sets forth the distribution of our average total deposit accounts (including interest-bearing and non-interest-bearing deposits), by account type, for the years indicated.
For the Year Ended December 31,
Weighted
Weighted
Average
Average
Average
Average
Balance
Percent
Rate
Balance
Percent
Rate
(Dollars in thousands)
Deposit type:
Non-interest-bearing
$
72,910
4.5
%
-
%
$
75,331
4.5
%
-
%
Savings accounts
702,675
43.0
0.92
802,833
48.6
0.31
Certificates of deposit
581,930
35.6
4.28
479,566
29.0
3.53
Money market
2,508
0.2
0.12
4,627
0.3
0.11
Checking and Super NOW
273,581
16.7
0.02
290,636
17.6
0.02
Total deposits
$
1,633,604
100.0
%
2.01
%
$
1,652,993
100.0
%
1.23
%
The following table sets forth our estimate of uninsured deposits (in excess of the federal deposit insurance limit of $250,000) that is calculated on the same basis used for regulatory reporting. We have no deposits that are uninsured for any other reason.
At December 31,
(In thousands)
Uninsured non-maturity deposits:
$
158,159
$
168,463
Uninsured deposits with remaining maturities:
Three months or less
324,528
197,189
Over three months to six months
72,591
18,311
Over six months to twelve months
9,595
29,687
Over twelve months
8,280
5,794
414,994
250,981
Total uninsured deposits
$
573,153
$
419,444
As of December 31, 2024, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $250,000 was $445.0 million. As of December 31, 2024, certificates of deposit owned by state and local governments in amounts greater than or equal to $250,000 was $331.1 million, and was collateralized by investment securities with an amortized cost of $420.2 million. At December 31, 2024, deposits from the County of Hawaii totaled $171.2 million while deposits from the State of Hawaii totaled $161.6 million. The following table sets forth the maturity of certificates of deposit in amounts greater than or equal to $250,000 as of December 31, 2024.
At December 31, 2024
(In thousands)
Three months or less
$
338,501
Over three months through six months
87,179
Over six months through one year
12,002
Over one year to three years
7,341
Total
$
445,023
Borrowings. At December 31, 2024, our borrowings consisted of FHLB advances totaling $160.0 million, or 8.3% of total liabilities. At December 31, 2024, we had the capability to borrow up to $389.5 million and $114.4 million in the form of additional advances from the FHLB and FRB, respectively.
Stockholders’ Equity. At December 31, 2024, our stockholders’ equity was $248.4 million, a decrease of $2.7 million, or 1.1%, from $251.1 million at December 31, 2023. The decrease in stockholders’ equity occurred primarily due to the net loss incurred during the year.
Average Balances and Yields
The following table sets forth average balances, yields and rates, and certain other information for the years indicated. No tax-equivalent yield adjustments were made, as we did not hold any tax-free investments. 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 table. 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 of $247,000 and $190,000 for 2024 and 2023, respectively.
For the Year Ended December 31,
Average
Average
Outstanding
Outstanding
Balance
Interest
Yield/ Rate
Balance
Interest
Yield/ Rate
(Dollars in thousands)
Interest-earning assets:
Loans:
Real estate loans:
First mortgage:
One- to four-family residential (1)
$
1,261,643
$
46,910
3.72
%
$
1,263,674
$
45,149
3.57
%
Multi-family residential
5,478
4.65
5,720
4.79
Construction, commercial, and other
12,208
4.60
18,906
4.12
Home equity loans and lines of credit
10,950
6.46
6,976
6.81
Other loans
8,517
4.53
8,373
4.37
Total loans
1,298,796
48,820
3.76
1,303,649
47,043
3.61
Investment securities:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises (1)
686,189
16,857
2.46
726,166
17,918
2.47
Total securities
686,189
16,857
2.46
726,166
17,918
2.47
Other investments
123,053
6,628
5.39
83,038
4,127
4.97
Total interest-earning assets
2,108,038
72,305
3.43
2,112,853
69,088
3.27
Non-interest-earning assets
89,378
87,414
Total assets
$
2,197,416
$
2,200,267
Interest-bearing liabilities:
Savings accounts
$
702,675
6,436
0.92
%
$
802,833
2,469
0.31
%
Certificates of deposit
581,930
24,894
4.28
479,566
16,951
3.53
Money market accounts
2,508
0.12
4,627
0.11
Checking and Super NOW accounts
273,581
0.02
290,636
0.02
Total interest-bearing deposits
1,560,694
31,389
2.01
1,577,662
19,484
1.23
Federal Home Loan Bank advances
215,661
6,899
3.20
240,647
6,636
2.76
Federal Reserve Bank advances
45,492
2,173
4.78
3,123
4.93
Securities sold under agreements to repurchase
8,292
1.83
10,000
1.83
Total interest-bearing liabilities
1,830,139
40,613
2.22
1,831,432
26,457
1.44
Non-interest-bearing liabilities
116,160
116,224
Total liabilities
1,946,299
1,947,656
Stockholders’ equity
251,117
252,611
Total liabilities and stockholders’ equity
$
2,197,416
$
2,200,267
Net interest income
$
31,692
$
42,631
Net interest rate spread (2)
1.21
%
1.83
%
Net interest-earning assets (3)
$
277,899
$
281,421
Net interest margin (4)
1.50
%
2.02
%
Interest-earning assets to interest-bearing liabilities
115.18
%
115.37
%
(1) Average balance includes loans or investments held to maturity and available for sale, as applicable.
(2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average total interest-earning assets.
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our net interest income for the years indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments for 2024 or 2023.
Year Ended December 31,
2024 vs. 2023
Increase (Decrease)
Total
Due to
Increase
Volume
Rate
(Decrease)
(In thousands)
Interest-earning assets:
Loans:
Real estate loans:
First mortgage:
One- to four-family residential
$
(73)
$
1,834
$
1,761
Multi-family residential
(11)
(8)
(19)
Construction, commercial and other
(324)
(217)
Home equity loans and lines of credit
(24)
Other loans
Total loans
(145)
1,922
1,777
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises
(982)
(79)
(1,061)
Other investments
2,130
2,501
Total interest-earning assets
1,003
2,214
3,217
Interest-bearing liabilities:
Savings accounts
(267)
4,234
3,967
Certificates of deposit
4,001
3,942
7,943
Money market accounts
(4)
(2)
Checking and Super NOW accounts
(3)
-
(3)
Total interest-bearing deposits
3,727
8,178
11,905
Federal Home Loan Bank advances
(486)
Federal Reserve Bank advances
2,024
(5)
2,019
Securities sold under agreements to repurchase
(31)
-
(31)
Total interest-bearing liabilities
5,234
8,922
14,156
Change in net interest income
$
(4,231)
$
(6,708)
$
(10,939)
Comparison of Operating Results for the Years Ended December 31, 2024 and 2023
General. Net income decreased by $9.3 million, or 185.5%, to a net loss of $4.3 million for the year ended December 31, 2024 from net income of $5.0 million for the year ended December 31, 2023. The decrease in net income was primarily due to a $10.9 million decrease in net interest income and a $2.7 million increase in noninterest expense. These decreases to net income were partially offset by a $4.2 million decrease in income tax expense.
Net Interest Income. Net interest income decreased by $10.9 million, or 25.7%, to $31.7 million for the year ended December 31, 2024 from $42.6 million for the year ended December 31, 2023. Interest expense increased by $14.2 million, or 53.5%, to $40.6 million for the year ended December 31, 2024 from $26.5 million for the year ended
December 31, 2023. The increase in interest expense was primarily due to a 78 basis point increase in the cost of interest-bearing liabilities which was partially offset by a $1.3 million decrease in the average balance of interest-bearing liabilities. Interest income increased by $3.2 million, or 4.7%, to $72.3 million for the year ended December 31, 2024 from $69.1 million for the year ended December 31, 2023. The increase in interest income was primarily due to a 16 basis point increase in the yield on average interest-earning assets which was partially offset by a $4.8 million decrease in the average balance of interest-earning assets. Since the significant majority of our loan and securities portfolios have fixed interest rates, the average rates on these assets have not risen as quickly as the average rates on our interest-bearing liabilities during this period of rising market interest rates. The net interest rate spread and net interest margin were 1.21% and 1.50%, respectively, for the year ended December 31, 2024, compared to 1.83% and 2.02%, respectively, for the year ended December 31, 2023. The decrease in the net interest rate spread and the net interest margin are attributable to the 78 basis point increase in the cost of average interest-bearing liabilities, which was partially offset by the 16 basis point increase in the yield of average interest-earning assets.
Interest Income. Interest income increased by $3.2 million, or 4.7%, to $72.3 million for the year ended December 31, 2024 from $69.1 million for the year ended December 31, 2023. Interest income on other investments increased by $2.5 million, or 60.6%, to $6.6 million for the year ended December 31, 2024 from $4.1 million for the year ended December 31, 2023. The increase in interest income on other investments was primarily due to a $41.0 million increase in the average cash balance at the FRB. Interest income on loans increased by $1.8 million, or 3.8%, from $47.0 million for the year ended December 31, 2023 to $48.8 million for the year ended December 31, 2024. The increase in interest income on loans occurred because of a 15 basis point increase in the yield, which was partially offset by a $4.9 million decrease in the average balance of loans which occurred as loan repayments and loan sales exceeded new loan originations. These increases to interest income were partially offset by a decrease in interest income on investment securities by $1.1 million, or 5.9%, to $16.9 million for the year ended December 31, 2024 from $17.9 million for the year ended December 31, 2023. The decrease in interest income on securities occurred primarily because of a $40.0 million decrease in the average securities balance due to principal repayments.
Interest Expense. Interest expense increased by $14.2 million, or 53.5%, to $40.6 million for the year ended December 31, 2024 from $26.5 million for the year ended December 31, 2023. Interest expense on interest-bearing deposits increased by $11.9 million, or 61.1%, to $31.4 million for the year ended December 31, 2024 from $19.5 million for the year ended December 31, 2023. The increase in interest expense on interest-bearing deposits was primarily due to a $102.4 million, or 21.3%, increase in the average balance of certificates of deposit and a 75 basis point increase in the rate paid on certificates of deposit. Certificates of deposit included a $91.5 million increase in deposits from state and local governments. The increase in deposits from state and local governments was used primarily to pay off $82.0 million of maturing FHLB advances. The rate paid on certificates of deposit increased to 4.28% for the year ended December 31, 2024 from 3.53% for the year ended December 31, 2023 primarily due to increases in market interest rates. Interest expense on savings accounts increased by $4.0 million, or 160.7%, to $6.4 million for year ended December 31, 2024 from $2.5 million for the year ended December 31, 2023. The increase in interest expense on savings accounts occurred primarily because of a 61 basis point increase in the rate which was partially offset by a $100.2 million, or 12.5% decrease in the average balance of savings accounts. The changes in the average balance of savings accounts and certificates of deposit occurred primarily as customers transferred funds from savings accounts with relatively low interest rates to certificates of deposit with higher interest rates or withdrew their deposits and sought higher interest rates elsewhere. Interest expense on FRB advances rose by $2.0 million to $2.2 million for year ended December 31, 2024 from $154,000 for the year ended December 31, 2023. In December 2023, we obtained a $50.0 million advance from the FRB Bank Term Funding Program, which was paid off during the year ended December 31, 2024.
Provision for Loan Losses. Based on our analysis of the factors described in “- Allowance for Credit Losses,” we recorded a provision for credit losses of $73,000 and a reversal of provision for credit losses of $3,000 for the years ended December 31, 2024 and 2023, respectively. The provisions in 2024 was primarily due to an increase in provisions for the consumer loan portfolio, which was partially offset by decreases in provisions for the commercial and real estate portfolios. The increase in provisions for the consumer loan portfolio was primarily due to an increase in home equity loans and lines of credit. The decrease in provisions in the commercial loan portfolio was primarily due to an increase in forecasted prepayments, that was partially offset by an increase in forecasted charge-offs. The decrease in provisions in the real estate loan portfolio was primarily due to a decrease in the mortgage loan portfolio that was partially offset by a
decrease in the forecasted prepayments. The reversal of credit loss provisions in 2023 was primarily due to a decrease in our real estate portfolio’s forecasted charge-offs that was partially offset by a decrease in its forecasted prepayments. The provisions recorded resulted in ratios of the allowance for credit losses to total loans of 0.40% and 0.39% at December 31, 2024 and 2023, respectively. For the years ended December 31, 2024 and 2023, we had net charge-offs of $80,000 and $117,000, respectively. Nonaccrual loans totaled $1.9 million and $2.3 million at December 31, 2024 and 2023, respectively. We have provided for all losses that can be reasonably estimated at December 31, 2024 and 2023.
Noninterest Income. The following table summarizes changes in noninterest income for the years ended December 31, 2024 and 2023.
Year Ended December 31,
Change 2024/2023
$ Change
% Change
(Dollars in thousands)
Service and other fees
$
1,170
$
1,327
$
(157)
(11.8)
%
Income on bank-owned life insurance
1,007
17.8
%
Net gain on sale of loans
90.0
%
Other
48.7
%
Total
$
2,611
$
2,471
$
5.7
%
Noninterest income increased by $140,000, or 5.7%, to $2.6 million for the year ended December 31, 2024 from $2.5 million for the year ended December 31, 2023. The increase in bank-owned life insurance income was primarily due to higher market interest rates. The increase in other income in 2024 was primarily due to an increase in the return on assets in our defined benefit pension plan and a reduction in the interest cost on the benefit obligation. The decrease in service and other fees was primarily due to a decrease in broker fee income and appraisal fees.
Noninterest Expense. The following table summarizes changes in noninterest expense for the years ended December 31, 2024 and 2023.
Year Ended December 31,
Change 2024/2023
$ Change
% Change
(Dollars in thousands)
Salaries and employee benefits
$
19,787
$
20,832
$
(1,045)
(5.0)
%
Occupancy
6,858
6,910
(52)
(0.8)
%
Equipment
5,307
5,156
2.9
%
Federal deposit insurance premiums
1,667
69.8
%
Other general and administrative expenses
7,325
4,388
2,937
66.9
%
Total
$
40,944
$
38,268
$
2,676
7.0
%
Noninterest expense increased by $2.7 million, or 7.0%, to $40.9 million for the year ended December 31, 2024 from $38.3 million for the year ended December 31, 2023. Other general and administrative expenses increased primarily due to $2.8 million of merger-related legal and other professional fees. The increase in federal deposit insurance premiums was primarily due to an increase in the Federal Deposit Insurance Corporation (FDIC) premium rate. The decrease in salaries and employee benefits was primarily due to a decrease in compensation, loan agent commissions, employee stock option program expenses, retirement plan expense, health insurance, and payroll taxes which was partially offset by a decrease in deferred salary expenses for originating new loans and stock benefit plan expenses.
Income Tax (Benefit) Expense. The income tax benefit for 2024 was $2.4 million with an effective tax rate of (36.0%) compared to income tax expense of $1.8 million with an effective tax rate of 26.5%. The decrease in income tax expense was due to a $13.6 million decrease in income before income taxes.
Nonperforming and Problem Assets
When a residential mortgage loan or home equity line of credit is 15 days past due, we attempt personal, direct contact with the borrower to determine when payment will be made. On the first day of the following month, we mail a letter reminding the borrower of the delinquency, and will send an additional letter when a loan is 60 days or more past due. If necessary, subsequent late notices are issued and the account will be monitored on a regular basis thereafter. By the 121st day of delinquency, unless the borrower has made arrangements to bring the loan current, we will refer the loan to legal counsel to commence foreclosure proceedings.
Commercial business loans, commercial real estate loans, and consumer loans are generally handled in the same manner as residential mortgage loans or home equity lines of credit. All commercial business loans that are 15 days past due are immediately referred to our senior lending officer. In addition, we generate past due notices and attempt direct contact with a borrower when a consumer loan is 10 days past due. Because consumer loans are generally unsecured, we may commence collection procedures earlier for consumer loans than for residential mortgage loans or home equity lines of credit.
Loans are generally placed on nonaccrual status when payment of principal or interest is more than 90 days contractually delinquent or when, in the opinion of management, collection of principal or interest in full appears doubtful. When loans are placed on a nonaccrual status, unpaid accrued interest is fully reversed. The interest payments received on nonaccrual loans are recorded as a reduction of principal. The loan may be returned to accrual status if both principal and interest payments are brought current and full payment of principal and interest is expected.
Nonperforming Assets. The table below sets forth the amounts and categories of our nonperforming assets (loans and real estate owned) at the dates indicated.
At December 31,
(Dollars in thousands)
Nonaccrual loans:
Real estate loans:
First mortgage:
One- to four-family residential
$
1,771
$
2,079
Home equity loans and lines of credit
Other loans
Total nonaccrual loans
1,933
2,260
Real estate owned:
-
-
Total nonperforming assets
1,933
2,260
Loans delinquent 90 days or greater and still accruing interest
-
-
Modified loans still accruing interest:
Real estate loans:
First mortgage:
One- to four-family residential
Total modified loans still accruing interest
Total nonperforming assets, accruing loans delinquent for 90 days or more and modified loans still accruing interest
$
2,438
$
2,957
Ratios:
Nonperforming loans to total loans
0.15
%
0.17
%
Nonperforming assets to total assets
0.09
%
0.10
%
We had three one- to four family residential loans totaling $593,000 that were modified as of December 31, 2024. Two of the loans, totaling $505,000, were performing in accordance with their modified terms and accruing
interest at December 31, 2024. One loan for $87,000 was performing in accordance with its modified terms but not accruing interest at December 31, 2024. We had five one- to four family residential mortgage loans totaling $860,000 that were modified as of December 31, 2023. Four of the loans, totaling $758,000, were performing in accordance with their modified terms and accruing interest at December 31, 2023. One of the loans, for $102,000, was 59 days past due and not accruing interest at December 31, 2023. Our loan modifications include extending loan terms, adjustment to the loan’s interest rate, and loan payment deferrals.
Delinquent Loans. The following table sets forth our loan delinquencies by type and by amount at the dates indicated. Loans with a formal loan payment deferral plan in place are not considered contractually past due or delinquent if the borrower is in compliance with the loan payment deferral plan.
Loans Delinquent For
60-89 Days
90 Days or Over
Total
Number
Amount
Number
Amount
Number
Amount
(Dollars in thousands)
At December 31, 2024
Real estate loans:
First mortgage:
One- to four-family residential
-
$
-
$
1,219
$
1,219
Other loans
-
-
Total loans
$
$
1,219
$
1,220
At December 31, 2023
Real estate loans:
First mortgage:
One- to four-family residential
-
$
-
$
$
Other loans
-
-
-
Total loans
$
-
$
$
Real Estate Owned. Real estate acquired by us as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned. When property is acquired it is recorded at estimated fair value at the date of foreclosure less the cost to sell, establishing a new cost basis. Estimated fair value generally represents the price a buyer would be willing to pay on the basis of current market conditions, including normal terms from other financial institutions. Holding costs and declines in estimated fair value result in charges to expense after acquisition. At December 31, 2024 and 2023, we had no real estate owned.
Classification of Assets. Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets as substandard, doubtful, or loss. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or the fair value of collateral pledged, if any. Substandard assets include those assets characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets (or portions of assets) classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted.
We maintain an allowance for credit losses using an estimate of future losses over the expected life of our financial instruments at a balance sheet date. Our determination as to the classification of our assets and the amount of our allowance for credit losses is subject to review by bank regulators, who can require that we establish additional allowances. We regularly review our asset portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of our review of our assets at December 31, 2024, we had substandard assets of $2.2 million and no loss or doubtful assets. Substandard assets at December 31, 2024 included $1.8 million of nonperforming loans and $377,000 of modified loans. At December 31, 2023, we had substandard assets of $2.7 million and no loss or doubtful assets. Substandard assets at December 31, 2023 included $2.2 million of nonperforming loans
and $577,000 of modified loans. We generally classify any loan that is delinquent 90 days or more as substandard. Loans which have been delinquent for fewer days may also be classified as substandard.
In addition to classifying assets as substandard, doubtful or loss, we also categorize assets as special mention. A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. We designate loans that are 30 to 89 days delinquent as special mention. Loans which have been delinquent for fewer days may also be categorized as special mention. At December 31, 2024 and 2023, special mention assets were $1.0 million and $327,000, respectively.
Allocation of Allowance for Credit Losses. The following table sets forth the allowance for credit losses allocated by loan category and the percent of loans in each category to total loans at the dates indicated. The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category. The allowance for credit losses for each category is affected by the national and Hawaii economies as well as other factors. The allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
At December 31,
Percent of
Percent of
Loans in Each
Loans in Each
Allowance for
Category to
Allowance for
Category to
Credit Losses
Total Loans
Credit Losses
Total Loans
(Dollars in thousands)
Real estate loans:
First mortgage:
One- to four-family residential
$
4,369
96.87
%
$
4,448
97.48
%
Multi-family residential
0.40
0.45
Construction, commercial and other
0.90
0.89
Home equity loans and lines of credit
1.15
0.54
Other loans
0.68
0.64
Total
$
5,114
100.00
%
$
5,121
100.00
%
The following table sets forth additional information regarding the allowance for credit losses and net charge-offs by category:
At or For the Year Ended December 31,
Allowance for credit losses to total loans at end of year
0.40
%
0.39
%
Nonaccrual assets to total loans at end of year
0.15
%
0.17
%
Allowance for credit losses to nonaccrual loans at end of year
264.56
%
226.59
%
Net charge-offs to average loans outstanding:
Real Estate
-
%
-
%
Commercial
-
%
-
%
Consumer
0.22
%
0.87
%
Management of 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.
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 securities repayments, advances from the Federal Home Loan Bank and the Federal Reserve Bank, 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, as occurred in 2023.
We continue our efforts to reduce interest rate risk. In 2024 and 2023, we sold fixed-rate mortgage loans with principal balances of $877,000 and $827,000, respectively. In 2024, FHLB and FRB advances decreased by $82.0 million and $50.0 million, respectively. In 2024 we paid off $10.0 million of our remaining funds borrowed under securities sold under agreements to repurchase. In addition, we may utilize the following strategies to further reduce our interest rate risk:
● Continuing our efforts to increase our core checking and savings accounts, which are less rate-sensitive than certificates of deposit and which provide us with a stable, low-cost source of funds;
● Continuing to repay short-term borrowings;
● Maintaining overnight cash balances at the Federal Reserve Bank or a portfolio of short-term investments;
● Purchasing mortgage-backed securities with shorter durations;
● Selling a portion of the fixed-rate mortgage loans we originate to Freddie Mac or Fannie Mae;
● Extending the maturity of our liabilities by obtaining longer-term fixed-rate public deposits, and FHLB advances;
● Subject to the maintenance of our credit quality standards, originating commercial loans and home equity lines of credit, which have adjustable interest rates and shorter average lives than first mortgage loans; and
● Maintaining relatively high regulatory capital ratios.
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 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.
The following table presents our internal calculations of the estimated changes in our EVE as of December 31, 2024 that would result from the designated instantaneous changes in the interest rate yield curve.
Increase
(Decrease) in
Estimated
EVE Ratio as a
EVE Ratio as a
Change in
Increase
Percent of
Percent of
Interest Rates
Estimated EVE
(Decrease) in
Percentage
Present Value
Present Value of
(bp) (1)
(2)
EVE
Change in EVE
of Assets (3)(4)
Assets (3)(4)
(Dollars in thousands)
+400
$
(67,397)
$
(199,011)
(151.21)
%
(4.60)
%
(11.83)
%
+300
$
(23,087)
$
(154,701)
(117.54)
%
(1.50)
%
(8.73)
%
+200
$
25,796
$
(105,818)
(80.40)
%
1.58
%
(5.65)
%
+100
$
78,765
$
(52,849)
(40.15)
%
4.57
%
(2.66)
%
$
131,614
$
-
-
%
7.23
%
-
%
$
187,146
$
55,532
42.19
%
9.72
%
2.49
%
$
235,706
$
104,092
79.09
%
11.61
%
4.38
%
$
275,715
$
144,101
109.49
%
12.93
%
5.70
%
$
283,670
$
152,056
115.53
%
12.84
%
5.61
%
(1) Assumes an instantaneous uniform change in interest rates at all maturities.
(2) EVE is the difference between the present value of an institution’s assets and liabilities.
(3) Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.
(4) EVE Ratio represents EVE divided by the present value of assets.
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.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations. Our primary obligations include meeting the borrowing needs of our customers, fulfilling deposit withdrawals, interest payments on deposits, and repayment of borrowings. Territorial Savings Bank’s primary sources of funds consist of deposit inflows, cash balances at the FRB, loan and security repayments, advances from the FHLB and FRB, 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 Executive Vice President and Chief Financial Officer, our Executive Vice President of Finance, and our Vice President and Senior Treasury Analyst, 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 December 31, 2024.
We regularly monitor and adjust our investments in liquid assets based upon our assessment of:
(i) expected loan demand;
(ii) purchases and sales of investment securities;
(iii) expected deposit flows and borrowing maturities;
(iv) yields available on interest-earning deposits and securities; and
(v) the objectives of our asset/liability management program.
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 December 31, 2024, our cash and cash equivalents totaled $123.5 million. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank (FHLB) and the FRB, which provide an additional source of funds. At December 31, 2024, we had the ability to borrow up to an additional $389.5 million and $114.4 million from the FHLB and FRB, respectively. In addition, we had the ability to borrow up to $80.2 million, using our unpledged securities as collateral, from the FRB.
We measure our liquidity by calculating the ratio of cash and cash equivalents plus the market value of unpledged investment securities to total assets. We maintain a minimum liquidity ratio of 10%. Our monitoring of liquidity includes stress testing which is designed to determine that our liquidity is sufficient.
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 December 31, 2024, we had $1.2 million in loan commitments outstanding for fixed-rate loans and had $17.1 million in unused lines of credit to borrowers. Certificates of deposit due within one year of December 31, 2024 totaled $685.9 million, or 39.9% 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, and FHLB and FRB 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 December 31, 2024. 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 years ended December 31, 2024 and 2023, we originated $74.9 million and $100.8 million of loans, respectively. In 2023, we purchased securities with a total face value of $6.8 million. We did not purchase any securities in 2024.
Financing activities consist primarily of activity in deposit accounts, FHLB advances, FRB advances, stock repurchases and dividend payments. We experienced a net increase in deposits of $81.1 million during 2024 and a net decrease in deposits of $79.5 million during 2023. The $81.1 million increase in deposits during 2024 included a $91.5 million increase in the deposits of state and local governments. 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. FHLB borrowings decreased $82.0 million to $160.0 million at December 31, 2024 from $242.0 million at December 31, 2023. The $82.0 million decrease in FHLB advances occurred as we paid off maturing advances. FRB borrowings were $50.0 million at December 31, 2023. We had no FRB borrowings at December 31, 2024. The $50.0 million decrease in FRB advances occurred as we used our excess liquidity to pay off advances which were scheduled to mature in January 2025.
As a separate legal entity, the Company is required to have liquidity to fund stock repurchases and dividend payments to shareholders and for other corporate purposes. Shares repurchased reduce the amount of shares issued and outstanding. The repurchased shares may be reissued in connection with share-based compensation plans and for general corporate purposes. The Company did not repurchase any shares in 2024 as part of a repurchase program authorized by the Board of Directors. In 2023, the Company repurchased 250,882 shares of common stock with an average cost of $16.05 as part of the repurchase programs authorized by the Board of Directors. At December 31, 2024 and 2023, on a stand-alone basis, the Company had cash in banks of $14.8 million and $18.5 million, respectively.
Territorial Savings Bank and the Company are 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. At December 31, 2024, Territorial Savings Bank and the Company exceeded all regulatory capital requirements and are
considered to be “well capitalized” under regulatory guidelines. See Note 23 of the Notes to Consolidated Financial Statements.
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. We sell loans under agreements that contain representations and warranties related to, among other things, the origination and characteristics of the mortgage loans. We may be required to repurchase mortgage loans that we have sold in cases of breaches of these representations and warranties. For additional information, see Note 22 of the Notes to Consolidated Financial Statements.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 2(x) of the Notes to Consolidated Financial Statements.
Impact of Inflation and Changing Prices
Our Consolidated Financial Statements and related notes have been prepared in accordance with U.S. GAAP. U.S. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration of changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.
ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk
Information required by this item is included in “ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” above.
ITEM 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Territorial Bancorp, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Territorial Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting in accordance with the standards of the PCAOB. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses - Real Estate Segment
As described in Notes 2 and 7 to the consolidated financial statements, the Company’s allowance for credit losses on loans was $5.1 million at December 31, 2024. The allowance for credit losses on loans, which is an estimate of expected credit losses over the life of a loan, is developed using internal and external data based on past events, current conditions, and reasonable and supportable forecasts. The allowance is a valuation account that is deducted from the loans’
amortized cost basis to present the net amount expected to be collected by the Company. The Company employs a discounted cash flow methodology in calculating the allowance, which involves the application of several assumptions in the development of the allowance for credit losses on loans. For the real estate segment, we identified the prepayment rate assumption and the historical period used in determining the loss rate on reversion as a critical audit matter.
Our principal consideration in determining that the assumptions used in the calculation of the allowance for credit losses on loans is a critical audit matter was the subjectivity of the judgements by management in setting the prepayment rate assumption and the historical period used in determining the loss rate on reversion. Auditing management’s judgments regarding the selection of these assumptions involved a high degree of subjectivity due to the nature and extent of audit evidence obtained to address this matter.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. Our audit procedures related to the critical audit matter included the following, among others:
● Evaluating the appropriateness of the prepayment assumption applied in the allowance calculation related to the real estate segment.
● Evaluating the appropriateness of the historical period used in determining the loss rate on reversion applied in the allowance calculation related to the real estate segment.
● Testing the mathematical accuracy and computation of the allowance for credit losses for the real estate segment by independently calculating significant elements of the allowance.
/s/ Moss Adams LLP
Portland, Oregon
March 31, 2025
We have served as the Company’s auditor since 2015.
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2024 and 2023
(Dollars in thousands, except share data)
December 31,
December 31,
ASSETS
Cash and cash equivalents
$
123,523
$
126,659
Investment securities available for sale, at fair value (amortized cost of $21,494 and $22,563 at December 31, 2024 and 2023, respectively)
18,492
20,171
Investment securities held to maturity, at amortized cost (fair value of $513,499 and $568,128 at December 31, 2024 and 2023, respectively)
645,669
685,728
Loans receivable
1,286,662
1,308,552
Allowance for credit losses
(5,114)
(5,121)
Loans receivable, net of allowance for credit losses
1,281,548
1,303,431
Federal Home Loan Bank stock, at cost
8,542
12,192
Federal Reserve Bank stock, at cost
3,189
3,180
Accrued interest receivable
5,800
6,105
Premises and equipment, net
7,278
7,185
Right-of-use asset, net
12,523
12,371
Bank-owned life insurance
49,645
48,638
Income taxes receivable
2,082
Deferred income tax assets, net
1,877
2,457
Prepaid expenses and other assets
9,547
8,211
Total assets
$
2,169,715
$
2,236,672
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits
$
1,717,663
$
1,636,604
Advances from the Federal Home Loan Bank
160,000
242,000
Advances from the Federal Reserve Bank
-
50,000
Securities sold under agreements to repurchase
-
10,000
Accounts payable and accrued expenses
19,403
23,334
Lease liability
17,967
17,297
Advance payments by borrowers for taxes and insurance
6,331
6,351
Total liabilities
1,921,364
1,985,586
Commitments and contingencies: (Note 22 & 24)
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 8,832,210 and 8,826,613 shares at December 31, 2024 and 2023, respectively
Additional paid-in capital
48,367
48,022
Unearned ESOP shares
(1,957)
(2,447)
Retained earnings
206,693
211,644
Accumulated other comprehensive loss
(4,840)
(6,221)
Total stockholders’ equity
248,351
251,086
Total liabilities and stockholders’ equity
$
2,169,715
$
2,236,672
See accompanying Notes to Consolidated Financial Statements.
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 2024 and 2023
(Dollars in thousands, except per share data)
Interest income:
Loans
$
48,820
$
47,043
Investment securities
16,857
17,918
Other investments
6,628
4,127
Total interest income
72,305
69,088
Interest expense:
Deposits
31,389
19,484
Advances from the Federal Home Loan Bank
6,899
6,636
Advances from the Federal Reserve Bank
2,173
Securities sold under agreements to repurchase
Total interest expense
40,613
26,457
Net interest income
31,692
42,631
Provision (reversal of provision) for credit losses
(3)
Net interest income after provision (reversal of provision) for credit losses
31,619
42,634
Noninterest income:
Service and other fees
1,170
1,327
Income on bank-owned life insurance
1,007
Net gain on sale of loans
Other
Total noninterest income
2,611
2,471
Noninterest expense:
Salaries and employee benefits
19,787
20,832
Occupancy
6,858
6,910
Equipment
5,307
5,156
Federal deposit insurance premiums
1,667
Other general and administrative expenses
7,325
4,388
Total noninterest expense
40,944
38,268
(Loss) income before income taxes
(6,714)
6,837
Income tax (benefit) expense
(2,415)
1,810
Net (loss) income
$
(4,299)
$
5,027
Basic (loss) earnings per share
$
(0.50)
$
0.58
Diluted (loss) earnings per share
$
(0.50)
$
0.57
Cash dividends declared per common share
$
0.08
$
0.74
Basic weighted-average shares outstanding
8,610,706
8,636,495
Diluted weighted-average shares outstanding
8,610,706
8,684,092
See accompanying Notes to Consolidated Financial Statements.
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive (Loss) Income
For the years ended December 31, 2024 and 2023
(Dollars in thousands)
Net (loss) income
$
(4,299)
$
5,027
Other comprehensive income (loss), net of tax:
Unfunded pension liability
1,828
1,280
Unrealized (loss) gain on securities
(447)
Total other comprehensive income, net of tax
1,381
1,523
Comprehensive (loss) income
$
(2,918)
$
6,550
See accompanying Notes to Consolidated Financial Statements.
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
For the years ended December 31, 2024 and 2023
(Dollars in thousands, except share data)
Accumulated
Common
Additional
Unearned
Other
Total
Shares
Common
Paid-in
ESOP
Retained
Comprehensive
Stockholders’
Outstanding
Stock
Capital
Shares
Earnings
Loss
Equity
Balances at December 31, 2022
9,071,076
$
$
51,825
$
(2,936)
$
215,314
$
(7,744)
$
256,550
Net income
-
-
-
-
5,027
-
5,027
Other comprehensive income
-
-
-
-
-
1,523
1,523
Cumulative change in accounting principle (1)
-
-
-
-
(2,319)
-
(2,319)
Cash dividends declared ($.74 per share)
-
-
-
-
(6,378)
-
(6,378)
Share-based compensation
12,729
-
-
-
-
Allocation of 48,933 ESOP shares
-
-
-
-
Repurchase of shares of common stock
(257,192)
(3)
(4,183)
-
-
-
(4,186)
Balances at December 31, 2023
8,826,613
$
$
48,022
$
(2,447)
$
211,644
$
(6,221)
$
251,086
Net loss
-
-
-
-
(4,299)
-
(4,299)
Other comprehensive income
-
-
-
-
-
1,381
1,381
Cash dividends declared ($.08 per share)
-
-
-
-
(652)
-
(652)
Share-based compensation
12,178
-
-
-
-
Allocation of 48,933 ESOP shares
-
-
(32)
-
-
Repurchase of shares of common stock
(6,556)
-
(51)
-
-
-
(51)
Cancelled shares
(25)
-
-
-
-
-
-
Balances at December 31, 2024
8,832,210
$
$
48,367
$
(1,957)
$
206,693
$
(4,840)
$
248,351
(1) Represents the impact of the adoption of Accounting Standard Update 2016-13. See Note 7 to the consolidated financial statements for additional information.
See accompanying Notes to Consolidated Financial Statements.
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2024 and 2023
(Dollars in thousands)
Year Ended
December 31,
Cash flows from operating activities:
Net (loss) income
$
(4,299)
$
5,027
Adjustments to reconcile net (loss) income to net cash (used in) from operating activities:
Provision (reversal of provision) for credit losses
(3)
Depreciation and amortization
1,093
Deferred income tax expense (benefit)
(525)
Accretion of fees, discounts, and premiums, net
(399)
(367)
Amortization of right-of-use asset
3,437
2,820
Origination of loans held for sale
(861)
(813)
Proceeds from sales of loans held for sale
Gain on sale of loans, net
(19)
(10)
Net loss on disposal of premises and equipment
ESOP expense
Share-based compensation expense
Net decrease (increase) in accrued interest receivable
(34)
Income on bank-owned life insurance
(1,007)
(855)
Net increase in prepaid expenses and other assets
(1,337)
(1,537)
Net (decrease) increase in accounts payable and accrued expenses
(1,440)
Net (decrease) increase in lease liability
(2,919)
1,309
Net (decrease) increase in advance payments by borrowers for taxes and insurance
(20)
Net decrease in income taxes payable
(1,738)
(1,182)
Net cash (used in) from operating activities
(7,483)
8,257
Cash flows from investing activities:
Purchases of investment securities held to maturity
-
(6,693)
Principal repayments on investment securities held to maturity
40,153
38,859
Principal repayments on investment securities available for sale
1,127
1,038
Principal repayments on loans receivable, net of loan originations
22,119
(11,640)
Purchases of Federal Home Loan Bank stock
(40)
(5,887)
Proceeds from redemption of Federal Home Loan Bank stock
3,690
1,892
Purchases of Federal Reserve Bank stock
(9)
(11)
Proceeds from redemption of Federal Reserve Bank stock
-
Purchases of premises and equipment
(1,049)
(685)
Net cash from investing activities
65,991
16,874
(Continued)
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2024 and 2023
(Dollars in thousands)
Year Ended
December 31,
Cash flows from financing activities:
Net increase (decrease) in deposits
$
81,059
$
(79,548)
Proceeds from advances from the Federal Home Loan Bank
-
146,000
Repayments of advances from the Federal Home Loan Bank
(82,000)
(45,000)
Proceeds from advances from the Federal Reserve Bank
100,000
90,020
Repayments of advances from the Federal Reserve Bank
(150,000)
(40,020)
Repayments of securities sold under agreements to repurchase
(10,000)
-
Purchase of Fed Funds
-
Sale of Fed Funds
-
(20)
Repurchases of common stock
-
(4,065)
Cash dividends paid
(703)
(6,412)
Net cash (used in) from financing activities
(61,644)
60,975
Net change in cash and cash equivalents
(3,136)
86,106
Cash and cash equivalents at beginning of the period
126,659
40,553
Cash and cash equivalents at end of the period
$
123,523
$
126,659
Supplemental disclosure of cash flow information:
Cash paid for:
Interest on deposits and borrowings
$
40,817
$
25,975
Income taxes
3,516
Supplemental disclosure of noncash investing and financing activities:
Company stock repurchased through stock swap and net settlement transactions
$
$
Establishment of right-of-use asset, net of incentives and modifications
3,589
Establishment of lease liability, net of modifications
3,589
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
(1)Organization
Territorial Bancorp Inc. is a Maryland corporation and is the holding company for Territorial Savings Bank. Territorial Savings Bank is a Hawaii state-chartered bank headquartered in Honolulu, Hawaii and is a member of the Federal Reserve System. Territorial Savings Bank had one subsidiary, Territorial Financial Services, Inc., that was dissolved during 2024.
(2)Summary of Significant Accounting Policies
(a) Description of Business
Territorial Bancorp Inc. (the Company), through its wholly-owned subsidiary, Territorial Savings Bank (the Bank), provides loan and deposit products and services primarily to individual customers through 28 branches located throughout Hawaii. We deal primarily in residential mortgage loans in the State of Hawaii. The Company’s earnings depend primarily on its net interest income, which is the difference between the interest income earned on interest-earning assets (loans receivable and investments) and the interest expense incurred on interest-bearing liabilities (deposit liabilities and borrowings). Deposits traditionally have been the principal source of the Bank’s funds for use in lending, meeting liquidity requirements, and making investments. The Company also derives funds from receipt of interest and principal repayments on outstanding loans receivable and investments, borrowings from the Federal Home Loan Bank (FHLB), Federal Reserve Bank (FRB), and proceeds from issuance of common stock.
(b) Principles of Consolidation
The Consolidated Financial Statements include the accounts and results of operations of Territorial Bancorp Inc. and Territorial Savings Bank, its wholly-owned subsidiary. Significant intercompany balances and transactions have been eliminated in consolidation.
(c) Cash and Cash Equivalents
Cash and cash equivalents includes cash and due from banks, interest-bearing deposits in other banks, federal funds sold, and short-term, highly liquid investments with original maturities of three months or less.
(d) Investment Securities
The Company classifies and accounts for its investment securities as follows: (1) held-to-maturity debt securities in which the Company has the positive intent and ability to hold to maturity are reported at amortized cost; (2) trading securities that are purchased for the purpose of selling in the near term are reported at fair value, with unrealized gains and losses included in current earnings; and (3) available-for-sale securities not classified as either held-to-maturity or trading securities are reported at fair value, with unrealized gains and losses excluded from current earnings and reported as a separate component of equity. At December 31, 2024 and 2023, the Company had $18.5 million and $20.2 million, respectively, of securities classified as available-for-sale and the remaining securities were classified as held-to-maturity.
Gains or losses on the sale of investment securities are computed using the specific-identification method. The Company amortizes premiums and accretes discounts associated with investment securities using the interest method over the contractual life of the respective investment security. Such amortization and accretion is included in the interest income line item in the Consolidated Statements of Operations. Interest income is recognized when earned.
(e) Loans Receivable
This policy applies to all loan classes. Loans receivable are stated at the principal amount outstanding, less the allowance for credit losses, loan origination fees and costs, and commitment fees. Interest on loans receivable is accrued as earned. The Company has a policy of placing loans on a nonaccrual basis when 90 days or more contractually delinquent or when, in the opinion of management, collection of all or part of the principal balance appears doubtful. For nonaccrual loans, the Company records payments received as a reduction in principal. The Company, considering current information and events regarding the borrowers’ ability to repay their obligations, considers a loan to be individually evaluated when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be individually evaluated, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, if the loan is considered to be collateral dependent, based on the fair value of the collateral less estimated costs to sell. Impairment losses are written off against the allowance for credit losses. For nonaccrual loans, the Company records payments received as a reduction in principal. A nonaccrual loan may be restored to an accrual basis when principal and interest payments are current and full payment of principal and interest is expected.
(f) Loans Held for Sale
Loans held for sale are stated at the lower of aggregate cost or market value. Net fees and costs of originating loans held for sale are deferred and are included in the basis for determining the gain or loss on sales of loans held for sale.
(g) Deferred Loan Origination Fees and Unearned Loan Discounts
Loan origination and commitment fees and certain direct loan origination costs are being deferred, and the net amount is recognized over the life of the related loan as an adjustment to yield. Net deferred loan fees are amortized using the interest method over the contractual term of the loan, adjusted for actual prepayments. Net unamortized fees on loans paid in full are recognized as a component of interest income.
(h) Real Estate Owned
Real estate owned is valued at the time of foreclosure at fair value, less estimated cost to sell, thereby establishing a new cost basis. The Company obtains appraisals based on recent comparable sales to assist management in estimating the fair value of real estate owned. Subsequent to acquisition, real estate owned is valued at the lower of cost or fair value, less estimated cost to sell. Declines in value are charged to expense through a direct write-down of the asset. Costs related to holding real estate are charged to expense while costs related to development and improvements are capitalized. Net gains or losses recognized on the sale of real estate owned are included in other general and administrative expenses.
(i) Allowance for Credit Losses (ACL) on Loans and Securities
The current expected credit losses (CECL) accounting standard requires an estimate of the credit losses expected over the life of the financial instrument. CECL replaces the incurred loss approach that delayed the recognition of a credit loss until it was probable that a loss event occurred. The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the ACL during the period when management deems the loan to be uncollectible and all interest previously accrued but not collected is reversed against the current period ACL.
The estimate of expected credit losses is based on information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of financial instruments. Historical loss experience is generally the starting point for estimating expected credit losses. The Company considers whether the historical loss experience should be adjusted for asset specific risk characteristics or current conditions at the reporting date that did not exist over the historical reporting period. These qualitative
adjustments can include changes in the economy, loan underwriting standards, and delinquency trends. The Company then considers future economic conditions as part of the one year reasonable and supportable forecast period.
Our loan portfolio is segmented into three pools for estimating our allowance for credit losses on loans: real estate, commercial, and consumer loans. They were established upon the adoption of ASU 2016-13. Only three pools are used to segment our loan portfolio because loans within the pools share similar risk characteristics and were originated using similar underwriting standards. Loans that do not share similar risk characteristics would be evaluated on an individual basis and excluded from the collective evaluation. Historically, we have disclosed information about our loans and allowance based on class of financing receivable. The portfolio segments align with the class of financing receivables as follows:
● Real estate: One- to four-family residential, multi-family residential, and commercial mortgage
● Commercial: Commercial loans other than mortgage loans
● Consumer: Home equity loans, loans on deposit accounts, and all other consumer loans
Collateral dependent loans are not considered to share the same risk characteristics with the three pools discussed above. A loan is considered to be collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For loans which are considered to be collateral dependent, the Company has elected to estimate the expected credit loss based on the fair value of the collateral less selling costs. If the fair value of the collateral less selling costs is less than the loan’s amortized cost basis, the Company records a partial charge-off to reduce the loan’s amortized cost basis for the difference between the collateral fair value less selling costs and the amortized cost basis.
The ACL on loans and accrued interest is calculated on a loan by loan basis. If the loan’s amortized cost basis is less than the total present value of cash flows calculated using a discounted cash flow approach, the ACL is equal to the amortized cost basis minus the total present value of cash flows on the loan discounted by the loan’s effective interest rate. The expected cash flows include estimates of loan charge-offs, recoveries, and prepayments. Economic variables which have a strong correlation with our historical loan charge-offs, recoveries, and prepayments are utilized in forecasting loan charge-offs, recoveries, and prepayments during the one year reasonable and supportable forecast period. After the reasonable and supportable forecast period, the historical reversion rate is used to calculate loan charge-offs, recoveries, and prepayments for the remaining expected life of the loan. The reversion rate is based on historical averages and applied on a straight-line basis. Qualitative adjustments may be made to account for current conditions and forward looking events not captured in the quantitative calculation. The forecast and reversion rate utilize historical behavior during select periods of time. Our Real Estate and Consumer loan pools utilize a vintage approach where historical losses, recoveries, and prepayment experience is determined using loans that have originated in the same period. Our Commercial loans utilize a reporting period approach where historical losses, recoveries, and prepayment experience is considered during a selected historical period of time. Off-balance sheet forecasts utilize a reporting period approach.
Loans receivable are stated at amortized cost which includes the principal amount outstanding, less the allowance for credit losses, deferred loan origination fees and costs, commitment fees, and cumulative net charge-offs. Interest income on loans receivable is accrued as earned. Accrued interest receivable on loans was $4.4 million as of December 31, 2024, and is included in accrued interest receivable on the Consolidated Balance Sheet.
The Company determines delinquency status by considering the number of days full payments required by the contractual terms of the loan are past due. The Company has a policy of placing loans on a nonaccrual basis when 90 days or more contractually delinquent or when, in the opinion of management, collection of all or part of the principal balance appears doubtful, unless the loans are well secured and in the process of collection. When a loan is placed on nonaccrual status, all interest previously accrued and not collected is reversed against current period provision for credit losses. For nonaccrual loans, the Company records
payments received as a reduction in principal. A nonaccrual loan may be restored to an accrual basis when principal and interest payments are current and full payment of principal and interest is expected.
The Company’s off-balance sheet credit exposures are comprised of unfunded portions of existing loans, such as lines of credit and construction loans, and commitments to originate loans that are not conditionally cancellable by the Company. Under the CECL accounting standard, expected credit losses on these amounts are calculated using a forecasted estimate of the likelihood that funding of the unfunded amount/commitment will occur and the historical reversion rate. Changes to the reserve for off-balance sheet credit exposures are recorded through increases or decreases to the provision for credit losses on the Consolidated Statements of Operations. There was $800 in reserves for off-balance sheet credit exposures at December 31, 2024. There were no reserves for off-balance sheet credit exposures at December 31, 2023.
While management utilizes its best judgment and information available, the adequacy of the ACL and the reserve for off-balance sheet credit exposures is determined by certain factors outside of the Company's control, such as the performance of our portfolios, changes in the economic environment including economic uncertainty, changes in interest rates and loan prepayments, and the view of the regulatory authorities toward classification of assets and the level of ACL and the reserve for off-balance sheet credit exposures. Additionally, the level of ACL and the reserve for off-balance sheet credit exposures may fluctuate based on the balance and mix of the loan portfolio, changes in loan prepayments and off-balance sheet credit exposures, changes in charge-off rates, and changes in forecasted economic conditions. If actual results differ significantly from our assumptions, our ACL and the reserve for off-balance sheet credit exposures may not be sufficient to cover inherent losses in our loan portfolio, resulting in additions to our ACL and an increase in the provision for credit losses.
The Company is required to utilize the CECL methodology to estimate expected credit losses with respect to held-to-maturity (HTM) investment securities. Since all of the Company’s HTM investment securities were issued by U.S. government agencies or U.S. government-sponsored enterprises, which include the explicit and/or implicit guarantee of the U.S. government and have a long history of no credit losses, the Company has not recorded a credit loss on these securities. The unrealized losses on these securities were due to changes in interest rates, relative to when the securities were purchased, and are not due to decreases in the credit quality of the securities.
Available for sale (AFS) investment securities in an unrealized loss position are evaluated for impairment. The Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the investment securities amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the investment security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income. The Company has not recorded an ACL related to our AFS investment securities.
Changes in the ACL are recorded as a provision (or reversal of provision) for credit losses. Losses are charged against the ACL when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
(j) Transfer of Financial Assets
Transfers of financial assets are accounted for as sales when control is surrendered. Control is surrendered when the assets have been isolated from the Company, the transferee obtains the right to pledge or exchange the assets without constraint, and the Company does not maintain effective control over the transferred assets. Mortgage loans sold for cash are accounted for as sales as the above criteria have been met.
Mortgage loans may also be packaged into securities that are issued and guaranteed by U.S. government-sponsored enterprises or a U.S. government agency. The Company receives 100% of the mortgage-backed securities issued. The mortgage-backed securities received in securitizations are valued at fair value and classified as held-to-maturity. A gain or loss in the securitization transactions is recognized for the difference between the fair value of the mortgage-backed securities received and the amortized cost of the loans securitized.
Mortgage loan transfers accounted for as sales and securitizations are without recourse, except for normal representations and warranties provided in sales transactions, and the Company may retain the related rights to service the loans. The retained servicing rights create mortgage servicing assets that are accounted for in accordance with the Transfers and Servicing topic of the FASB ASC. Mortgage servicing assets are initially valued at fair value and subsequently at the lower of cost or fair value and are amortized in proportion to and over the period of estimated net servicing income. The Company uses a discounted cash flow model to determine the fair value of retained mortgage servicing rights. The amount of mortgage servicing rights is immaterial to the financial statement.
(k) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is principally computed on the straight-line method over the estimated useful lives of the respective assets. The estimated useful life of buildings and improvements is 30 years, furniture, fixtures, and equipment is 3 to 10 years, and automobiles are 3 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset.
(l) Income Taxes
The Company files consolidated federal income tax and consolidated state franchise tax returns.
Deferred tax assets and liabilities are recognized using the asset and liability method of accounting for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
We establish income tax contingency reserves for potential tax liabilities related to uncertain tax positions. A liability for income tax uncertainties would be recorded for unrecognized tax benefits related to uncertain tax positions where it is more likely than not that the position will be sustained upon examination by a taxing authority.
As of December 31, 2024 and 2023, the Company had not recognized a liability for income tax uncertainties in the accompanying Consolidated Balance Sheets because management concluded that the Company does not have material uncertain tax positions.
The Company recognizes interest and penalties related to tax liabilities in other interest expense and other general and administrative expenses, respectively, in the Consolidated Statements of Operations.
Tax years 2021 and after currently remain subject to examination by the Internal Revenue Service and by the Department of Taxation of the State of Hawaii.
(m) Impairment of Long-Lived Assets
Long-lived assets, such as premises and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the Consolidated Balance Sheets and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.
(n) Pension Plan
Pension benefit costs (returns) are charged (credited) to salaries and employee benefits expense or other income, and the corresponding prepaid (accrued) pension cost is recorded in prepaid expenses and other assets or accounts payable and accrued expenses in the Consolidated Balance Sheets. The Company’s policy is to fund pension costs in amounts that will not be less than the minimum funding requirements of the Employee Retirement Income Security Act of 1974 and will not exceed the maximum tax-deductible amounts. The Company generally funds at least the net periodic pension cost, subject to limits and targeted funded status as determined with the consulting actuary.
(o) Share-Based Compensation
The Company grants share-based compensation awards, including restricted stock and restricted stock units, which are either performance-based or time-based. The fair value of the restricted stock and restricted stock unit awards were based on the closing price of the Company’s stock on the date of grant. The cost of these awards are amortized in the Consolidated Statements of Operations on a straight-line basis over the vesting period. The amount of performance-based restricted stock units that vest on a performance condition is remeasured quarterly based on how the Company’s return on average equity compares to the SNL Bank Index. The number of performance-based restricted stock units that are expected to vest based on the Company’s return on average equity is determined quarterly and the amortization of these stock awards is adjusted for any changes in the restricted stock units that are expected to vest. The fair value of performance-based restricted stock units that are based on how the Company’s total stock return compares to the SNL Bank Index was measured using a Monte-Carlo valuation. The number of performance-based restricted stock units that are based on the Company’s total stock return is amortized over the vesting period and is not adjusted for performance.
(p) Supplemental Employee Retirement Plan (SERP)
The SERP is a noncontributory supplemental retirement plan covering certain current and former employees of the Company. Benefits in the SERP plan are paid after retirement, in addition to the benefits provided by the Pension Plan. The Company accrues SERP costs over the estimated period until retirement by charging salaries and employee benefits expense in the Consolidated Statements of Operations, with a corresponding credit to accounts payable and accrued expenses in the Consolidated Balance Sheets.
(q) Employee Stock Ownership Plan (ESOP)
The cost of shares issued to the ESOP, but not yet allocated to participants, is shown as a reduction of stockholders’ equity. Compensation expense is based on the market price of shares as they are committed to be released to participant accounts. Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP shares reduce debt and accrued interest.
(r) Earnings Per Share
We have two forms of our outstanding common stock: common stock and unvested restricted stock awards. Holders of unvested restricted stock awards receive 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 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.
Basic earnings per share is computed by dividing net income allocated to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income allocated to common shareholders by the sum of the weighted-average number of shares outstanding plus the dilutive effect of stock options and restricted stock. ESOP shares not committed to be released are not considered outstanding.
(s) Common Stock Repurchase Program
The Company adopted common stock repurchase programs in which shares repurchased reduce the amount of shares issued and outstanding. The repurchased shares may be reissued in connection with share-based compensation plans and for general corporate purposes. During 2023, the Company repurchased 250,882 shares of common stock at an average cost of $16.05 per share, as part of the repurchase programs authorized by the Board of Directors. The Company did not repurchase any share as part of authorized programs in 2024.
(t) Bank-Owned Life Insurance
The Company’s investment in bank-owned life insurance is based on cash surrender value. The Company invests in bank-owned life insurance to provide a funding source for benefit plan obligations. Bank-owned life insurance also generally provides noninterest income that is nontaxable. Federal regulations generally limit the investment in bank-owned life insurance to 25% of the Bank’s Tier 1 capital plus the allowance for credit losses. At December 31, 2024, this limit was $60.7 million and the Company had invested $49.6 million in bank-owned life insurance at that date.
(u) Leases
The Company records a right-of-use (ROU) asset for those leases that convey rights to control use of identified assets for a period of time in exchange for consideration. The Company is also required to record a lease liability for the present value of future payment commitments. The Company leases most of its premises and some vehicles and equipment under operating leases expiring on various dates through 2037. The majority of lease agreements relate to real estate and generally provide that the Company pay taxes, insurance, maintenance and certain other variable operating expenses applicable to the leased premises. Variable lease components and nonlease components are not included in the Company’s computation of the 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.
The value of the ROU asset and lease liability is impacted by the amount of the periodic payment required, length of the lease term, lease incentives and the discount rate used to calculate the present value of the minimum lease payments. 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. 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 FHLB for the approximate terms of the leases.
(v) Segment reporting
The Company has one reportable segment. The Company’s chief operating decision makers evaluate the operations of the Company using consolidated information for purposes of allocating resources and assessing performance. See Note 29 of the notes to consolidated financial statement for further information on segment reporting.
(w) Use of Estimates
The preparation of the Consolidated Financial Statements requires management to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amount of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the allowance for credit losses; valuation of certain investment securities; valuation allowances for deferred income tax assets; and assets and obligations related to employee benefit plans. Accordingly, actual results could differ from those estimates.
(x) Recently Issued Accounting Pronouncements
In June 2022, the Financial Accounting Standards Board (FASB) issued ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, to clarify that contractual sale restrictions should not be considered in the measurement of the fair value of an equity security. The Company owns stock in the FRB and in the FHLB which is valued at historical cost, which approximates fair value. Ownership of stock is a condition for services the Company receives from the FRB and FHLB. The stock is not publicly traded and can only be issued, exchanged, redeemed, or repurchased by the FRB and the FHLB. ASU 2022-03 was effective for fiscal years beginning after December 15, 2023. The Company adopted the standard on January 1, 2024, and it did not have a material effect on its consolidated financial statements.
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. The ASU is intended to clarify or improve disclosure and presentation requirements of a variety of topics currently in SEC Regulations S-X
and S-K. This ASU will not have a material effect on the Company since it is currently subject to these SEC requirements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU is intended to improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis to enable investors to develop more decision-useful financial analyses. This ASU will be effective for fiscal years beginning after December 31, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company adopted the standard on January 1, 2024, and it did not have a material effect on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. This ASU will be effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the effects that ASU 2023-09 will have on its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires public companies to disclose additional information about certain expenses in the financial statements. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and is effective on either a prospective basis or retrospective bases. The Company is currently evaluating the effects that ASU 2024-03 will have on its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-04, Debt with Conversion and Other Options (Subtopic 470-20), which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. ASU 2024-04 is effective for annual periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities that have adopted the amendments in update 2020-06. Adoption can be on a prospective or retrospective basis. The Company is currently evaluating the effects that ASU 2024-04 will have on its consolidated financial statements.
(3)Cash and Cash Equivalents
The table below presents the balances of cash and cash equivalents:
December 31,
(Dollars in thousands)
Cash and due from banks
$
8,882
$
10,471
Interest-earning deposits in other banks
114,641
116,188
Cash and cash equivalents
$
123,523
$
126,659
Interest-earning deposits in other banks consist primarily of deposits at the Federal Reserve Bank of San Francisco.
(4)Investment Securities
The amortized cost, gross unrealized gains and losses, fair values, and related ACL of investment securities are as follows:
Amortized
Gross Unrealized
Estimated
(Dollars in thousands)
Cost
Gains
Losses
Fair Value
ACL
December 31, 2024:
Available-for-sale:
Mortgage-backed securities issued by U.S. government-sponsored enterprises
$
21,494
$
-
$
(3,002)
$
18,492
$
-
Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises
645,669
(132,180)
513,499
-
Total
$
667,163
$
$
(135,182)
$
531,991
$
-
December 31, 2023:
Available-for-sale:
Mortgage-backed securities issued by U.S. government-sponsored enterprises
$
22,563
$
-
$
(2,392)
$
20,171
$
-
Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises
685,728
(117,668)
568,128
-
Total
$
708,291
$
$
(120,060)
$
588,299
$
-
The amortized cost and estimated fair value of investment securities by maturity date at December 31, 2024 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.
Amortized
Estimated
(Dollars in thousands)
Cost
Fair Value
Available-for-sale:
Due after 10 years
$
21,494
$
18,492
Total
$
21,494
$
18,492
Held-to-maturity:
Due within 5 years
$
$
Due after 5 years through 10 years
Due after 10 years
645,653
513,483
Total
$
645,669
$
513,499
The Company did not sell any held-to-maturity or available-for-sale securities during 2024 and 2023.
Investment securities with amortized cost of $561.1 million and $555.8 million at December 31, 2024 and 2023, respectively, were pledged to secure deposits made by state and local governments, securities sold under agreements to repurchase, transaction clearing accounts, and Federal Reserve Bank borrowings. Included in these amounts were $140.9 million and $74.0 million pledged to the Federal Reserve Bank’s discount window at December 31, 2024 and 2023, respectively and $202.1 million pledged to the Federal Reserve Bank’s Term Funding Program at December 31, 2023.
Provided below is a summary of investment securities which were in an unrealized loss position at December 31, 2024 and 2023. The Company does not intend to sell 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
Unrealized
Unrealized
Number of
Unrealized
Description of securities
Fair Value
Losses
Fair Value
Losses
Securities
Fair Value
Losses
(Dollars in thousands)
December 31, 2024:
Available-for-sale:
Mortgage-backed securities issued by U.S. government-sponsored enterprises
$
-
$
-
$
18,492
$
(3,002)
$
18,492
$
(3,002)
Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises
8,178
(234)
502,831
(131,946)
511,009
(132,180)
Total
$
8,178
$
(234)
$
521,323
$
(134,948)
$
529,501
$
(135,182)
December 31, 2023:
Available-for-sale:
Mortgage-backed securities issued by U.S. government sponsored enterprises
$
-
$
-
$
20,171
$
(2,392)
$
20,171
$
(2,392)
Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises
10,326
(107)
554,514
(117,561)
564,840
(117,668)
Total
$
10,326
$
(107)
$
574,685
$
(119,953)
$
585,011
$
(120,060)
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, 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, no allowance for credit losses was recorded for these securities as of December 31, 2024 or 2023.
(5)Federal Home Loan Bank Stock
The Bank, as a member of the FHLB system, is required to obtain and hold shares of capital stock in the FHLB. At December 31, 2024 and 2023, the Bank met such requirement. At December 31, 2024 and 2023, the Bank owned $8.5 million and $12.2 million, respectively, of capital stock of the FHLB Des Moines.
The Company evaluated its investment in the stock of the FHLB Des Moines for impairment. Based on the Company’s evaluation of the underlying investment, including the long-term nature of the investment and the liquidity position of the FHLB Des Moines, the Company did not consider its FHLB stock other-than-temporarily impaired. There were no observable, orderly transactions at a price that would require the Company to update the value of the stock of the FHLB Des Moines.
(6)Federal Reserve Bank Stock
The Bank, as a member of the Federal Reserve System, is required to hold shares of capital stock of the FRB of San Francisco equal to 6% of capital and surplus of the Bank. At December 31, 2024 and 2023 the Bank met such requirement. At December 31, 2024 and 2023, the Bank owned $3.2 million of capital stock of the FRB of San Francisco.
The Company evaluated its investment in the stock of the FRB of San Francisco for impairment. Based on the Company’s evaluation of the underlying investment, including the long-term nature of the investment and the liquidity position of the FRB of San Francisco, the Company did not consider its FRB stock other-than-temporarily impaired. There were no observable, orderly transactions at a price that would require the Company to update the value of the stock of the FRB of San Francisco.
(7)Loans Receivable and Allowance for Credit Losses
The components of loans receivable, net of allowance for credit losses (ACL) as of December 31, 2024 and 2023 are as follows:
December 31,
(Dollars in thousands)
Real estate loans:
First mortgages:
One- to four-family residential
$
1,248,171
$
1,277,544
Multi-family residential
5,148
5,855
Construction, commercial, and other
11,620
11,631
Home equity loans and lines of credit
14,851
7,058
Total real estate loans
1,279,790
1,302,088
Other loans:
Loans on deposit accounts
Consumer and other loans
8,293
8,257
Total other loans
8,704
8,453
Total loans
1,288,494
1,310,541
Net unearned fees and discounts
(1,832)
(1,989)
Total loans, net of unearned fees and discounts
1,286,662
1,308,552
Allowance for credit losses
(5,114)
(5,121)
Loans receivable, net of allowance for credit losses
$
1,281,548
$
1,303,431
The table below presents the activity in the ACL by portfolio segment:
Real Estate
Commercial
Consumer
(Dollars in thousands)
Loans
Loans
Loans
Unallocated
Totals
Year ended December 31, 2024:
Balance, beginning of year
$
4,502
$
$
$
-
$
5,121
(Reversal of provision) provision for credit losses
(19)
(32)
-
4,483
-
5,194
Charge-offs
(122)
-
(29)
-
(151)
Recoveries
-
-
Net charge-offs
(61)
-
(19)
-
(80)
Balance, end of year
$
4,422
$
$
$
-
$
5,114
Year ended December 31, 2023:
Balance, beginning of year
$
1,263
$
$
$
$
2,032
Adoption of ASU No. 2016-13
3,393
(259)
3,209
(Reversal of provision) provision for credit losses
(110)
-
(3)
4,546
-
5,238
Charge-offs
(75)
-
(82)
-
(157)
Recoveries
-
-
Net charge-offs
(44)
-
(73)
-
(117)
Balance, end of year
$
4,502
$
$
$
-
$
5,121
We recorded a $73,000 credit loss provision for the year ended December 31, 2024 that was primarily due to an increase in provisions for the consumer loan portfolio, which was partially offset by decreases in provisions for the commercial and real estate portfolios. The increase in provisions for the consumer loan portfolio was primarily due to an increase in home equity loans and lines of credit. The decrease in provisions in the commercial loan portfolio was primarily due to an increase in forecasted prepayments, that was partially offset by an increase in forecasted charge-offs. The decrease in provisions in the mortgage loan portfolio was primarily due to a decrease in the mortgage loan portfolio that was partially offset by a decrease in the forecasted prepayments.
The Company primarily uses the aging of loans to monitor the credit quality of its loan portfolio. The table below presents by credit quality indicator, loan class, and year of origination, the amortized cost basis of the Company’s loans as of December 31, 2024.
Revolving Loans
Amortized Cost of Term Loans by Origination Year
Amortized
(Dollars in thousands)
Prior
Cost Basis
Total
December 31, 2024:
Commercial
30 - 59 days past due
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60 - 89 days past due
-
-
-
-
-
-
-
-
90 days or more past due
-
-
-
-
-
-
-
-
Loans not past due
4,677
-
1,014
7,673
Total Commercial
4,677
-
1,014
7,673
Consumer
30 - 59 days past due
-
-
-
-
-
60 - 89 days past due
-
-
-
-
-
-
90 days or more past due
-
-
-
-
-
-
-
-
Loans not past due
-
14,029
14,776
Total Consumer
-
14,032
14,780
Real Estate
30 - 59 days past due
-
-
-
-
-
1,331
60 - 89 days past due
-
-
-
-
-
-
-
-
90 days or more past due
-
-
-
-
-
1,219
-
1,219
Loans not past due
51,683
87,150
123,881
268,387
173,751
556,807
-
1,261,659
Total Real Estate
51,683
87,150
123,881
268,387
174,542
558,566
-
1,264,209
Total
$
52,629
$
87,711
$
124,210
$
273,073
$
174,542
$
559,451
$
15,046
$
1,286,662
The Company did not have any revolving loans that converted to term loans during the year ended December 31, 2024.
The table below presents by credit quality indicator, loan class, and year of origination, the amortized cost basis of the Company’s loans as of December 31, 2023.
Revolving Loans
Amortized Cost of Term Loans by Origination Year
Amortized
(Dollars in thousands)
Prior
Cost Basis
Total
December 31, 2023
Commercial
30 - 59 days past due
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60 - 89 days past due
-
-
-
-
-
-
-
-
90 days or more past due
-
-
-
-
-
-
-
-
Loans not past due
4,836
-
1,230
7,865
Total Commercial
4,836
-
1,230
7,865
Consumer
30 - 59 days past due
-
-
-
-
-
-
60 - 89 days past due
-
-
-
-
-
-
-
-
90 days or more past due
-
-
-
-
-
-
-
-
Loans not past due
6,137
6,568
Total Consumer
6,137
6,572
Real Estate
30 - 59 days past due
-
-
-
-
-
-
60 - 89 days past due
-
-
-
-
-
-
-
-
90 days or more past due
-
-
-
-
-
Loans not past due
91,195
129,148
283,571
183,887
91,113
514,546
-
1,293,460
Total Real Estate
91,195
129,148
283,571
183,887
91,253
515,061
-
1,294,115
Total
$
91,857
$
129,581
$
288,427
$
183,891
$
91,470
$
515,959
$
7,367
$
1,308,552
The Company did not have any revolving loans that converted to term loans during the year ended December 31, 2023.
The following table presents by loan class and year of origination, the gross charge-offs recorded during the year ended December 31, 2024 and 2023.
(Dollars in thousands)
Prior
Total
Year ended December 31, 2024:
One- to four-family residential mortgages
$
-
$
-
$
-
$
-
$
-
$
$
Loans on deposit accounts
-
-
-
-
Consumer and other
-
-
-
-
Total
$
$
$
-
$
-
$
-
$
$
(Dollars in thousands)
Prior
Total
Year ended December 31, 2023:
One- to four-family residential mortgages
$
-
$
-
$
-
$
-
$
$
$
Loans on deposit accounts
-
-
-
-
-
Consumer and other
-
-
-
-
Total
$
$
-
$
-
$
-
$
$
$
The table below presents the aging of loans and accrual status by class of loans, net of unearned fees and discounts. Loans with a formal loan payment deferral plan in place are not considered contractually past due or delinquent if the borrower is in compliance with the loan payment deferral plan.
Loans
90 Days
or More
30 - 59
60 - 89
90 Days or
Past Due
Days Past
Days Past
More
Total Past
Loans Not
Total
Nonaccrual
and Still
(Dollars in thousands)
Due
Due
Past Due
Due
Past Due
Loans
Loans
Accruing
December 31, 2024:
One- to four-family residential mortgages
$
1,331
$
-
$
1,219
$
2,550
$
1,243,831
$
1,246,381
$
1,771
$
-
Multi-family residential mortgages
-
-
-
-
5,142
5,142
-
-
Construction, commercial, and other mortgages
-
-
-
-
11,578
11,578
-
-
Home equity loans and lines of credit
-
-
-
-
14,854
14,854
-
Loans on deposit accounts
-
-
-
-
-
-
Consumer and other
-
8,292
8,296
-
Total
$
1,334
$
$
1,219
$
2,554
$
1,284,108
$
1,286,662
$
1,933
$
-
December 31, 2023:
One- to four-family residential mortgages
$
$
-
$
$
$
1,274,960
$
1,275,615
$
2,079
$
-
Multi-family residential mortgages
-
-
-
-
5,848
5,848
-
-
Construction, commercial, and other mortgages
-
-
-
-
11,570
11,570
-
-
Home equity loans and lines of credit
-
-
-
-
7,060
7,060
-
Loans on deposit accounts
-
-
-
-
-
-
Consumer and other
-
-
8,259
8,263
-
Total
$
$
-
$
$
$
1,307,893
$
1,308,552
$
2,260
$
-
The table below presents the amortized cost basis of loans on nonaccrual status as of December 31, 2024 and 2023.
(Dollars in thousands)
Nonaccrual Loans With a Related ACL
Nonaccrual Loans Without a Related ACL
Total Nonaccrual Loans
December 31, 2024
One- to four-family residential mortgages
$
$
1,219
$
1,771
Home equity loans and lines of credit
-
Consumer and other
-
Total Nonaccrual Loans and Leases
$
$
1,219
$
1,933
December 31, 2023:
One- to four-family residential mortgages
$
1,030
$
1,049
$
2,079
Home equity loans and lines of credit
-
Consumer and other
-
Total Nonaccrual Loans and Leases
$
1,211
$
1,049
$
2,260
All payments received while on nonaccrual status are applied against the principal balance of the loan.
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. The amortized cost basis of collateral-dependent loans, excluding accrued interest receivable, was $227,000 December 31, 2023. These loans
were collateralized by residential real estate in Hawaii. As of December 31, 2023, the fair value of the collateral less selling costs of these collateral-dependent loans exceeded the amortized cost basis. There was no ACL on collateral-dependent loans. There amortized cost basis of collateral-dependent loans was $1.2 million at December 31, 2024.
The Company had no real estate owned as of December 31, 2024 or 2023. There was one one- to four-family residential mortgage loan with a principal balance of $1.2 million in the process of foreclosure at December 31, 2024. There were two one- to four-family residential mortgage loans totaling $227,000 in the process of foreclosure at December 31, 2023.
Nearly all the Company’s 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 years ended December 31, 2024 and 2023, the Company sold mortgage loans held for sale with principal balances of $877,000 and $827,000, respectively, and recognized a gain of $19,000 and $10,000, respectively. The Company had no loans held for sale at December 31, 2024 or 2023.
The Company serviced loans for others with principal balances of $30.6 million and $33.2 million at December 31, 2024 and 2023, respectively. Of these amounts, $18.0 million and $19.3 million of loan balances relate to securitizations for which the Company continues to hold the related mortgage-backed securities at December 31, 2024 and 2023, respectively. The amount of contractually specified servicing fees earned was $83,000 and $91,000 for 2024 and 2023, respectively. The fees are reported in service and other fees in the Consolidated Statements of Operations.
In the normal course of business, the Company has made loans to certain directors and executive officers under terms which management believes are consistent with the Company’s general lending policies. Loans to directors and executive officers amounted to $311,000 and $392,000 at December 31, 2024 and 2023, respectively.
(8)Accrued Interest Receivable
The components of accrued interest receivable are as follows:
December 31,
(Dollars in thousands)
Loans receivable
$
4,357
$
4,585
Investment securities
1,349
1,441
Interest-bearing deposits
Total
$
5,800
$
6,105
(9)Interest Rate Lock and Forward Loan Sale Commitments
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 values in prepaid expenses and other assets or in accounts payable and accrued expenses. Changes in fair value are recorded in current earnings. The Company did not have any loans held for sale at December 31, 2024 or 2023.
There were no interest rate contracts at December 31, 2024 or 2023. There were no gains and losses on derivatives for the year ended December 31, 2024 or 2023.
(10)Premises and Equipment
Premises and equipment are as follows:
December 31,
(Dollars in thousands)
Land
$
$
Buildings and improvements
1,400
1,400
Leasehold improvements
18,269
18,053
Furniture, fixtures and equipment
5,799
6,613
Automobiles
26,149
26,747
Less accumulated depreciation and amortization
(19,405)
(19,783)
6,744
6,964
Construction in progress
Total
$
7,278
$
7,185
Depreciation expense was $1.0 million and $1.1 million for the years ended December 31, 2024 and 2023, respectively.
(11) Deposits
Deposit accounts by type are summarized with their respective weighted-average interest rates as follows:
December 31, 2024
December 31, 2023
(Dollars in thousands)
Amount
Rate
Amount
Rate
Non-interest bearing
$
65,575
-
%
$
66,757
-
%
Savings accounts
675,407
1.12
739,036
0.59
Certificates of deposit
706,112
4.07
532,433
4.11
Money market
2,192
0.10
3,595
0.10
Checking and Super NOW
268,377
0.02
294,783
0.02
Total
$
1,717,663
2.11
%
$
1,636,604
1.61
%
The maturity of certificate of deposit accounts at December 31, 2024 is as follows (dollars in thousands):
Maturing in:
Due within 1 year
$
685,850
Due after 1 year through 2 years
10,797
Due after 2 years through 3 years
4,146
Due after 3 years through 4 years
3,616
Due after 4 years through 5 years
1,703
Total
$
706,112
Certificates of deposit with balances greater than or equal to $250,000 totaled $445.0 million and $280.1 million at December 31, 2024 and 2023, respectively. Deposit accounts in the Bank are insured by the FDIC, generally up to a maximum of $250,000 per account owner.
Interest expense by type of deposit is as follows:
Year ended December 31,
(Dollars in thousands)
Savings
$
6,437
$
2,469
Certificates of deposit and money market
24,896
16,956
Checking and Super NOW
Total
$
31,389
$
19,484
At December 31, 2024 and 2023, overdrawn deposit accounts totaled $108,000 and $169,000, respectively, and have been reclassified as loans in the Consolidated Balance Sheets.
In the normal course of business, certain directors and executive officers (and their associated and affiliated parties) maintain deposit accounts with the Company totaling $3.6 million and $4.5 million at December 31, 2024 and 2023, respectively.
(12)Advances from the Federal Home Loan Bank
Federal Home Loan Bank advances are secured by a blanket pledge on the Bank’s assets not otherwise pledged. At December 31, 2024 and 2023, our credit line with the FHLB of Des Moines was equal to 25% and 45%, respectively, of the Bank’s total assets and we had the capacity to borrow an additional $389.5 million and $612.6 million, respectively.
Advances outstanding consisted of the following:
December 31,
Weighted
Weighted
Average
Average
(Dollars in thousands)
Amount
Rate
Amount
Rate
Due within one year
$
45,000
2.87
%
$
82,000
1.40
%
Due over 1 year to 2 years
20,000
3.20
45,000
2.87
Due over 2 years to 3 years
30,000
4.24
20,000
3.20
Due over 3 years to 4 years
60,000
4.32
30,000
4.24
Due over 4 years to 5 years
5,000
4.38
60,000
4.32
Due over 5 years to 6 years
-
-
5,000
4.38
Total
$
160,000
3.76
%
$
242,000
2.96
%
(13) Advances from the Federal Reserve Bank
In March 2023, the FRB created a new Bank Term Funding Program (BTFP) to make additional funding available
to eligible depository institutions. The BTFP ceased making new loans on March 11, 2024. This program offered loans up to a one year term that can be prepaid without penalty. The amount that could be borrowed was based upon the par value of the securities pledged as collateral to the FRB. As a member of the FRB system, the Bank may also borrow from the FRB Discount Window. At December 31, 2024, we had the ability to borrow up to $114.4 million using the market value of pledged collateral.
Advances outstanding consisted of the following:
December 31,
Weighted
Weighted
Average
Average
(Dollars in thousands)
Amount
Rate
Amount
Rate
Due within one year
$
-
-
%
$
50,000
4.89
%
Total
$
-
-
%
$
50,000
4.89
%
(14) 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:
December 31, 2024
December 31, 2023
Weighted
Weighted
Repurchase
Average
Repurchase
Average
(Dollars in thousands)
Liability
Rate
Liability
Rate
Maturing:
1 year or less
$
-
-
%
$
5,000
1.88
%
Over 1 year to 2 years
-
-
5,000
1.73
Total
$
-
-
%
$
10,000
1.81
%
(15)Offsetting of Financial Liabilities
Securities sold under agreements to repurchase are subject to a right of offset in the event of default. See Note 14, Securities Sold Under Agreements to Repurchase, for additional information.
Net Amount of
Gross Amount Not Offset in the
Gross Amount
Gross Amount
Liabilities
Balance Sheet
of Recognized
Offset in the
Presented in the
Financial
Cash Collateral
(Dollars in thousands)
Liabilities
Balance Sheet
Balance Sheet
Instruments
Pledged
Net Amount
December 31, 2024:
Securities sold under agreements to repurchase
$
-
$
-
$
-
$
-
$
-
$
-
December 31, 2023:
Securities sold under agreements to repurchase
$
10,000
$
-
$
10,000
$
10,000
$
-
$
-
(16)Income Taxes
Allocation of federal and state income taxes between current and deferred income tax (benefit) expense is as follows:
(Dollars in thousands)
Current
Federal
$
(1,834)
$
1,767
State
(659)
(2,493)
2,335
Deferred
Federal
(396)
State
(129)
(525)
Total
$
(2,415)
$
1,810
The federal statutory corporate tax rate for the years ended December 31, 2024 and 2023 was 21%. A reconciliation of the tax provision based on the statutory corporate rate on pretax income and the provision for taxes as shown in the accompanying Consolidated Statements of Operations is as follows:
(Dollars in thousands)
Income tax (benefit) expense at statutory rate
$
(1,410)
$
1,436
Income tax effect of:
State income taxes, net of federal income tax benefits
(526)
Other tax-exempt income
(211)
(179)
Share-based compensation
Meal and entertainment expenses
Non-deductible executive compensation
Other
(364)
(210)
Total income tax expense
$
(2,415)
$
1,810
Effective income tax rate
35.97
%
26.47
%
The components of income taxes (receivable) payable are as follows:
December 31,
(Dollars in thousands)
Current taxes (receivable) payable:
Federal
$
(1,448)
$
(932)
State
(634)
$
(2,082)
$
(344)
Deferred taxes receivable:
Federal
$
(901)
$
(1,313)
State
(976)
(1,144)
$
(1,877)
$
(2,457)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
December 31,
(Dollars in thousands)
Deferred tax assets:
Hawaii franchise tax
$
(167)
$
Allowance for credit losses
1,362
1,364
Employee benefit plans
2,596
2,672
Equity incentive plan
Deferred compensation
Net lease liability
1,450
1,312
Unrealized loss on securities available for sale
Other
6,238
6,242
Deferred tax liabilities:
Deferred loan costs
2,652
2,665
Premises and equipment
FHLB stock dividends
Prepaid expense
1,259
Premiums on loans sold
4,361
3,785
Net deferred tax assets
$
1,877
$
2,457
Deferred tax assets and liabilities at December 31, 2024 and 2023 were calculated using federal corporate tax rates of 21%.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. There was no valuation allowance for deferred tax assets as of December 31, 2024 and 2023.
(17)Employee Benefit Plans
The Company has a noncontributory defined benefit pension plan (Pension Plan) that covers certain employees with at least one year of service. The benefits are based on years of service and the employees’ compensation during the service period. The Company’s policy is to accrue the actuarially determined pension costs and to fund pension costs within regulatory guidelines. The Company reviews its assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. The effect of modifications to those assumptions is recorded in accumulated other comprehensive income beginning in 2006 and amortized to net periodic benefit cost over future periods using the corridor method. The Company believes that the assumptions utilized in recording its obligations under the plan are reasonable based on its experience and market conditions.
In 2008, the Board of Directors approved changes to the Company’s Pension Plan. Effective December 31, 2008, there are no further accruals of benefits for any participants and benefits do not increase with any additional years of service. Employees already enrolled in the Pension Plan as of December 31, 2008 will be 100% vested if they have at least five years of service. For employees with less than five years of service, vesting would occur at the employee’s five-year anniversary date.
In addition, the Company 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 following table sets forth the status of the Pension Plan and SERP at the dates indicated:
Pension Plan
SERP
December 31,
(Dollars in thousands)
Accumulated benefit obligation at end of year
$
15,096
$
15,953
$
9,705
$
9,927
Change in projected benefit obligation:
Benefit obligation at beginning of year
$
15,953
$
15,866
$
9,927
$
9,948
Service cost (income)
(396)
(200)
Interest cost
Actuarial (gain) loss
(619)
-
-
Benefits paid
(1,159)
(1,020)
-
-
Benefit obligation at end of year
15,096
15,953
9,705
9,927
Change in plan assets:
Fair value of plan assets at beginning of year
20,105
18,336
-
-
Actual return on plan assets
3,002
2,789
-
-
Employer contributions
-
-
-
-
Benefits paid
(1,159)
(1,020)
-
-
Fair value of plan assets at end of year
21,948
20,105
-
-
Funded status at end of year
$
6,852
$
4,152
$
(9,705)
$
(9,927)
Amounts recognized in the Consolidated Balance Sheets:
Prepaid expenses and other assets (Accounts payable and accrued expenses)
$
6,852
$
4,152
$
(9,705)
$
(9,927)
Amounts recognized in accumulated other comprehensive loss:
Net actuarial loss
$
3,482
$
5,968
$
-
$
-
Prior service cost
-
-
Accumulated other comprehensive loss, before tax
$
3,595
$
6,087
$
-
$
-
The accumulated benefit obligation experienced an actuarial gain of $619,000 in 2024 and an actuarial loss of $95,000 in 2023. The actuarial gain in 2024 was attributed to an increase in the discount rate used to calculate the benefit obligation. The actuarial loss in 2023 was attributed to a decline in the discount rate used to calculate the benefit obligation.
The following table sets forth the changes recognized in accumulated other comprehensive loss for the years indicated:
Pension Plan
Year Ended December 31,
(Dollars in thousands)
Accumulated other comprehensive loss at beginning of year, before tax
$
6,087
$
7,832
Actuarial net gain arising during the period
(2,307)
(1,503)
Amortizations (recognized in net periodic benefit cost):
Actuarial loss
(180)
(237)
Prior service cost
(5)
(5)
Total recognized in other comprehensive loss
(2,492)
(1,745)
Accumulated other comprehensive loss at end of year, before tax
$
3,595
$
6,087
For the years ended December 31, 2024 and 2023, the following weighted average assumptions were used to determine benefit obligations at the end of the year:
Pension Plan
SERP
Year Ended December 31,
Assumptions used to determine the year-end benefit obligations:
Discount rate
5.60
%
5.10
%
5.00
%
5.00
%
Rate of compensation increase
N/A
N/A
5.00
%
5.00
%
The dates used to determine retirement measurements for the Pension Plan were December 31, 2024 and 2023.
The Company’s investment strategy for the Pension Plan is to maintain a consistent rate of return with primary emphasis on capital appreciation and secondary emphasis on income to enhance the purchasing power of the plan’s assets over the long-term and to preserve capital. The investment policy establishes a target allocation for each asset class that is reviewed periodically and rebalanced when considered appropriate. Normal target allocations at December 31, 2024 were 55% domestic equity securities, 10% international equity securities and 35% bonds. Equity securities primarily include stocks, investment in exchange traded funds and large-cap, mid-cap and small-cap mutual funds. Bonds include U.S. Treasuries, mortgage-backed securities and corporate bonds of companies in diversified industries. Other types of investments include money market funds and savings accounts opened with the Company.
As of December 31, 2024 and 2023, the Pension Plan’s assets measured at fair value were classified as follows:
Fair Value of Measurements at Report Date Using:
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Total Fair
Assets
Inputs
Inputs
(Dollars in thousands)
Value
(Level 1)
(Level 2)
(Level 3)
December 31, 2024:
Cash
$
1,291
$
1,291
$
-
$
-
Equities
14,812
14,812
-
-
Mutual funds (1)
5,845
5,845
-
-
Total
$
21,948
$
21,948
$
-
$
-
December 31, 2023:
Cash
$
$
$
-
$
-
Equities
13,742
13,742
-
-
Mutual funds (1)
5,741
5,741
-
-
Total
$
20,105
$
20,105
$
-
$
-
(1) This category includes mutual funds that invest in equities and bonds. The mutual fund managers have the ability to change the amounts invested in equities and bonds depending on their investment outlook.
Estimated future benefit payments reflecting expected future service at December 31, 2024 are as follows:
Pension
(Dollars in thousands)
Plan
SERP
$
1,164
$
8,618
1,239
1,258
1,241
1,241
2030 - 2034
6,025
Total
$
12,168
$
9,399
For the years ended December 31, 2024 and 2023, the following weighted average assumptions were used to determine net periodic benefit cost for the fiscal years shown:
Pension Plan
SERP
Year Ended December 31,
Assumptions used to determine the net periodic benefit cost:
Discount rate
5.10
%
5.40
%
5.00
%
5.00
%
Expected return on plan assets
6.75
6.75
-
-
Rate of compensation increase
N/A
N/A
5.00
5.00
The components of net periodic benefit cost were as follows:
Pension Plan
SERP
Year Ended December 31,
(Dollars in thousands)
Net periodic benefit (income) cost for the year:
Service cost (income)
$
$
$
(396)
$
(200)
Interest cost
Expected return on plan assets
(1,314)
(1,192)
-
-
Amortization of prior service cost
-
-
Recognized actuarial loss
-
-
Net periodic benefit (income) cost for the year:
$
(208)
$
$
(222)
$
(21)
The service cost component of net periodic benefit cost is included in salaries and employee benefits in the Consolidated Statements of Operations. The other components of net periodic benefit cost including interest cost, the return on plan assets and amortization of net loss are reported in other income.
The expected return on plan assets is based on the weighted-average long-term rates of return for the types of assets held in the plan. The expected return on plan assets is adjusted when there is a change in the expected long-term rate of return or in the composition of assets held in the plan. The discount rate is based on the return of high-quality fixed-income investments that can be used to fund the benefit payments under the Company’s defined benefit plan.
The Company does not expect to make any contributions to the Pension Plan or the SERP in 2025.
The Company also has a 401(k) defined contribution plan and profit sharing plan covering all employees after one year of service. The 401(k) plan provides for employer matching contributions, as determined by the Company, based on a percentage of employees’ contributions subject to a maximum amount defined in the plan agreement. The Company’s 401(k) matching contributions are based on 5% of employees’ contributions. The Company’s contributions amounted to $58,000 and $64,000 for 2024 and 2023, respectively. The Company contributes to the profit sharing plan an amount determined by the Board of Directors. No contributions were made to the profit sharing plan for years ended December 31, 2024 and 2023.
(18)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 years ended December 31, 2024 and 2023 amounted to $458,000 and $692,000, respectively.
Shares held by the ESOP trust were as follows:
December 31,
Allocated shares
642,369
619,938
Unearned shares
195,732
244,665
Total ESOP shares
838,101
864,603
Fair value of unearned shares, in thousands
$
1,904
$
2,728
The ESOP restoration plan is a non-qualified 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 years ended December 31, 2024 and 2023, we reversed $3,000 and accrued $13,000, respectively, for the ESOP restoration plan.
(19)Share-Based Compensation
The shareholders of Territorial Bancorp Inc. adopted the 2010 Equity Incentive Plan and the 2019 Equity Incentive Plan. These plans provide for the award of stock options and restricted stock to key officers and directors. In accordance with the Compensation - Stock Compensation topic of the FASB ASC, the cost of the equity incentive plans is based on the fair value of the awards on the grant date. The fair value of time-based performance-based stock that will vest based on a performance condition is based on the closing price of the Company’s stock on the date of grant. The fair value of performance-based restricted stock that will vest on a market condition is based on a Monte Carlo valuation of the Company’s stock on the date of grant. The cost of the awards will be recognized on a straight-line basis over the three-year vesting period during which participants are required to provide services in exchange for the awards. There are 4,949 shares remaining available for new awards under the 2019 Equity Plan.
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 Consolidated Statements of Operations 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
Restricted Stock
Restricted stock awards are accounted for as a fixed grant 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 may be 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 time-based restricted stock activity:
Weighted
Average Grant
Restricted
Date Fair
Stock
Value
Unvested at December 31, 2022
23,664
$
24.15
Granted
14,803
19.29
Vested
12,729
23.64
Forfeited
-
-
Unvested at December 31, 2023
25,738
$
21.61
Granted
26,664
7.03
Vested
12,178
22.83
Forfeited
-
-
Unvested at December 31, 2024
40,224
$
11.57
During the year ended December 31, 2024, the Company issued 26,664 shares of time-vested 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. Time-vested restricted stock will vest over three years from the date of the grant.
As of December 31, 2024, the Company had $287,000 of unrecognized compensation costs related to time-vested restricted stock. The unrecognized compensation costs are expected to be recognized over a weighted average period of 1.7 years.
The table below presents the performance-based restricted stock units (PRSUs) that will vest on a performance condition:
Performance-
Based Restricted
Stock Units
Weighted
Based on a
Average Grant
Performance
Date Fair
Condition
Value
Unvested at December 31, 2022
43,557
$
23.63
Granted
17,758
19.29
Vested
-
-
Forfeited
16,348
21.05
Unvested at December 31, 2023
44,967
$
22.85
Granted
31,995
7.03
Vested
-
-
Forfeited
12,797
26.77
Unvested at December 31, 2024
64,165
$
14.18
During the year ended December 31, 2024, the Company issued 31,995 PRSUs to certain members of executive management under the 2019 Equity Incentive Plan. These PRSUs will vest three years after they are granted 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% to 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 fair value of these PRSUs is based on the fair value of the Company’s stock on the date of grant. As of December 31, 2024, the Company had no unrecognized compensation costs related to these PRSUs since meeting the performance condition is not probable. Compensation expense up to $487,000 may be recognized in the future if achievement of the performance condition becomes probable. The unrecognized compensation costs would be expected to be recognized over a weighted average period of 1.5 years. Performance will be measured over a three-year period and will be cliff vested. The performance condition is measured quarterly by comparing the company’s three-year return on average equity to a peer group of banks. The Company’s percentile ranking in the peer group is used to adjust the number of PRSU’s that are expected to vest.
The table below presents the PRSUs that will vest on a market condition:
Performance-
Based Restricted
Monte Carlo
Stock Units
Valuation of
Based on a
the Company's
Market Condition
Stock
Unvested at December 31, 2022
10,889
$
24.04
Granted
4,443
17.95
Vested
-
-
Forfeited
4,087
22.16
Unvested at December 31, 2023
11,245
$
22.31
Granted
8,000
5.55
Vested
-
-
Forfeited
3,199
26.00
Unvested at December 31, 2024
16,046
$
13.22
During the year ended December 31, 2024, the Company issued 8,000 of PRSUs to certain members of executive management under the 2019 Equity Incentive Plan. These PRSUs will vest three years after they are granted 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 and will be cliff vested. The market condition is measured quarterly by comparing the Company’s three-year average total stock return to a peer group of other banks. The Company’s percentile ranking in the peer group determines how many PRSUs will vest. 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: April 18, 2024
Performance period: January 1, 2024 to December 31, 2026
2.7 year risk-free rate on grant date: 4.87%
December 31, 2023 closing price: $11.15
Closing stock price on date of grant: $7.03
Annualized volatility (based on 2.7 year historical volatility as of the grant date): 43.5%
As of December 31, 2024, the Company had $41,000 of unrecognized compensation costs related to the PRSUs that are based on a market condition. The unrecognized compensation costs are expected to be recognized over a weighted average period of 1.5 years.
(20)Earnings Per Share
The table below presents the information used to compute basic and diluted earnings per share:
For the Year Ended December 31,
(Dollars in thousands, except per share data)
Net (loss) income
$
(4,299)
$
5,027
Income allocated to participating securities
-
(48)
Net (loss) income available to common shareholders
$
(4,299)
$
4,979
Weighted-average number of shares used in:
Basic earnings per share
8,610,706
8,636,495
Dilutive common stock equivalents:
Stock options and restricted stock units
-
47,597
Diluted earnings per share
8,610,706
8,684,092
Net (loss) income per common share, basic
$
(0.50)
$
0.58
Net (loss) income per common share, diluted
$
(0.50)
$
0.57
(21)Accumulated Other Comprehensive Loss
The table below presents the changes in the components of accumulated other comprehensive loss, net of taxes:
Unfunded
Unrealized
Pension
Loss on
(Dollars in thousands)
Liability
Securities
Total
December 31, 2024:
Balances at beginning of year
$
4,466
$
1,755
$
6,221
Other comprehensive (income) loss, net of taxes
(1,828)
(1,381)
Net current period other comprehensive (income) loss
(1,828)
(1,381)
Balances at end of year
$
2,638
$
2,202
$
4,840
December 31, 2023:
Balances at beginning of year
$
5,746
$
1,998
$
7,744
Other comprehensive income, net of taxes
(1,280)
(243)
(1,523)
Net current period other comprehensive income
(1,280)
(243)
(1,523)
Balances at end of year
$
4,466
$
1,755
$
6,221
The table below presents the tax effect on each component of other accumulated other comprehensive loss:
Year Ended December 31,
Pretax
After Tax
Pretax
After Tax
(Dollars in thousands)
Amount
Tax
Amount
Amount
Tax
Amount
Unfunded pension liability
$
(2,492)
$
$
(1,828)
$
(1,745)
$
$
(1,280)
Unrealized loss (gain) on securities
(162)
(331)
(243)
Total
$
(1,883)
$
$
(1,381)
$
(2,076)
$
$
(1,523)
(22)Commitments
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any terms or conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on an individual basis. The Company’s policy is to require suitable collateral, primarily real estate, to be provided by customers prior to disbursement of approved loans. At December 31, 2024 and 2023 the Company had loan commitments aggregating to $1.2 million (interest rates of 6.000%) and $1.3 million (interest rates from 6.750% to 7.125%), respectively, primarily consisting of fixed-rate residential first mortgage loans. In addition to commitments to originate loans, at December 31, 2024 and 2023, the Company had $17.1 million and $14.9 million, respectively, in unused lines of credit to borrowers.
The Company is required by the Federal Reserve Bank to maintain reserves based on the amount of deposits held. Effective March 25, 2020 the Federal Reserve Bank lowered the reserve requirement to zero percent, therefore, there were no required reserve balances as of December 31, 2024 and 2023.
(23)Regulatory Capital and Supervision
Territorial Savings Bank and the Company are 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. The Company is not subject to regulatory capital requirements because its total assets are less than $3.0 billion. At December 31, 2024 and 2023, Territorial Savings Bank exceeded all of the fully-phased in regulatory captial requirements and is considered to be “well capitalized” under regulatory guidelines. In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.
The tables below presents 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 December 31, 2024 and 2023:
(Dollars in thousands)
Required Ratio
Actual Amount
Actual Ratio
December 31, 2024:
Tier 1 Leverage Capital
Territorial Savings Bank
5.00
%
$
237,864
10.98
%
Territorial Bancorp Inc.
$
253,190
11.68
%
Common Equity Tier 1 Risk-Based Capital (1)
Territorial Savings Bank
9.00
%
$
237,864
26.69
%
Territorial Bancorp Inc.
$
253,190
28.39
%
Tier 1 Risk-Based Capital (1)
Territorial Savings Bank
10.50
%
$
237,864
26.69
%
Territorial Bancorp Inc.
$
253,190
28.39
%
Total Risk-Based Capital (1)
Territorial Savings Bank
12.50
%
$
242,978
27.26
%
Territorial Bancorp Inc.
$
258,304
28.96
%
December 31, 2023:
Tier 1 Leverage Capital
Territorial Savings Bank
5.00
%
$
238,972
10.86
%
Territorial Bancorp Inc.
$
257,307
11.69
%
Common Equity Tier 1 Risk-Based Capital (1)
Territorial Savings Bank
9.00
%
$
238,972
26.31
%
Territorial Bancorp Inc.
$
257,307
28.33
%
Tier 1 Risk-Based Capital (1)
Territorial Savings Bank
10.50
%
$
238,972
26.31
%
Territorial Bancorp Inc.
$
257,307
28.33
%
Total Risk-Based Capital (1)
Territorial Savings Bank
12.50
%
$
244,093
26.87
%
Territorial Bancorp Inc.
$
262,428
28.89
%
(1) The required Common Equity Tier 1 Risk-Based Capital, Tier 1 Risk-Based Capital, and Total Risk-Based Capital ratios are based on the fully-phased in capital ratios in the Basel III capital regulations plus the 2.50% capital conservation buffer.
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 the Company’s 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 December 31, 2024 and 2023, 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.
The federal banking agencies, including the Federal Reserve Board are required, 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. We have not elected to follow the alternative framework.
(24)Contingencies
The Company is involved in various claims and legal actions arising out of the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s Consolidated Balance Sheets or Consolidated Statements of Operations.
(25)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 accounting 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 and other fees and in other noninterest income in the Consolidated Statements of Operations. The table below reconciles the revenue from contracts with customers and other revenue reported in those line items:
Service and
(Dollars in thousands)
Other Fees
Other
Total
Year ended December 31, 2024
Revenue from contracts with customers
$
1,036
$
$
1,153
Other revenue
Total
$
1,170
$
$
1,585
Year ended December 31, 2023
Revenue from contracts with customers
$
1,186
$
$
1,308
Other revenue
Total
$
1,327
$
$
1,606
(26)Leases
The table below presents lease costs and other information for the years indicated:
Year Ended
December 31,
(Dollars in thousands)
Lease costs:
Operating lease costs
$
2,848
$
2,757
Short-term lease costs
Variable lease costs
Total lease costs
$
3,321
$
3,431
Cash paid for amounts included in measurement of lease liabilities
$
2,692
$
(991)
ROU assets obtained in exchange for new operating lease liabilities
$
3,589
$
At December 31, 2024, future minimum rental commitments under noncancellable operating leases are as follows:
December 31,
(Dollars in thousands)
$
2,744
2,592
2,507
2,227
1,876
Thereafter
7,984
Total
19,930
Less present value discount
(1,963)
Present value of leases
$
17,967
The table below presents other lease related information:
December 31,
December 31,
Weighted-average remaining lease term (years)
9.02
9.77
Weighted-average discount rate
2.33
%
2.15
%
The Company leased to a tenant certain property that it owns under a non-cancelable lease that expires on December 31, 2031. Rental income comprised of minimum rentals for 2024 and 2023 was $133,000 and $155,000, respectively.
(27)Fair Value of Financial Instruments
In accordance with the Fair Value Measurements and Disclosures topic of the FASB ASC, the Company groups its financial assets and liabilities measured or disclosed at fair value into three levels based on the markets in which the financial assets and liabilities are traded and the reliability of the assumptions used to determine fair value as follows:
●Level 1 - Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities traded in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.
●Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
● Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect management’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of discounted cash flow models and similar techniques that require the use of significant judgment or estimation.
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 available 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 financial 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 mortgage-backed securities issued by U.S. government-sponsored enterprises 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.
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:
Carrying
Fair Value Measurements Using
(Dollars in thousands)
Amount
Fair Value
Level 1
Level 2
Level 3
December 31, 2024
Assets
Cash and cash equivalents
$
123,523
$
123,523
$
123,523
$
-
$
-
Investment securities available for sale
18,492
18,492
-
18,492
-
Investment securities held to maturity
645,699
513,499
-
513,499
-
Loans receivable, net
1,281,548
1,063,964
-
-
1,063,964
FHLB stock
8,542
8,542
-
8,542
-
FRB stock
3,189
3,189
-
3,189
-
Accrued interest receivable
5,800
5,800
1,349
4,356
Liabilities
Deposits
1,717,663
1,715,636
-
1,011,551
704,085
Advances from the Federal Home Loan Bank
160,000
159,139
-
159,139
-
Accrued interest payable
-
December 31, 2023
Assets
Cash and cash equivalents
$
126,659
$
126,659
$
126,659
$
-
$
-
Investment securities available for sale
20,171
20,171
-
20,171
-
Investment securities held to maturity
685,728
568,128
-
568,128
-
Loans receivable, net
1,303,431
1,120,704
-
-
1,120,704
FHLB stock
12,192
12,192
-
12,192
-
FRB stock
3,180
3,180
-
3,180
-
Accrued interest receivable
6,105
6,105
1,441
4,585
Liabilities
Deposits
1,636,604
1,633,164
-
1,104,171
528,993
Advances from the Federal Home Loan Bank
242,000
238,380
-
238,380
-
Advances from the Federal Reserve Bank
50,000
50,049
-
50,049
-
Securities sold under agreements to repurchase
10,000
9,700
-
9,700
-
Accrued interest payable
1,183
1,183
-
1,026
At December 31, 2024 and 2023, 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:
(Dollars in thousands)
Level 1
Level 2
Level 3
Total
December 31, 2024
Investment securities available for sale
$
-
$
18,492
$
-
$
18,492
December 31, 2023
Investment securities available for sale
$
-
$
20,171
$
-
$
20,171
There were no assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2024 or 2023.
(28)Parent Company Only
Presented below are the condensed balance sheets, statements of operations, and statements of cash flows for Territorial Bancorp Inc.
Condensed Balance Sheets
December 31,
(Dollars in thousands)
Assets
Cash
$
14,763
$
18,453
Investment in Territorial Savings Bank
233,025
232,751
Prepaid expenses and other assets
1,028
Total assets
$
248,816
$
251,476
Liabilities and Equity
Other liabilities
$
$
Equity
248,351
251,086
Total liabilities and equity
$
248,816
$
251,476
Condensed Statements of Operations
For the Year Ended December 31,
(Dollars in thousands)
Interest and dividend income:
Dividends from Territorial Savings Bank
$
-
$
-
Interest-earning deposit with Territorial Savings Bank
Other
-
Total interest and dividend income
Noninterest expense:
Salaries
Other general and administrative expenses
3,728
Total noninterest expense
3,766
1,000
Loss before income taxes and equity in undistributed earnings in subsidiaries
(3,761)
(996)
Income tax benefit
(997)
(315)
Loss before equity in undistributed earnings in subsidiaries
(2,764)
(681)
Equity in undistributed (loss) earnings of Territorial Savings Bank, net of dividends
(1,535)
5,708
Net (loss) income
$
(4,299)
$
5,027
Condensed Statements of Cash Flows
For the Year Ended December 31,
(Dollars in thousands)
Cash flows from operating activities:
Net (loss) income
$
(4,299)
$
5,027
Adjustments to reconcile net (loss) income to net cash (used in) from operating activities:
Equity in undistributed loss (earnings) of Territorial Savings Bank, net of dividends
1,535
(5,708)
Net (increase) decrease in prepaid expenses and other assets
(298)
Net increase in other liabilities
Net cash (used in) from operating activities
(2,987)
Cash flows from investing activities:
Investment in Territorial Savings Bank
-
-
Net cash from investing activities
-
-
Cash flows from financing activities:
Repurchases of common stock
-
(4,065)
Cash dividends paid
(703)
(6,412)
Net cash used in financing activities
(703)
(10,477)
Net decrease in cash
(3,690)
(10,062)
Cash at beginning of the year
18,453
28,515
Cash at end of the year
$
14,763
$
18,453
(29) Segment Information
The Company has one reportable segment: banking operations. Loans, securities, deposits, and non-interest income provide the revenues of the banking operation. Loan products offered to customers generate a majority of the Company’s interest and fee income. Additionally, deposit products offered to customers generate fees and service charge income. Interest income earned on securities and other noninterest income are other sources of revenue. Interest expense, provisions for credit losses, salaries and employee benefits, occupancy, equipment, and other general and administrative expenses provide the significant expenses in banking operations. These significant expenses are the same as those disclosed in the Company’s Consolidated Statements of Operation and Consolidated Statement of Cash Flows. Noncash items such as depreciation and amortization are also disclosed in the Company’s Consolidated Statements of Operations and Consolidated Statements of Cash Flows.
The Company’s chief operating decision makers are the Chief Executive Officer, Executive Vice President and Co-Chief Operating Officer, the Chief Financial Officer, and Executive Vice President, Finance. The chief operating decision makers are provided with consolidated balance sheets, income statements, and net interest margin analyses in order to evaluate revenues streams, significant expenses, assess the Company’s segment, and determine the allocation of resources. Additionally, the chief operating decision makers review performance of various components of banking operations, such as loan portfolio types, funding sources, and overhead, to assess product pricing and significant expenses to evaluate return on assets. The chief operating decision makers use consolidated net income to benchmark the Company against its competitors. The benchmarking analysis coupled with monitoring budget-to-actual results are used in assessing performance.
The accounting policies of the banking operations are the same as those described in Note 2 - Summary of Significant Accounting Policies. All operations are domestic.
For the Year Ended December 31,
(Dollars in thousands)
Interest and dividend income:
$
72,305
$
69,088
Reconciliation of revenue:
Other noninterest income
2,611
2,471
Total consolidated revenue
74,916
71,559
Less:
Interest expense
40,613
26,457
Segment net interest income and noninterest income
34,303
45,102
Less:
Provision (reversal of provision) for credit losses
(3)
Salaries and employee benefits
19,787
20,832
Occupancy
6,858
6,910
Equipment
5,307
5,156
Federal deposit insurance premiums
1,667
Other general and administrative expenses
7,325
4,388
Income tax (benefit) expense
(2,415)
1,810
Segment net (loss) income
(4,299)
5,027
Reconciliation of profit or loss:
Adjustments and reconciling items
-
-
Consolidate net (loss) income
$
(4,299)
$
5,027
Reconciliation of assets:
Total assets for reportable segment
$
2,169,715
$
2,236,672
Adjustments and reconciling items
-
-
Total consolidated assets
$
2,169,715
$
2,236,672
(30)Subsequent Events
On January 31, 2025, the Board of Directors of Territorial Bancorp Inc. declared a quarterly cash dividend of $0.01 per share of common stock. The dividend was paid on February 28, 2025 to stockholders of record as of February 14, 2025.
As previously announced in a joint news release issued April 29, 2024, Hope Bancorp, Inc. (Hope Bancorp) and the Company signed a definitive merger agreement. On March 3, 2025, Hope Bancorp and the Company issued a joint press release announcing receipt of all required regulatory approvals for the mergers contemplated by the definitive merger agreement. Completion of the mergers contemplated by the definitive merger agreement remain subject to the satisfaction of customary closing conditions set forth in the merger agreement.
ITEM 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.
ITEM 9A.
Controls and Procedures
(a) 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 Executive 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 December 31, 2024. Based on that evaluation, the Company’s management, including the Chairman of the Board, President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
During the quarter ended December 31, 2024, 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.
(b) Management’s annual report on internal control over financial reporting.
Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as such term is defined in Rule 13a-15(f) in the Exchange Act. The Company’s internal control system is a process designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on our assessment we believe that, as of December 31, 2024, the Company’s internal control over financial reporting is effective based on those criteria.
ITEM 9B.
Other Information
None.
ITEM 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
PART III
ITEM 10.
Directors, Executive Officers and Corporate Governance
Directors and Executive Officers
Our Board of Directors is comprised of six members. The following sets forth certain information regarding our Board of Directors and executive officers who are not directors. Age information is as of December 31, 2024, and term as a director includes service with Territorial Savings Bank. With respect to directors, the biographies contain information regarding the person’s business experience and the experiences, qualifications, attributes or skills that caused the Board of Directors to determine that the person should serve as a director.
The biographies of each of the board members below contain information regarding the person’s business experience and the experiences, qualifications, attributes, or skills that caused the Nominating Committee and the Board of Directors to determine that the person should serve as a director. Each director is also a director of Territorial Savings Bank. Unless otherwise indicated, directors and executive officers have held their positions for the past five years.
All of the directors are long-time residents of the communities served by Territorial Bancorp Inc. and its subsidiaries and many of such individuals have operated, or currently operate, businesses located in such communities. As a result, each director has significant knowledge of the businesses that operate in Territorial Bancorp Inc.’s market area, an understanding of the general real estate market, values and trends in such communities, and an understanding of the overall demographics of such communities. Additionally, as residents of such communities, each director has direct knowledge of the trends and developments occurring in such communities. As the holding company for a community banking institution, Territorial Bancorp Inc. believes that the local knowledge and experience of its directors assists Territorial Bancorp Inc. in assessing the credit and banking needs of its customers, developing products and services to better serve its customers, and assessing the risks inherent in its lending operations, and provides Territorial Bancorp Inc. with greater business development opportunities. As local residents, our directors are also exposed to the advertising, product offerings, and community development efforts of competing institutions which, in turn, assists Territorial Bancorp Inc. in structuring its marketing efforts and community outreach programs.
Kirk W. Caldwell served as the Mayor of the City and County of Honolulu, Hawaii from 2010 until January 2, 2021, when his second elected term ended. The Charter of the City and County of Honolulu limits the term of Mayor to no more than two consecutive full terms. Mr. Caldwell served as Managing Director of the City and County of Honolulu from 2009 to 2010. Mr. Caldwell was Of Counsel to the law firm of Ashford & Wriston from 2011 to 2012, where he had worked from 1984 to 2009, including as partner. Much of his practice consisted of representing financial institutions, including Territorial Savings Bank. Prior to his appointment as Managing Director of the City and County of Honolulu, Mr. Caldwell served as the majority leader for the State of Hawaii House of Representatives and had served as a state representative from 2002 to 2008. Mr. Caldwell remains active in community affairs, has taught classes at the University of Hawaii Law School and at Hawaii Pacific University and is currently in the process of writing a book. Mr. Caldwell provides the Board of Directors with a significant understanding of the communities in which we operate. Moreover, his experience as an attorney that represented financial institutions continues to provide value to the Board. Age 72. Director since 2007.
Howard Y. Ikeda is the President of Ikeda and Wong, CPA, Inc., an independent public accounting firm in the State of Hawaii. Mr. Ikeda is a Certified Public Accountant licensed to practice in the State of Hawaii. He began his career with what is now KPMG LLP. In 1973, he founded Ikeda and Wong, which is one of the larger local accounting firms in Hawaii. Mr. Ikeda’s professional and business experience provide the Board of Directors with valuable insight into the accounting issues Territorial Bancorp Inc. faces and in assessing strategic transactions involving Territorial Bancorp Inc. and Territorial Savings Bank. His employment experience and expertise as a Certified Public Accountant qualifies him to be a member of the Audit Committee as a “financial expert” for purposes of the rules and regulations of the Securities and Exchange Commission. Age 79. Director since 1988.
Jennifer Isobe is a principal with the Hawaii accounting firm, KKDLY LLC, which is one of the larger local accounting firms in Hawaii. Prior to joining KKDLY LLC in 2014, she was a senior audit manager at KPMG LLP.
During the course of her career, she has had many clients that have been registered with or were subsidiaries of companies registered with the Securities and Exchange Commission. She has also been part of the audit team for several large Hawaii nonprofit entities, including the largest multi-billion dollar trust in Hawaii and one of the largest non-profit hospitals in Hawaii. She has served on the board of a number of large non-profit organizations and is very active in the business community in Hawaii. She is a Certified Public Accountant in Hawaii. Her presence adds depth to the financial expertise on the Board and, as an active practitioner, adds to the Board’s knowledge on current accounting developments. In addition, her experience qualifies her to be a member of the Audit Committee as a “financial expert” for purposes of the rules and regulations of the Securities and Exchange Commission. Age 66. Director since 2018.
Allan S. Kitagawa has served as Chairman of the Board and Chief Executive Officer of Territorial Savings Bank since 1986, and was named President in 2007. Mr. Kitagawa worked for American Savings and Loan Association from 1974 to 1986, including service as Executive Vice President and Chief Executive Officer of the Hawaii Division. Mr. Kitagawa was a Certified Public Accountant who began his career with what is now KPMG LLP. Under Mr. Kitagawa’s leadership, Territorial Savings Bank has grown significantly while the Bank’s conservative lending practices have resulted in continued low levels of nonperforming assets. Age 79. Director since 1986.
John M. Ohama is the Principal Broker for Honolulu Land Company, LLC, a firm he founded in 2012. His firm is engaged in the sale of real estate in Hawaii, with some property management services, with such activity primarily in residential real estate sales. Prior to founding his current firm, he was, for almost six years, the co-owner of another real estate firm, where he was the broker-in-charge of the sales side of the firm that also conducted property management. Prior to this co-venture, Mr. Ohama was the owner and principal of a larger real estate sales firm for over two decades that represented buyers and sellers of mostly residential real estate. That firm also conducted commercial real estate transactions and property management. He served for eight years on the Hawaii State Real Estate Commission, the state entity that oversees the real estate brokers and salespeople in Hawaii. He was appointed by two different Governors of the State of Hawaii and served as its chair for five of those years. He also remains an active member of the Honolulu Board of Realtors and has served in various capacities on their ethics and professional responsibility committees. Mr. Ohama’s daily involvement in residential real estate provides the Board of Directors with significant insight into the activity that constitutes the significant majority of Territorial Savings Bank’s lending activities. Age 66. Director since 2019.
Jan M. Sam is currently Of Counsel at the law firm of McCorriston Mukai MacKinnon LLP based in Honolulu, having joined the firm in 2022. Her practice concentrates on real estate law. Prior to joining the law firm, Ms. Sam was employed from 2015 to early 2022 at Pacific Guardian Life Insurance Company, Ltd., which is the largest domestic life and disability insurance company in Hawaii. Their products are sold not only in Hawaii but also on the West Coast and selected locations in the Pacific. Ms. Sam served as their Chief Risk Officer with responsibility for enterprise risk management. She was previously in their investment department, contributing to Pacific Guardian’s investment strategy as well as evaluating non-core asset classes as possible investments. Prior to Pacific Guardian Life, Ms. Sam was an officer in the commercial Real Estate and Corporate Banking Divisions of First Hawaiian Bank, one of Hawaii’s largest regional banks. Before attending law school, Ms. Sam was a management consultant with PricewaterhouseCoopers LLP. Age 47. Director since 2022.
Ms. Sam brings to the Board her insight into a new generation of customers and potential customers of Territorial Savings Bank. In addition, her professional background provides the Board with expertise in commercial real estate activity from a legal, life insurance and bank perspective, insurance agency sales and employee retirement benefits regarding pension plans and 401(k) plans.
The following provides information regarding our executive officers who are not directors of the Company.
Vernon Hirata has served as Territorial Savings Bank’s Vice Chairman, Co-Chief Operating Officer, General Counsel and Corporate Secretary since 2007. Mr. Hirata joined Territorial Savings Bank in 1986 as Senior Vice President/General Counsel, and was named Executive Vice President/General Counsel and Corporate Secretary in 1987. Previously, Mr. Hirata was employed at American Savings and Loan Association from 1978 to 1986, including service as Senior Vice President and Staff Attorney. Age 72.
Ralph Y. Nakatsuka joined Territorial Savings Bank in 2007 as Vice Chairman and Co-Chief Operating Officer, and was employed at American Savings Bank from 1980 to 2007, including service as Executive Vice President of Lending and Chief Lending Officer from 1997 to 2007 and Chief Financial Officer from 1987 to 1997. Mr. Nakatsuka is a Certified Public Accountant. Age 68.
Karen J. Cox has served as Executive Vice President of Territorial Savings Bank since August 1, 2022. Prior to that, she served as Senior Vice President of Administration of Territorial Savings Bank since 1984, and has been employed by Territorial Savings Bank since 1968. Ms. Cox is in charge of various areas, including human resources, information technology, and branch development and maintenance. Ms. Cox previously worked with other financial institutions in the State of Hawaii beginning in 1964. Age 79.
Troy Yoshimasu has served as Senior Vice President and Chief Lending Officer of Territorial Savings Bank since January 1, 2023. Mr. Yoshimasu was a Vice President in charge of loan underwriting for Territorial Savings Bank from 2017 to 2022. Mr. Yoshimasu has been employed at Territorial Savings Bank since 2000. Age 47.
Melvin M. Miyamoto has served as Executive Vice President of Territorial Savings Bank since August 1, 2022. Mr. Miyamoto was named Chief Financial Officer in 2015, having served as Senior Vice President and Treasurer of Territorial Savings Bank since 1986, and has been employed by Territorial Savings Bank since 1984. Mr. Miyamoto is a Certified Public Accountant. Age 71.
Delinquent Section 16(a) Reports
Our executive officers and directors, and beneficial owners of greater than 10% of our outstanding shares of common stock are required to file reports with the Securities and Exchange Commission disclosing beneficial ownership and changes in beneficial ownership of our common stock. Securities and Exchange Commission rules require disclosure if an executive officer, director, or 10% beneficial owner fails to file these reports on a timely basis.
Based solely on the review of copies of the reports we have received and written representations provided to us from the individuals required to file the reports, we believe that each of Chairman, President and Chief Executive Officer Allan S. Kitagawa, Vice Chairman and Co-Chief Operating Officer Vernon Hirata and Vice Chairman and Co-Chief Operating Officer Ralph Y. Nakatsuka filed a late Form 4 to report the award of restricted stock units, and that each of our executive officers and directors otherwise complied with applicable reporting requirements for transactions in Territorial Bancorp Inc. common stock during the year ended December 31, 2024.
Code of Ethics and Business Conduct
We have adopted a Code of Ethics and Business Conduct that is designed to promote the highest standards of ethical conduct by our directors, executive officers, and employees. The Code of Ethics and Business Conduct requires that our directors, executive officers, and employees avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner, and otherwise act with integrity and in our best interest. Under the terms of the Code of Ethics and Business Conduct, directors, executive officers, and employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of the Code of Ethics and Business Conduct. A copy of the Code of Ethics and Business Conduct can be found in the “About Us-Investor Relations-Corporate Governance” section of our website, www.tsbhawaii.bank. Amendments to and waivers from our Code of Ethics and Business Conduct will be disclosed in the “About Us-Investor Relations-Corporate Governance” section of our website.
As a mechanism to encourage compliance with the Code of Ethics and Business Conduct, we have established procedures to receive, retain, and treat complaints regarding accounting, internal accounting controls, and auditing matters. These procedures ensure that individuals may submit concerns regarding questionable accounting or auditing matters in a confidential and anonymous manner. The Code of Ethics and Business Conduct also prohibits us from retaliating against any director, executive officer, or employee who reports actual or apparent violations of the Code of Ethics and Business Conduct.
In addition, we have adopted a Code of Ethics for Senior Officers that is applicable to our senior financial officers, including our principal executive officer, principal financial officer, principal accounting officer, and all officers performing similar functions. A copy of the Code of Ethics for Senior Officers can be found in the “About Us-Investor Relations-Corporate Governance” section of our website, www.tsbhawaii.bank. Amendments to and waivers from our Code of Ethics for Senior Officers will be disclosed in the “About Us-Investor Relations-Corporate Governance” section of our website.
Stockholder Recommendations for Director Candidates
It is the policy of the Nominating and Corporate Governance Committee of the Board of Directors of the Company to consider director candidates recommended by stockholders who appear to be qualified to serve on the Company’s Board of Directors. The Nominating and Corporate Governance Committee, which is comprised solely of nonemployee directors, all of whom the Board has determined are independent in accordance with the listing standards of the NASDAQ Stock Market, Inc., may choose not to consider an unsolicited recommendation if no vacancy exists on the Board of Directors and the Nominating and Corporate Governance Committee does not perceive a need to increase the size of the Board of Directors. To avoid the unnecessary use of the Nominating and Corporate Governance Committee’s resources, the Nominating and Corporate Governance Committee will consider only those director candidates recommended in accordance with the procedures set forth below.
Procedures to be Followed by Stockholders
To submit a recommendation of a director candidate to the Nominating and Corporate Governance Committee, a stockholder should submit the following information in writing to the main office of the Company, addressed to the Chairman of the Nominating and Corporate Governance Committee, care of the Corporate Secretary, Territorial Bancorp Inc., P.O. Box 135040, Honolulu, Hawaii 96801:
(1) a statement that the writer is a stockholder and is proposing a candidate for consideration by the Committee;
(2) the name and address of the stockholder as they appear on the Company’s books, and number of shares of the Company’s common stock that are owned beneficially by the stockholder (if the stockholder is not a holder of record, appropriate evidence of the stockholder’s ownership will be required);
(3) the name, address, and contact information for the candidate, and the number of shares of common stock of the Company that are owned by the candidate (if the candidate is not a holder of record, appropriate evidence of the candidate’s share ownership should be provided);
(4) a statement of the candidate’s business and educational experience;
(5) such other information regarding the candidate as would be required to be included in the proxy statement pursuant to Securities and Exchange Commission Regulation 14A;
(6) a statement detailing any relationship between the candidate and any customer, supplier, or competitor of the Company;
(7) detailed information about any relationship or understanding between the proposing stockholder and the candidate; and
(8) a statement that the candidate is willing to be considered and willing to serve as a director if nominated and elected.
To be timely, the submission of a candidate for director by a stockholder must be received by the Corporate Secretary at least 180 days prior to the anniversary date of the proxy statement relating to the preceding year’s annual meeting of stockholders.
Audit Committee
The Audit Committee operates under a written charter that is available in the “About Us-Investor Relations-Corporate Governance” section of the Company’s website, www.tsbhawaii.bank. Pursuant to Territorial Bancorp Inc.’s Audit Committee Charter, the Audit Committee assists the Board of Directors in its oversight of the Company’s accounting and reporting practices, the quality and integrity of the Company’s financial reports and the Company’s compliance with applicable laws and regulations. The Audit Committee is also responsible for engaging the Company’s independent registered public accounting firm and monitoring its conduct and independence. The Audit Committee is comprised of Directors Howard Y. Ikeda, John M. Ohama and Jennifer Isobe. All members of each committee are independent in accordance with the listing standards of the NASDAQ Stock Market, Inc. In addition to meeting the independence requirements of the NASDAQ Stock Market, Inc., each member of the Audit Committee meets the audit committee independence requirements of the Securities and Exchange Commission. The Board of Directors has designated Howard Y. Ikeda and Jennifer Isobe as audit committee financial experts under the rules of the Securities and Exchange Commission.
Insider Trading Policies and Procedures
The Board of Directors has adopted an Insider Trading Policy, which governs the purchase, sale, and/or other dispositions of the Company’s securities by directors, officers and employees, that are reasonably designed to promote compliance with insider trading laws, rules and regulations, and listing standards applicable to the Company.
ITEM 11.
Executive Compensation
Executive Officer Compensation
Summary Compensation Table. The table below summarizes the total compensation paid to or earned by our Named Executive Officers for the years ended December 31, 2024 and 2023, as calculated under Securities and Exchange Commission rules. Cash compensation earned for the applicable year is reported in the “Salary,” “Nonequity Incentive Plan Compensation” and the “All Other Compensation” columns. The “Bonus,” “Option Awards” and “Nonqualified Deferred Compensation Earnings” columns have been omitted as no compensation that would be disclosed in that column was earned during the applicable years.
Stock
Non-Equity
Awards
Incentive Plan
All Other
Name and Principal Position
Year
Salary ($)
($)(1)
Compensation ($)(2)
Compensation ($)
Total ($)
Allan S. Kitagawa
851,124
182,983
38,301
79,457 (3)
1,151,865
Chairman of the Board, President, and Chief Executive Officer
851,124
309,350
38,301
121,733
1,320,508
Vernon Hirata
354,530
76,222
15,954
49,527 (4)
496,233
Vice Chairman, Co-Chief Operating Officer, General Counsel, and Corporate Secretary
354,530
128,863
15,954
65,335
564,682
Ralph Y. Nakatsuka
354,530
76,222
15,954
29,028 (5)
475,734
Vice Chairman and Co-Chief Operating Officer
354,530
128,863
15,954
48,579
547,926
(1) Reflects the aggregate grant date fair value of restricted stock units, half of which have performance-based vesting and half of which have time-based vesting, with such awards calculated at the “Target” level. The assumptions used in the valuation of these awards are included in Note 19 to our audited financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2024. At the “Maximum” level, for the year ended December 31, 2024, the aggregate grant date fair value was $249,177, $103,796 and $103,796 for Messrs. Kitagawa, Hirata and Nakatsuka, respectively, and for the year ended December 31, 2023, the aggregate grant date fair value was $386,142, $160,848 and $160,848 for Messrs. Kitagawa, Hirata and Nakatsuka, respectively.
(2) The amounts in this column represent the dollar value of the cash incentives earned under the Annual Incentive Plan.
(3) Includes $1,150 for 401(k) plan matching contributions, $3,118 for long-term care premiums, $10,287 for personal use of company automobile, $2,340 for parking, $10,413 for club dues and fees, $8,300 for ESOP allocations, $27,352 for non-qualified supplemental ESOP allocations, $3,424 for life insurance, $8,885 for cash dividends paid when incentive-based equity awards vested and $4,188 for professional estate planning services.
(4) Includes $1,150 for 401(k) plan matching contributions, $20,594 for personal use of company automobile, $1,740 for parking, $7,882 for club dues and fees, $8,300 for ESOP allocations, $3,386 for non-qualified supplemental ESOP allocations, $2,566 for life insurance and $3,909 for cash dividends paid when incentive-based equity awards vested.
(5) Includes $1,150 for 401(k) plan matching contributions, $2,498 for long-term care premiums, $1,740 for parking, $7,257 for club dues and fees, $8,300 for ESOP allocations, $2,437 for non-qualified supplemental ESOP allocations, $1,737 for life insurance and $3,909 for cash dividends paid when incentive-based equity awards vested.
For the year ended December 31, 2024, cash payments under our Annual Incentive Plan were paid in March 2025 in the amounts listed in the “Summary Compensation Table.” For a discussion of this plan, see “-2024 Annual Incentive Plan.”
Pay Versus Performance Table. We are providing the following information about the relationship between “compensation actually paid” to our Principal Executive Officer (“PEO”) and to our Non-PEO NEOs and certain financial performance of the Company. Compensation actually paid, as determined under SEC requirements, does not reflect the actual amount of compensation earned by or paid to our executive officers during a covered year. For further information concerning the Company’s pay-for-performance philosophy and how the Company aligns executive compensation with the Company’s performance, refer to the Compensation Discussion and Analysis.
Year
Summary Compensation Table Total for PEO
Compensation Actually Paid to PEO
Average Summary Compensation Table Total for Non-PEO NEOs
Average Compensation Actually Paid to Non-PEO NEOs
Value of Initial Fixed $100 Investment Based On Total Shareholder Return
Net Income
$
1,151,865
$
1,122,030
$
485,984
$
472,950
$
$
(4,299)
$
1,320,508
$
888,155
$
556,304
$
374,378
$
$
5,027
$
1,599,583
$
1,453,892
$
681,294
$
620,227
$
$
16,156
Allan S. Kitagawa served as Principal Executive Officer for each of the years presented in the table. Compensation actually paid to Mr. Kitagawa for each of the years presented in the table, as calculated in accordance with Securities and Exchange Commission regulations and presented in the Summary Compensation Table (“SCT”), was as follows:
Total Compensation as reported in SCT
$
1,518,658
$
1,320,538
$
1,599,583
Fair value of equity awards granted during fiscal year
(182,983)
(309,350)
(312,357)
Fair value of equity compensation granted in current year at year end
164,717
96,432
264,368
Dividends paid on unvested shares/share units
5,247
3,744
15,297
Change in fair value from end of prior fiscal year to end of current fiscal year for awards made in prior fiscal years that were unvested at end of current fiscal year
4,840
(191,345)
(106,879)
Change in fair value from end of prior fiscal year to vesting date for awards made in prior fiscal years that vested during current fiscal year
(21,656)
(31,534)
(6,120)
Compensation Actually Paid to PEO
$
1,122,030
$
888,135
$
1,453,892
The named executive officers for each of the years presented in the table are Vernon Hirata and Ralph Y. Nakatsuka. The average compensation actually paid to named executive officers other than the Principal Executive Officer for each of the years presented in the table, as calculated in accordance with SEC regulations, was as follows:
Total Compensation as reported SCT
$
485,984
$
556,304
$
681,294
Fair value of equity awards granted during fiscal year
(76,222)
(128,863)
(130,115)
Fair value of equity compensation granted in current year at year end
68,614
40,174
110,113
Dividends paid on unvested shares/share units
2,202
1,679
6,359
Change in fair value from end of prior fiscal year to end of current fiscal year for awards made in prior fiscal years that were unvested at end of current fiscal year
1,828
(83,049)
(44,890)
Change in fair value from end of prior fiscal year to vesting date for awards made in prior fiscal years that vested during current fiscal year
(9,456)
(11,867)
(2,534)
Average Compensation Actually Paid to Non-PEO NEOs
$
472,950
$
374,378
$
620,227
Fair value was computed in accordance with the Company’s methodology used for financial reporting purposes.
Total shareholder return value represents the Company's TSR based on an initial $100 investment on December 31, 2021, assuming the reinvestment of dividends.
Net Income is calculated in accordance with GAAP and reflects the amounts reported in the Company’s Annual Report on Form 10-K for the applicable year,
The following chart sets forth the relationship between Compensation Actually Paid to our PEO, the average of Compensation Actually Paid to our other Non-PEO NEOs, and the Company’s cumulative TSR over the three most recently completed fiscal years.
The following chart sets forth the relationship between Compensation Actually Paid to our PEO, the average of Compensation Actually Paid to our other Non-PEO NEOs, and our net income during the three most recently completed fiscal years.
2024 Annual Incentive Plan (AIP)
The AIP is designed to motivate senior executives to attain superior annual performance in key areas that we
believe create long-term value to us and our stockholders. Awards under the AIP are determined based upon a combination of absolute and relative performance metrics. Absolute metrics are based on our business plan, adopted by the Board of Directors and selected as important performance goals by the Compensation Committee.
All Named Executive Officers had a threshold, target and stretch opportunity as shown below. Target opportunities are intentionally conservative relative to market median to place more focus on long-term compensation.
Named Executive Officer
Threshold % of Salary
Target % of Salary
Maximum % of Salary
Allan S. Kitagawa
15%
30%
45%
Vernon Hirata
15%
30%
45%
Ralph Y. Nakatsuka
15%
30%
45%
The Compensation Committee continued to use net income, return on average assets (“ROAA”), non-performing assets/assets (“NPA”), and efficiency ratio as metrics for the 2024 AIP. The macro economic environment, including rising interest rates, was forecasted to negatively impact the Company’s financial results. The 2024 net income target was set based on our budget. ROAA and NPAs were established using our budget. ROAA is a profitability measure, and the NPA ratio reinforces our goal of maintaining strong credit quality. A lower NPA ratio mitigates the risk of lowering loan underwriting standards to increase loan production through increased residential mortgage loan volume.
The table below provides the performance required for payouts at the threshold, target and maximum levels, performance level achieved and the resulting payout.
2024 AIP Performance Goals
Measure
Weighting
Threshold
Target
Maximum
Net Income (thousands)
60%
$5,243
$6,554
$7,865
ROAA
20%
0.26%
0.33%
0.40%
Non-performing assets/total assets (1)
10%
35th
55th
75th
Efficiency Ratio
10%
97.01%
80.84%
64.37%
Payout Range (% of target)
100%
50%
100%
150%
(1) 2024 goals calculated as a percentile comparison to a custom industry index (the same index as for the LTIP).
Performance for 2024 resulted in the following payouts:
Measure
Weight
2024 Results
Performance (as % of Target)
Net Income (thousands)
60%
($4,299)
0%
ROAA
20%
0.23%
0%
Non-performing assets/total assets
10%
Above 75th percentile
150%
Efficiency Ratio
10%
111.63%
0%
Total (weighted)
100%
15%
Performance on these measures resulted in a payout of 15% of the target level and resulted in payments to the NEOs of $38,301 for Mr. Kitagawa and $15,954 for each of Messrs. Hirata and Nakatsuka.
LTIP Program
The current LTIP program has been the same since 2017 and consists of performance-vested restricted stock units and time-vested restricted stock units, each weighted at 50%.
Each participant had an annual target award opportunity (defined as a percentage of base salary at the start of the grant cycle) that reflects a competitive total compensation package for their role. Threshold performance earns
18.3% of base salary, target earns 36.7% of base salary and stretch performance earns 55% of base salary. These values were based on a maximum award of 55% of base salary with threshold equivalent to 33% of maximum and target equivalent to 66.7% of maximum.
2024 LTIP awards are granted as follows:
◾ Performance-vested Restricted Stock Units - PRSUs (50% of target award value) reward future performance; awards will vest based on achievement of performance relative to an industry index. Grants are earned and cliff vest after three years based on actual performance. PRSUs will vest within 120 days after the end of each performance period (once performance can be calculated and reviewed and approved by the Committee).
◾ Time-vested Restricted Stock Units - TRSUs (50% of target awards) reinforce retention and share ownership/alignment with stockholders as well as provide reward for contributions/performance. Grants vest ratably over three years.
The table below reflects the performance metrics selected for the PRSUs for the 2024 to 2026 performance cycle and performance goals. We require our performance to exceed the median of the industry index to receive our target award, which we believe is a leading best practice.
Performance will be measured based on our performance relative to financial institutions included in the custom industry index (NASDAQ-traded US Thrifts with Assets between $1 billion and $10 billion as of December 31, 2024).
Measure
Weight
Threshold
Target
Stretch
3-year TSR - Relative to index
20%
35th Percentile
55th Percentile
75th Percentile
3-year Avg. Return on Average Equity - Relative to index
80%
35th Percentile
55th Percentile
75th Percentile
Payout Range (% of Target)
100%
50%
100%
150%
2022 to 2024 LTIP Performance Results
PRSUs are granted at the start of each performance period. For 2022 to 2024 LTIP cycle, the performance period ran from January 1, 2022 to December 31, 2024. The vesting (i.e. earning) of the award was contingent on actual performance of pre-defined measures at the end of the performance period (i.e. third year).
In order for PRSUs to be vested/earned, performance must be at or above the threshold performance set by the Committee. Actual vesting after three years was interpolated on a straight-line basis between threshold, target and stretch to reward incremental performance. Vesting will range from 50% of target for achieving threshold performance and 150% of target for achieving stretch performance.
The table below reflects the performance metrics selected for the PRSUs for the 2022 to 2024 performance cycle and resulting payout/vesting. Performance was measured based on our performance relative to an industry index reflecting financial institutions included in the SNL US Thrift Index with assets between $1 billion and $10 billion.
Measure
Wt.
Threshold
Target
Stretch
Actual Performance (Performance Factor)
Payout as % of target Incentive (Wt. x Perf. Factor)
3-year TSR-Relative to Industry Index
20%
35th Percentile
55th Percentile
75th Percentile
0th Percentile
0.00%
3-year Average Return on Average Equity- Relative to Industry Index
80%
35th Percentile
55th Percentile
75th Percentile
27th Percentile
0.00%
Payout Range (% of Target)
100%
50%
100%
150%
0.00%
Based on the performance above, the Committee vested the performance RSUs below to the Named Executive Officers.
Name
2022-2024 RSUs Granted [a]
Payout as % of Target Award [b]
Earned Shares [c] = [a] x [b]
Kitagawa
6,552
41.99%
2,751
Hirata
2,729
41.99%
1,146
Nakatsuka
2,729
41.99%
1,146
Executive Benefits
We offer various benefits to all of our employees, including medical, dental, vision, group life, accidental death and dismemberment and long-term disability insurance. We provide individual coverage to employees, with the employee being responsible for a portion of the premium. In addition, for our Named Executive Officers, we pay or furnish transportation services, parking, club dues, long-term care insurance, spousal travel, and up to $5,000 in personal tax and financial planning assistance (up to $6,000 for Mr. Kitagawa) annually. The Compensation Committee believes these benefits are appropriate and assist these officers in fulfilling their employment obligations.
Executive Agreements
We maintain employment agreements with Messrs. Kitagawa, Hirata and Nakatsuka, which provide severance payments in the event of involuntary or good reason termination of employment or termination following a change in control. The rationale for providing these payments is to provide security for our key executives and stability among our senior management team. For a discussion of these agreements, see “-Employment Agreements” below.
Deductibility of Compensation
Section 162(m) of the Internal Revenue Code generally provides that no deduction is allowed for compensation in excess of $1 million paid by a public company to its chief executive officer or any of its other three most highly paid executive officers (other than the chief financial officer). The Compensation Committee recognizes that paying certain compensation that is not tax-deductible may sometimes be in our best interest, and to that end we do not have a policy requiring that all compensation must be deductible.
Annual Risk Review of Compensation Policies and Procedures
The Compensation Committee is responsible for the oversight of employee compensation policies and procedures, including the determination of whether any material risk arises from our compensation policies and procedures. The Compensation Committee has reviewed our compensation policies and procedures, including those related to the payment of commissions and bonuses to any of our employees, and believes that any risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on Territorial Bancorp Inc. and Territorial Savings Bank. The Committee has evaluated the risks of its incentive compensation arrangements in accordance with published bank regulatory guidance on safety and soundness of incentive compensation. The Committee also works with an independent compensation consultant when designing the compensation of our Named Executive Officers.
Outstanding Equity Awards at Year End
The following table sets forth information with respect to outstanding equity awards as of December 31, 2024 for the Named Executive Officers.
Outstanding Equity Awards At December 31, 2024
Stock Awards
Name
Number of Shares or Units of Stock That Have Not Vested (#)(1)
Market Value of Shares or Units of Stock That Have Not Vested ($)(2)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(3)
Equity Incentive Plan Awards: Market Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2)
Allan S. Kitagawa
21,800
$212,114
29,171
$283,834
Vernon Hirata
9,212
$89,633
12,151
$118,229
Ralph Y. Nakatsuka
9,212
$89,633
12,151
$118,229
______________
(1) Time-vested restricted stock units vest April 3, 2025 as follows: Mr. Kitagawa, 2,692 shares; Messrs. Hirata and Nakatsuka, 1,121 shares. Additional time-vested restricted stock units vest April 3, 2026 as follows: Mr. Kitagawa, 2,692 shares; Messrs. Hirata and Nakatsuka, 1,122 shares. Additional time-vested restricted stock units vest April 4, 2025 as follows: Mr. Kitagawa, 1,870 shares; Messrs. Hirata and Nakatsuka, 910 shares. Additional time-vested restricted stock units vest April 18, 2025 as follows: Mr. Kitagawa; 4,848 shares; Messrs. Hirata and Nakatsuka, 2,019 shares. Additional time-vested restricted stock units vest April 18, 2026 as follows: Mr. Kitagawa; 4,849 shares; Messrs. Hirata and Nakatsuka, 2,020 shares. Additional shares vest April 18, 2027 as follows: Mr. Kitagawa 4,849 shares; Messrs. Hirata and Nakatsuka, 2,020 shares.
(2)
Computed using the fair market value of the shares based on the Company’s closing stock price of $9.73 on December 31, 2024, the last trading day of 2024.
(3)
Performance-based restricted stock units vest within 120 days from the end of the performance period upon the achievement of performance goals, as measured over a three-year period (2022 to 2024, 2023 to 2025 and 2024 to 2026).
Employment Agreements
Territorial Savings Bank has entered into separate employment agreements with Messrs. Kitagawa, Hirata, and Nakatsuka (referred to below as the “executives” or “executive”). Territorial Bancorp Inc. has entered into separate employment agreements with each executive, which have essentially identical provisions as the Territorial Savings Bank agreements, except that the employment agreements will provide that Territorial Bancorp Inc. will make any payments not made by Territorial Savings Bank under its agreements with the executives and that the executives will not receive any duplicate payments. Our continued success depends to a significant degree on the skills and competence of these officers, and the employment agreements are intended to ensure that we maintain a stable management base following the offering.
The employment agreements each provide for three-year terms, subject to annual renewal by the Board of Directors for an additional year beyond the then-current expiration date. The current base salaries under the employment agreements are $851,124 for Mr. Kitagawa, $354,530 for Mr. Hirata, and $354,530 for Mr. Nakatsuka. The agreements also provide for participation in employee benefit plans and programs maintained for the benefit of senior management personnel, including discretionary bonuses, participation in stock-based benefit plans, and certain fringe benefits as described in the agreements.
Upon termination of an executive’s employment for cause, as defined in each of the agreements, the executive will receive no further compensation or benefits under the agreement. If we terminate the executive for reasons other than for cause or if the executive terminates voluntarily under specified circumstances that constitute constructive termination, the executive will receive an amount equal to the base salary and cash bonus and employer contributions to benefit plans that would have been payable for the remaining term of the agreement. We will also continue to pay for each executive’s life, health, and dental coverage for up to three years, with the executive responsible for his share of the employee premium.
If the executive terminates employment for any reason other than for cause within 12 months following a change in control, the executive will receive the greater of (a) the amount he would have received if we terminated the executive for a reason other than for cause or if the executive voluntarily terminated under specified circumstances that constitute constructive termination (as described in the immediately preceding paragraph), or (b) three times his prior five-year average of taxable compensation less one dollar. We will also continue to pay for each executive’s life, health, and dental coverage for up to three years, with the executive responsible for his share of the employee premium.
Upon termination of employment (other than a termination in connection with a change in control), each executive will be required to adhere to a one-year noncompetition provision. The executive will be required to release us from any and all claims in order to receive any payments and benefits under his agreement. We will agree to pay all reasonable costs and legal fees of the executives in relation to the enforcement of the employment agreements, provided the executives succeed on the merits in a legal judgment, arbitration proceeding, or settlement. The employment agreements also provide for indemnification of the executives to the fullest extent legally permissible.
Separation Pay Plan
The Territorial Savings Bank Separation Pay Plan provides severance benefits to eligible employees whose employment is involuntarily terminated within 24 months after a change in control of Territorial Bancorp Inc. All regular employees who do not receive severance pay under an employment or change in control agreement are participants in this plan. Terminated employees will receive a severance payment of one month of base compensation for each year of service, up to a maximum of 24 months of base compensation, and employees who are at the level of Senior Vice President or above will receive a minimum severance payment of 12 months of base compensation. In addition, terminated employees who are at the level of Senior Vice President and above will also be eligible to continue to participate in our health insurance plan for up to one year, with the employee responsible for their share of the employee premium.
Pension Plan. Territorial Savings Bank sponsors the Territorial Savings Bank Employee Retirement Plan, a defined benefit pension plan that covers a significant portion of our employees. Employees become eligible for participation in the pension plan on the first day of the calendar month on or after completing one year of service and attaining age 21. Effective December 31, 2008, the pension plan was frozen, such that no further benefit accruals will be earned after that date; however, participants will continue to earn vesting credit.
Participants in the pension plan become fully vested in their retirement benefits upon completion of five years of service. They also become 100% vested upon attaining age 65 or upon death. A participant who terminates employment on or after reaching age 65 is entitled to the full retirement benefit. A participant’s normal retirement benefit is generally based on a formula that takes into account the amount credited under the pension plan for service before January 1, 1984, and the amount credited under the pension plan for service from 1984 to 1998 and the amount credited from 1998 to 2008, as well as salary and certain other compensation. The plan does not grant additional years of service for any purpose.
The pension plan permits early retirement at age 55. Participants who retire after age 65 will be entitled to the full amount of their benefit, generally calculated through their late retirement date. Eligible participants who elect an early retirement benefit will receive a reduced normal retirement benefit. As of December 31, 2024, each of Messrs. Kitagawa, Hirata and Nakatsuka was eligible for normal retirement.
The normal form of retirement for participants who are not married is a single life annuity. The normal form of retirement benefit for participants who are married is a 50% joint and survivor annuity. Other optional forms of benefit are available, such as an early retirement benefit, and all optional forms of benefit are the actuarial equivalent of the normal form (e.g., a participant does not receive more or less by selecting an optional form of benefit). In the event of the participant’s death, benefits normally will be paid to the participant’s spouse unless the spouse consents to an alternative beneficiary in writing. In the event of death any time after a participant is vested or eligible for a pension benefit, provided the participant has been married for at least one year and provided that benefits have not commenced at the time of death, the participant’s spouse may either receive the full benefit when the participant would have reached age 65 or receive a reduced benefit any time after the deceased participant would have attained age 55.
Supplemental Executive Retirement Agreements
We provide supplemental executive retirement benefits to each of Messrs. Kitagawa, Hirata, and Nakatsuka. Under Mr. Kitagawa’s agreement, he is entitled to receive an amount equal to the present value of $600,000 per year for 15 years payable in a lump sum on the first day of the month upon retirement after attaining age 66. Under the agreements with Messrs. Hirata and Nakatsuka, each executive will receive an annual benefit upon retirement after age 66 equal to 65% of the average of his compensation for the three years immediately preceding his termination of employment reduced by the sum of the benefits payable under the pension plan and Social Security benefits. Mr. Hirata’s benefits will be paid in monthly installments for 15 years and Mr. Nakatsuka will receive a lump sum equal to the present value of installments over 15 years.
For Mr. Kitagawa and Mr. Hirata, if their employment is terminated within three years following a change in control, they will receive their normal retirement benefit without any reduction for amounts payable under the pension plan or Social Security. All amounts are paid as a lump sum, except Mr. Hirata will receive installments for 15 years. The agreements contain change of control “tax gross up” provisions such that if a payment to any of the three executives exceeds the limit on such payments pursuant to Internal Revenue Code Section 280G, and thereby imposes an excise tax on the officer, Territorial Savings Bank, or its successor, will pay such executive additional amounts to compensate for the excise tax.
In the event of disability or death, Messrs. Hirata and Nakatsuka will receive the same benefit as if they had terminated employment following a change in control. Upon death, Mr. Kitagawa’s designee will receive a lump-sum payment equal to the present value of his projected normal retirement benefit and upon disability Mr. Kitagawa will receive a lump sum equal to the amount accrued for accounting purposes under the plan.
No benefits are payable in the event of termination for cause.
Supplemental Employee Stock Ownership Plan
Territorial Savings Bank adopted the Supplemental Employee Stock Ownership Plan (“Supplemental ESOP”) effective January 1, 2009, to provide certain executives with benefits that they otherwise would be entitled to under the tax-qualified Employee Stock Ownership Plan (“ESOP”), but for limitations imposed by the Internal Revenue Code. During 2023, three employees participated in the Supplemental ESOP. The Compensation Committee of the Board of Directors of Territorial Savings Bank administers the Supplemental ESOP. Each year, participants in the Supplemental ESOP are credited with a dollar amount equal to the difference between the value of the shares of our common stock that would have been allocated to the participant under the tax-qualified ESOP, but for the limitations imposed by the Internal Revenue Code, and the actual value of shares of our common stock allocated to the participant under the ESOP for the relevant plan year. Participants in the Supplemental ESOP may direct the investment of their Supplemental ESOP accounts among a select group of broadly diversified mutual funds selected by the Compensation Committee. Benefits are generally payable in a cash lump sum within 90 days of the first to occur of: (i) the participant’s separation from service; (ii) the participant’s death; (iii) the participant’s disability; or (iv) a change in control of Territorial Savings Bank or Territorial Bancorp Inc., but, in order to comply with Section 409A of the Internal Revenue Code, payments will be delayed for six months for any “specified employee” (as defined in Section 409A of the Internal Revenue Code).
Tax-Qualified Benefit Plans
Territorial Savings Bank 401(k) Plan. We sponsor the Territorial Savings Bank 401(k) Plan, a tax-qualified defined contribution plan, for all employees who have satisfied the plan’s eligibility requirements. Employees may begin deferring their compensation and are eligible to receive matching contributions and profit-sharing contributions as of the first day of the month following the completion of 12 months of employment during which they worked at least 1,000 hours. All contributions are 100% vested.
Employee Stock Ownership Plan. Effective January 1, 2009, Territorial Savings Bank adopted an employee stock ownership plan for eligible employees. Eligible employees who have attained age 21 generally begin participation
in the ESOP on the later of the effective date of the ESOP or on or after the eligible employee’s completion of 1,000 hours of service during a continuous 12-month period.
The ESOP trustee purchased, on behalf of the ESOP, 978,650 shares of our common stock issued in the offering. The ESOP funded its stock purchase with a loan from us equal to the aggregate purchase price of the common stock. The loan will be repaid principally through Territorial Savings Bank’s contribution to the ESOP and dividends payable on common stock held by the ESOP over the anticipated 20-year term of the loan. The interest rate for the ESOP loan is an adjustable rate equal to the prime rate, as published in The Wall Street Journal, which adjusts annually.
The trustee holds the shares purchased by the ESOP in an unallocated suspense account, and shares are released from the suspense account on a pro-rata basis as we repay the loan. The trustee allocates the shares released among participants on the basis of each participant’s proportional share of compensation relative to all participants. Participants become 100% vested upon the completion of three years of service. Participants also will become fully vested automatically upon normal retirement, death, or disability, a change in control, or termination of the ESOP. Generally, participants will receive distributions from the ESOP upon separation from service. The ESOP reallocates any unvested shares forfeited upon termination of employment among the remaining participants.
The ESOP permits participants to direct the trustee as to how to vote the shares of common stock allocated to their accounts. The trustee votes unallocated shares and allocated shares for which participants do not provide instructions on any matter in the same ratio as those shares for which participants provide instructions, subject to fulfillment of the trustee’s fiduciary responsibilities.
Under applicable accounting requirements, Territorial Savings Bank records compensation expense for the ESOP at the fair market value of the shares as they are committed to be released from the unallocated suspense account to participants’ accounts. The compensation expense resulting from the release of the common stock from the suspense account and allocation to plan participants results in a corresponding reduction in our earnings.
Director Fees
The same individuals serve as the directors of Territorial Savings Bank and Territorial Bancorp, Inc. Each of Territorial Savings Bank’s outside directors receives an annual retainer for board meetings of $32,650 per year and an annual retainer for committee meetings of $2,450 per year. Each of Territorial Bancorp Inc.’s outside directors receives an annual retainer for board meetings of $5,100 per year and an annual retainer for committee meetings of $615 per year. The retainer fees are increased to the following amounts for the following committees: the Chairman of Territorial Savings Bank’s Audit Committee receives a committee retainer of $2,650 and the Chairman of Territorial Bancorp Inc.’s Audit Committee receives a committee retainer of $8,570; the Chairman of Territorial Savings Bank’s Compensation Committee receives a committee retainer of $4,900; and the Chairman of Territorial Bancorp Inc.’s Compensation Committee receives a committee retainer of $1,225. Receipt of full retainer payments is based upon a director attending at least 75% of board or committee meetings, as applicable, with reductions for the failure to attend such number of board or committee meetings.
Component
Holding Company Board
Bank Board
Annual Board Retainer
$5,100
$32,600
Committee Member Retainer
$615
$2,450
Audit Committee Chair Retainer
$8,570
$2,650
Compensation Committee Chair Retainer
$1,225
$4,900
The following table sets forth for the year ended December 31, 2024, certain information as to the total remuneration we paid to our directors. Mr. Kitagawa does not receive separate fees for service as a director.
Director Compensation Table for the Year Ended
December 31, 2024
Name
Fees earned or paid in cash ($)
Total ($)
Howard Y. Ikeda
48,980
48,980
Kirk W. Caldwell
43,892
43,892
Francis E. Tanaka (1)
6,802
6,802
Jennifer Isobe
40,832
40,832
John M. Ohama
40,832
40,832
Jan M. Sam
40,832
40,832
(1) Mr. Tanaka retired from the Board of Directors in February 2024.
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table provides information as of December 31, 2024, with respect to persons known by the Company to be the beneficial owners of more than 5% of the Company’s outstanding common stock. A person may be considered to own any shares of common stock over which he or she has, directly or indirectly, sole or shared voting or investing power. Percentages are based on 8,832,210 shares of Company common stock issued and outstanding as of December 31, 2024.
Name and Address
Number of Shares Owned
Percent of Common Stock Outstanding
Wellington Management Co., LLP (1)
874,388
9.90%
280 Congress Street
Boston, Massachusetts 02210
Territorial Savings Bank Employee Stock Ownership Plan
838,101
9.49%
1003 Bishop Street, Suite 500
Honolulu, Hawaii 96813
Bay Pond Partners, L.P. (2)
545,780
6.18%
c/o Wellington Management Company LLP
280 Congress Street
Boston MA 02210
AllianceBernstein L.P. (3)
500,523
5.67%
501 Commerce Street
Nashville, Tennessee 37203
___________________
(1)
As disclosed in Schedule 13G/A filed with the Securities and Exchange Commission on November 8, 2024.
(2)
As disclosed in Schedule 13G filed with the Securities and Exchange Commission on February 14, 2025.
(3)
As disclosed in Schedule 13G/A filed with the Securities and Exchange Commission on February 24, 2024.
The table below sets forth certain information regarding our directors, nominees proposed by the Board of Directors, and executive officers. Shares beneficially owned include shares of common stock over which a person has, directly or indirectly, sole or shared voting or investment power. Unless otherwise indicated, none of the shares listed are pledged
as security, and each of the named individuals has sole voting power and sole investment power with respect to the number of shares shown. Percentages of common stock owned are based on 8,832,210 shares of Company common stock issued and outstanding as of December 31, 2024.
Number of Shares Owned
Percent of Common Stock Outstanding
DIRECTORS
Kirk W. Caldwell
34,227
*
Howard Y. Ikeda
40,300
(1)
*
Jennifer Isobe
-
-
Allan S. Kitagawa
262,230
(2)
2.97%
John M. Ohama
10,000
(3)
*
Jan M. Sam
-
-
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Vernon Hirata
179,043
(4)
2.03%
Ralph Y. Nakatsuka
186,922
(5)
2.12%
Karen J. Cox
48,886
(6)
*
Troy Yoshimasu
7,313
(7)
*
Melvin M. Miyamoto
43,437
(8)
*
All Directors and Executive Officers as a Group (12 persons)
812,358
9.20%
*
Less than 1%.
(1)
Includes 3,200 shares held by an individual retirement account and 10,022 shares owned by Mr. Ikeda’s spouse.
(2)
Includes 42,321 shares held through the Territorial Savings Bank 401(k) Plan, 17,742 shares held through the Territorial Savings Bank Employee Stock Ownership Plan, 14,546 restricted stock units and 10,000 shares owned by Mr. Kitagawa’s spouse.
(3)
All of such shares are held by an estate over which Mr. Ohama is the executor.
(4)
Includes 57,774 shares held through the Territorial Savings Bank 401(k) Plan, 17,742 shares held through the Territorial Savings Bank Employee Stock Ownership Plan, 6,059 restricted stock units, 15,600 shares held in trust and 441 shares owned by Mr. Hirata’s spouse.
(5)
Includes 17,742 shares held through the Territorial Savings Bank Employee Stock Ownership Plan and 6,059 restricted stock units.
(6)
Includes 14,604 shares held through the Territorial Savings Bank 401(k) Plan, 15,156 shares held through the Territorial Savings Bank Employee Stock Ownership Plan and 500 shares held as trustee for two grandchildren.
(7)
Includes 3,374 shares held through the Territorial Savings Bank 401(k) Plan and 5,038 shares held through the Territorial Savings Bank Employee Stock Ownership Plan.
(8)
Includes 16,798 shares held through the Territorial Savings Bank 401(k) Plan and 11,451 shares held through the Territorial Savings Bank Employee Stock Ownership Plan.
Equity Compensation Plan Information
Set forth below is information as of December 31, 2024 with respect to compensation plans (other than our employee stock ownership plan) under which equity securities of the Registrant are authorized for issuance.
Equity Compensation Plan Information
Number of Securities
Remaining Available for
Future Issuance Under
Number of Securities to
Weighted-average
Share-based
Be Issued Upon Exercise
Exercise Price of
Compensation Plans
of Outstanding Options,
Outstanding Options,
(excluding securities
Warrants and Rights
Warrants and Rights
reflected in first column)
Equity compensation plans approved by security holders
-
$
-
4,949
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
Director Independence
The Board of Directors has determined that each of our directors, with the exception of Chairman of the Board, President and Chief Executive Officer Allan S. Kitagawa, is “independent” as defined in the listing standards of the NASDAQ Stock Market. Mr. Kitagawa is not independent because he is one of our executive officers.
In determining the independence of the directors listed above, the Board of Directors reviewed the following transaction, which is not required to be reported under “Transactions with Certain Related Persons” below. Director Kirk W. Caldwell has a mortgage loan and overdraft protection with Territorial Savings Bank.
Transactions with Certain Related Persons
The Sarbanes-Oxley Act of 2002 generally prohibits us from making loans to our executive officers and directors, but it contains a specific exemption from such prohibition for loans made by Territorial Savings Bank to our executive officers and directors in compliance with federal banking regulations.
At December 31, 2024, all of our loans to directors and executive officers were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to Territorial Savings Bank, and did not involve more than the normal risk of collectability or present other unfavorable features. These loans were performing according to their original terms at December 31, 2024, and were made in compliance with federal banking regulations.
Pursuant to Territorial Bancorp Inc.’s Policy and Procedures for Approval of Related Person Transactions, the Audit Committee periodically reviews, no less frequently than once a year, a summary of transactions in excess of $50,000 with our directors, executive officers, and their family members, for the purpose of determining whether the transactions are within our policies and should be ratified and approved. Additionally, pursuant to our Code of Ethics and Business Conduct, all of our executive officers and directors must disclose any existing or emerging conflicts of interest to our Chairman of the Board and Chief Executive Officer. Such potential conflicts of interest include, but are not limited to, the following: (i) our conducting business with or competing against an organization in which a family member of an executive officer or director has an ownership or employment interest; and (ii) the ownership of more than 1% of the outstanding securities or 5% of total assets of any business entity that does business with or is in competition with us.
ITEM 14.
Principal Accountant Fees and Services
Audit Fees
The following table sets forth the fees to Moss Adams LLP for the years ended December 31, 2024 and 2023.
Audit fees
$
606,700
$
560,000
Audit-related fees (1)
$
82,500
$
79,300
Tax fees (2)
$
37,400
$
41,700
All other fees
$
-
$
-
(1)
Audit-related fees pertain to the audit of the financial statements of certain employee benefit plans.
(2)
Tax fees for 2024 and 2023 consist of tax return preparation and other tax matters.
Pre-Approval of Services by the Independent Registered Public Accounting Firm
The Audit Committee is responsible for appointing, setting compensation and overseeing the work of the independent registered public accounting firm. In accordance with its charter and written policy, the Audit Committee approves, in advance, all audit and permissible non-audit services to be performed by the independent registered public accounting firm, or such services can be performed in accordance with the Audit Committee’s written pre-approval policy. Such approval process ensures that the external auditor does not provide any non-audit services to us that are prohibited by law or regulation.
During each of the years ended December 31, 2024 and 2023, 100% of the fees paid to Moss Adams LLP were either approved, in advance, by the Audit Committee, or pre-approved under the Audit Committee’s written pre-approval policy.
PART IV
ITEM 15.
Exhibits and Financial Statement Schedules
(a)Financial Statements
The following documents are filed as part of this annual report:
(i) Report of Independent Registered Public Accounting Firm (Moss Adams LLP, Portland, Oregon, PCAOB ID:659)
(ii) Consolidated Balance Sheets at December 31, 2024 and 2023
(iii) Consolidated Statements of Operations for the years ended December 31, 2024 and 2023
(iv) Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2024 and 2023
(v) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2024 and 2023
(vi) Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023
(vii) Notes to Consolidated Financial Statements
(b)Exhibits
3.1
Articles of Incorporation of Territorial Bancorp Inc. (Incorporated by reference to Exhibit 3.1 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
3.2
Bylaws of Territorial Bancorp Inc. (Incorporated by reference to Exhibit 3.2 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
4.1
Form of Common Stock Certificate of Territorial Bancorp Inc. (Incorporated by reference to Exhibit 4 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
4.2
Description of Registrant’s Securities (Incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-K (file no. 001-34403), filed March 19, 2021.
10.1
Employment Agreement between Territorial Bancorp Inc. and Allan S. Kitagawa (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (file no. 001-34403), filed with the Securities and Exchange Commission on November 18, 2009)
10.2
Employment Agreement between Territorial Savings Bank and Allan S. Kitagawa (Incorporated by reference to Exhibit 10.2 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.3
First Amendment to Employment Agreement between Territorial Savings Bank and Allan S. Kitagawa (Incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K/A (file no. 001-34403), filed with the Securities and Exchange Commission on March 29, 2011)
10.4
Employment Agreement between Territorial Bancorp Inc. and Vernon Hirata (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (file no. 001-34403), filed with the Securities and Exchange Commission on November 18, 2009)
10.5
Employment Agreement between Territorial Savings Bank and Vernon Hirata (Incorporated by reference to Exhibit 10.4 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.6
First Amendment to Employment Agreement between Territorial Savings Bank and Vernon Hirata (Incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K/A (file no. 001-34403), filed with the Securities and Exchange Commission on March 29, 2011)
10.7
Employment Agreement between Territorial Bancorp Inc. and Ralph Y. Nakatsuka (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (file no. 001-34403), filed with the Securities and Exchange Commission on November 18, 2009)
10.8
Employment Agreement between Territorial Savings Bank and Ralph Y. Nakatsuka (Incorporated by reference to Exhibit 10.6 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.9
First Amendment to Employment Agreement between Territorial Savings Bank and Ralph Y. Nakatsuka (Incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K/A (file no. 001-34403), filed with the Securities and Exchange Commission on March 29, 2011)
10.10
Supplemental Executive Retirement Agreement between Territorial Savings Bank and Allan S. Kitagawa (Incorporated by reference to Exhibit 10.7 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.11
Supplemental Executive Retirement Agreement between Territorial Savings Bank and Vernon Hirata (Incorporated by reference to Exhibit 10.8 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.12
Supplemental Executive Retirement Agreement between Territorial Savings Bank and Ralph Y. Nakatsuka (Incorporated by reference to Exhibit 10.9 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.13
Executive Deferred Incentive Agreement between Territorial Savings Bank and Allan S. Kitagawa (Incorporated by reference to Exhibit 10.10 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.14
Executive Deferred Incentive Agreement between Territorial Savings Bank and Vernon Hirata (Incorporated by reference to Exhibit 10.11 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.15
[Intentionally omitted]
10.16
Territorial Savings Bank Non-Qualified Supplemental Employee Stock Ownership Plan (Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K (file no. 001-34403), filed with the Securities and Exchange Commission on November 18, 2009)
10.17
Territorial Savings Bank Executive Incentive Compensation Plan (Incorporated by reference to Exhibit 10.14 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.18
First Amendment to Territorial Savings Bank Executive Incentive Compensation Plan (Incorporated by reference to Exhibit 10.15 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.19
Second Amendment to Territorial Savings Bank Executive Incentive Compensation Plan (Incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K/A (file no. 001-34403), filed with the Securities and Exchange Commission on March 29, 2011)
10.20
[Intentionally Omitted]
10.21
Form of Employee Restricted Stock Award (Incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K/A (file no. 001-34403), filed with the Securities and Exchange Commission on March 29, 2011)
10.22
Form of Employee Stock Option Award (Incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K/A (file no. 001-34403), filed with the Securities and Exchange Commission on March 29, 2011)
10.23
Form of Director Restricted Stock Award (Incorporated by reference to Exhibit 10.23 to the Annual Report on Form 10-K/A (file no. 001-34403), filed with the Securities and Exchange Commission on March 29, 2011)
10.24
Form of Director Stock Option Award (Incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K/A (file no. 001-34403), filed with the Securities and Exchange Commission on March 29, 2011)
10.25
Territorial Savings Bank Separation Pay Plan and Summary Plan Description (Incorporated by reference to Exhibit 10.16 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.26
Amendment One to Territorial Savings Bank Amended and Restated Supplemental Employee Retirement Agreement for Vernon Hirata (Incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Commission on May 14, 2011)
10.27
Amendment One to Territorial Savings Bank Amended and Restated Supplemental Employee Retirement Agreement for Ralph Nakatsuka (Incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Commission on May 14, 2011)
10.28
[Intentionally Omitted]
10.29
Amendment Two to Territorial Savings Bank Amended and Restated Supplemental Employee Retirement Agreement for Vernon Hirata (Incorporated by reference to Exhibit 10.29 to the Annual Report on Form 10-K (file no. 001-34403), filed with the Securities and Exchange Commission on March 14, 2012)
10.30
Amendment Two to Territorial Savings Bank Amended and Restated Supplemental Employee Retirement Agreement for Ralph Nakatsuka (Incorporated by reference to Exhibit 10.30 to the Annual Report on Form 10-K (file no. 001-34403), filed with the Securities and Exchange Commission on March 14, 2012)
10.31
Second Amendment to Employment Agreement between Territorial Savings Bank and Vernon Hirata (Incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-K (file no. 001-34403), filed with the Securities and Exchange Committee on March 15, 2013)
10.32
Third Amendment to Employment Agreement between Territorial Savings Bank and Vernon Hirata (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.33
First Amendment to Employment Agreement between Territorial Bancorp Inc. and Vernon Hirata (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.34
Second Amendment to Employment Agreement between Territorial Savings Bank and Allan S. Kitagawa (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.35
First Amendment to Employment Agreement between Territorial Bancorp Inc. and Allan S. Kitagawa (Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.36
Second Amendment to Employment Agreement between Territorial Savings Bank and Ralph Nakatsuka (Incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.37
First Amendment to Employment Agreement between Territorial Bancorp Inc. and Ralph Nakatsuka (Incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.38
First Amendment to Amended and Restated Executive Deferred Incentive Agreement between Territorial Savings Bank and Vernon Hirata (Incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.39
First Amendment to Amended and Restated Supplemental Employee Retirement Agreement between Territorial Savings Bank and Allan S. Kitagawa (Incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.40
Third Amendment to Amended and Restated Supplemental Employee Retirement Agreement between Territorial Savings Bank and Vernon Hirata (Incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.41
Third Amendment to Amended and Restated Supplemental Employee Retirement Agreement between Territorial Savings Bank and Ralph Nakatsuka (Incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.42
Territorial Bancorp Inc. 2010 Equity Incentive Plan, as amended and restated (Incorporated by reference to Appendix A to the definitive proxy statement for the Annual Meeting of Shareholders (file No. 001-34403), filed with the Securities and Exchange Commission on April 24, 2017)
10.43
Territorial Bancorp Inc. Annual Incentive Plan, as amended (Incorporated by reference to Appendix B to the definitive proxy statement for the Annual Meeting of Stockholders (file No. 001-34403), filed with the Securities and Exchange Commission on April 24, 2017)
10.44
Territorial Bancorp Inc. 2019 Equity Incentive Plan (Incorporated by reference to Appendix A to the definitive proxy statement for the Annual Meeting of Stockholders (file No. 001-34403), filed with the Securities and Exchange Commission on April 16, 2019)
10.45
Form of Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.2 of the Registration Statement on Form S-8 (file no. 333-237039), filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on March 9, 2020)
10.46
Form of Non-Qualified Stock Option Agreement (Incorporated by reference to Exhibit 10.3 of the Registration Statement on Form S-8 (file no. 333-237039), filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on March 9, 2020)
10.47
Form of Director Restricted Stock Award Agreement (Incorporated by reference to Exhibit 10.4 of the Registration Statement on Form S-8 (file no. 333-237039), filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on March 9, 2020)
10.48
Form of Employee Restricted Stock Award Agreement (Incorporated by reference to Exhibit 10.5 of the Registration Statement on Form S-8 (file no. 333-237039), filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on March 9, 2020)
10.49
Form of Restricted Stock Unit Agreement (time-based) (Incorporated by reference to Exhibit 10.6 of the Registration Statement on Form S-8 (file no. 333-237039), filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on March 9, 2020)
10.50
Form of Restricted Stock Unit Agreement (performance-based) (Incorporated by reference to Exhibit 10.7 of the Registration Statement on Form S-8 (file no. 333-237039), filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on March 9, 2020)
10.51
Form of Amendment, dated October 8, 2021, to Amended and Restated Supplemental Executive Retirement Agreement for Allan S. Kitagawa, Vernon Hirata and Ralph Nakatsuka
Insider trading policies and procedures
Consent of Moss Adams LLP
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer 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
Policy relating to recovery of erroneously awarded compensation
The following financial statements from Territorial Bancorp Inc.’s Annual Report on Form 10-K for the year ended December 31, 2024, filed on March 31, 2025, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, (vi) the Notes to Consolidated Financial Statements.
101.INS
Interactive datafile XBRL Instance Document
101.SCH
Interactive datafile XBRL Taxonomy Extension Schema Document
101.CAL
Interactive datafile XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Interactive datafile XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Interactive datafile XBRL Taxonomy Extension Label Linkbase
101.PRE
Interactive datafile XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (formatted as inline XBRL document and contained in Exhibit 101)
(c)Financial Statement Schedules
Not applicable.
ITEM 16.
Form 10-K Summary
Not applicable.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TERRITORIAL BANCORP INC.
Date: March 31, 2025
By:
/s/ Allan S. Kitagawa
Allan S. Kitagawa
Chairman of the Board, President and Chief
Executive Officer
(Duly Authorized Representative)
Pursuant to requirements of the Exchange Act, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures
Title
Date
/s/ Allan S. Kitagawa
Chairman of the Board,
March 31, 2025
Allan S. Kitagawa
President and Chief
Executive Officer (Principal
Executive Officer)
/s/ Melvin M. Miyamoto
Executive Vice President and
March 31, 2025
Melvin M. Miyamoto
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Kirk W. Caldwell
Director
March 31, 2025
Kirk W. Caldwell
/s/ Howard Y. Ikeda
Director
March 31, 2025
Howard Y. Ikeda
/s/ Jennifer A. Isobe
Director
March 31, 2025
Jennifer A. Isobe
/s/ John M. Ohama
Director
March 31, 2025
John M. Ohama
Director
Jan M. Sam

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ITEM 2. PROPERTIES
ITEM 2.
Properties
We operate from our corporate office in Honolulu, Hawaii, and from our 28 full-service branches located in the State of Hawaii. Of our 28 branches, 23 are located on the island of Oahu, and all but one of our branches are leased properties. The net book value of our premises, land and equipment was $7.2 million at December 31, 2023.

---

ITEM 3. LEGAL PROCEEDINGS
ITEM 3.
Legal Proceedings
From time to time, we are involved as plaintiff or defendant in various legal proceedings arising in the ordinary course of business. At December 31, 2024, we were not involved in any legal proceedings, the outcome of which we believe would be material to our financial condition or results of operations.

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4.
Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a)Market, Holder and Dividend Information. Our common stock is traded on the NASDAQ Global Select Market under the symbol “TBNK.” The approximate number of holders of record of Territorial Bancorp Inc.’s common stock as of February 29, 2025 was 984. Certain shares of Territorial Bancorp Inc. are held in “nominee” or “street” name and, accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.
(b)Sales of Unregistered Securities. Not applicable.
(c)Use of Proceeds. Not applicable.
(d)Securities Authorized for Issuance Under Equity Compensation Plans. See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
(e)Stock Repurchases. There were no repurchases of our shares of common stock during the three months ended December 31, 2024.

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6.[Reserved]

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The objective of this section is to help readers understand our views on our results of operations and financial condition. You should read this discussion in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements that appear elsewhere in this Annual Report on Form 10-K.
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 (FRB), loan and securities repayments, advances from the Federal Home Loan Bank of Des Moines (FHLB) and the Federal Reserve Bank, 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, as occurred in 2023.
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 include nonaccrual loans, totaled $1.9 million, or 0.09% of total assets at December 31, 2024, compared to $2.3 million, or 0.10% of total assets at December 31, 2023. We recorded a provision for credit losses of $73,000 and a reversal of provision for credit losses of $3,000 for the years ended December 31, 2024 and 2023, respectively. The provision for credit losses in 2024 occurred primarily due to an increase in provisions for the consumer loan portfolio that was partially offset by decreases in provisions for the commercial and real estate portfolio. The increase in provisions for the consumer loan portfolio was primarily due to an increase in home equity loans and lines of credit. The decrease in provisions in the commercial loan portfolio was primarily due to an increase in forecasted prepayments, that was partially offset by an increase in forecasted charge-offs. The decrease in provisions in the real estate portfolio was primarily due to a decrease in the mortgage loan portfolio that was partially offset by a decrease in the forecasted prepayments. The reversal of provision for credit losses in 2023 was primarily due to a decrease in our real estate portfolio’s forecasted charge-offs that was partially offset by a decrease in its forecasted prepayments.
All of Territorial Savings Bank’s investments in mortgage-backed securities and collateralized mortgage obligations 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 agencies guarantee the payment of principal and interest on the Bank’s mortgage-backed securities. We do not own any preferred stock issued by Fannie Mae or Freddie Mac. As of December 31, 2024, our additional borrowing capacity at the FHLB and FRB was $389.5 million and $114.4 million, respectively. As of December 31, 2023, our additional borrowing capacity at the FHLB and FRB was $612.6 million and $207.2 million, respectively.
Critical Accounting Policies and Estimates
We consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income, to be critical accounting policies. We consider the following to be our critical accounting policies:
Allowance for Credit Losses (ACL) on Loans and Securities. Our determination of the amount of our allowance for credit loss (ACL) is a critical accounting estimate and includes Management’s estimate of future credit losses. Loans are charged-off against the ACL when management believes a loan is uncollectable and credited if subsequent recoveries are made. Changes in the ACL, and the related loan loss provision, can materially affect net income.
The estimate of the allowance for credit losses using the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of loans. The historical loss experience is the starting point for estimating expected credit losses. We consider whether the historical loss experience should be adjusted for asset specific risk characteristics or current conditions at the reporting date that did not exist over the historical reporting period. These qualitative adjustments can include changes in the economy, loan underwriting standards, delinquency trends, or other factors. We then consider future economic conditions as part of the
one-year reasonable and supportable forecast period. The one-year reasonable and supportable forecast period includes estimates of economic conditions which affects the performance of the loan portfolios. After the one-year reasonable and supportable forecast period, losses are based on historical loss rates, or reversion rate, for the remaining expected life of the loan. We use a discounted cash flow methodology to calculate our allowance for credit losses.
Our loan portfolio is segmented into three pools for estimating our allowance for credit losses on loans: real estate, commercial, and consumer loans. They were established upon the adoption of ASU 2016-13. Only three pools are used to segment our loan portfolio because loans within the pools share similar risk characteristics and were originated using similar underwriting standards. Loans that do not share similar risk characteristics would be evaluated on an individual basis and excluded from the collective evaluation. Historically, we have disclosed information about our loans and allowance based on class of financing receivable. The portfolio segments align with the class of financing receivables as follows:
● Real estate: One- to four-family residential, multi-family residential, and commercial mortgage
● Commercial: Commercial loans other than mortgage loans
● Consumer: Home equity loans, loans on deposit accounts, and all other consumer loans
Collateral dependent loans are not considered to share the same risk characteristics with the three pools discussed above. A loan is considered to be collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For loans which are considered to be collateral dependent, we have elected to estimate the expected credit loss based on the fair value of the collateral less selling costs. If the fair value of the collateral less selling costs is less than the loan’s amortized cost basis, we record a partial charge-off to reduce the loan’s amortized cost basis for the difference between the collateral fair value less selling costs and the amortized cost basis.
The historical loss experience of the real estate and consumer loan pools were determined using a vintage method. This method tracks loss and prepayment activity of loans that are originated during a specified time period, or vintage, over the course of the loan’s term. The pool’s loss and prepayment reversion rates are calculated as a percentage of the net loss and prepayments to the original loan balance. The historical loss experience of the commercial loan pool was determined using a reporting period method. This method measures historical losses incurred during a specified reporting period. The pool’s loss and prepayment reversion rates are calculated as a percentage of the beginning balance of the reporting period.
The amortized cost of the real estate pool totaled $1.3 billion at December 31, 2024 and represented 98.3% of our total loans. The amortized cost of the consumer and commercial loan pools totaled $22.5 million at December 31, 2024 and represented 1.8% of our total loans.
The allowance for credit losses is generally sensitive to economic conditions and assumptions built into the model that estimates credit losses. Since the residential real estate pool represents 98.9% of the Bank’s loans, changes in economic factors for the consumer and commercial pools would not have a material impact on the allowance. For the residential real estate portfolio, the 30-year fixed mortgage rate is used to project net charge-offs. A negative change in the forecasted 30-year fixed mortgage rate from 6.8% to 7.5% would lead to a small increase in the rate of delinquencies and consequently charge-offs for these borrowers. For the allowance on December 31, 2024, this change would increase the quantitative forecast component of the allowance for these loans from 0.005% to 0.019% and increase the dollar losses by $25,000 over a 12-month forecast. The net charge-offs on the residential real estate pool was based on the 2007 to 2009 Great Recession period. If the 2007 to 2008 period was used to calculate the net charge-offs on the residential real estate pool, the allowance for credit losses at December 31, 2024 would increase by approximately $312,000. Due to the low historical loss rates, small changes in the economic cycle will have nominal impacts on the overall allowance. This sensitivity analysis is hypothetical and provided only to indicate the potential impact changes in economic conditions and the effect these assumptions may have on the allowance estimate. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others.
We are required to utilize the CECL methodology to estimate expected credit losses with respect to held-to-maturity (HTM) investment securities. Since all of our HTM investment securities were issued by U.S. government agencies or U.S. government-sponsored enterprises, which include the explicit and/or implicit guarantee of the U.S. government and have a long history of no credit losses, we have not recorded a credit loss on these securities. The
unrealized losses on these securities were due to changes in interest rates, relative to when the securities were purchased, and are not due to decreases in the credit quality of the securities.
Available for sale (AFS) investment securities in an unrealized loss position are evaluated for impairment. We first assess whether we intend to sell, or it is more likely than not that we will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the investment securities amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the investment security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income. We have not recorded an ACL related to our AFS investment securities.
See Note 2(i) of the Notes to Consolidated Financial Statements for further information on the ACL.
Deferred Tax Assets. Deferred tax assets and liabilities are recognized for the estimated future tax effects attributable to temporary differences and carryforwards. A valuation allowance may be required if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences. There was no valuation allowance for deferred tax assets as of December 31, 2024 and 2023.
Defined Benefit Retirement Plan. Defined benefit plan obligations and related assets of our defined benefit retirement plan are presented in Note 17 of the Notes to Consolidated Financial Statements. Effective December 31, 2008, the defined benefit retirement plan was frozen and all plan benefits were fixed as of that date. Plan assets, which consist primarily of marketable equity securities and mutual funds, are typically valued using market quotations. Plan obligations and the annual pension expense are determined by an independent actuary through the use of a number of assumptions. Key assumptions in measuring the plan obligations include the discount rate and the expected long-term rate of return on plan assets. In determining the discount rate, we utilize a yield that reflects the top 50% of the universe of bonds, ranked in the order of the highest yield. These bonds provide cash flows that match the timing of expected benefit payments. Asset returns are based upon the anticipated average rate of earnings expected on the invested funds of the plans.
At December 31, 2024, we used weighted-average discount rates of 5.46% and 5.10% for calculating annual pension expense and projected plan liabilities, respectively, and an expected long-term rate of return on plan assets of 6.75% for calculating annual pension expense. For both the discount rate and the asset return rate, a range of estimates could reasonably have been used, which would affect the amount of pension expense and pension liability recorded.
A decrease in the discount rate or an increase in the asset return rate would have reduced our pension expense in 2024, while an increase in the discount rate or a decrease in the asset return rate would have the opposite effect. A 25 basis point decrease in the discount rate assumptions would have decreased our 2024 pension expense by $3,000 and would have increased our year-end 2024 pension liability by $343,000, while a 25 basis point decrease in the asset return rate would have increased our 2024 pension expense by $49,000.
Selected Financial Data
At December 31,
(In thousands)
Selected Financial Condition Data:
Total assets
$
2,169,715
$
2,236,672
Cash and cash equivalents
123,523
126,659
Investment securities available for sale, at fair value
18,492
20,171
Investment securities held to maturity at amortized cost
645,669
685,728
Loans receivable, net of allowance for credit losses
1,281,548
1,303,431
Bank-owned life insurance
49,645
48,638
Deposits
1,717,663
1,636,604
Advances from the Federal Home Loan Bank
160,000
242,000
Advances from the Federal Reserve Bank
-
50,000
Securities sold under agreements to repurchase
-
10,000
Total stockholders’ equity
248,351
251,086
Year Ended December 31,
(In thousands)
Selected Operating Data:
Interest income
$
72,305
$
69,088
Interest expense
40,613
26,457
Net interest income
31,692
42,631
Provision (reversal of provision) for credit losses
(3)
Net interest income after provision (reversal of provision) for credit losses
31,619
42,634
Noninterest income
2,611
2,471
Noninterest expense
40,944
38,268
(Loss) income before income taxes
(6,714)
6,837
Income tax (benefit) expense
(2,415)
1,810
Net (loss) income
$
(4,299)
$
5,027
At or for the Year Ended December 31,
Selected Financial Ratios (expressed as percentages) and Other Data:
Performance Ratios:
Return on average assets (ratio of net (loss) income to average total assets)
(0.20)
%
0.23
%
Return on average equity (ratio of net (loss) income to average equity)
(1.71)
%
1.99
%
Interest rate spread (1)
1.21
%
1.83
%
Net interest margin (2)
1.50
%
2.02
%
Efficiency ratio (3)
119.36
%
84.85
%
Noninterest expense to average total assets
1.86
%
1.74
%
Average interest-earning assets to average interest-bearing liabilities
115.18
%
115.37
%
Average equity to average total assets
11.43
%
11.48
%
Basic (loss) earnings per share
$
(0.50)
$
0.58
Diluted (loss) earnings per share
$
(0.50)
$
0.57
Dividend payout ratio (4)
(16.00)
%
129.82
%
Asset Quality Ratios:
Nonperforming assets to total assets
0.09
%
0.10
%
Nonperforming loans to total loans
0.15
%
0.17
%
Allowance for credit losses to nonperforming loans
264.56
%
226.59
%
Allowance for credit losses to total loans
0.40
%
0.39
%
Capital Ratios (bank-level only):
Total capital (to risk-weighted assets)
27.26
%
26.87
%
Common equity Tier 1 capital (to risk-weighted assets)
26.69
%
26.31
%
Tier I capital (to risk-weighted assets)
26.69
%
26.31
%
Tier I capital (to total assets)
10.98
%
10.86
%
Other Data:
Number of full-service offices
Full-time equivalent employees
(1) The average interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities for the year.
(2) The net interest margin represents net interest income as a percent of average interest-earning assets for the year.
(3) The efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income.
(4) The dividend payout ratio represents cash dividends declared per share divided by diluted (loss) earnings per share.
Balance Sheet Analysis
Assets. At December 31, 2024, our assets were $2.2 billion, a decrease of $67.0 million, or 3.0%, from December 31, 2023. The decrease was primarily caused by a $41.7 million decrease in total investment securities, a $21.9 million decrease in total loans, and a $3.1 million decrease in cash and cash equivalents.
Cash and Cash Equivalents. At December 31, 2024, our cash and cash equivalents were $123.5 million, a decrease of $3.1 million, or 2.5%, from $126.7 million at December 31, 2023. The decrease was primarily due to a $82.0 million decrease in FHLB advances, a $50.0 million decrease in FRB advances, a $10.0 million decrease in securities sold under agreements to repurchase, and $7.5 million of net cash used in operating activities. These decreases were partially offset by an $81.1 million increase in deposits, a $41.7 million decrease in total investment securities, and a $21.9 million decrease in total loans.
Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio at the dates indicated.
At December 31,
Amount
Percent
Amount
Percent
(Dollars in thousands)
Real estate loans:
First mortgage:
One- to four-family residential
$
1,248,171
96.87
%
$
1,277,544
97.48
%
Multi-family residential
5,148
0.40
5,855
0.45
Construction, commercial and other
11,620
0.90
11,631
0.89
Home equity loans and lines of credit
14,851
1.15
7,058
0.54
Other loans
8,704
0.68
8,453
0.64
Total loans
1,288,494
100.00
%
1,310,541
100.00
%
Other items:
Unearned fees and discounts, net
(1,832)
(1,989)
Allowance for credit losses
(5,114)
(5,121)
Loans receivable, net
$
1,281,548
$
1,303,431
Total loans decreased by $22.0 million as loan repayments and sales exceeded new loan originations.
Loan Portfolio Maturities and Yields. The following table summarizes the scheduled maturities of our loan portfolio at December 31, 2024. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.
One- to four-family
Multi-family residential
Construction, commercial
Home equity loans and
residential real estate
real estate
and other real estate
lines of credit
Other loans
Total
Weighted
Weighted
Weighted
Weighted
Weighted
Weighted
Due During the Years
Average
Average
Average
Average
Average
Average
Ending December 31,
Amount
Rate
Amount
Rate
Amount
Rate
Amount
Rate
Amount
Rate
Amount
Rate
(Dollars in thousands)
$
5.25
%
$
6.50
%
$
1,044
5.12
%
$
10.02
%
$
6.64
%
$
2,138
6.12
%
2026 to 2029
3,330
3.77
-
2,064
3.98
1,572
10.18
2,569
6.08
9,535
5.49
2030 to 2039
34,402
4.16
4,554
4.56
6,144
4.21
6.94
5,075
3.39
50,562
4.15
2040 and beyond
1,210,435
3.72
4.25
2,368
6.61
12,747
5.69
5.03
1,226,259
3.75
Total
$
1,248,171
3.73
%
$
5,148
4.55
%
$
11,620
4.74
%
$
14,851
6.24
%
$
8,704
4.55
%
$
1,288,494
3.78
%
The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at December 31, 2024 that are contractually due after December 31, 2025.
Due After December 31, 2025
Fixed
Adjustable
Total
(In thousands)
Real estate loans:
First mortgage:
One- to four-family residential
$
1,247,949
$
$
1,248,167
Multi-family residential
5,102
-
5,102
Construction, commercial and other
9,308
1,268
10,576
Home equity loans and lines of credit
1,106
13,600
14,706
Other loans
6,458
1,347
7,805
Total loans
$
1,269,923
$
16,433
$
1,286,356
Securities. At December 31, 2024, our securities portfolio totaled $664.2 million, or 30.6% of assets. The securities portfolio decreased from $705.9 million at December 31, 2023 primarily due to principal repayments. All of the mortgage-backed securities were issued by Fannie Mae, Freddie Mac or Ginnie Mae. At December 31, 2024, none of the underlying collateral consisted of subprime or Alt-A loans (traditionally defined as nonconforming loans having less than full documentation). At December 31, 2024, we held no common or preferred stock of Fannie Mae or Freddie Mac.
Any unrealized loss on individual mortgage-backed securities as of December 31, 2024 and 2023 was caused by increases in market interest rates subsequent to purchase. All of our mortgage-backed securities are guaranteed by U.S. government-sponsored enterprises or a U.S. government agency. Since the decline in market value has been attributable to changes in interest rates and not credit quality, we continue to have the intent not to sell these investments, and it is not more likely than not that we will be required to sell such investments prior to the recovery of the amortized cost basis. No allowance for credit losses was recorded for these securities as of December 31, 2024 and 2023.
Portfolio Maturities and Coupons. The composition and maturities of the investment securities portfolio at December 31, 2024 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. No tax-equivalent adjustments have been made, as we did not hold any tax-free investment securities at December 31, 2024.
More than One Year
More than Five Years
One Year or Less
through Five Years
through Ten Years
More than Ten Years
Total Securities
Weighted
Weighted
Weighted
Weighted
Weighted
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Average
Cost
Coupon
Cost
Coupon
Cost
Coupon
Cost
Coupon
Cost
Fair Value
Coupon
(Dollars in thousands)
Available-for-sale:
Mortgage-backed securities issued by U.S. government-sponsored enterprises:
Fannie Mae
$
-
-
%
$
-
-
%
$
-
-
%
$
4,123
3.00
%
$
4,123
$
3,558
3.00
%
Freddie Mac
-
-
-
-
-
-
17,371
2.99
17,371
14,934
2.99
Total available-for-sale
$
-
-
%
$
-
-
%
$
-
-
%
$
21,494
2.99
%
$
21,494
$
18,492
2.99
%
Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or government-sponsored enterprises:
Fannie Mae
$
-
-
%
$
6.93
%
$
5.87
%
$
351,726
2.26
%
$
351,740
$
274,342
2.26
%
Freddie Mac
-
-
-
-
-
-
276,216
2.52
276,216
223,554
2.52
Collateralized mortgage obligations (1)
-
-
-
-
-
-
1,034
1.62
1,034
1.62
Ginnie Mae
-
-
4.63
-
-
16,677
3.35
16,679
14,689
3.35
Total held-to-maturity
$
-
-
%
$
6.36
%
$
5.87
%
$
645,653
2.40
%
$
645,669
$
513,499
2.40
%
Total
$
-
-
%
$
6.36
%
$
5.87
%
$
667,147
2.42
%
$
667,163
$
531,991
2.42
%
(1) All of our collateralized mortgage obligations have been issued by Fannie Mae or Ginnie Mae.
Bank-Owned Life Insurance. We invest in bank-owned life insurance to provide us with a funding source for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is nontaxable. Interagency federal guidance generally limits our investment in bank-owned life insurance to 25% of the Bank’s Tier 1 capital plus our allowance for credit losses. At December 31, 2024, this limit was $60.7 million, and we had invested $49.6 million in bank-owned life insurance at that date.
Deposits. At December 31, 2024, deposits totaled $1.7 billion, or 89.4% of total liabilities. We offer a variety of deposit accounts with a range of interest rates and terms. Our deposit accounts consist of savings accounts, certificates of deposit, commercial and regular checking accounts, Super NOW accounts, and money market accounts. Historically, we have not accepted, and do not currently have, brokered deposits. We accept deposits primarily from the areas in which our offices are located. We rely on our competitive pricing and products, convenient locations and quality customer service to attract and retain deposits.
Interest rates paid, maturity terms, service fees, and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies, market interest rates, liquidity requirements, and our deposit growth goals.
During the year ended December 31, 2024, our deposits increased by $81.1 million, or 5.0%. The increase in deposits was primarily due to an increase of $173.7 million in certificates of deposit, which was partially offset by decreases of $63.6 million in passbook savings and $26.4 million in checking accounts during the year ended December 31, 2024. The increase in certificates of deposit included a $161.4 million increase in state and local government deposits. The decrease in savings and checking occurred primarily as customers transferred their funds to certificates of deposit, which had higher interest rates, or sought higher interest rates elsewhere.
At December 31, 2024, we had a total of $706.1 million in certificates of deposit, of which $685.8 million had remaining maturities of one year or less. We have the ability to attract and retain deposits by adjusting the interest rates offered.
The following table sets forth the distribution of our average total deposit accounts (including interest-bearing and non-interest-bearing deposits), by account type, for the years indicated.
For the Year Ended December 31,
Weighted
Weighted
Average
Average
Average
Average
Balance
Percent
Rate
Balance
Percent
Rate
(Dollars in thousands)
Deposit type:
Non-interest-bearing
$
72,910
4.5
%
-
%
$
75,331
4.5
%
-
%
Savings accounts
702,675
43.0
0.92
802,833
48.6
0.31
Certificates of deposit
581,930
35.6
4.28
479,566
29.0
3.53
Money market
2,508
0.2
0.12
4,627
0.3
0.11
Checking and Super NOW
273,581
16.7
0.02
290,636
17.6
0.02
Total deposits
$
1,633,604
100.0
%
2.01
%
$
1,652,993
100.0
%
1.23
%
The following table sets forth our estimate of uninsured deposits (in excess of the federal deposit insurance limit of $250,000) that is calculated on the same basis used for regulatory reporting. We have no deposits that are uninsured for any other reason.
At December 31,
(In thousands)
Uninsured non-maturity deposits:
$
158,159
$
168,463
Uninsured deposits with remaining maturities:
Three months or less
324,528
197,189
Over three months to six months
72,591
18,311
Over six months to twelve months
9,595
29,687
Over twelve months
8,280
5,794
414,994
250,981
Total uninsured deposits
$
573,153
$
419,444
As of December 31, 2024, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $250,000 was $445.0 million. As of December 31, 2024, certificates of deposit owned by state and local governments in amounts greater than or equal to $250,000 was $331.1 million, and was collateralized by investment securities with an amortized cost of $420.2 million. At December 31, 2024, deposits from the County of Hawaii totaled $171.2 million while deposits from the State of Hawaii totaled $161.6 million. The following table sets forth the maturity of certificates of deposit in amounts greater than or equal to $250,000 as of December 31, 2024.
At December 31, 2024
(In thousands)
Three months or less
$
338,501
Over three months through six months
87,179
Over six months through one year
12,002
Over one year to three years
7,341
Total
$
445,023
Borrowings. At December 31, 2024, our borrowings consisted of FHLB advances totaling $160.0 million, or 8.3% of total liabilities. At December 31, 2024, we had the capability to borrow up to $389.5 million and $114.4 million in the form of additional advances from the FHLB and FRB, respectively.
Stockholders’ Equity. At December 31, 2024, our stockholders’ equity was $248.4 million, a decrease of $2.7 million, or 1.1%, from $251.1 million at December 31, 2023. The decrease in stockholders’ equity occurred primarily due to the net loss incurred during the year.
Average Balances and Yields
The following table sets forth average balances, yields and rates, and certain other information for the years indicated. No tax-equivalent yield adjustments were made, as we did not hold any tax-free investments. 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 table. 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 of $247,000 and $190,000 for 2024 and 2023, respectively.
For the Year Ended December 31,
Average
Average
Outstanding
Outstanding
Balance
Interest
Yield/ Rate
Balance
Interest
Yield/ Rate
(Dollars in thousands)
Interest-earning assets:
Loans:
Real estate loans:
First mortgage:
One- to four-family residential (1)
$
1,261,643
$
46,910
3.72
%
$
1,263,674
$
45,149
3.57
%
Multi-family residential
5,478
4.65
5,720
4.79
Construction, commercial, and other
12,208
4.60
18,906
4.12
Home equity loans and lines of credit
10,950
6.46
6,976
6.81
Other loans
8,517
4.53
8,373
4.37
Total loans
1,298,796
48,820
3.76
1,303,649
47,043
3.61
Investment securities:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises (1)
686,189
16,857
2.46
726,166
17,918
2.47
Total securities
686,189
16,857
2.46
726,166
17,918
2.47
Other investments
123,053
6,628
5.39
83,038
4,127
4.97
Total interest-earning assets
2,108,038
72,305
3.43
2,112,853
69,088
3.27
Non-interest-earning assets
89,378
87,414
Total assets
$
2,197,416
$
2,200,267
Interest-bearing liabilities:
Savings accounts
$
702,675
6,436
0.92
%
$
802,833
2,469
0.31
%
Certificates of deposit
581,930
24,894
4.28
479,566
16,951
3.53
Money market accounts
2,508
0.12
4,627
0.11
Checking and Super NOW accounts
273,581
0.02
290,636
0.02
Total interest-bearing deposits
1,560,694
31,389
2.01
1,577,662
19,484
1.23
Federal Home Loan Bank advances
215,661
6,899
3.20
240,647
6,636
2.76
Federal Reserve Bank advances
45,492
2,173
4.78
3,123
4.93
Securities sold under agreements to repurchase
8,292
1.83
10,000
1.83
Total interest-bearing liabilities
1,830,139
40,613
2.22
1,831,432
26,457
1.44
Non-interest-bearing liabilities
116,160
116,224
Total liabilities
1,946,299
1,947,656
Stockholders’ equity
251,117
252,611
Total liabilities and stockholders’ equity
$
2,197,416
$
2,200,267
Net interest income
$
31,692
$
42,631
Net interest rate spread (2)
1.21
%
1.83
%
Net interest-earning assets (3)
$
277,899
$
281,421
Net interest margin (4)
1.50
%
2.02
%
Interest-earning assets to interest-bearing liabilities
115.18
%
115.37
%
(1) Average balance includes loans or investments held to maturity and available for sale, as applicable.
(2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average total interest-earning assets.
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our net interest income for the years indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments for 2024 or 2023.
Year Ended December 31,
2024 vs. 2023
Increase (Decrease)
Total
Due to
Increase
Volume
Rate
(Decrease)
(In thousands)
Interest-earning assets:
Loans:
Real estate loans:
First mortgage:
One- to four-family residential
$
(73)
$
1,834
$
1,761
Multi-family residential
(11)
(8)
(19)
Construction, commercial and other
(324)
(217)
Home equity loans and lines of credit
(24)
Other loans
Total loans
(145)
1,922
1,777
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises
(982)
(79)
(1,061)
Other investments
2,130
2,501
Total interest-earning assets
1,003
2,214
3,217
Interest-bearing liabilities:
Savings accounts
(267)
4,234
3,967
Certificates of deposit
4,001
3,942
7,943
Money market accounts
(4)
(2)
Checking and Super NOW accounts
(3)
-
(3)
Total interest-bearing deposits
3,727
8,178
11,905
Federal Home Loan Bank advances
(486)
Federal Reserve Bank advances
2,024
(5)
2,019
Securities sold under agreements to repurchase
(31)
-
(31)
Total interest-bearing liabilities
5,234
8,922
14,156
Change in net interest income
$
(4,231)
$
(6,708)
$
(10,939)
Comparison of Operating Results for the Years Ended December 31, 2024 and 2023
General. Net income decreased by $9.3 million, or 185.5%, to a net loss of $4.3 million for the year ended December 31, 2024 from net income of $5.0 million for the year ended December 31, 2023. The decrease in net income was primarily due to a $10.9 million decrease in net interest income and a $2.7 million increase in noninterest expense. These decreases to net income were partially offset by a $4.2 million decrease in income tax expense.
Net Interest Income. Net interest income decreased by $10.9 million, or 25.7%, to $31.7 million for the year ended December 31, 2024 from $42.6 million for the year ended December 31, 2023. Interest expense increased by $14.2 million, or 53.5%, to $40.6 million for the year ended December 31, 2024 from $26.5 million for the year ended
December 31, 2023. The increase in interest expense was primarily due to a 78 basis point increase in the cost of interest-bearing liabilities which was partially offset by a $1.3 million decrease in the average balance of interest-bearing liabilities. Interest income increased by $3.2 million, or 4.7%, to $72.3 million for the year ended December 31, 2024 from $69.1 million for the year ended December 31, 2023. The increase in interest income was primarily due to a 16 basis point increase in the yield on average interest-earning assets which was partially offset by a $4.8 million decrease in the average balance of interest-earning assets. Since the significant majority of our loan and securities portfolios have fixed interest rates, the average rates on these assets have not risen as quickly as the average rates on our interest-bearing liabilities during this period of rising market interest rates. The net interest rate spread and net interest margin were 1.21% and 1.50%, respectively, for the year ended December 31, 2024, compared to 1.83% and 2.02%, respectively, for the year ended December 31, 2023. The decrease in the net interest rate spread and the net interest margin are attributable to the 78 basis point increase in the cost of average interest-bearing liabilities, which was partially offset by the 16 basis point increase in the yield of average interest-earning assets.
Interest Income. Interest income increased by $3.2 million, or 4.7%, to $72.3 million for the year ended December 31, 2024 from $69.1 million for the year ended December 31, 2023. Interest income on other investments increased by $2.5 million, or 60.6%, to $6.6 million for the year ended December 31, 2024 from $4.1 million for the year ended December 31, 2023. The increase in interest income on other investments was primarily due to a $41.0 million increase in the average cash balance at the FRB. Interest income on loans increased by $1.8 million, or 3.8%, from $47.0 million for the year ended December 31, 2023 to $48.8 million for the year ended December 31, 2024. The increase in interest income on loans occurred because of a 15 basis point increase in the yield, which was partially offset by a $4.9 million decrease in the average balance of loans which occurred as loan repayments and loan sales exceeded new loan originations. These increases to interest income were partially offset by a decrease in interest income on investment securities by $1.1 million, or 5.9%, to $16.9 million for the year ended December 31, 2024 from $17.9 million for the year ended December 31, 2023. The decrease in interest income on securities occurred primarily because of a $40.0 million decrease in the average securities balance due to principal repayments.
Interest Expense. Interest expense increased by $14.2 million, or 53.5%, to $40.6 million for the year ended December 31, 2024 from $26.5 million for the year ended December 31, 2023. Interest expense on interest-bearing deposits increased by $11.9 million, or 61.1%, to $31.4 million for the year ended December 31, 2024 from $19.5 million for the year ended December 31, 2023. The increase in interest expense on interest-bearing deposits was primarily due to a $102.4 million, or 21.3%, increase in the average balance of certificates of deposit and a 75 basis point increase in the rate paid on certificates of deposit. Certificates of deposit included a $91.5 million increase in deposits from state and local governments. The increase in deposits from state and local governments was used primarily to pay off $82.0 million of maturing FHLB advances. The rate paid on certificates of deposit increased to 4.28% for the year ended December 31, 2024 from 3.53% for the year ended December 31, 2023 primarily due to increases in market interest rates. Interest expense on savings accounts increased by $4.0 million, or 160.7%, to $6.4 million for year ended December 31, 2024 from $2.5 million for the year ended December 31, 2023. The increase in interest expense on savings accounts occurred primarily because of a 61 basis point increase in the rate which was partially offset by a $100.2 million, or 12.5% decrease in the average balance of savings accounts. The changes in the average balance of savings accounts and certificates of deposit occurred primarily as customers transferred funds from savings accounts with relatively low interest rates to certificates of deposit with higher interest rates or withdrew their deposits and sought higher interest rates elsewhere. Interest expense on FRB advances rose by $2.0 million to $2.2 million for year ended December 31, 2024 from $154,000 for the year ended December 31, 2023. In December 2023, we obtained a $50.0 million advance from the FRB Bank Term Funding Program, which was paid off during the year ended December 31, 2024.
Provision for Loan Losses. Based on our analysis of the factors described in “- Allowance for Credit Losses,” we recorded a provision for credit losses of $73,000 and a reversal of provision for credit losses of $3,000 for the years ended December 31, 2024 and 2023, respectively. The provisions in 2024 was primarily due to an increase in provisions for the consumer loan portfolio, which was partially offset by decreases in provisions for the commercial and real estate portfolios. The increase in provisions for the consumer loan portfolio was primarily due to an increase in home equity loans and lines of credit. The decrease in provisions in the commercial loan portfolio was primarily due to an increase in forecasted prepayments, that was partially offset by an increase in forecasted charge-offs. The decrease in provisions in the real estate loan portfolio was primarily due to a decrease in the mortgage loan portfolio that was partially offset by a
decrease in the forecasted prepayments. The reversal of credit loss provisions in 2023 was primarily due to a decrease in our real estate portfolio’s forecasted charge-offs that was partially offset by a decrease in its forecasted prepayments. The provisions recorded resulted in ratios of the allowance for credit losses to total loans of 0.40% and 0.39% at December 31, 2024 and 2023, respectively. For the years ended December 31, 2024 and 2023, we had net charge-offs of $80,000 and $117,000, respectively. Nonaccrual loans totaled $1.9 million and $2.3 million at December 31, 2024 and 2023, respectively. We have provided for all losses that can be reasonably estimated at December 31, 2024 and 2023.
Noninterest Income. The following table summarizes changes in noninterest income for the years ended December 31, 2024 and 2023.
Year Ended December 31,
Change 2024/2023
$ Change
% Change
(Dollars in thousands)
Service and other fees
$
1,170
$
1,327
$
(157)
(11.8)
%
Income on bank-owned life insurance
1,007
17.8
%
Net gain on sale of loans
90.0
%
Other
48.7
%
Total
$
2,611
$
2,471
$
5.7
%
Noninterest income increased by $140,000, or 5.7%, to $2.6 million for the year ended December 31, 2024 from $2.5 million for the year ended December 31, 2023. The increase in bank-owned life insurance income was primarily due to higher market interest rates. The increase in other income in 2024 was primarily due to an increase in the return on assets in our defined benefit pension plan and a reduction in the interest cost on the benefit obligation. The decrease in service and other fees was primarily due to a decrease in broker fee income and appraisal fees.
Noninterest Expense. The following table summarizes changes in noninterest expense for the years ended December 31, 2024 and 2023.
Year Ended December 31,
Change 2024/2023
$ Change
% Change
(Dollars in thousands)
Salaries and employee benefits
$
19,787
$
20,832
$
(1,045)
(5.0)
%
Occupancy
6,858
6,910
(52)
(0.8)
%
Equipment
5,307
5,156
2.9
%
Federal deposit insurance premiums
1,667
69.8
%
Other general and administrative expenses
7,325
4,388
2,937
66.9
%
Total
$
40,944
$
38,268
$
2,676
7.0
%
Noninterest expense increased by $2.7 million, or 7.0%, to $40.9 million for the year ended December 31, 2024 from $38.3 million for the year ended December 31, 2023. Other general and administrative expenses increased primarily due to $2.8 million of merger-related legal and other professional fees. The increase in federal deposit insurance premiums was primarily due to an increase in the Federal Deposit Insurance Corporation (FDIC) premium rate. The decrease in salaries and employee benefits was primarily due to a decrease in compensation, loan agent commissions, employee stock option program expenses, retirement plan expense, health insurance, and payroll taxes which was partially offset by a decrease in deferred salary expenses for originating new loans and stock benefit plan expenses.
Income Tax (Benefit) Expense. The income tax benefit for 2024 was $2.4 million with an effective tax rate of (36.0%) compared to income tax expense of $1.8 million with an effective tax rate of 26.5%. The decrease in income tax expense was due to a $13.6 million decrease in income before income taxes.
Nonperforming and Problem Assets
When a residential mortgage loan or home equity line of credit is 15 days past due, we attempt personal, direct contact with the borrower to determine when payment will be made. On the first day of the following month, we mail a letter reminding the borrower of the delinquency, and will send an additional letter when a loan is 60 days or more past due. If necessary, subsequent late notices are issued and the account will be monitored on a regular basis thereafter. By the 121st day of delinquency, unless the borrower has made arrangements to bring the loan current, we will refer the loan to legal counsel to commence foreclosure proceedings.
Commercial business loans, commercial real estate loans, and consumer loans are generally handled in the same manner as residential mortgage loans or home equity lines of credit. All commercial business loans that are 15 days past due are immediately referred to our senior lending officer. In addition, we generate past due notices and attempt direct contact with a borrower when a consumer loan is 10 days past due. Because consumer loans are generally unsecured, we may commence collection procedures earlier for consumer loans than for residential mortgage loans or home equity lines of credit.
Loans are generally placed on nonaccrual status when payment of principal or interest is more than 90 days contractually delinquent or when, in the opinion of management, collection of principal or interest in full appears doubtful. When loans are placed on a nonaccrual status, unpaid accrued interest is fully reversed. The interest payments received on nonaccrual loans are recorded as a reduction of principal. The loan may be returned to accrual status if both principal and interest payments are brought current and full payment of principal and interest is expected.
Nonperforming Assets. The table below sets forth the amounts and categories of our nonperforming assets (loans and real estate owned) at the dates indicated.
At December 31,
(Dollars in thousands)
Nonaccrual loans:
Real estate loans:
First mortgage:
One- to four-family residential
$
1,771
$
2,079
Home equity loans and lines of credit
Other loans
Total nonaccrual loans
1,933
2,260
Real estate owned:
-
-
Total nonperforming assets
1,933
2,260
Loans delinquent 90 days or greater and still accruing interest
-
-
Modified loans still accruing interest:
Real estate loans:
First mortgage:
One- to four-family residential
Total modified loans still accruing interest
Total nonperforming assets, accruing loans delinquent for 90 days or more and modified loans still accruing interest
$
2,438
$
2,957
Ratios:
Nonperforming loans to total loans
0.15
%
0.17
%
Nonperforming assets to total assets
0.09
%
0.10
%
We had three one- to four family residential loans totaling $593,000 that were modified as of December 31, 2024. Two of the loans, totaling $505,000, were performing in accordance with their modified terms and accruing
interest at December 31, 2024. One loan for $87,000 was performing in accordance with its modified terms but not accruing interest at December 31, 2024. We had five one- to four family residential mortgage loans totaling $860,000 that were modified as of December 31, 2023. Four of the loans, totaling $758,000, were performing in accordance with their modified terms and accruing interest at December 31, 2023. One of the loans, for $102,000, was 59 days past due and not accruing interest at December 31, 2023. Our loan modifications include extending loan terms, adjustment to the loan’s interest rate, and loan payment deferrals.
Delinquent Loans. The following table sets forth our loan delinquencies by type and by amount at the dates indicated. Loans with a formal loan payment deferral plan in place are not considered contractually past due or delinquent if the borrower is in compliance with the loan payment deferral plan.
Loans Delinquent For
60-89 Days
90 Days or Over
Total
Number
Amount
Number
Amount
Number
Amount
(Dollars in thousands)
At December 31, 2024
Real estate loans:
First mortgage:
One- to four-family residential
-
$
-
$
1,219
$
1,219
Other loans
-
-
Total loans
$
$
1,219
$
1,220
At December 31, 2023
Real estate loans:
First mortgage:
One- to four-family residential
-
$
-
$
$
Other loans
-
-
-
Total loans
$
-
$
$
Real Estate Owned. Real estate acquired by us as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned. When property is acquired it is recorded at estimated fair value at the date of foreclosure less the cost to sell, establishing a new cost basis. Estimated fair value generally represents the price a buyer would be willing to pay on the basis of current market conditions, including normal terms from other financial institutions. Holding costs and declines in estimated fair value result in charges to expense after acquisition. At December 31, 2024 and 2023, we had no real estate owned.
Classification of Assets. Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets as substandard, doubtful, or loss. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or the fair value of collateral pledged, if any. Substandard assets include those assets characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets (or portions of assets) classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted.
We maintain an allowance for credit losses using an estimate of future losses over the expected life of our financial instruments at a balance sheet date. Our determination as to the classification of our assets and the amount of our allowance for credit losses is subject to review by bank regulators, who can require that we establish additional allowances. We regularly review our asset portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of our review of our assets at December 31, 2024, we had substandard assets of $2.2 million and no loss or doubtful assets. Substandard assets at December 31, 2024 included $1.8 million of nonperforming loans and $377,000 of modified loans. At December 31, 2023, we had substandard assets of $2.7 million and no loss or doubtful assets. Substandard assets at December 31, 2023 included $2.2 million of nonperforming loans
and $577,000 of modified loans. We generally classify any loan that is delinquent 90 days or more as substandard. Loans which have been delinquent for fewer days may also be classified as substandard.
In addition to classifying assets as substandard, doubtful or loss, we also categorize assets as special mention. A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. We designate loans that are 30 to 89 days delinquent as special mention. Loans which have been delinquent for fewer days may also be categorized as special mention. At December 31, 2024 and 2023, special mention assets were $1.0 million and $327,000, respectively.
Allocation of Allowance for Credit Losses. The following table sets forth the allowance for credit losses allocated by loan category and the percent of loans in each category to total loans at the dates indicated. The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category. The allowance for credit losses for each category is affected by the national and Hawaii economies as well as other factors. The allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
At December 31,
Percent of
Percent of
Loans in Each
Loans in Each
Allowance for
Category to
Allowance for
Category to
Credit Losses
Total Loans
Credit Losses
Total Loans
(Dollars in thousands)
Real estate loans:
First mortgage:
One- to four-family residential
$
4,369
96.87
%
$
4,448
97.48
%
Multi-family residential
0.40
0.45
Construction, commercial and other
0.90
0.89
Home equity loans and lines of credit
1.15
0.54
Other loans
0.68
0.64
Total
$
5,114
100.00
%
$
5,121
100.00
%
The following table sets forth additional information regarding the allowance for credit losses and net charge-offs by category:
At or For the Year Ended December 31,
Allowance for credit losses to total loans at end of year
0.40
%
0.39
%
Nonaccrual assets to total loans at end of year
0.15
%
0.17
%
Allowance for credit losses to nonaccrual loans at end of year
264.56
%
226.59
%
Net charge-offs to average loans outstanding:
Real Estate
-
%
-
%
Commercial
-
%
-
%
Consumer
0.22
%
0.87
%
Management of 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.
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 securities repayments, advances from the Federal Home Loan Bank and the Federal Reserve Bank, 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, as occurred in 2023.
We continue our efforts to reduce interest rate risk. In 2024 and 2023, we sold fixed-rate mortgage loans with principal balances of $877,000 and $827,000, respectively. In 2024, FHLB and FRB advances decreased by $82.0 million and $50.0 million, respectively. In 2024 we paid off $10.0 million of our remaining funds borrowed under securities sold under agreements to repurchase. In addition, we may utilize the following strategies to further reduce our interest rate risk:
● Continuing our efforts to increase our core checking and savings accounts, which are less rate-sensitive than certificates of deposit and which provide us with a stable, low-cost source of funds;
● Continuing to repay short-term borrowings;
● Maintaining overnight cash balances at the Federal Reserve Bank or a portfolio of short-term investments;
● Purchasing mortgage-backed securities with shorter durations;
● Selling a portion of the fixed-rate mortgage loans we originate to Freddie Mac or Fannie Mae;
● Extending the maturity of our liabilities by obtaining longer-term fixed-rate public deposits, and FHLB advances;
● Subject to the maintenance of our credit quality standards, originating commercial loans and home equity lines of credit, which have adjustable interest rates and shorter average lives than first mortgage loans; and
● Maintaining relatively high regulatory capital ratios.
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 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.
The following table presents our internal calculations of the estimated changes in our EVE as of December 31, 2024 that would result from the designated instantaneous changes in the interest rate yield curve.
Increase
(Decrease) in
Estimated
EVE Ratio as a
EVE Ratio as a
Change in
Increase
Percent of
Percent of
Interest Rates
Estimated EVE
(Decrease) in
Percentage
Present Value
Present Value of
(bp) (1)
(2)
EVE
Change in EVE
of Assets (3)(4)
Assets (3)(4)
(Dollars in thousands)
+400
$
(67,397)
$
(199,011)
(151.21)
%
(4.60)
%
(11.83)
%
+300
$
(23,087)
$
(154,701)
(117.54)
%
(1.50)
%
(8.73)
%
+200
$
25,796
$
(105,818)
(80.40)
%
1.58
%
(5.65)
%
+100
$
78,765
$
(52,849)
(40.15)
%
4.57
%
(2.66)
%
$
131,614
$
-
-
%
7.23
%
-
%
$
187,146
$
55,532
42.19
%
9.72
%
2.49
%
$
235,706
$
104,092
79.09
%
11.61
%
4.38
%
$
275,715
$
144,101
109.49
%
12.93
%
5.70
%
$
283,670
$
152,056
115.53
%
12.84
%
5.61
%
(1) Assumes an instantaneous uniform change in interest rates at all maturities.
(2) EVE is the difference between the present value of an institution’s assets and liabilities.
(3) Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.
(4) EVE Ratio represents EVE divided by the present value of assets.
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.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations. Our primary obligations include meeting the borrowing needs of our customers, fulfilling deposit withdrawals, interest payments on deposits, and repayment of borrowings. Territorial Savings Bank’s primary sources of funds consist of deposit inflows, cash balances at the FRB, loan and security repayments, advances from the FHLB and FRB, 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 Executive Vice President and Chief Financial Officer, our Executive Vice President of Finance, and our Vice President and Senior Treasury Analyst, 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 December 31, 2024.
We regularly monitor and adjust our investments in liquid assets based upon our assessment of:
(i) expected loan demand;
(ii) purchases and sales of investment securities;
(iii) expected deposit flows and borrowing maturities;
(iv) yields available on interest-earning deposits and securities; and
(v) the objectives of our asset/liability management program.
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 December 31, 2024, our cash and cash equivalents totaled $123.5 million. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank (FHLB) and the FRB, which provide an additional source of funds. At December 31, 2024, we had the ability to borrow up to an additional $389.5 million and $114.4 million from the FHLB and FRB, respectively. In addition, we had the ability to borrow up to $80.2 million, using our unpledged securities as collateral, from the FRB.
We measure our liquidity by calculating the ratio of cash and cash equivalents plus the market value of unpledged investment securities to total assets. We maintain a minimum liquidity ratio of 10%. Our monitoring of liquidity includes stress testing which is designed to determine that our liquidity is sufficient.
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 December 31, 2024, we had $1.2 million in loan commitments outstanding for fixed-rate loans and had $17.1 million in unused lines of credit to borrowers. Certificates of deposit due within one year of December 31, 2024 totaled $685.9 million, or 39.9% 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, and FHLB and FRB 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 December 31, 2024. 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 years ended December 31, 2024 and 2023, we originated $74.9 million and $100.8 million of loans, respectively. In 2023, we purchased securities with a total face value of $6.8 million. We did not purchase any securities in 2024.
Financing activities consist primarily of activity in deposit accounts, FHLB advances, FRB advances, stock repurchases and dividend payments. We experienced a net increase in deposits of $81.1 million during 2024 and a net decrease in deposits of $79.5 million during 2023. The $81.1 million increase in deposits during 2024 included a $91.5 million increase in the deposits of state and local governments. 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. FHLB borrowings decreased $82.0 million to $160.0 million at December 31, 2024 from $242.0 million at December 31, 2023. The $82.0 million decrease in FHLB advances occurred as we paid off maturing advances. FRB borrowings were $50.0 million at December 31, 2023. We had no FRB borrowings at December 31, 2024. The $50.0 million decrease in FRB advances occurred as we used our excess liquidity to pay off advances which were scheduled to mature in January 2025.
As a separate legal entity, the Company is required to have liquidity to fund stock repurchases and dividend payments to shareholders and for other corporate purposes. Shares repurchased reduce the amount of shares issued and outstanding. The repurchased shares may be reissued in connection with share-based compensation plans and for general corporate purposes. The Company did not repurchase any shares in 2024 as part of a repurchase program authorized by the Board of Directors. In 2023, the Company repurchased 250,882 shares of common stock with an average cost of $16.05 as part of the repurchase programs authorized by the Board of Directors. At December 31, 2024 and 2023, on a stand-alone basis, the Company had cash in banks of $14.8 million and $18.5 million, respectively.
Territorial Savings Bank and the Company are 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. At December 31, 2024, Territorial Savings Bank and the Company exceeded all regulatory capital requirements and are
considered to be “well capitalized” under regulatory guidelines. See Note 23 of the Notes to Consolidated Financial Statements.
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. We sell loans under agreements that contain representations and warranties related to, among other things, the origination and characteristics of the mortgage loans. We may be required to repurchase mortgage loans that we have sold in cases of breaches of these representations and warranties. For additional information, see Note 22 of the Notes to Consolidated Financial Statements.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 2(x) of the Notes to Consolidated Financial Statements.
Impact of Inflation and Changing Prices
Our Consolidated Financial Statements and related notes have been prepared in accordance with U.S. GAAP. U.S. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration of changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk
Information required by this item is included in “ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” above.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Territorial Bancorp, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Territorial Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting in accordance with the standards of the PCAOB. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses - Real Estate Segment
As described in Notes 2 and 7 to the consolidated financial statements, the Company’s allowance for credit losses on loans was $5.1 million at December 31, 2024. The allowance for credit losses on loans, which is an estimate of expected credit losses over the life of a loan, is developed using internal and external data based on past events, current conditions, and reasonable and supportable forecasts. The allowance is a valuation account that is deducted from the loans’
amortized cost basis to present the net amount expected to be collected by the Company. The Company employs a discounted cash flow methodology in calculating the allowance, which involves the application of several assumptions in the development of the allowance for credit losses on loans. For the real estate segment, we identified the prepayment rate assumption and the historical period used in determining the loss rate on reversion as a critical audit matter.
Our principal consideration in determining that the assumptions used in the calculation of the allowance for credit losses on loans is a critical audit matter was the subjectivity of the judgements by management in setting the prepayment rate assumption and the historical period used in determining the loss rate on reversion. Auditing management’s judgments regarding the selection of these assumptions involved a high degree of subjectivity due to the nature and extent of audit evidence obtained to address this matter.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. Our audit procedures related to the critical audit matter included the following, among others:
● Evaluating the appropriateness of the prepayment assumption applied in the allowance calculation related to the real estate segment.
● Evaluating the appropriateness of the historical period used in determining the loss rate on reversion applied in the allowance calculation related to the real estate segment.
● Testing the mathematical accuracy and computation of the allowance for credit losses for the real estate segment by independently calculating significant elements of the allowance.
/s/ Moss Adams LLP
Portland, Oregon
March 31, 2025
We have served as the Company’s auditor since 2015.
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2024 and 2023
(Dollars in thousands, except share data)
December 31,
December 31,
ASSETS
Cash and cash equivalents
$
123,523
$
126,659
Investment securities available for sale, at fair value (amortized cost of $21,494 and $22,563 at December 31, 2024 and 2023, respectively)
18,492
20,171
Investment securities held to maturity, at amortized cost (fair value of $513,499 and $568,128 at December 31, 2024 and 2023, respectively)
645,669
685,728
Loans receivable
1,286,662
1,308,552
Allowance for credit losses
(5,114)
(5,121)
Loans receivable, net of allowance for credit losses
1,281,548
1,303,431
Federal Home Loan Bank stock, at cost
8,542
12,192
Federal Reserve Bank stock, at cost
3,189
3,180
Accrued interest receivable
5,800
6,105
Premises and equipment, net
7,278
7,185
Right-of-use asset, net
12,523
12,371
Bank-owned life insurance
49,645
48,638
Income taxes receivable
2,082
Deferred income tax assets, net
1,877
2,457
Prepaid expenses and other assets
9,547
8,211
Total assets
$
2,169,715
$
2,236,672
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits
$
1,717,663
$
1,636,604
Advances from the Federal Home Loan Bank
160,000
242,000
Advances from the Federal Reserve Bank
-
50,000
Securities sold under agreements to repurchase
-
10,000
Accounts payable and accrued expenses
19,403
23,334
Lease liability
17,967
17,297
Advance payments by borrowers for taxes and insurance
6,331
6,351
Total liabilities
1,921,364
1,985,586
Commitments and contingencies: (Note 22 & 24)
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 8,832,210 and 8,826,613 shares at December 31, 2024 and 2023, respectively
Additional paid-in capital
48,367
48,022
Unearned ESOP shares
(1,957)
(2,447)
Retained earnings
206,693
211,644
Accumulated other comprehensive loss
(4,840)
(6,221)
Total stockholders’ equity
248,351
251,086
Total liabilities and stockholders’ equity
$
2,169,715
$
2,236,672
See accompanying Notes to Consolidated Financial Statements.
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 2024 and 2023
(Dollars in thousands, except per share data)
Interest income:
Loans
$
48,820
$
47,043
Investment securities
16,857
17,918
Other investments
6,628
4,127
Total interest income
72,305
69,088
Interest expense:
Deposits
31,389
19,484
Advances from the Federal Home Loan Bank
6,899
6,636
Advances from the Federal Reserve Bank
2,173
Securities sold under agreements to repurchase
Total interest expense
40,613
26,457
Net interest income
31,692
42,631
Provision (reversal of provision) for credit losses
(3)
Net interest income after provision (reversal of provision) for credit losses
31,619
42,634
Noninterest income:
Service and other fees
1,170
1,327
Income on bank-owned life insurance
1,007
Net gain on sale of loans
Other
Total noninterest income
2,611
2,471
Noninterest expense:
Salaries and employee benefits
19,787
20,832
Occupancy
6,858
6,910
Equipment
5,307
5,156
Federal deposit insurance premiums
1,667
Other general and administrative expenses
7,325
4,388
Total noninterest expense
40,944
38,268
(Loss) income before income taxes
(6,714)
6,837
Income tax (benefit) expense
(2,415)
1,810
Net (loss) income
$
(4,299)
$
5,027
Basic (loss) earnings per share
$
(0.50)
$
0.58
Diluted (loss) earnings per share
$
(0.50)
$
0.57
Cash dividends declared per common share
$
0.08
$
0.74
Basic weighted-average shares outstanding
8,610,706
8,636,495
Diluted weighted-average shares outstanding
8,610,706
8,684,092
See accompanying Notes to Consolidated Financial Statements.
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive (Loss) Income
For the years ended December 31, 2024 and 2023
(Dollars in thousands)
Net (loss) income
$
(4,299)
$
5,027
Other comprehensive income (loss), net of tax:
Unfunded pension liability
1,828
1,280
Unrealized (loss) gain on securities
(447)
Total other comprehensive income, net of tax
1,381
1,523
Comprehensive (loss) income
$
(2,918)
$
6,550
See accompanying Notes to Consolidated Financial Statements.
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
For the years ended December 31, 2024 and 2023
(Dollars in thousands, except share data)
Accumulated
Common
Additional
Unearned
Other
Total
Shares
Common
Paid-in
ESOP
Retained
Comprehensive
Stockholders’
Outstanding
Stock
Capital
Shares
Earnings
Loss
Equity
Balances at December 31, 2022
9,071,076
$
$
51,825
$
(2,936)
$
215,314
$
(7,744)
$
256,550
Net income
-
-
-
-
5,027
-
5,027
Other comprehensive income
-
-
-
-
-
1,523
1,523
Cumulative change in accounting principle (1)
-
-
-
-
(2,319)
-
(2,319)
Cash dividends declared ($.74 per share)
-
-
-
-
(6,378)
-
(6,378)
Share-based compensation
12,729
-
-
-
-
Allocation of 48,933 ESOP shares
-
-
-
-
Repurchase of shares of common stock
(257,192)
(3)
(4,183)
-
-
-
(4,186)
Balances at December 31, 2023
8,826,613
$
$
48,022
$
(2,447)
$
211,644
$
(6,221)
$
251,086
Net loss
-
-
-
-
(4,299)
-
(4,299)
Other comprehensive income
-
-
-
-
-
1,381
1,381
Cash dividends declared ($.08 per share)
-
-
-
-
(652)
-
(652)
Share-based compensation
12,178
-
-
-
-
Allocation of 48,933 ESOP shares
-
-
(32)
-
-
Repurchase of shares of common stock
(6,556)
-
(51)
-
-
-
(51)
Cancelled shares
(25)
-
-
-
-
-
-
Balances at December 31, 2024
8,832,210
$
$
48,367
$
(1,957)
$
206,693
$
(4,840)
$
248,351
(1) Represents the impact of the adoption of Accounting Standard Update 2016-13. See Note 7 to the consolidated financial statements for additional information.
See accompanying Notes to Consolidated Financial Statements.
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2024 and 2023
(Dollars in thousands)
Year Ended
December 31,
Cash flows from operating activities:
Net (loss) income
$
(4,299)
$
5,027
Adjustments to reconcile net (loss) income to net cash (used in) from operating activities:
Provision (reversal of provision) for credit losses
(3)
Depreciation and amortization
1,093
Deferred income tax expense (benefit)
(525)
Accretion of fees, discounts, and premiums, net
(399)
(367)
Amortization of right-of-use asset
3,437
2,820
Origination of loans held for sale
(861)
(813)
Proceeds from sales of loans held for sale
Gain on sale of loans, net
(19)
(10)
Net loss on disposal of premises and equipment
ESOP expense
Share-based compensation expense
Net decrease (increase) in accrued interest receivable
(34)
Income on bank-owned life insurance
(1,007)
(855)
Net increase in prepaid expenses and other assets
(1,337)
(1,537)
Net (decrease) increase in accounts payable and accrued expenses
(1,440)
Net (decrease) increase in lease liability
(2,919)
1,309
Net (decrease) increase in advance payments by borrowers for taxes and insurance
(20)
Net decrease in income taxes payable
(1,738)
(1,182)
Net cash (used in) from operating activities
(7,483)
8,257
Cash flows from investing activities:
Purchases of investment securities held to maturity
-
(6,693)
Principal repayments on investment securities held to maturity
40,153
38,859
Principal repayments on investment securities available for sale
1,127
1,038
Principal repayments on loans receivable, net of loan originations
22,119
(11,640)
Purchases of Federal Home Loan Bank stock
(40)
(5,887)
Proceeds from redemption of Federal Home Loan Bank stock
3,690
1,892
Purchases of Federal Reserve Bank stock
(9)
(11)
Proceeds from redemption of Federal Reserve Bank stock
-
Purchases of premises and equipment
(1,049)
(685)
Net cash from investing activities
65,991
16,874
(Continued)
TERRITORIAL BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2024 and 2023
(Dollars in thousands)
Year Ended
December 31,
Cash flows from financing activities:
Net increase (decrease) in deposits
$
81,059
$
(79,548)
Proceeds from advances from the Federal Home Loan Bank
-
146,000
Repayments of advances from the Federal Home Loan Bank
(82,000)
(45,000)
Proceeds from advances from the Federal Reserve Bank
100,000
90,020
Repayments of advances from the Federal Reserve Bank
(150,000)
(40,020)
Repayments of securities sold under agreements to repurchase
(10,000)
-
Purchase of Fed Funds
-
Sale of Fed Funds
-
(20)
Repurchases of common stock
-
(4,065)
Cash dividends paid
(703)
(6,412)
Net cash (used in) from financing activities
(61,644)
60,975
Net change in cash and cash equivalents
(3,136)
86,106
Cash and cash equivalents at beginning of the period
126,659
40,553
Cash and cash equivalents at end of the period
$
123,523
$
126,659
Supplemental disclosure of cash flow information:
Cash paid for:
Interest on deposits and borrowings
$
40,817
$
25,975
Income taxes
3,516
Supplemental disclosure of noncash investing and financing activities:
Company stock repurchased through stock swap and net settlement transactions
$
$
Establishment of right-of-use asset, net of incentives and modifications
3,589
Establishment of lease liability, net of modifications
3,589
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
(1)Organization
Territorial Bancorp Inc. is a Maryland corporation and is the holding company for Territorial Savings Bank. Territorial Savings Bank is a Hawaii state-chartered bank headquartered in Honolulu, Hawaii and is a member of the Federal Reserve System. Territorial Savings Bank had one subsidiary, Territorial Financial Services, Inc., that was dissolved during 2024.
(2)Summary of Significant Accounting Policies
(a) Description of Business
Territorial Bancorp Inc. (the Company), through its wholly-owned subsidiary, Territorial Savings Bank (the Bank), provides loan and deposit products and services primarily to individual customers through 28 branches located throughout Hawaii. We deal primarily in residential mortgage loans in the State of Hawaii. The Company’s earnings depend primarily on its net interest income, which is the difference between the interest income earned on interest-earning assets (loans receivable and investments) and the interest expense incurred on interest-bearing liabilities (deposit liabilities and borrowings). Deposits traditionally have been the principal source of the Bank’s funds for use in lending, meeting liquidity requirements, and making investments. The Company also derives funds from receipt of interest and principal repayments on outstanding loans receivable and investments, borrowings from the Federal Home Loan Bank (FHLB), Federal Reserve Bank (FRB), and proceeds from issuance of common stock.
(b) Principles of Consolidation
The Consolidated Financial Statements include the accounts and results of operations of Territorial Bancorp Inc. and Territorial Savings Bank, its wholly-owned subsidiary. Significant intercompany balances and transactions have been eliminated in consolidation.
(c) Cash and Cash Equivalents
Cash and cash equivalents includes cash and due from banks, interest-bearing deposits in other banks, federal funds sold, and short-term, highly liquid investments with original maturities of three months or less.
(d) Investment Securities
The Company classifies and accounts for its investment securities as follows: (1) held-to-maturity debt securities in which the Company has the positive intent and ability to hold to maturity are reported at amortized cost; (2) trading securities that are purchased for the purpose of selling in the near term are reported at fair value, with unrealized gains and losses included in current earnings; and (3) available-for-sale securities not classified as either held-to-maturity or trading securities are reported at fair value, with unrealized gains and losses excluded from current earnings and reported as a separate component of equity. At December 31, 2024 and 2023, the Company had $18.5 million and $20.2 million, respectively, of securities classified as available-for-sale and the remaining securities were classified as held-to-maturity.
Gains or losses on the sale of investment securities are computed using the specific-identification method. The Company amortizes premiums and accretes discounts associated with investment securities using the interest method over the contractual life of the respective investment security. Such amortization and accretion is included in the interest income line item in the Consolidated Statements of Operations. Interest income is recognized when earned.
(e) Loans Receivable
This policy applies to all loan classes. Loans receivable are stated at the principal amount outstanding, less the allowance for credit losses, loan origination fees and costs, and commitment fees. Interest on loans receivable is accrued as earned. The Company has a policy of placing loans on a nonaccrual basis when 90 days or more contractually delinquent or when, in the opinion of management, collection of all or part of the principal balance appears doubtful. For nonaccrual loans, the Company records payments received as a reduction in principal. The Company, considering current information and events regarding the borrowers’ ability to repay their obligations, considers a loan to be individually evaluated when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be individually evaluated, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, if the loan is considered to be collateral dependent, based on the fair value of the collateral less estimated costs to sell. Impairment losses are written off against the allowance for credit losses. For nonaccrual loans, the Company records payments received as a reduction in principal. A nonaccrual loan may be restored to an accrual basis when principal and interest payments are current and full payment of principal and interest is expected.
(f) Loans Held for Sale
Loans held for sale are stated at the lower of aggregate cost or market value. Net fees and costs of originating loans held for sale are deferred and are included in the basis for determining the gain or loss on sales of loans held for sale.
(g) Deferred Loan Origination Fees and Unearned Loan Discounts
Loan origination and commitment fees and certain direct loan origination costs are being deferred, and the net amount is recognized over the life of the related loan as an adjustment to yield. Net deferred loan fees are amortized using the interest method over the contractual term of the loan, adjusted for actual prepayments. Net unamortized fees on loans paid in full are recognized as a component of interest income.
(h) Real Estate Owned
Real estate owned is valued at the time of foreclosure at fair value, less estimated cost to sell, thereby establishing a new cost basis. The Company obtains appraisals based on recent comparable sales to assist management in estimating the fair value of real estate owned. Subsequent to acquisition, real estate owned is valued at the lower of cost or fair value, less estimated cost to sell. Declines in value are charged to expense through a direct write-down of the asset. Costs related to holding real estate are charged to expense while costs related to development and improvements are capitalized. Net gains or losses recognized on the sale of real estate owned are included in other general and administrative expenses.
(i) Allowance for Credit Losses (ACL) on Loans and Securities
The current expected credit losses (CECL) accounting standard requires an estimate of the credit losses expected over the life of the financial instrument. CECL replaces the incurred loss approach that delayed the recognition of a credit loss until it was probable that a loss event occurred. The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the ACL during the period when management deems the loan to be uncollectible and all interest previously accrued but not collected is reversed against the current period ACL.
The estimate of expected credit losses is based on information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of financial instruments. Historical loss experience is generally the starting point for estimating expected credit losses. The Company considers whether the historical loss experience should be adjusted for asset specific risk characteristics or current conditions at the reporting date that did not exist over the historical reporting period. These qualitative
adjustments can include changes in the economy, loan underwriting standards, and delinquency trends. The Company then considers future economic conditions as part of the one year reasonable and supportable forecast period.
Our loan portfolio is segmented into three pools for estimating our allowance for credit losses on loans: real estate, commercial, and consumer loans. They were established upon the adoption of ASU 2016-13. Only three pools are used to segment our loan portfolio because loans within the pools share similar risk characteristics and were originated using similar underwriting standards. Loans that do not share similar risk characteristics would be evaluated on an individual basis and excluded from the collective evaluation. Historically, we have disclosed information about our loans and allowance based on class of financing receivable. The portfolio segments align with the class of financing receivables as follows:
● Real estate: One- to four-family residential, multi-family residential, and commercial mortgage
● Commercial: Commercial loans other than mortgage loans
● Consumer: Home equity loans, loans on deposit accounts, and all other consumer loans
Collateral dependent loans are not considered to share the same risk characteristics with the three pools discussed above. A loan is considered to be collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For loans which are considered to be collateral dependent, the Company has elected to estimate the expected credit loss based on the fair value of the collateral less selling costs. If the fair value of the collateral less selling costs is less than the loan’s amortized cost basis, the Company records a partial charge-off to reduce the loan’s amortized cost basis for the difference between the collateral fair value less selling costs and the amortized cost basis.
The ACL on loans and accrued interest is calculated on a loan by loan basis. If the loan’s amortized cost basis is less than the total present value of cash flows calculated using a discounted cash flow approach, the ACL is equal to the amortized cost basis minus the total present value of cash flows on the loan discounted by the loan’s effective interest rate. The expected cash flows include estimates of loan charge-offs, recoveries, and prepayments. Economic variables which have a strong correlation with our historical loan charge-offs, recoveries, and prepayments are utilized in forecasting loan charge-offs, recoveries, and prepayments during the one year reasonable and supportable forecast period. After the reasonable and supportable forecast period, the historical reversion rate is used to calculate loan charge-offs, recoveries, and prepayments for the remaining expected life of the loan. The reversion rate is based on historical averages and applied on a straight-line basis. Qualitative adjustments may be made to account for current conditions and forward looking events not captured in the quantitative calculation. The forecast and reversion rate utilize historical behavior during select periods of time. Our Real Estate and Consumer loan pools utilize a vintage approach where historical losses, recoveries, and prepayment experience is determined using loans that have originated in the same period. Our Commercial loans utilize a reporting period approach where historical losses, recoveries, and prepayment experience is considered during a selected historical period of time. Off-balance sheet forecasts utilize a reporting period approach.
Loans receivable are stated at amortized cost which includes the principal amount outstanding, less the allowance for credit losses, deferred loan origination fees and costs, commitment fees, and cumulative net charge-offs. Interest income on loans receivable is accrued as earned. Accrued interest receivable on loans was $4.4 million as of December 31, 2024, and is included in accrued interest receivable on the Consolidated Balance Sheet.
The Company determines delinquency status by considering the number of days full payments required by the contractual terms of the loan are past due. The Company has a policy of placing loans on a nonaccrual basis when 90 days or more contractually delinquent or when, in the opinion of management, collection of all or part of the principal balance appears doubtful, unless the loans are well secured and in the process of collection. When a loan is placed on nonaccrual status, all interest previously accrued and not collected is reversed against current period provision for credit losses. For nonaccrual loans, the Company records
payments received as a reduction in principal. A nonaccrual loan may be restored to an accrual basis when principal and interest payments are current and full payment of principal and interest is expected.
The Company’s off-balance sheet credit exposures are comprised of unfunded portions of existing loans, such as lines of credit and construction loans, and commitments to originate loans that are not conditionally cancellable by the Company. Under the CECL accounting standard, expected credit losses on these amounts are calculated using a forecasted estimate of the likelihood that funding of the unfunded amount/commitment will occur and the historical reversion rate. Changes to the reserve for off-balance sheet credit exposures are recorded through increases or decreases to the provision for credit losses on the Consolidated Statements of Operations. There was $800 in reserves for off-balance sheet credit exposures at December 31, 2024. There were no reserves for off-balance sheet credit exposures at December 31, 2023.
While management utilizes its best judgment and information available, the adequacy of the ACL and the reserve for off-balance sheet credit exposures is determined by certain factors outside of the Company's control, such as the performance of our portfolios, changes in the economic environment including economic uncertainty, changes in interest rates and loan prepayments, and the view of the regulatory authorities toward classification of assets and the level of ACL and the reserve for off-balance sheet credit exposures. Additionally, the level of ACL and the reserve for off-balance sheet credit exposures may fluctuate based on the balance and mix of the loan portfolio, changes in loan prepayments and off-balance sheet credit exposures, changes in charge-off rates, and changes in forecasted economic conditions. If actual results differ significantly from our assumptions, our ACL and the reserve for off-balance sheet credit exposures may not be sufficient to cover inherent losses in our loan portfolio, resulting in additions to our ACL and an increase in the provision for credit losses.
The Company is required to utilize the CECL methodology to estimate expected credit losses with respect to held-to-maturity (HTM) investment securities. Since all of the Company’s HTM investment securities were issued by U.S. government agencies or U.S. government-sponsored enterprises, which include the explicit and/or implicit guarantee of the U.S. government and have a long history of no credit losses, the Company has not recorded a credit loss on these securities. The unrealized losses on these securities were due to changes in interest rates, relative to when the securities were purchased, and are not due to decreases in the credit quality of the securities.
Available for sale (AFS) investment securities in an unrealized loss position are evaluated for impairment. The Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the investment securities amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the investment security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income. The Company has not recorded an ACL related to our AFS investment securities.
Changes in the ACL are recorded as a provision (or reversal of provision) for credit losses. Losses are charged against the ACL when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
(j) Transfer of Financial Assets
Transfers of financial assets are accounted for as sales when control is surrendered. Control is surrendered when the assets have been isolated from the Company, the transferee obtains the right to pledge or exchange the assets without constraint, and the Company does not maintain effective control over the transferred assets. Mortgage loans sold for cash are accounted for as sales as the above criteria have been met.
Mortgage loans may also be packaged into securities that are issued and guaranteed by U.S. government-sponsored enterprises or a U.S. government agency. The Company receives 100% of the mortgage-backed securities issued. The mortgage-backed securities received in securitizations are valued at fair value and classified as held-to-maturity. A gain or loss in the securitization transactions is recognized for the difference between the fair value of the mortgage-backed securities received and the amortized cost of the loans securitized.
Mortgage loan transfers accounted for as sales and securitizations are without recourse, except for normal representations and warranties provided in sales transactions, and the Company may retain the related rights to service the loans. The retained servicing rights create mortgage servicing assets that are accounted for in accordance with the Transfers and Servicing topic of the FASB ASC. Mortgage servicing assets are initially valued at fair value and subsequently at the lower of cost or fair value and are amortized in proportion to and over the period of estimated net servicing income. The Company uses a discounted cash flow model to determine the fair value of retained mortgage servicing rights. The amount of mortgage servicing rights is immaterial to the financial statement.
(k) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is principally computed on the straight-line method over the estimated useful lives of the respective assets. The estimated useful life of buildings and improvements is 30 years, furniture, fixtures, and equipment is 3 to 10 years, and automobiles are 3 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset.
(l) Income Taxes
The Company files consolidated federal income tax and consolidated state franchise tax returns.
Deferred tax assets and liabilities are recognized using the asset and liability method of accounting for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
We establish income tax contingency reserves for potential tax liabilities related to uncertain tax positions. A liability for income tax uncertainties would be recorded for unrecognized tax benefits related to uncertain tax positions where it is more likely than not that the position will be sustained upon examination by a taxing authority.
As of December 31, 2024 and 2023, the Company had not recognized a liability for income tax uncertainties in the accompanying Consolidated Balance Sheets because management concluded that the Company does not have material uncertain tax positions.
The Company recognizes interest and penalties related to tax liabilities in other interest expense and other general and administrative expenses, respectively, in the Consolidated Statements of Operations.
Tax years 2021 and after currently remain subject to examination by the Internal Revenue Service and by the Department of Taxation of the State of Hawaii.
(m) Impairment of Long-Lived Assets
Long-lived assets, such as premises and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the Consolidated Balance Sheets and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.
(n) Pension Plan
Pension benefit costs (returns) are charged (credited) to salaries and employee benefits expense or other income, and the corresponding prepaid (accrued) pension cost is recorded in prepaid expenses and other assets or accounts payable and accrued expenses in the Consolidated Balance Sheets. The Company’s policy is to fund pension costs in amounts that will not be less than the minimum funding requirements of the Employee Retirement Income Security Act of 1974 and will not exceed the maximum tax-deductible amounts. The Company generally funds at least the net periodic pension cost, subject to limits and targeted funded status as determined with the consulting actuary.
(o) Share-Based Compensation
The Company grants share-based compensation awards, including restricted stock and restricted stock units, which are either performance-based or time-based. The fair value of the restricted stock and restricted stock unit awards were based on the closing price of the Company’s stock on the date of grant. The cost of these awards are amortized in the Consolidated Statements of Operations on a straight-line basis over the vesting period. The amount of performance-based restricted stock units that vest on a performance condition is remeasured quarterly based on how the Company’s return on average equity compares to the SNL Bank Index. The number of performance-based restricted stock units that are expected to vest based on the Company’s return on average equity is determined quarterly and the amortization of these stock awards is adjusted for any changes in the restricted stock units that are expected to vest. The fair value of performance-based restricted stock units that are based on how the Company’s total stock return compares to the SNL Bank Index was measured using a Monte-Carlo valuation. The number of performance-based restricted stock units that are based on the Company’s total stock return is amortized over the vesting period and is not adjusted for performance.
(p) Supplemental Employee Retirement Plan (SERP)
The SERP is a noncontributory supplemental retirement plan covering certain current and former employees of the Company. Benefits in the SERP plan are paid after retirement, in addition to the benefits provided by the Pension Plan. The Company accrues SERP costs over the estimated period until retirement by charging salaries and employee benefits expense in the Consolidated Statements of Operations, with a corresponding credit to accounts payable and accrued expenses in the Consolidated Balance Sheets.
(q) Employee Stock Ownership Plan (ESOP)
The cost of shares issued to the ESOP, but not yet allocated to participants, is shown as a reduction of stockholders’ equity. Compensation expense is based on the market price of shares as they are committed to be released to participant accounts. Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP shares reduce debt and accrued interest.
(r) Earnings Per Share
We have two forms of our outstanding common stock: common stock and unvested restricted stock awards. Holders of unvested restricted stock awards receive 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 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.
Basic earnings per share is computed by dividing net income allocated to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income allocated to common shareholders by the sum of the weighted-average number of shares outstanding plus the dilutive effect of stock options and restricted stock. ESOP shares not committed to be released are not considered outstanding.
(s) Common Stock Repurchase Program
The Company adopted common stock repurchase programs in which shares repurchased reduce the amount of shares issued and outstanding. The repurchased shares may be reissued in connection with share-based compensation plans and for general corporate purposes. During 2023, the Company repurchased 250,882 shares of common stock at an average cost of $16.05 per share, as part of the repurchase programs authorized by the Board of Directors. The Company did not repurchase any share as part of authorized programs in 2024.
(t) Bank-Owned Life Insurance
The Company’s investment in bank-owned life insurance is based on cash surrender value. The Company invests in bank-owned life insurance to provide a funding source for benefit plan obligations. Bank-owned life insurance also generally provides noninterest income that is nontaxable. Federal regulations generally limit the investment in bank-owned life insurance to 25% of the Bank’s Tier 1 capital plus the allowance for credit losses. At December 31, 2024, this limit was $60.7 million and the Company had invested $49.6 million in bank-owned life insurance at that date.
(u) Leases
The Company records a right-of-use (ROU) asset for those leases that convey rights to control use of identified assets for a period of time in exchange for consideration. The Company is also required to record a lease liability for the present value of future payment commitments. The Company leases most of its premises and some vehicles and equipment under operating leases expiring on various dates through 2037. The majority of lease agreements relate to real estate and generally provide that the Company pay taxes, insurance, maintenance and certain other variable operating expenses applicable to the leased premises. Variable lease components and nonlease components are not included in the Company’s computation of the 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.
The value of the ROU asset and lease liability is impacted by the amount of the periodic payment required, length of the lease term, lease incentives and the discount rate used to calculate the present value of the minimum lease payments. 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. 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 FHLB for the approximate terms of the leases.
(v) Segment reporting
The Company has one reportable segment. The Company’s chief operating decision makers evaluate the operations of the Company using consolidated information for purposes of allocating resources and assessing performance. See Note 29 of the notes to consolidated financial statement for further information on segment reporting.
(w) Use of Estimates
The preparation of the Consolidated Financial Statements requires management to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amount of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the allowance for credit losses; valuation of certain investment securities; valuation allowances for deferred income tax assets; and assets and obligations related to employee benefit plans. Accordingly, actual results could differ from those estimates.
(x) Recently Issued Accounting Pronouncements
In June 2022, the Financial Accounting Standards Board (FASB) issued ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, to clarify that contractual sale restrictions should not be considered in the measurement of the fair value of an equity security. The Company owns stock in the FRB and in the FHLB which is valued at historical cost, which approximates fair value. Ownership of stock is a condition for services the Company receives from the FRB and FHLB. The stock is not publicly traded and can only be issued, exchanged, redeemed, or repurchased by the FRB and the FHLB. ASU 2022-03 was effective for fiscal years beginning after December 15, 2023. The Company adopted the standard on January 1, 2024, and it did not have a material effect on its consolidated financial statements.
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. The ASU is intended to clarify or improve disclosure and presentation requirements of a variety of topics currently in SEC Regulations S-X
and S-K. This ASU will not have a material effect on the Company since it is currently subject to these SEC requirements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU is intended to improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis to enable investors to develop more decision-useful financial analyses. This ASU will be effective for fiscal years beginning after December 31, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company adopted the standard on January 1, 2024, and it did not have a material effect on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. This ASU will be effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the effects that ASU 2023-09 will have on its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires public companies to disclose additional information about certain expenses in the financial statements. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and is effective on either a prospective basis or retrospective bases. The Company is currently evaluating the effects that ASU 2024-03 will have on its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-04, Debt with Conversion and Other Options (Subtopic 470-20), which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. ASU 2024-04 is effective for annual periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities that have adopted the amendments in update 2020-06. Adoption can be on a prospective or retrospective basis. The Company is currently evaluating the effects that ASU 2024-04 will have on its consolidated financial statements.
(3)Cash and Cash Equivalents
The table below presents the balances of cash and cash equivalents:
December 31,
(Dollars in thousands)
Cash and due from banks
$
8,882
$
10,471
Interest-earning deposits in other banks
114,641
116,188
Cash and cash equivalents
$
123,523
$
126,659
Interest-earning deposits in other banks consist primarily of deposits at the Federal Reserve Bank of San Francisco.
(4)Investment Securities
The amortized cost, gross unrealized gains and losses, fair values, and related ACL of investment securities are as follows:
Amortized
Gross Unrealized
Estimated
(Dollars in thousands)
Cost
Gains
Losses
Fair Value
ACL
December 31, 2024:
Available-for-sale:
Mortgage-backed securities issued by U.S. government-sponsored enterprises
$
21,494
$
-
$
(3,002)
$
18,492
$
-
Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises
645,669
(132,180)
513,499
-
Total
$
667,163
$
$
(135,182)
$
531,991
$
-
December 31, 2023:
Available-for-sale:
Mortgage-backed securities issued by U.S. government-sponsored enterprises
$
22,563
$
-
$
(2,392)
$
20,171
$
-
Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises
685,728
(117,668)
568,128
-
Total
$
708,291
$
$
(120,060)
$
588,299
$
-
The amortized cost and estimated fair value of investment securities by maturity date at December 31, 2024 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.
Amortized
Estimated
(Dollars in thousands)
Cost
Fair Value
Available-for-sale:
Due after 10 years
$
21,494
$
18,492
Total
$
21,494
$
18,492
Held-to-maturity:
Due within 5 years
$
$
Due after 5 years through 10 years
Due after 10 years
645,653
513,483
Total
$
645,669
$
513,499
The Company did not sell any held-to-maturity or available-for-sale securities during 2024 and 2023.
Investment securities with amortized cost of $561.1 million and $555.8 million at December 31, 2024 and 2023, respectively, were pledged to secure deposits made by state and local governments, securities sold under agreements to repurchase, transaction clearing accounts, and Federal Reserve Bank borrowings. Included in these amounts were $140.9 million and $74.0 million pledged to the Federal Reserve Bank’s discount window at December 31, 2024 and 2023, respectively and $202.1 million pledged to the Federal Reserve Bank’s Term Funding Program at December 31, 2023.
Provided below is a summary of investment securities which were in an unrealized loss position at December 31, 2024 and 2023. The Company does not intend to sell 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
Unrealized
Unrealized
Number of
Unrealized
Description of securities
Fair Value
Losses
Fair Value
Losses
Securities
Fair Value
Losses
(Dollars in thousands)
December 31, 2024:
Available-for-sale:
Mortgage-backed securities issued by U.S. government-sponsored enterprises
$
-
$
-
$
18,492
$
(3,002)
$
18,492
$
(3,002)
Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises
8,178
(234)
502,831
(131,946)
511,009
(132,180)
Total
$
8,178
$
(234)
$
521,323
$
(134,948)
$
529,501
$
(135,182)
December 31, 2023:
Available-for-sale:
Mortgage-backed securities issued by U.S. government sponsored enterprises
$
-
$
-
$
20,171
$
(2,392)
$
20,171
$
(2,392)
Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises
10,326
(107)
554,514
(117,561)
564,840
(117,668)
Total
$
10,326
$
(107)
$
574,685
$
(119,953)
$
585,011
$
(120,060)
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, 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, no allowance for credit losses was recorded for these securities as of December 31, 2024 or 2023.
(5)Federal Home Loan Bank Stock
The Bank, as a member of the FHLB system, is required to obtain and hold shares of capital stock in the FHLB. At December 31, 2024 and 2023, the Bank met such requirement. At December 31, 2024 and 2023, the Bank owned $8.5 million and $12.2 million, respectively, of capital stock of the FHLB Des Moines.
The Company evaluated its investment in the stock of the FHLB Des Moines for impairment. Based on the Company’s evaluation of the underlying investment, including the long-term nature of the investment and the liquidity position of the FHLB Des Moines, the Company did not consider its FHLB stock other-than-temporarily impaired. There were no observable, orderly transactions at a price that would require the Company to update the value of the stock of the FHLB Des Moines.
(6)Federal Reserve Bank Stock
The Bank, as a member of the Federal Reserve System, is required to hold shares of capital stock of the FRB of San Francisco equal to 6% of capital and surplus of the Bank. At December 31, 2024 and 2023 the Bank met such requirement. At December 31, 2024 and 2023, the Bank owned $3.2 million of capital stock of the FRB of San Francisco.
The Company evaluated its investment in the stock of the FRB of San Francisco for impairment. Based on the Company’s evaluation of the underlying investment, including the long-term nature of the investment and the liquidity position of the FRB of San Francisco, the Company did not consider its FRB stock other-than-temporarily impaired. There were no observable, orderly transactions at a price that would require the Company to update the value of the stock of the FRB of San Francisco.
(7)Loans Receivable and Allowance for Credit Losses
The components of loans receivable, net of allowance for credit losses (ACL) as of December 31, 2024 and 2023 are as follows:
December 31,
(Dollars in thousands)
Real estate loans:
First mortgages:
One- to four-family residential
$
1,248,171
$
1,277,544
Multi-family residential
5,148
5,855
Construction, commercial, and other
11,620
11,631
Home equity loans and lines of credit
14,851
7,058
Total real estate loans
1,279,790
1,302,088
Other loans:
Loans on deposit accounts
Consumer and other loans
8,293
8,257
Total other loans
8,704
8,453
Total loans
1,288,494
1,310,541
Net unearned fees and discounts
(1,832)
(1,989)
Total loans, net of unearned fees and discounts
1,286,662
1,308,552
Allowance for credit losses
(5,114)
(5,121)
Loans receivable, net of allowance for credit losses
$
1,281,548
$
1,303,431
The table below presents the activity in the ACL by portfolio segment:
Real Estate
Commercial
Consumer
(Dollars in thousands)
Loans
Loans
Loans
Unallocated
Totals
Year ended December 31, 2024:
Balance, beginning of year
$
4,502
$
$
$
-
$
5,121
(Reversal of provision) provision for credit losses
(19)
(32)
-
4,483
-
5,194
Charge-offs
(122)
-
(29)
-
(151)
Recoveries
-
-
Net charge-offs
(61)
-
(19)
-
(80)
Balance, end of year
$
4,422
$
$
$
-
$
5,114
Year ended December 31, 2023:
Balance, beginning of year
$
1,263
$
$
$
$
2,032
Adoption of ASU No. 2016-13
3,393
(259)
3,209
(Reversal of provision) provision for credit losses
(110)
-
(3)
4,546
-
5,238
Charge-offs
(75)
-
(82)
-
(157)
Recoveries
-
-
Net charge-offs
(44)
-
(73)
-
(117)
Balance, end of year
$
4,502
$
$
$
-
$
5,121
We recorded a $73,000 credit loss provision for the year ended December 31, 2024 that was primarily due to an increase in provisions for the consumer loan portfolio, which was partially offset by decreases in provisions for the commercial and real estate portfolios. The increase in provisions for the consumer loan portfolio was primarily due to an increase in home equity loans and lines of credit. The decrease in provisions in the commercial loan portfolio was primarily due to an increase in forecasted prepayments, that was partially offset by an increase in forecasted charge-offs. The decrease in provisions in the mortgage loan portfolio was primarily due to a decrease in the mortgage loan portfolio that was partially offset by a decrease in the forecasted prepayments.
The Company primarily uses the aging of loans to monitor the credit quality of its loan portfolio. The table below presents by credit quality indicator, loan class, and year of origination, the amortized cost basis of the Company’s loans as of December 31, 2024.
Revolving Loans
Amortized Cost of Term Loans by Origination Year
Amortized
(Dollars in thousands)
Prior
Cost Basis
Total
December 31, 2024:
Commercial
30 - 59 days past due
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60 - 89 days past due
-
-
-
-
-
-
-
-
90 days or more past due
-
-
-
-
-
-
-
-
Loans not past due
4,677
-
1,014
7,673
Total Commercial
4,677
-
1,014
7,673
Consumer
30 - 59 days past due
-
-
-
-
-
60 - 89 days past due
-
-
-
-
-
-
90 days or more past due
-
-
-
-
-
-
-
-
Loans not past due
-
14,029
14,776
Total Consumer
-
14,032
14,780
Real Estate
30 - 59 days past due
-
-
-
-
-
1,331
60 - 89 days past due
-
-
-
-
-
-
-
-
90 days or more past due
-
-
-
-
-
1,219
-
1,219
Loans not past due
51,683
87,150
123,881
268,387
173,751
556,807
-
1,261,659
Total Real Estate
51,683
87,150
123,881
268,387
174,542
558,566
-
1,264,209
Total
$
52,629
$
87,711
$
124,210
$
273,073
$
174,542
$
559,451
$
15,046
$
1,286,662
The Company did not have any revolving loans that converted to term loans during the year ended December 31, 2024.
The table below presents by credit quality indicator, loan class, and year of origination, the amortized cost basis of the Company’s loans as of December 31, 2023.
Revolving Loans
Amortized Cost of Term Loans by Origination Year
Amortized
(Dollars in thousands)
Prior
Cost Basis
Total
December 31, 2023
Commercial
30 - 59 days past due
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
60 - 89 days past due
-
-
-
-
-
-
-
-
90 days or more past due
-
-
-
-
-
-
-
-
Loans not past due
4,836
-
1,230
7,865
Total Commercial
4,836
-
1,230
7,865
Consumer
30 - 59 days past due
-
-
-
-
-
-
60 - 89 days past due
-
-
-
-
-
-
-
-
90 days or more past due
-
-
-
-
-
-
-
-
Loans not past due
6,137
6,568
Total Consumer
6,137
6,572
Real Estate
30 - 59 days past due
-
-
-
-
-
-
60 - 89 days past due
-
-
-
-
-
-
-
-
90 days or more past due
-
-
-
-
-
Loans not past due
91,195
129,148
283,571
183,887
91,113
514,546
-
1,293,460
Total Real Estate
91,195
129,148
283,571
183,887
91,253
515,061
-
1,294,115
Total
$
91,857
$
129,581
$
288,427
$
183,891
$
91,470
$
515,959
$
7,367
$
1,308,552
The Company did not have any revolving loans that converted to term loans during the year ended December 31, 2023.
The following table presents by loan class and year of origination, the gross charge-offs recorded during the year ended December 31, 2024 and 2023.
(Dollars in thousands)
Prior
Total
Year ended December 31, 2024:
One- to four-family residential mortgages
$
-
$
-
$
-
$
-
$
-
$
$
Loans on deposit accounts
-
-
-
-
Consumer and other
-
-
-
-
Total
$
$
$
-
$
-
$
-
$
$
(Dollars in thousands)
Prior
Total
Year ended December 31, 2023:
One- to four-family residential mortgages
$
-
$
-
$
-
$
-
$
$
$
Loans on deposit accounts
-
-
-
-
-
Consumer and other
-
-
-
-
Total
$
$
-
$
-
$
-
$
$
$
The table below presents the aging of loans and accrual status by class of loans, net of unearned fees and discounts. Loans with a formal loan payment deferral plan in place are not considered contractually past due or delinquent if the borrower is in compliance with the loan payment deferral plan.
Loans
90 Days
or More
30 - 59
60 - 89
90 Days or
Past Due
Days Past
Days Past
More
Total Past
Loans Not
Total
Nonaccrual
and Still
(Dollars in thousands)
Due
Due
Past Due
Due
Past Due
Loans
Loans
Accruing
December 31, 2024:
One- to four-family residential mortgages
$
1,331
$
-
$
1,219
$
2,550
$
1,243,831
$
1,246,381
$
1,771
$
-
Multi-family residential mortgages
-
-
-
-
5,142
5,142
-
-
Construction, commercial, and other mortgages
-
-
-
-
11,578
11,578
-
-
Home equity loans and lines of credit
-
-
-
-
14,854
14,854
-
Loans on deposit accounts
-
-
-
-
-
-
Consumer and other
-
8,292
8,296
-
Total
$
1,334
$
$
1,219
$
2,554
$
1,284,108
$
1,286,662
$
1,933
$
-
December 31, 2023:
One- to four-family residential mortgages
$
$
-
$
$
$
1,274,960
$
1,275,615
$
2,079
$
-
Multi-family residential mortgages
-
-
-
-
5,848
5,848
-
-
Construction, commercial, and other mortgages
-
-
-
-
11,570
11,570
-
-
Home equity loans and lines of credit
-
-
-
-
7,060
7,060
-
Loans on deposit accounts
-
-
-
-
-
-
Consumer and other
-
-
8,259
8,263
-
Total
$
$
-
$
$
$
1,307,893
$
1,308,552
$
2,260
$
-
The table below presents the amortized cost basis of loans on nonaccrual status as of December 31, 2024 and 2023.
(Dollars in thousands)
Nonaccrual Loans With a Related ACL
Nonaccrual Loans Without a Related ACL
Total Nonaccrual Loans
December 31, 2024
One- to four-family residential mortgages
$
$
1,219
$
1,771
Home equity loans and lines of credit
-
Consumer and other
-
Total Nonaccrual Loans and Leases
$
$
1,219
$
1,933
December 31, 2023:
One- to four-family residential mortgages
$
1,030
$
1,049
$
2,079
Home equity loans and lines of credit
-
Consumer and other
-
Total Nonaccrual Loans and Leases
$
1,211
$
1,049
$
2,260
All payments received while on nonaccrual status are applied against the principal balance of the loan.
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. The amortized cost basis of collateral-dependent loans, excluding accrued interest receivable, was $227,000 December 31, 2023. These loans
were collateralized by residential real estate in Hawaii. As of December 31, 2023, the fair value of the collateral less selling costs of these collateral-dependent loans exceeded the amortized cost basis. There was no ACL on collateral-dependent loans. There amortized cost basis of collateral-dependent loans was $1.2 million at December 31, 2024.
The Company had no real estate owned as of December 31, 2024 or 2023. There was one one- to four-family residential mortgage loan with a principal balance of $1.2 million in the process of foreclosure at December 31, 2024. There were two one- to four-family residential mortgage loans totaling $227,000 in the process of foreclosure at December 31, 2023.
Nearly all the Company’s 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 years ended December 31, 2024 and 2023, the Company sold mortgage loans held for sale with principal balances of $877,000 and $827,000, respectively, and recognized a gain of $19,000 and $10,000, respectively. The Company had no loans held for sale at December 31, 2024 or 2023.
The Company serviced loans for others with principal balances of $30.6 million and $33.2 million at December 31, 2024 and 2023, respectively. Of these amounts, $18.0 million and $19.3 million of loan balances relate to securitizations for which the Company continues to hold the related mortgage-backed securities at December 31, 2024 and 2023, respectively. The amount of contractually specified servicing fees earned was $83,000 and $91,000 for 2024 and 2023, respectively. The fees are reported in service and other fees in the Consolidated Statements of Operations.
In the normal course of business, the Company has made loans to certain directors and executive officers under terms which management believes are consistent with the Company’s general lending policies. Loans to directors and executive officers amounted to $311,000 and $392,000 at December 31, 2024 and 2023, respectively.
(8)Accrued Interest Receivable
The components of accrued interest receivable are as follows:
December 31,
(Dollars in thousands)
Loans receivable
$
4,357
$
4,585
Investment securities
1,349
1,441
Interest-bearing deposits
Total
$
5,800
$
6,105
(9)Interest Rate Lock and Forward Loan Sale Commitments
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 values in prepaid expenses and other assets or in accounts payable and accrued expenses. Changes in fair value are recorded in current earnings. The Company did not have any loans held for sale at December 31, 2024 or 2023.
There were no interest rate contracts at December 31, 2024 or 2023. There were no gains and losses on derivatives for the year ended December 31, 2024 or 2023.
(10)Premises and Equipment
Premises and equipment are as follows:
December 31,
(Dollars in thousands)
Land
$
$
Buildings and improvements
1,400
1,400
Leasehold improvements
18,269
18,053
Furniture, fixtures and equipment
5,799
6,613
Automobiles
26,149
26,747
Less accumulated depreciation and amortization
(19,405)
(19,783)
6,744
6,964
Construction in progress
Total
$
7,278
$
7,185
Depreciation expense was $1.0 million and $1.1 million for the years ended December 31, 2024 and 2023, respectively.
(11) Deposits
Deposit accounts by type are summarized with their respective weighted-average interest rates as follows:
December 31, 2024
December 31, 2023
(Dollars in thousands)
Amount
Rate
Amount
Rate
Non-interest bearing
$
65,575
-
%
$
66,757
-
%
Savings accounts
675,407
1.12
739,036
0.59
Certificates of deposit
706,112
4.07
532,433
4.11
Money market
2,192
0.10
3,595
0.10
Checking and Super NOW
268,377
0.02
294,783
0.02
Total
$
1,717,663
2.11
%
$
1,636,604
1.61
%
The maturity of certificate of deposit accounts at December 31, 2024 is as follows (dollars in thousands):
Maturing in:
Due within 1 year
$
685,850
Due after 1 year through 2 years
10,797
Due after 2 years through 3 years
4,146
Due after 3 years through 4 years
3,616
Due after 4 years through 5 years
1,703
Total
$
706,112
Certificates of deposit with balances greater than or equal to $250,000 totaled $445.0 million and $280.1 million at December 31, 2024 and 2023, respectively. Deposit accounts in the Bank are insured by the FDIC, generally up to a maximum of $250,000 per account owner.
Interest expense by type of deposit is as follows:
Year ended December 31,
(Dollars in thousands)
Savings
$
6,437
$
2,469
Certificates of deposit and money market
24,896
16,956
Checking and Super NOW
Total
$
31,389
$
19,484
At December 31, 2024 and 2023, overdrawn deposit accounts totaled $108,000 and $169,000, respectively, and have been reclassified as loans in the Consolidated Balance Sheets.
In the normal course of business, certain directors and executive officers (and their associated and affiliated parties) maintain deposit accounts with the Company totaling $3.6 million and $4.5 million at December 31, 2024 and 2023, respectively.
(12)Advances from the Federal Home Loan Bank
Federal Home Loan Bank advances are secured by a blanket pledge on the Bank’s assets not otherwise pledged. At December 31, 2024 and 2023, our credit line with the FHLB of Des Moines was equal to 25% and 45%, respectively, of the Bank’s total assets and we had the capacity to borrow an additional $389.5 million and $612.6 million, respectively.
Advances outstanding consisted of the following:
December 31,
Weighted
Weighted
Average
Average
(Dollars in thousands)
Amount
Rate
Amount
Rate
Due within one year
$
45,000
2.87
%
$
82,000
1.40
%
Due over 1 year to 2 years
20,000
3.20
45,000
2.87
Due over 2 years to 3 years
30,000
4.24
20,000
3.20
Due over 3 years to 4 years
60,000
4.32
30,000
4.24
Due over 4 years to 5 years
5,000
4.38
60,000
4.32
Due over 5 years to 6 years
-
-
5,000
4.38
Total
$
160,000
3.76
%
$
242,000
2.96
%
(13) Advances from the Federal Reserve Bank
In March 2023, the FRB created a new Bank Term Funding Program (BTFP) to make additional funding available
to eligible depository institutions. The BTFP ceased making new loans on March 11, 2024. This program offered loans up to a one year term that can be prepaid without penalty. The amount that could be borrowed was based upon the par value of the securities pledged as collateral to the FRB. As a member of the FRB system, the Bank may also borrow from the FRB Discount Window. At December 31, 2024, we had the ability to borrow up to $114.4 million using the market value of pledged collateral.
Advances outstanding consisted of the following:
December 31,
Weighted
Weighted
Average
Average
(Dollars in thousands)
Amount
Rate
Amount
Rate
Due within one year
$
-
-
%
$
50,000
4.89
%
Total
$
-
-
%
$
50,000
4.89
%
(14) 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:
December 31, 2024
December 31, 2023
Weighted
Weighted
Repurchase
Average
Repurchase
Average
(Dollars in thousands)
Liability
Rate
Liability
Rate
Maturing:
1 year or less
$
-
-
%
$
5,000
1.88
%
Over 1 year to 2 years
-
-
5,000
1.73
Total
$
-
-
%
$
10,000
1.81
%
(15)Offsetting of Financial Liabilities
Securities sold under agreements to repurchase are subject to a right of offset in the event of default. See Note 14, Securities Sold Under Agreements to Repurchase, for additional information.
Net Amount of
Gross Amount Not Offset in the
Gross Amount
Gross Amount
Liabilities
Balance Sheet
of Recognized
Offset in the
Presented in the
Financial
Cash Collateral
(Dollars in thousands)
Liabilities
Balance Sheet
Balance Sheet
Instruments
Pledged
Net Amount
December 31, 2024:
Securities sold under agreements to repurchase
$
-
$
-
$
-
$
-
$
-
$
-
December 31, 2023:
Securities sold under agreements to repurchase
$
10,000
$
-
$
10,000
$
10,000
$
-
$
-
(16)Income Taxes
Allocation of federal and state income taxes between current and deferred income tax (benefit) expense is as follows:
(Dollars in thousands)
Current
Federal
$
(1,834)
$
1,767
State
(659)
(2,493)
2,335
Deferred
Federal
(396)
State
(129)
(525)
Total
$
(2,415)
$
1,810
The federal statutory corporate tax rate for the years ended December 31, 2024 and 2023 was 21%. A reconciliation of the tax provision based on the statutory corporate rate on pretax income and the provision for taxes as shown in the accompanying Consolidated Statements of Operations is as follows:
(Dollars in thousands)
Income tax (benefit) expense at statutory rate
$
(1,410)
$
1,436
Income tax effect of:
State income taxes, net of federal income tax benefits
(526)
Other tax-exempt income
(211)
(179)
Share-based compensation
Meal and entertainment expenses
Non-deductible executive compensation
Other
(364)
(210)
Total income tax expense
$
(2,415)
$
1,810
Effective income tax rate
35.97
%
26.47
%
The components of income taxes (receivable) payable are as follows:
December 31,
(Dollars in thousands)
Current taxes (receivable) payable:
Federal
$
(1,448)
$
(932)
State
(634)
$
(2,082)
$
(344)
Deferred taxes receivable:
Federal
$
(901)
$
(1,313)
State
(976)
(1,144)
$
(1,877)
$
(2,457)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
December 31,
(Dollars in thousands)
Deferred tax assets:
Hawaii franchise tax
$
(167)
$
Allowance for credit losses
1,362
1,364
Employee benefit plans
2,596
2,672
Equity incentive plan
Deferred compensation
Net lease liability
1,450
1,312
Unrealized loss on securities available for sale
Other
6,238
6,242
Deferred tax liabilities:
Deferred loan costs
2,652
2,665
Premises and equipment
FHLB stock dividends
Prepaid expense
1,259
Premiums on loans sold
4,361
3,785
Net deferred tax assets
$
1,877
$
2,457
Deferred tax assets and liabilities at December 31, 2024 and 2023 were calculated using federal corporate tax rates of 21%.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. There was no valuation allowance for deferred tax assets as of December 31, 2024 and 2023.
(17)Employee Benefit Plans
The Company has a noncontributory defined benefit pension plan (Pension Plan) that covers certain employees with at least one year of service. The benefits are based on years of service and the employees’ compensation during the service period. The Company’s policy is to accrue the actuarially determined pension costs and to fund pension costs within regulatory guidelines. The Company reviews its assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. The effect of modifications to those assumptions is recorded in accumulated other comprehensive income beginning in 2006 and amortized to net periodic benefit cost over future periods using the corridor method. The Company believes that the assumptions utilized in recording its obligations under the plan are reasonable based on its experience and market conditions.
In 2008, the Board of Directors approved changes to the Company’s Pension Plan. Effective December 31, 2008, there are no further accruals of benefits for any participants and benefits do not increase with any additional years of service. Employees already enrolled in the Pension Plan as of December 31, 2008 will be 100% vested if they have at least five years of service. For employees with less than five years of service, vesting would occur at the employee’s five-year anniversary date.
In addition, the Company 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 following table sets forth the status of the Pension Plan and SERP at the dates indicated:
Pension Plan
SERP
December 31,
(Dollars in thousands)
Accumulated benefit obligation at end of year
$
15,096
$
15,953
$
9,705
$
9,927
Change in projected benefit obligation:
Benefit obligation at beginning of year
$
15,953
$
15,866
$
9,927
$
9,948
Service cost (income)
(396)
(200)
Interest cost
Actuarial (gain) loss
(619)
-
-
Benefits paid
(1,159)
(1,020)
-
-
Benefit obligation at end of year
15,096
15,953
9,705
9,927
Change in plan assets:
Fair value of plan assets at beginning of year
20,105
18,336
-
-
Actual return on plan assets
3,002
2,789
-
-
Employer contributions
-
-
-
-
Benefits paid
(1,159)
(1,020)
-
-
Fair value of plan assets at end of year
21,948
20,105
-
-
Funded status at end of year
$
6,852
$
4,152
$
(9,705)
$
(9,927)
Amounts recognized in the Consolidated Balance Sheets:
Prepaid expenses and other assets (Accounts payable and accrued expenses)
$
6,852
$
4,152
$
(9,705)
$
(9,927)
Amounts recognized in accumulated other comprehensive loss:
Net actuarial loss
$
3,482
$
5,968
$
-
$
-
Prior service cost
-
-
Accumulated other comprehensive loss, before tax
$
3,595
$
6,087
$
-
$
-
The accumulated benefit obligation experienced an actuarial gain of $619,000 in 2024 and an actuarial loss of $95,000 in 2023. The actuarial gain in 2024 was attributed to an increase in the discount rate used to calculate the benefit obligation. The actuarial loss in 2023 was attributed to a decline in the discount rate used to calculate the benefit obligation.
The following table sets forth the changes recognized in accumulated other comprehensive loss for the years indicated:
Pension Plan
Year Ended December 31,
(Dollars in thousands)
Accumulated other comprehensive loss at beginning of year, before tax
$
6,087
$
7,832
Actuarial net gain arising during the period
(2,307)
(1,503)
Amortizations (recognized in net periodic benefit cost):
Actuarial loss
(180)
(237)
Prior service cost
(5)
(5)
Total recognized in other comprehensive loss
(2,492)
(1,745)
Accumulated other comprehensive loss at end of year, before tax
$
3,595
$
6,087
For the years ended December 31, 2024 and 2023, the following weighted average assumptions were used to determine benefit obligations at the end of the year:
Pension Plan
SERP
Year Ended December 31,
Assumptions used to determine the year-end benefit obligations:
Discount rate
5.60
%
5.10
%
5.00
%
5.00
%
Rate of compensation increase
N/A
N/A
5.00
%
5.00
%
The dates used to determine retirement measurements for the Pension Plan were December 31, 2024 and 2023.
The Company’s investment strategy for the Pension Plan is to maintain a consistent rate of return with primary emphasis on capital appreciation and secondary emphasis on income to enhance the purchasing power of the plan’s assets over the long-term and to preserve capital. The investment policy establishes a target allocation for each asset class that is reviewed periodically and rebalanced when considered appropriate. Normal target allocations at December 31, 2024 were 55% domestic equity securities, 10% international equity securities and 35% bonds. Equity securities primarily include stocks, investment in exchange traded funds and large-cap, mid-cap and small-cap mutual funds. Bonds include U.S. Treasuries, mortgage-backed securities and corporate bonds of companies in diversified industries. Other types of investments include money market funds and savings accounts opened with the Company.
As of December 31, 2024 and 2023, the Pension Plan’s assets measured at fair value were classified as follows:
Fair Value of Measurements at Report Date Using:
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Total Fair
Assets
Inputs
Inputs
(Dollars in thousands)
Value
(Level 1)
(Level 2)
(Level 3)
December 31, 2024:
Cash
$
1,291
$
1,291
$
-
$
-
Equities
14,812
14,812
-
-
Mutual funds (1)
5,845
5,845
-
-
Total
$
21,948
$
21,948
$
-
$
-
December 31, 2023:
Cash
$
$
$
-
$
-
Equities
13,742
13,742
-
-
Mutual funds (1)
5,741
5,741
-
-
Total
$
20,105
$
20,105
$
-
$
-
(1) This category includes mutual funds that invest in equities and bonds. The mutual fund managers have the ability to change the amounts invested in equities and bonds depending on their investment outlook.
Estimated future benefit payments reflecting expected future service at December 31, 2024 are as follows:
Pension
(Dollars in thousands)
Plan
SERP
$
1,164
$
8,618
1,239
1,258
1,241
1,241
2030 - 2034
6,025
Total
$
12,168
$
9,399
For the years ended December 31, 2024 and 2023, the following weighted average assumptions were used to determine net periodic benefit cost for the fiscal years shown:
Pension Plan
SERP
Year Ended December 31,
Assumptions used to determine the net periodic benefit cost:
Discount rate
5.10
%
5.40
%
5.00
%
5.00
%
Expected return on plan assets
6.75
6.75
-
-
Rate of compensation increase
N/A
N/A
5.00
5.00
The components of net periodic benefit cost were as follows:
Pension Plan
SERP
Year Ended December 31,
(Dollars in thousands)
Net periodic benefit (income) cost for the year:
Service cost (income)
$
$
$
(396)
$
(200)
Interest cost
Expected return on plan assets
(1,314)
(1,192)
-
-
Amortization of prior service cost
-
-
Recognized actuarial loss
-
-
Net periodic benefit (income) cost for the year:
$
(208)
$
$
(222)
$
(21)
The service cost component of net periodic benefit cost is included in salaries and employee benefits in the Consolidated Statements of Operations. The other components of net periodic benefit cost including interest cost, the return on plan assets and amortization of net loss are reported in other income.
The expected return on plan assets is based on the weighted-average long-term rates of return for the types of assets held in the plan. The expected return on plan assets is adjusted when there is a change in the expected long-term rate of return or in the composition of assets held in the plan. The discount rate is based on the return of high-quality fixed-income investments that can be used to fund the benefit payments under the Company’s defined benefit plan.
The Company does not expect to make any contributions to the Pension Plan or the SERP in 2025.
The Company also has a 401(k) defined contribution plan and profit sharing plan covering all employees after one year of service. The 401(k) plan provides for employer matching contributions, as determined by the Company, based on a percentage of employees’ contributions subject to a maximum amount defined in the plan agreement. The Company’s 401(k) matching contributions are based on 5% of employees’ contributions. The Company’s contributions amounted to $58,000 and $64,000 for 2024 and 2023, respectively. The Company contributes to the profit sharing plan an amount determined by the Board of Directors. No contributions were made to the profit sharing plan for years ended December 31, 2024 and 2023.
(18)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 years ended December 31, 2024 and 2023 amounted to $458,000 and $692,000, respectively.
Shares held by the ESOP trust were as follows:
December 31,
Allocated shares
642,369
619,938
Unearned shares
195,732
244,665
Total ESOP shares
838,101
864,603
Fair value of unearned shares, in thousands
$
1,904
$
2,728
The ESOP restoration plan is a non-qualified 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 years ended December 31, 2024 and 2023, we reversed $3,000 and accrued $13,000, respectively, for the ESOP restoration plan.
(19)Share-Based Compensation
The shareholders of Territorial Bancorp Inc. adopted the 2010 Equity Incentive Plan and the 2019 Equity Incentive Plan. These plans provide for the award of stock options and restricted stock to key officers and directors. In accordance with the Compensation - Stock Compensation topic of the FASB ASC, the cost of the equity incentive plans is based on the fair value of the awards on the grant date. The fair value of time-based performance-based stock that will vest based on a performance condition is based on the closing price of the Company’s stock on the date of grant. The fair value of performance-based restricted stock that will vest on a market condition is based on a Monte Carlo valuation of the Company’s stock on the date of grant. The cost of the awards will be recognized on a straight-line basis over the three-year vesting period during which participants are required to provide services in exchange for the awards. There are 4,949 shares remaining available for new awards under the 2019 Equity Plan.
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 Consolidated Statements of Operations 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
Restricted Stock
Restricted stock awards are accounted for as a fixed grant 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 may be 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 time-based restricted stock activity:
Weighted
Average Grant
Restricted
Date Fair
Stock
Value
Unvested at December 31, 2022
23,664
$
24.15
Granted
14,803
19.29
Vested
12,729
23.64
Forfeited
-
-
Unvested at December 31, 2023
25,738
$
21.61
Granted
26,664
7.03
Vested
12,178
22.83
Forfeited
-
-
Unvested at December 31, 2024
40,224
$
11.57
During the year ended December 31, 2024, the Company issued 26,664 shares of time-vested 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. Time-vested restricted stock will vest over three years from the date of the grant.
As of December 31, 2024, the Company had $287,000 of unrecognized compensation costs related to time-vested restricted stock. The unrecognized compensation costs are expected to be recognized over a weighted average period of 1.7 years.
The table below presents the performance-based restricted stock units (PRSUs) that will vest on a performance condition:
Performance-
Based Restricted
Stock Units
Weighted
Based on a
Average Grant
Performance
Date Fair
Condition
Value
Unvested at December 31, 2022
43,557
$
23.63
Granted
17,758
19.29
Vested
-
-
Forfeited
16,348
21.05
Unvested at December 31, 2023
44,967
$
22.85
Granted
31,995
7.03
Vested
-
-
Forfeited
12,797
26.77
Unvested at December 31, 2024
64,165
$
14.18
During the year ended December 31, 2024, the Company issued 31,995 PRSUs to certain members of executive management under the 2019 Equity Incentive Plan. These PRSUs will vest three years after they are granted 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% to 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 fair value of these PRSUs is based on the fair value of the Company’s stock on the date of grant. As of December 31, 2024, the Company had no unrecognized compensation costs related to these PRSUs since meeting the performance condition is not probable. Compensation expense up to $487,000 may be recognized in the future if achievement of the performance condition becomes probable. The unrecognized compensation costs would be expected to be recognized over a weighted average period of 1.5 years. Performance will be measured over a three-year period and will be cliff vested. The performance condition is measured quarterly by comparing the company’s three-year return on average equity to a peer group of banks. The Company’s percentile ranking in the peer group is used to adjust the number of PRSU’s that are expected to vest.
The table below presents the PRSUs that will vest on a market condition:
Performance-
Based Restricted
Monte Carlo
Stock Units
Valuation of
Based on a
the Company's
Market Condition
Stock
Unvested at December 31, 2022
10,889
$
24.04
Granted
4,443
17.95
Vested
-
-
Forfeited
4,087
22.16
Unvested at December 31, 2023
11,245
$
22.31
Granted
8,000
5.55
Vested
-
-
Forfeited
3,199
26.00
Unvested at December 31, 2024
16,046
$
13.22
During the year ended December 31, 2024, the Company issued 8,000 of PRSUs to certain members of executive management under the 2019 Equity Incentive Plan. These PRSUs will vest three years after they are granted 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 and will be cliff vested. The market condition is measured quarterly by comparing the Company’s three-year average total stock return to a peer group of other banks. The Company’s percentile ranking in the peer group determines how many PRSUs will vest. 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: April 18, 2024
Performance period: January 1, 2024 to December 31, 2026
2.7 year risk-free rate on grant date: 4.87%
December 31, 2023 closing price: $11.15
Closing stock price on date of grant: $7.03
Annualized volatility (based on 2.7 year historical volatility as of the grant date): 43.5%
As of December 31, 2024, the Company had $41,000 of unrecognized compensation costs related to the PRSUs that are based on a market condition. The unrecognized compensation costs are expected to be recognized over a weighted average period of 1.5 years.
(20)Earnings Per Share
The table below presents the information used to compute basic and diluted earnings per share:
For the Year Ended December 31,
(Dollars in thousands, except per share data)
Net (loss) income
$
(4,299)
$
5,027
Income allocated to participating securities
-
(48)
Net (loss) income available to common shareholders
$
(4,299)
$
4,979
Weighted-average number of shares used in:
Basic earnings per share
8,610,706
8,636,495
Dilutive common stock equivalents:
Stock options and restricted stock units
-
47,597
Diluted earnings per share
8,610,706
8,684,092
Net (loss) income per common share, basic
$
(0.50)
$
0.58
Net (loss) income per common share, diluted
$
(0.50)
$
0.57
(21)Accumulated Other Comprehensive Loss
The table below presents the changes in the components of accumulated other comprehensive loss, net of taxes:
Unfunded
Unrealized
Pension
Loss on
(Dollars in thousands)
Liability
Securities
Total
December 31, 2024:
Balances at beginning of year
$
4,466
$
1,755
$
6,221
Other comprehensive (income) loss, net of taxes
(1,828)
(1,381)
Net current period other comprehensive (income) loss
(1,828)
(1,381)
Balances at end of year
$
2,638
$
2,202
$
4,840
December 31, 2023:
Balances at beginning of year
$
5,746
$
1,998
$
7,744
Other comprehensive income, net of taxes
(1,280)
(243)
(1,523)
Net current period other comprehensive income
(1,280)
(243)
(1,523)
Balances at end of year
$
4,466
$
1,755
$
6,221
The table below presents the tax effect on each component of other accumulated other comprehensive loss:
Year Ended December 31,
Pretax
After Tax
Pretax
After Tax
(Dollars in thousands)
Amount
Tax
Amount
Amount
Tax
Amount
Unfunded pension liability
$
(2,492)
$
$
(1,828)
$
(1,745)
$
$
(1,280)
Unrealized loss (gain) on securities
(162)
(331)
(243)
Total
$
(1,883)
$
$
(1,381)
$
(2,076)
$
$
(1,523)
(22)Commitments
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any terms or conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on an individual basis. The Company’s policy is to require suitable collateral, primarily real estate, to be provided by customers prior to disbursement of approved loans. At December 31, 2024 and 2023 the Company had loan commitments aggregating to $1.2 million (interest rates of 6.000%) and $1.3 million (interest rates from 6.750% to 7.125%), respectively, primarily consisting of fixed-rate residential first mortgage loans. In addition to commitments to originate loans, at December 31, 2024 and 2023, the Company had $17.1 million and $14.9 million, respectively, in unused lines of credit to borrowers.
The Company is required by the Federal Reserve Bank to maintain reserves based on the amount of deposits held. Effective March 25, 2020 the Federal Reserve Bank lowered the reserve requirement to zero percent, therefore, there were no required reserve balances as of December 31, 2024 and 2023.
(23)Regulatory Capital and Supervision
Territorial Savings Bank and the Company are 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. The Company is not subject to regulatory capital requirements because its total assets are less than $3.0 billion. At December 31, 2024 and 2023, Territorial Savings Bank exceeded all of the fully-phased in regulatory captial requirements and is considered to be “well capitalized” under regulatory guidelines. In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.
The tables below presents 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 December 31, 2024 and 2023:
(Dollars in thousands)
Required Ratio
Actual Amount
Actual Ratio
December 31, 2024:
Tier 1 Leverage Capital
Territorial Savings Bank
5.00
%
$
237,864
10.98
%
Territorial Bancorp Inc.
$
253,190
11.68
%
Common Equity Tier 1 Risk-Based Capital (1)
Territorial Savings Bank
9.00
%
$
237,864
26.69
%
Territorial Bancorp Inc.
$
253,190
28.39
%
Tier 1 Risk-Based Capital (1)
Territorial Savings Bank
10.50
%
$
237,864
26.69
%
Territorial Bancorp Inc.
$
253,190
28.39
%
Total Risk-Based Capital (1)
Territorial Savings Bank
12.50
%
$
242,978
27.26
%
Territorial Bancorp Inc.
$
258,304
28.96
%
December 31, 2023:
Tier 1 Leverage Capital
Territorial Savings Bank
5.00
%
$
238,972
10.86
%
Territorial Bancorp Inc.
$
257,307
11.69
%
Common Equity Tier 1 Risk-Based Capital (1)
Territorial Savings Bank
9.00
%
$
238,972
26.31
%
Territorial Bancorp Inc.
$
257,307
28.33
%
Tier 1 Risk-Based Capital (1)
Territorial Savings Bank
10.50
%
$
238,972
26.31
%
Territorial Bancorp Inc.
$
257,307
28.33
%
Total Risk-Based Capital (1)
Territorial Savings Bank
12.50
%
$
244,093
26.87
%
Territorial Bancorp Inc.
$
262,428
28.89
%
(1) The required Common Equity Tier 1 Risk-Based Capital, Tier 1 Risk-Based Capital, and Total Risk-Based Capital ratios are based on the fully-phased in capital ratios in the Basel III capital regulations plus the 2.50% capital conservation buffer.
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 the Company’s 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 December 31, 2024 and 2023, 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.
The federal banking agencies, including the Federal Reserve Board are required, 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. We have not elected to follow the alternative framework.
(24)Contingencies
The Company is involved in various claims and legal actions arising out of the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s Consolidated Balance Sheets or Consolidated Statements of Operations.
(25)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 accounting 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 and other fees and in other noninterest income in the Consolidated Statements of Operations. The table below reconciles the revenue from contracts with customers and other revenue reported in those line items:
Service and
(Dollars in thousands)
Other Fees
Other
Total
Year ended December 31, 2024
Revenue from contracts with customers
$
1,036
$
$
1,153
Other revenue
Total
$
1,170
$
$
1,585
Year ended December 31, 2023
Revenue from contracts with customers
$
1,186
$
$
1,308
Other revenue
Total
$
1,327
$
$
1,606
(26)Leases
The table below presents lease costs and other information for the years indicated:
Year Ended
December 31,
(Dollars in thousands)
Lease costs:
Operating lease costs
$
2,848
$
2,757
Short-term lease costs
Variable lease costs
Total lease costs
$
3,321
$
3,431
Cash paid for amounts included in measurement of lease liabilities
$
2,692
$
(991)
ROU assets obtained in exchange for new operating lease liabilities
$
3,589
$
At December 31, 2024, future minimum rental commitments under noncancellable operating leases are as follows:
December 31,
(Dollars in thousands)
$
2,744
2,592
2,507
2,227
1,876
Thereafter
7,984
Total
19,930
Less present value discount
(1,963)
Present value of leases
$
17,967
The table below presents other lease related information:
December 31,
December 31,
Weighted-average remaining lease term (years)
9.02
9.77
Weighted-average discount rate
2.33
%
2.15
%
The Company leased to a tenant certain property that it owns under a non-cancelable lease that expires on December 31, 2031. Rental income comprised of minimum rentals for 2024 and 2023 was $133,000 and $155,000, respectively.
(27)Fair Value of Financial Instruments
In accordance with the Fair Value Measurements and Disclosures topic of the FASB ASC, the Company groups its financial assets and liabilities measured or disclosed at fair value into three levels based on the markets in which the financial assets and liabilities are traded and the reliability of the assumptions used to determine fair value as follows:
●Level 1 - Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities traded in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.
●Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
● Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect management’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of discounted cash flow models and similar techniques that require the use of significant judgment or estimation.
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 available 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 financial 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 mortgage-backed securities issued by U.S. government-sponsored enterprises 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.
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:
Carrying
Fair Value Measurements Using
(Dollars in thousands)
Amount
Fair Value
Level 1
Level 2
Level 3
December 31, 2024
Assets
Cash and cash equivalents
$
123,523
$
123,523
$
123,523
$
-
$
-
Investment securities available for sale
18,492
18,492
-
18,492
-
Investment securities held to maturity
645,699
513,499
-
513,499
-
Loans receivable, net
1,281,548
1,063,964
-
-
1,063,964
FHLB stock
8,542
8,542
-
8,542
-
FRB stock
3,189
3,189
-
3,189
-
Accrued interest receivable
5,800
5,800
1,349
4,356
Liabilities
Deposits
1,717,663
1,715,636
-
1,011,551
704,085
Advances from the Federal Home Loan Bank
160,000
159,139
-
159,139
-
Accrued interest payable
-
December 31, 2023
Assets
Cash and cash equivalents
$
126,659
$
126,659
$
126,659
$
-
$
-
Investment securities available for sale
20,171
20,171
-
20,171
-
Investment securities held to maturity
685,728
568,128
-
568,128
-
Loans receivable, net
1,303,431
1,120,704
-
-
1,120,704
FHLB stock
12,192
12,192
-
12,192
-
FRB stock
3,180
3,180
-
3,180
-
Accrued interest receivable
6,105
6,105
1,441
4,585
Liabilities
Deposits
1,636,604
1,633,164
-
1,104,171
528,993
Advances from the Federal Home Loan Bank
242,000
238,380
-
238,380
-
Advances from the Federal Reserve Bank
50,000
50,049
-
50,049
-
Securities sold under agreements to repurchase
10,000
9,700
-
9,700
-
Accrued interest payable
1,183
1,183
-
1,026
At December 31, 2024 and 2023, 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:
(Dollars in thousands)
Level 1
Level 2
Level 3
Total
December 31, 2024
Investment securities available for sale
$
-
$
18,492
$
-
$
18,492
December 31, 2023
Investment securities available for sale
$
-
$
20,171
$
-
$
20,171
There were no assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2024 or 2023.
(28)Parent Company Only
Presented below are the condensed balance sheets, statements of operations, and statements of cash flows for Territorial Bancorp Inc.
Condensed Balance Sheets
December 31,
(Dollars in thousands)
Assets
Cash
$
14,763
$
18,453
Investment in Territorial Savings Bank
233,025
232,751
Prepaid expenses and other assets
1,028
Total assets
$
248,816
$
251,476
Liabilities and Equity
Other liabilities
$
$
Equity
248,351
251,086
Total liabilities and equity
$
248,816
$
251,476
Condensed Statements of Operations
For the Year Ended December 31,
(Dollars in thousands)
Interest and dividend income:
Dividends from Territorial Savings Bank
$
-
$
-
Interest-earning deposit with Territorial Savings Bank
Other
-
Total interest and dividend income
Noninterest expense:
Salaries
Other general and administrative expenses
3,728
Total noninterest expense
3,766
1,000
Loss before income taxes and equity in undistributed earnings in subsidiaries
(3,761)
(996)
Income tax benefit
(997)
(315)
Loss before equity in undistributed earnings in subsidiaries
(2,764)
(681)
Equity in undistributed (loss) earnings of Territorial Savings Bank, net of dividends
(1,535)
5,708
Net (loss) income
$
(4,299)
$
5,027
Condensed Statements of Cash Flows
For the Year Ended December 31,
(Dollars in thousands)
Cash flows from operating activities:
Net (loss) income
$
(4,299)
$
5,027
Adjustments to reconcile net (loss) income to net cash (used in) from operating activities:
Equity in undistributed loss (earnings) of Territorial Savings Bank, net of dividends
1,535
(5,708)
Net (increase) decrease in prepaid expenses and other assets
(298)
Net increase in other liabilities
Net cash (used in) from operating activities
(2,987)
Cash flows from investing activities:
Investment in Territorial Savings Bank
-
-
Net cash from investing activities
-
-
Cash flows from financing activities:
Repurchases of common stock
-
(4,065)
Cash dividends paid
(703)
(6,412)
Net cash used in financing activities
(703)
(10,477)
Net decrease in cash
(3,690)
(10,062)
Cash at beginning of the year
18,453
28,515
Cash at end of the year
$
14,763
$
18,453
(29) Segment Information
The Company has one reportable segment: banking operations. Loans, securities, deposits, and non-interest income provide the revenues of the banking operation. Loan products offered to customers generate a majority of the Company’s interest and fee income. Additionally, deposit products offered to customers generate fees and service charge income. Interest income earned on securities and other noninterest income are other sources of revenue. Interest expense, provisions for credit losses, salaries and employee benefits, occupancy, equipment, and other general and administrative expenses provide the significant expenses in banking operations. These significant expenses are the same as those disclosed in the Company’s Consolidated Statements of Operation and Consolidated Statement of Cash Flows. Noncash items such as depreciation and amortization are also disclosed in the Company’s Consolidated Statements of Operations and Consolidated Statements of Cash Flows.
The Company’s chief operating decision makers are the Chief Executive Officer, Executive Vice President and Co-Chief Operating Officer, the Chief Financial Officer, and Executive Vice President, Finance. The chief operating decision makers are provided with consolidated balance sheets, income statements, and net interest margin analyses in order to evaluate revenues streams, significant expenses, assess the Company’s segment, and determine the allocation of resources. Additionally, the chief operating decision makers review performance of various components of banking operations, such as loan portfolio types, funding sources, and overhead, to assess product pricing and significant expenses to evaluate return on assets. The chief operating decision makers use consolidated net income to benchmark the Company against its competitors. The benchmarking analysis coupled with monitoring budget-to-actual results are used in assessing performance.
The accounting policies of the banking operations are the same as those described in Note 2 - Summary of Significant Accounting Policies. All operations are domestic.
For the Year Ended December 31,
(Dollars in thousands)
Interest and dividend income:
$
72,305
$
69,088
Reconciliation of revenue:
Other noninterest income
2,611
2,471
Total consolidated revenue
74,916
71,559
Less:
Interest expense
40,613
26,457
Segment net interest income and noninterest income
34,303
45,102
Less:
Provision (reversal of provision) for credit losses
(3)
Salaries and employee benefits
19,787
20,832
Occupancy
6,858
6,910
Equipment
5,307
5,156
Federal deposit insurance premiums
1,667
Other general and administrative expenses
7,325
4,388
Income tax (benefit) expense
(2,415)
1,810
Segment net (loss) income
(4,299)
5,027
Reconciliation of profit or loss:
Adjustments and reconciling items
-
-
Consolidate net (loss) income
$
(4,299)
$
5,027
Reconciliation of assets:
Total assets for reportable segment
$
2,169,715
$
2,236,672
Adjustments and reconciling items
-
-
Total consolidated assets
$
2,169,715
$
2,236,672
(30)Subsequent Events
On January 31, 2025, the Board of Directors of Territorial Bancorp Inc. declared a quarterly cash dividend of $0.01 per share of common stock. The dividend was paid on February 28, 2025 to stockholders of record as of February 14, 2025.
As previously announced in a joint news release issued April 29, 2024, Hope Bancorp, Inc. (Hope Bancorp) and the Company signed a definitive merger agreement. On March 3, 2025, Hope Bancorp and the Company issued a joint press release announcing receipt of all required regulatory approvals for the mergers contemplated by the definitive merger agreement. Completion of the mergers contemplated by the definitive merger agreement remain subject to the satisfaction of customary closing conditions set forth in the merger agreement.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A.
Controls and Procedures
(a) 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 Executive 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 December 31, 2024. Based on that evaluation, the Company’s management, including the Chairman of the Board, President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
During the quarter ended December 31, 2024, 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.
(b) Management’s annual report on internal control over financial reporting.
Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as such term is defined in Rule 13a-15(f) in the Exchange Act. The Company’s internal control system is a process designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on our assessment we believe that, as of December 31, 2024, the Company’s internal control over financial reporting is effective based on those criteria.

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ITEM 9B. OTHER INFORMATION
ITEM 9B.
Other Information
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10.
Directors, Executive Officers and Corporate Governance
Directors and Executive Officers
Our Board of Directors is comprised of six members. The following sets forth certain information regarding our Board of Directors and executive officers who are not directors. Age information is as of December 31, 2024, and term as a director includes service with Territorial Savings Bank. With respect to directors, the biographies contain information regarding the person’s business experience and the experiences, qualifications, attributes or skills that caused the Board of Directors to determine that the person should serve as a director.
The biographies of each of the board members below contain information regarding the person’s business experience and the experiences, qualifications, attributes, or skills that caused the Nominating Committee and the Board of Directors to determine that the person should serve as a director. Each director is also a director of Territorial Savings Bank. Unless otherwise indicated, directors and executive officers have held their positions for the past five years.
All of the directors are long-time residents of the communities served by Territorial Bancorp Inc. and its subsidiaries and many of such individuals have operated, or currently operate, businesses located in such communities. As a result, each director has significant knowledge of the businesses that operate in Territorial Bancorp Inc.’s market area, an understanding of the general real estate market, values and trends in such communities, and an understanding of the overall demographics of such communities. Additionally, as residents of such communities, each director has direct knowledge of the trends and developments occurring in such communities. As the holding company for a community banking institution, Territorial Bancorp Inc. believes that the local knowledge and experience of its directors assists Territorial Bancorp Inc. in assessing the credit and banking needs of its customers, developing products and services to better serve its customers, and assessing the risks inherent in its lending operations, and provides Territorial Bancorp Inc. with greater business development opportunities. As local residents, our directors are also exposed to the advertising, product offerings, and community development efforts of competing institutions which, in turn, assists Territorial Bancorp Inc. in structuring its marketing efforts and community outreach programs.
Kirk W. Caldwell served as the Mayor of the City and County of Honolulu, Hawaii from 2010 until January 2, 2021, when his second elected term ended. The Charter of the City and County of Honolulu limits the term of Mayor to no more than two consecutive full terms. Mr. Caldwell served as Managing Director of the City and County of Honolulu from 2009 to 2010. Mr. Caldwell was Of Counsel to the law firm of Ashford & Wriston from 2011 to 2012, where he had worked from 1984 to 2009, including as partner. Much of his practice consisted of representing financial institutions, including Territorial Savings Bank. Prior to his appointment as Managing Director of the City and County of Honolulu, Mr. Caldwell served as the majority leader for the State of Hawaii House of Representatives and had served as a state representative from 2002 to 2008. Mr. Caldwell remains active in community affairs, has taught classes at the University of Hawaii Law School and at Hawaii Pacific University and is currently in the process of writing a book. Mr. Caldwell provides the Board of Directors with a significant understanding of the communities in which we operate. Moreover, his experience as an attorney that represented financial institutions continues to provide value to the Board. Age 72. Director since 2007.
Howard Y. Ikeda is the President of Ikeda and Wong, CPA, Inc., an independent public accounting firm in the State of Hawaii. Mr. Ikeda is a Certified Public Accountant licensed to practice in the State of Hawaii. He began his career with what is now KPMG LLP. In 1973, he founded Ikeda and Wong, which is one of the larger local accounting firms in Hawaii. Mr. Ikeda’s professional and business experience provide the Board of Directors with valuable insight into the accounting issues Territorial Bancorp Inc. faces and in assessing strategic transactions involving Territorial Bancorp Inc. and Territorial Savings Bank. His employment experience and expertise as a Certified Public Accountant qualifies him to be a member of the Audit Committee as a “financial expert” for purposes of the rules and regulations of the Securities and Exchange Commission. Age 79. Director since 1988.
Jennifer Isobe is a principal with the Hawaii accounting firm, KKDLY LLC, which is one of the larger local accounting firms in Hawaii. Prior to joining KKDLY LLC in 2014, she was a senior audit manager at KPMG LLP.
During the course of her career, she has had many clients that have been registered with or were subsidiaries of companies registered with the Securities and Exchange Commission. She has also been part of the audit team for several large Hawaii nonprofit entities, including the largest multi-billion dollar trust in Hawaii and one of the largest non-profit hospitals in Hawaii. She has served on the board of a number of large non-profit organizations and is very active in the business community in Hawaii. She is a Certified Public Accountant in Hawaii. Her presence adds depth to the financial expertise on the Board and, as an active practitioner, adds to the Board’s knowledge on current accounting developments. In addition, her experience qualifies her to be a member of the Audit Committee as a “financial expert” for purposes of the rules and regulations of the Securities and Exchange Commission. Age 66. Director since 2018.
Allan S. Kitagawa has served as Chairman of the Board and Chief Executive Officer of Territorial Savings Bank since 1986, and was named President in 2007. Mr. Kitagawa worked for American Savings and Loan Association from 1974 to 1986, including service as Executive Vice President and Chief Executive Officer of the Hawaii Division. Mr. Kitagawa was a Certified Public Accountant who began his career with what is now KPMG LLP. Under Mr. Kitagawa’s leadership, Territorial Savings Bank has grown significantly while the Bank’s conservative lending practices have resulted in continued low levels of nonperforming assets. Age 79. Director since 1986.
John M. Ohama is the Principal Broker for Honolulu Land Company, LLC, a firm he founded in 2012. His firm is engaged in the sale of real estate in Hawaii, with some property management services, with such activity primarily in residential real estate sales. Prior to founding his current firm, he was, for almost six years, the co-owner of another real estate firm, where he was the broker-in-charge of the sales side of the firm that also conducted property management. Prior to this co-venture, Mr. Ohama was the owner and principal of a larger real estate sales firm for over two decades that represented buyers and sellers of mostly residential real estate. That firm also conducted commercial real estate transactions and property management. He served for eight years on the Hawaii State Real Estate Commission, the state entity that oversees the real estate brokers and salespeople in Hawaii. He was appointed by two different Governors of the State of Hawaii and served as its chair for five of those years. He also remains an active member of the Honolulu Board of Realtors and has served in various capacities on their ethics and professional responsibility committees. Mr. Ohama’s daily involvement in residential real estate provides the Board of Directors with significant insight into the activity that constitutes the significant majority of Territorial Savings Bank’s lending activities. Age 66. Director since 2019.
Jan M. Sam is currently Of Counsel at the law firm of McCorriston Mukai MacKinnon LLP based in Honolulu, having joined the firm in 2022. Her practice concentrates on real estate law. Prior to joining the law firm, Ms. Sam was employed from 2015 to early 2022 at Pacific Guardian Life Insurance Company, Ltd., which is the largest domestic life and disability insurance company in Hawaii. Their products are sold not only in Hawaii but also on the West Coast and selected locations in the Pacific. Ms. Sam served as their Chief Risk Officer with responsibility for enterprise risk management. She was previously in their investment department, contributing to Pacific Guardian’s investment strategy as well as evaluating non-core asset classes as possible investments. Prior to Pacific Guardian Life, Ms. Sam was an officer in the commercial Real Estate and Corporate Banking Divisions of First Hawaiian Bank, one of Hawaii’s largest regional banks. Before attending law school, Ms. Sam was a management consultant with PricewaterhouseCoopers LLP. Age 47. Director since 2022.
Ms. Sam brings to the Board her insight into a new generation of customers and potential customers of Territorial Savings Bank. In addition, her professional background provides the Board with expertise in commercial real estate activity from a legal, life insurance and bank perspective, insurance agency sales and employee retirement benefits regarding pension plans and 401(k) plans.
The following provides information regarding our executive officers who are not directors of the Company.
Vernon Hirata has served as Territorial Savings Bank’s Vice Chairman, Co-Chief Operating Officer, General Counsel and Corporate Secretary since 2007. Mr. Hirata joined Territorial Savings Bank in 1986 as Senior Vice President/General Counsel, and was named Executive Vice President/General Counsel and Corporate Secretary in 1987. Previously, Mr. Hirata was employed at American Savings and Loan Association from 1978 to 1986, including service as Senior Vice President and Staff Attorney. Age 72.
Ralph Y. Nakatsuka joined Territorial Savings Bank in 2007 as Vice Chairman and Co-Chief Operating Officer, and was employed at American Savings Bank from 1980 to 2007, including service as Executive Vice President of Lending and Chief Lending Officer from 1997 to 2007 and Chief Financial Officer from 1987 to 1997. Mr. Nakatsuka is a Certified Public Accountant. Age 68.
Karen J. Cox has served as Executive Vice President of Territorial Savings Bank since August 1, 2022. Prior to that, she served as Senior Vice President of Administration of Territorial Savings Bank since 1984, and has been employed by Territorial Savings Bank since 1968. Ms. Cox is in charge of various areas, including human resources, information technology, and branch development and maintenance. Ms. Cox previously worked with other financial institutions in the State of Hawaii beginning in 1964. Age 79.
Troy Yoshimasu has served as Senior Vice President and Chief Lending Officer of Territorial Savings Bank since January 1, 2023. Mr. Yoshimasu was a Vice President in charge of loan underwriting for Territorial Savings Bank from 2017 to 2022. Mr. Yoshimasu has been employed at Territorial Savings Bank since 2000. Age 47.
Melvin M. Miyamoto has served as Executive Vice President of Territorial Savings Bank since August 1, 2022. Mr. Miyamoto was named Chief Financial Officer in 2015, having served as Senior Vice President and Treasurer of Territorial Savings Bank since 1986, and has been employed by Territorial Savings Bank since 1984. Mr. Miyamoto is a Certified Public Accountant. Age 71.
Delinquent Section 16(a) Reports
Our executive officers and directors, and beneficial owners of greater than 10% of our outstanding shares of common stock are required to file reports with the Securities and Exchange Commission disclosing beneficial ownership and changes in beneficial ownership of our common stock. Securities and Exchange Commission rules require disclosure if an executive officer, director, or 10% beneficial owner fails to file these reports on a timely basis.
Based solely on the review of copies of the reports we have received and written representations provided to us from the individuals required to file the reports, we believe that each of Chairman, President and Chief Executive Officer Allan S. Kitagawa, Vice Chairman and Co-Chief Operating Officer Vernon Hirata and Vice Chairman and Co-Chief Operating Officer Ralph Y. Nakatsuka filed a late Form 4 to report the award of restricted stock units, and that each of our executive officers and directors otherwise complied with applicable reporting requirements for transactions in Territorial Bancorp Inc. common stock during the year ended December 31, 2024.
Code of Ethics and Business Conduct
We have adopted a Code of Ethics and Business Conduct that is designed to promote the highest standards of ethical conduct by our directors, executive officers, and employees. The Code of Ethics and Business Conduct requires that our directors, executive officers, and employees avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner, and otherwise act with integrity and in our best interest. Under the terms of the Code of Ethics and Business Conduct, directors, executive officers, and employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of the Code of Ethics and Business Conduct. A copy of the Code of Ethics and Business Conduct can be found in the “About Us-Investor Relations-Corporate Governance” section of our website, www.tsbhawaii.bank. Amendments to and waivers from our Code of Ethics and Business Conduct will be disclosed in the “About Us-Investor Relations-Corporate Governance” section of our website.
As a mechanism to encourage compliance with the Code of Ethics and Business Conduct, we have established procedures to receive, retain, and treat complaints regarding accounting, internal accounting controls, and auditing matters. These procedures ensure that individuals may submit concerns regarding questionable accounting or auditing matters in a confidential and anonymous manner. The Code of Ethics and Business Conduct also prohibits us from retaliating against any director, executive officer, or employee who reports actual or apparent violations of the Code of Ethics and Business Conduct.
In addition, we have adopted a Code of Ethics for Senior Officers that is applicable to our senior financial officers, including our principal executive officer, principal financial officer, principal accounting officer, and all officers performing similar functions. A copy of the Code of Ethics for Senior Officers can be found in the “About Us-Investor Relations-Corporate Governance” section of our website, www.tsbhawaii.bank. Amendments to and waivers from our Code of Ethics for Senior Officers will be disclosed in the “About Us-Investor Relations-Corporate Governance” section of our website.
Stockholder Recommendations for Director Candidates
It is the policy of the Nominating and Corporate Governance Committee of the Board of Directors of the Company to consider director candidates recommended by stockholders who appear to be qualified to serve on the Company’s Board of Directors. The Nominating and Corporate Governance Committee, which is comprised solely of nonemployee directors, all of whom the Board has determined are independent in accordance with the listing standards of the NASDAQ Stock Market, Inc., may choose not to consider an unsolicited recommendation if no vacancy exists on the Board of Directors and the Nominating and Corporate Governance Committee does not perceive a need to increase the size of the Board of Directors. To avoid the unnecessary use of the Nominating and Corporate Governance Committee’s resources, the Nominating and Corporate Governance Committee will consider only those director candidates recommended in accordance with the procedures set forth below.
Procedures to be Followed by Stockholders
To submit a recommendation of a director candidate to the Nominating and Corporate Governance Committee, a stockholder should submit the following information in writing to the main office of the Company, addressed to the Chairman of the Nominating and Corporate Governance Committee, care of the Corporate Secretary, Territorial Bancorp Inc., P.O. Box 135040, Honolulu, Hawaii 96801:
(1) a statement that the writer is a stockholder and is proposing a candidate for consideration by the Committee;
(2) the name and address of the stockholder as they appear on the Company’s books, and number of shares of the Company’s common stock that are owned beneficially by the stockholder (if the stockholder is not a holder of record, appropriate evidence of the stockholder’s ownership will be required);
(3) the name, address, and contact information for the candidate, and the number of shares of common stock of the Company that are owned by the candidate (if the candidate is not a holder of record, appropriate evidence of the candidate’s share ownership should be provided);
(4) a statement of the candidate’s business and educational experience;
(5) such other information regarding the candidate as would be required to be included in the proxy statement pursuant to Securities and Exchange Commission Regulation 14A;
(6) a statement detailing any relationship between the candidate and any customer, supplier, or competitor of the Company;
(7) detailed information about any relationship or understanding between the proposing stockholder and the candidate; and
(8) a statement that the candidate is willing to be considered and willing to serve as a director if nominated and elected.
To be timely, the submission of a candidate for director by a stockholder must be received by the Corporate Secretary at least 180 days prior to the anniversary date of the proxy statement relating to the preceding year’s annual meeting of stockholders.
Audit Committee
The Audit Committee operates under a written charter that is available in the “About Us-Investor Relations-Corporate Governance” section of the Company’s website, www.tsbhawaii.bank. Pursuant to Territorial Bancorp Inc.’s Audit Committee Charter, the Audit Committee assists the Board of Directors in its oversight of the Company’s accounting and reporting practices, the quality and integrity of the Company’s financial reports and the Company’s compliance with applicable laws and regulations. The Audit Committee is also responsible for engaging the Company’s independent registered public accounting firm and monitoring its conduct and independence. The Audit Committee is comprised of Directors Howard Y. Ikeda, John M. Ohama and Jennifer Isobe. All members of each committee are independent in accordance with the listing standards of the NASDAQ Stock Market, Inc. In addition to meeting the independence requirements of the NASDAQ Stock Market, Inc., each member of the Audit Committee meets the audit committee independence requirements of the Securities and Exchange Commission. The Board of Directors has designated Howard Y. Ikeda and Jennifer Isobe as audit committee financial experts under the rules of the Securities and Exchange Commission.
Insider Trading Policies and Procedures
The Board of Directors has adopted an Insider Trading Policy, which governs the purchase, sale, and/or other dispositions of the Company’s securities by directors, officers and employees, that are reasonably designed to promote compliance with insider trading laws, rules and regulations, and listing standards applicable to the Company.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11.
Executive Compensation
Executive Officer Compensation
Summary Compensation Table. The table below summarizes the total compensation paid to or earned by our Named Executive Officers for the years ended December 31, 2024 and 2023, as calculated under Securities and Exchange Commission rules. Cash compensation earned for the applicable year is reported in the “Salary,” “Nonequity Incentive Plan Compensation” and the “All Other Compensation” columns. The “Bonus,” “Option Awards” and “Nonqualified Deferred Compensation Earnings” columns have been omitted as no compensation that would be disclosed in that column was earned during the applicable years.
Stock
Non-Equity
Awards
Incentive Plan
All Other
Name and Principal Position
Year
Salary ($)
($)(1)
Compensation ($)(2)
Compensation ($)
Total ($)
Allan S. Kitagawa
851,124
182,983
38,301
79,457 (3)
1,151,865
Chairman of the Board, President, and Chief Executive Officer
851,124
309,350
38,301
121,733
1,320,508
Vernon Hirata
354,530
76,222
15,954
49,527 (4)
496,233
Vice Chairman, Co-Chief Operating Officer, General Counsel, and Corporate Secretary
354,530
128,863
15,954
65,335
564,682
Ralph Y. Nakatsuka
354,530
76,222
15,954
29,028 (5)
475,734
Vice Chairman and Co-Chief Operating Officer
354,530
128,863
15,954
48,579
547,926
(1) Reflects the aggregate grant date fair value of restricted stock units, half of which have performance-based vesting and half of which have time-based vesting, with such awards calculated at the “Target” level. The assumptions used in the valuation of these awards are included in Note 19 to our audited financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2024. At the “Maximum” level, for the year ended December 31, 2024, the aggregate grant date fair value was $249,177, $103,796 and $103,796 for Messrs. Kitagawa, Hirata and Nakatsuka, respectively, and for the year ended December 31, 2023, the aggregate grant date fair value was $386,142, $160,848 and $160,848 for Messrs. Kitagawa, Hirata and Nakatsuka, respectively.
(2) The amounts in this column represent the dollar value of the cash incentives earned under the Annual Incentive Plan.
(3) Includes $1,150 for 401(k) plan matching contributions, $3,118 for long-term care premiums, $10,287 for personal use of company automobile, $2,340 for parking, $10,413 for club dues and fees, $8,300 for ESOP allocations, $27,352 for non-qualified supplemental ESOP allocations, $3,424 for life insurance, $8,885 for cash dividends paid when incentive-based equity awards vested and $4,188 for professional estate planning services.
(4) Includes $1,150 for 401(k) plan matching contributions, $20,594 for personal use of company automobile, $1,740 for parking, $7,882 for club dues and fees, $8,300 for ESOP allocations, $3,386 for non-qualified supplemental ESOP allocations, $2,566 for life insurance and $3,909 for cash dividends paid when incentive-based equity awards vested.
(5) Includes $1,150 for 401(k) plan matching contributions, $2,498 for long-term care premiums, $1,740 for parking, $7,257 for club dues and fees, $8,300 for ESOP allocations, $2,437 for non-qualified supplemental ESOP allocations, $1,737 for life insurance and $3,909 for cash dividends paid when incentive-based equity awards vested.
For the year ended December 31, 2024, cash payments under our Annual Incentive Plan were paid in March 2025 in the amounts listed in the “Summary Compensation Table.” For a discussion of this plan, see “-2024 Annual Incentive Plan.”
Pay Versus Performance Table. We are providing the following information about the relationship between “compensation actually paid” to our Principal Executive Officer (“PEO”) and to our Non-PEO NEOs and certain financial performance of the Company. Compensation actually paid, as determined under SEC requirements, does not reflect the actual amount of compensation earned by or paid to our executive officers during a covered year. For further information concerning the Company’s pay-for-performance philosophy and how the Company aligns executive compensation with the Company’s performance, refer to the Compensation Discussion and Analysis.
Year
Summary Compensation Table Total for PEO
Compensation Actually Paid to PEO
Average Summary Compensation Table Total for Non-PEO NEOs
Average Compensation Actually Paid to Non-PEO NEOs
Value of Initial Fixed $100 Investment Based On Total Shareholder Return
Net Income
$
1,151,865
$
1,122,030
$
485,984
$
472,950
$
$
(4,299)
$
1,320,508
$
888,155
$
556,304
$
374,378
$
$
5,027
$
1,599,583
$
1,453,892
$
681,294
$
620,227
$
$
16,156
Allan S. Kitagawa served as Principal Executive Officer for each of the years presented in the table. Compensation actually paid to Mr. Kitagawa for each of the years presented in the table, as calculated in accordance with Securities and Exchange Commission regulations and presented in the Summary Compensation Table (“SCT”), was as follows:
Total Compensation as reported in SCT
$
1,518,658
$
1,320,538
$
1,599,583
Fair value of equity awards granted during fiscal year
(182,983)
(309,350)
(312,357)
Fair value of equity compensation granted in current year at year end
164,717
96,432
264,368
Dividends paid on unvested shares/share units
5,247
3,744
15,297
Change in fair value from end of prior fiscal year to end of current fiscal year for awards made in prior fiscal years that were unvested at end of current fiscal year
4,840
(191,345)
(106,879)
Change in fair value from end of prior fiscal year to vesting date for awards made in prior fiscal years that vested during current fiscal year
(21,656)
(31,534)
(6,120)
Compensation Actually Paid to PEO
$
1,122,030
$
888,135
$
1,453,892
The named executive officers for each of the years presented in the table are Vernon Hirata and Ralph Y. Nakatsuka. The average compensation actually paid to named executive officers other than the Principal Executive Officer for each of the years presented in the table, as calculated in accordance with SEC regulations, was as follows:
Total Compensation as reported SCT
$
485,984
$
556,304
$
681,294
Fair value of equity awards granted during fiscal year
(76,222)
(128,863)
(130,115)
Fair value of equity compensation granted in current year at year end
68,614
40,174
110,113
Dividends paid on unvested shares/share units
2,202
1,679
6,359
Change in fair value from end of prior fiscal year to end of current fiscal year for awards made in prior fiscal years that were unvested at end of current fiscal year
1,828
(83,049)
(44,890)
Change in fair value from end of prior fiscal year to vesting date for awards made in prior fiscal years that vested during current fiscal year
(9,456)
(11,867)
(2,534)
Average Compensation Actually Paid to Non-PEO NEOs
$
472,950
$
374,378
$
620,227
Fair value was computed in accordance with the Company’s methodology used for financial reporting purposes.
Total shareholder return value represents the Company's TSR based on an initial $100 investment on December 31, 2021, assuming the reinvestment of dividends.
Net Income is calculated in accordance with GAAP and reflects the amounts reported in the Company’s Annual Report on Form 10-K for the applicable year,
The following chart sets forth the relationship between Compensation Actually Paid to our PEO, the average of Compensation Actually Paid to our other Non-PEO NEOs, and the Company’s cumulative TSR over the three most recently completed fiscal years.
The following chart sets forth the relationship between Compensation Actually Paid to our PEO, the average of Compensation Actually Paid to our other Non-PEO NEOs, and our net income during the three most recently completed fiscal years.
2024 Annual Incentive Plan (AIP)
The AIP is designed to motivate senior executives to attain superior annual performance in key areas that we
believe create long-term value to us and our stockholders. Awards under the AIP are determined based upon a combination of absolute and relative performance metrics. Absolute metrics are based on our business plan, adopted by the Board of Directors and selected as important performance goals by the Compensation Committee.
All Named Executive Officers had a threshold, target and stretch opportunity as shown below. Target opportunities are intentionally conservative relative to market median to place more focus on long-term compensation.
Named Executive Officer
Threshold % of Salary
Target % of Salary
Maximum % of Salary
Allan S. Kitagawa
15%
30%
45%
Vernon Hirata
15%
30%
45%
Ralph Y. Nakatsuka
15%
30%
45%
The Compensation Committee continued to use net income, return on average assets (“ROAA”), non-performing assets/assets (“NPA”), and efficiency ratio as metrics for the 2024 AIP. The macro economic environment, including rising interest rates, was forecasted to negatively impact the Company’s financial results. The 2024 net income target was set based on our budget. ROAA and NPAs were established using our budget. ROAA is a profitability measure, and the NPA ratio reinforces our goal of maintaining strong credit quality. A lower NPA ratio mitigates the risk of lowering loan underwriting standards to increase loan production through increased residential mortgage loan volume.
The table below provides the performance required for payouts at the threshold, target and maximum levels, performance level achieved and the resulting payout.
2024 AIP Performance Goals
Measure
Weighting
Threshold
Target
Maximum
Net Income (thousands)
60%
$5,243
$6,554
$7,865
ROAA
20%
0.26%
0.33%
0.40%
Non-performing assets/total assets (1)
10%
35th
55th
75th
Efficiency Ratio
10%
97.01%
80.84%
64.37%
Payout Range (% of target)
100%
50%
100%
150%
(1) 2024 goals calculated as a percentile comparison to a custom industry index (the same index as for the LTIP).
Performance for 2024 resulted in the following payouts:
Measure
Weight
2024 Results
Performance (as % of Target)
Net Income (thousands)
60%
($4,299)
0%
ROAA
20%
0.23%
0%
Non-performing assets/total assets
10%
Above 75th percentile
150%
Efficiency Ratio
10%
111.63%
0%
Total (weighted)
100%
15%
Performance on these measures resulted in a payout of 15% of the target level and resulted in payments to the NEOs of $38,301 for Mr. Kitagawa and $15,954 for each of Messrs. Hirata and Nakatsuka.
LTIP Program
The current LTIP program has been the same since 2017 and consists of performance-vested restricted stock units and time-vested restricted stock units, each weighted at 50%.
Each participant had an annual target award opportunity (defined as a percentage of base salary at the start of the grant cycle) that reflects a competitive total compensation package for their role. Threshold performance earns
18.3% of base salary, target earns 36.7% of base salary and stretch performance earns 55% of base salary. These values were based on a maximum award of 55% of base salary with threshold equivalent to 33% of maximum and target equivalent to 66.7% of maximum.
2024 LTIP awards are granted as follows:
◾ Performance-vested Restricted Stock Units - PRSUs (50% of target award value) reward future performance; awards will vest based on achievement of performance relative to an industry index. Grants are earned and cliff vest after three years based on actual performance. PRSUs will vest within 120 days after the end of each performance period (once performance can be calculated and reviewed and approved by the Committee).
◾ Time-vested Restricted Stock Units - TRSUs (50% of target awards) reinforce retention and share ownership/alignment with stockholders as well as provide reward for contributions/performance. Grants vest ratably over three years.
The table below reflects the performance metrics selected for the PRSUs for the 2024 to 2026 performance cycle and performance goals. We require our performance to exceed the median of the industry index to receive our target award, which we believe is a leading best practice.
Performance will be measured based on our performance relative to financial institutions included in the custom industry index (NASDAQ-traded US Thrifts with Assets between $1 billion and $10 billion as of December 31, 2024).
Measure
Weight
Threshold
Target
Stretch
3-year TSR - Relative to index
20%
35th Percentile
55th Percentile
75th Percentile
3-year Avg. Return on Average Equity - Relative to index
80%
35th Percentile
55th Percentile
75th Percentile
Payout Range (% of Target)
100%
50%
100%
150%
2022 to 2024 LTIP Performance Results
PRSUs are granted at the start of each performance period. For 2022 to 2024 LTIP cycle, the performance period ran from January 1, 2022 to December 31, 2024. The vesting (i.e. earning) of the award was contingent on actual performance of pre-defined measures at the end of the performance period (i.e. third year).
In order for PRSUs to be vested/earned, performance must be at or above the threshold performance set by the Committee. Actual vesting after three years was interpolated on a straight-line basis between threshold, target and stretch to reward incremental performance. Vesting will range from 50% of target for achieving threshold performance and 150% of target for achieving stretch performance.
The table below reflects the performance metrics selected for the PRSUs for the 2022 to 2024 performance cycle and resulting payout/vesting. Performance was measured based on our performance relative to an industry index reflecting financial institutions included in the SNL US Thrift Index with assets between $1 billion and $10 billion.
Measure
Wt.
Threshold
Target
Stretch
Actual Performance (Performance Factor)
Payout as % of target Incentive (Wt. x Perf. Factor)
3-year TSR-Relative to Industry Index
20%
35th Percentile
55th Percentile
75th Percentile
0th Percentile
0.00%
3-year Average Return on Average Equity- Relative to Industry Index
80%
35th Percentile
55th Percentile
75th Percentile
27th Percentile
0.00%
Payout Range (% of Target)
100%
50%
100%
150%
0.00%
Based on the performance above, the Committee vested the performance RSUs below to the Named Executive Officers.
Name
2022-2024 RSUs Granted [a]
Payout as % of Target Award [b]
Earned Shares [c] = [a] x [b]
Kitagawa
6,552
41.99%
2,751
Hirata
2,729
41.99%
1,146
Nakatsuka
2,729
41.99%
1,146
Executive Benefits
We offer various benefits to all of our employees, including medical, dental, vision, group life, accidental death and dismemberment and long-term disability insurance. We provide individual coverage to employees, with the employee being responsible for a portion of the premium. In addition, for our Named Executive Officers, we pay or furnish transportation services, parking, club dues, long-term care insurance, spousal travel, and up to $5,000 in personal tax and financial planning assistance (up to $6,000 for Mr. Kitagawa) annually. The Compensation Committee believes these benefits are appropriate and assist these officers in fulfilling their employment obligations.
Executive Agreements
We maintain employment agreements with Messrs. Kitagawa, Hirata and Nakatsuka, which provide severance payments in the event of involuntary or good reason termination of employment or termination following a change in control. The rationale for providing these payments is to provide security for our key executives and stability among our senior management team. For a discussion of these agreements, see “-Employment Agreements” below.
Deductibility of Compensation
Section 162(m) of the Internal Revenue Code generally provides that no deduction is allowed for compensation in excess of $1 million paid by a public company to its chief executive officer or any of its other three most highly paid executive officers (other than the chief financial officer). The Compensation Committee recognizes that paying certain compensation that is not tax-deductible may sometimes be in our best interest, and to that end we do not have a policy requiring that all compensation must be deductible.
Annual Risk Review of Compensation Policies and Procedures
The Compensation Committee is responsible for the oversight of employee compensation policies and procedures, including the determination of whether any material risk arises from our compensation policies and procedures. The Compensation Committee has reviewed our compensation policies and procedures, including those related to the payment of commissions and bonuses to any of our employees, and believes that any risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on Territorial Bancorp Inc. and Territorial Savings Bank. The Committee has evaluated the risks of its incentive compensation arrangements in accordance with published bank regulatory guidance on safety and soundness of incentive compensation. The Committee also works with an independent compensation consultant when designing the compensation of our Named Executive Officers.
Outstanding Equity Awards at Year End
The following table sets forth information with respect to outstanding equity awards as of December 31, 2024 for the Named Executive Officers.
Outstanding Equity Awards At December 31, 2024
Stock Awards
Name
Number of Shares or Units of Stock That Have Not Vested (#)(1)
Market Value of Shares or Units of Stock That Have Not Vested ($)(2)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(3)
Equity Incentive Plan Awards: Market Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2)
Allan S. Kitagawa
21,800
$212,114
29,171
$283,834
Vernon Hirata
9,212
$89,633
12,151
$118,229
Ralph Y. Nakatsuka
9,212
$89,633
12,151
$118,229
______________
(1) Time-vested restricted stock units vest April 3, 2025 as follows: Mr. Kitagawa, 2,692 shares; Messrs. Hirata and Nakatsuka, 1,121 shares. Additional time-vested restricted stock units vest April 3, 2026 as follows: Mr. Kitagawa, 2,692 shares; Messrs. Hirata and Nakatsuka, 1,122 shares. Additional time-vested restricted stock units vest April 4, 2025 as follows: Mr. Kitagawa, 1,870 shares; Messrs. Hirata and Nakatsuka, 910 shares. Additional time-vested restricted stock units vest April 18, 2025 as follows: Mr. Kitagawa; 4,848 shares; Messrs. Hirata and Nakatsuka, 2,019 shares. Additional time-vested restricted stock units vest April 18, 2026 as follows: Mr. Kitagawa; 4,849 shares; Messrs. Hirata and Nakatsuka, 2,020 shares. Additional shares vest April 18, 2027 as follows: Mr. Kitagawa 4,849 shares; Messrs. Hirata and Nakatsuka, 2,020 shares.
(2)
Computed using the fair market value of the shares based on the Company’s closing stock price of $9.73 on December 31, 2024, the last trading day of 2024.
(3)
Performance-based restricted stock units vest within 120 days from the end of the performance period upon the achievement of performance goals, as measured over a three-year period (2022 to 2024, 2023 to 2025 and 2024 to 2026).
Employment Agreements
Territorial Savings Bank has entered into separate employment agreements with Messrs. Kitagawa, Hirata, and Nakatsuka (referred to below as the “executives” or “executive”). Territorial Bancorp Inc. has entered into separate employment agreements with each executive, which have essentially identical provisions as the Territorial Savings Bank agreements, except that the employment agreements will provide that Territorial Bancorp Inc. will make any payments not made by Territorial Savings Bank under its agreements with the executives and that the executives will not receive any duplicate payments. Our continued success depends to a significant degree on the skills and competence of these officers, and the employment agreements are intended to ensure that we maintain a stable management base following the offering.
The employment agreements each provide for three-year terms, subject to annual renewal by the Board of Directors for an additional year beyond the then-current expiration date. The current base salaries under the employment agreements are $851,124 for Mr. Kitagawa, $354,530 for Mr. Hirata, and $354,530 for Mr. Nakatsuka. The agreements also provide for participation in employee benefit plans and programs maintained for the benefit of senior management personnel, including discretionary bonuses, participation in stock-based benefit plans, and certain fringe benefits as described in the agreements.
Upon termination of an executive’s employment for cause, as defined in each of the agreements, the executive will receive no further compensation or benefits under the agreement. If we terminate the executive for reasons other than for cause or if the executive terminates voluntarily under specified circumstances that constitute constructive termination, the executive will receive an amount equal to the base salary and cash bonus and employer contributions to benefit plans that would have been payable for the remaining term of the agreement. We will also continue to pay for each executive’s life, health, and dental coverage for up to three years, with the executive responsible for his share of the employee premium.
If the executive terminates employment for any reason other than for cause within 12 months following a change in control, the executive will receive the greater of (a) the amount he would have received if we terminated the executive for a reason other than for cause or if the executive voluntarily terminated under specified circumstances that constitute constructive termination (as described in the immediately preceding paragraph), or (b) three times his prior five-year average of taxable compensation less one dollar. We will also continue to pay for each executive’s life, health, and dental coverage for up to three years, with the executive responsible for his share of the employee premium.
Upon termination of employment (other than a termination in connection with a change in control), each executive will be required to adhere to a one-year noncompetition provision. The executive will be required to release us from any and all claims in order to receive any payments and benefits under his agreement. We will agree to pay all reasonable costs and legal fees of the executives in relation to the enforcement of the employment agreements, provided the executives succeed on the merits in a legal judgment, arbitration proceeding, or settlement. The employment agreements also provide for indemnification of the executives to the fullest extent legally permissible.
Separation Pay Plan
The Territorial Savings Bank Separation Pay Plan provides severance benefits to eligible employees whose employment is involuntarily terminated within 24 months after a change in control of Territorial Bancorp Inc. All regular employees who do not receive severance pay under an employment or change in control agreement are participants in this plan. Terminated employees will receive a severance payment of one month of base compensation for each year of service, up to a maximum of 24 months of base compensation, and employees who are at the level of Senior Vice President or above will receive a minimum severance payment of 12 months of base compensation. In addition, terminated employees who are at the level of Senior Vice President and above will also be eligible to continue to participate in our health insurance plan for up to one year, with the employee responsible for their share of the employee premium.
Pension Plan. Territorial Savings Bank sponsors the Territorial Savings Bank Employee Retirement Plan, a defined benefit pension plan that covers a significant portion of our employees. Employees become eligible for participation in the pension plan on the first day of the calendar month on or after completing one year of service and attaining age 21. Effective December 31, 2008, the pension plan was frozen, such that no further benefit accruals will be earned after that date; however, participants will continue to earn vesting credit.
Participants in the pension plan become fully vested in their retirement benefits upon completion of five years of service. They also become 100% vested upon attaining age 65 or upon death. A participant who terminates employment on or after reaching age 65 is entitled to the full retirement benefit. A participant’s normal retirement benefit is generally based on a formula that takes into account the amount credited under the pension plan for service before January 1, 1984, and the amount credited under the pension plan for service from 1984 to 1998 and the amount credited from 1998 to 2008, as well as salary and certain other compensation. The plan does not grant additional years of service for any purpose.
The pension plan permits early retirement at age 55. Participants who retire after age 65 will be entitled to the full amount of their benefit, generally calculated through their late retirement date. Eligible participants who elect an early retirement benefit will receive a reduced normal retirement benefit. As of December 31, 2024, each of Messrs. Kitagawa, Hirata and Nakatsuka was eligible for normal retirement.
The normal form of retirement for participants who are not married is a single life annuity. The normal form of retirement benefit for participants who are married is a 50% joint and survivor annuity. Other optional forms of benefit are available, such as an early retirement benefit, and all optional forms of benefit are the actuarial equivalent of the normal form (e.g., a participant does not receive more or less by selecting an optional form of benefit). In the event of the participant’s death, benefits normally will be paid to the participant’s spouse unless the spouse consents to an alternative beneficiary in writing. In the event of death any time after a participant is vested or eligible for a pension benefit, provided the participant has been married for at least one year and provided that benefits have not commenced at the time of death, the participant’s spouse may either receive the full benefit when the participant would have reached age 65 or receive a reduced benefit any time after the deceased participant would have attained age 55.
Supplemental Executive Retirement Agreements
We provide supplemental executive retirement benefits to each of Messrs. Kitagawa, Hirata, and Nakatsuka. Under Mr. Kitagawa’s agreement, he is entitled to receive an amount equal to the present value of $600,000 per year for 15 years payable in a lump sum on the first day of the month upon retirement after attaining age 66. Under the agreements with Messrs. Hirata and Nakatsuka, each executive will receive an annual benefit upon retirement after age 66 equal to 65% of the average of his compensation for the three years immediately preceding his termination of employment reduced by the sum of the benefits payable under the pension plan and Social Security benefits. Mr. Hirata’s benefits will be paid in monthly installments for 15 years and Mr. Nakatsuka will receive a lump sum equal to the present value of installments over 15 years.
For Mr. Kitagawa and Mr. Hirata, if their employment is terminated within three years following a change in control, they will receive their normal retirement benefit without any reduction for amounts payable under the pension plan or Social Security. All amounts are paid as a lump sum, except Mr. Hirata will receive installments for 15 years. The agreements contain change of control “tax gross up” provisions such that if a payment to any of the three executives exceeds the limit on such payments pursuant to Internal Revenue Code Section 280G, and thereby imposes an excise tax on the officer, Territorial Savings Bank, or its successor, will pay such executive additional amounts to compensate for the excise tax.
In the event of disability or death, Messrs. Hirata and Nakatsuka will receive the same benefit as if they had terminated employment following a change in control. Upon death, Mr. Kitagawa’s designee will receive a lump-sum payment equal to the present value of his projected normal retirement benefit and upon disability Mr. Kitagawa will receive a lump sum equal to the amount accrued for accounting purposes under the plan.
No benefits are payable in the event of termination for cause.
Supplemental Employee Stock Ownership Plan
Territorial Savings Bank adopted the Supplemental Employee Stock Ownership Plan (“Supplemental ESOP”) effective January 1, 2009, to provide certain executives with benefits that they otherwise would be entitled to under the tax-qualified Employee Stock Ownership Plan (“ESOP”), but for limitations imposed by the Internal Revenue Code. During 2023, three employees participated in the Supplemental ESOP. The Compensation Committee of the Board of Directors of Territorial Savings Bank administers the Supplemental ESOP. Each year, participants in the Supplemental ESOP are credited with a dollar amount equal to the difference between the value of the shares of our common stock that would have been allocated to the participant under the tax-qualified ESOP, but for the limitations imposed by the Internal Revenue Code, and the actual value of shares of our common stock allocated to the participant under the ESOP for the relevant plan year. Participants in the Supplemental ESOP may direct the investment of their Supplemental ESOP accounts among a select group of broadly diversified mutual funds selected by the Compensation Committee. Benefits are generally payable in a cash lump sum within 90 days of the first to occur of: (i) the participant’s separation from service; (ii) the participant’s death; (iii) the participant’s disability; or (iv) a change in control of Territorial Savings Bank or Territorial Bancorp Inc., but, in order to comply with Section 409A of the Internal Revenue Code, payments will be delayed for six months for any “specified employee” (as defined in Section 409A of the Internal Revenue Code).
Tax-Qualified Benefit Plans
Territorial Savings Bank 401(k) Plan. We sponsor the Territorial Savings Bank 401(k) Plan, a tax-qualified defined contribution plan, for all employees who have satisfied the plan’s eligibility requirements. Employees may begin deferring their compensation and are eligible to receive matching contributions and profit-sharing contributions as of the first day of the month following the completion of 12 months of employment during which they worked at least 1,000 hours. All contributions are 100% vested.
Employee Stock Ownership Plan. Effective January 1, 2009, Territorial Savings Bank adopted an employee stock ownership plan for eligible employees. Eligible employees who have attained age 21 generally begin participation
in the ESOP on the later of the effective date of the ESOP or on or after the eligible employee’s completion of 1,000 hours of service during a continuous 12-month period.
The ESOP trustee purchased, on behalf of the ESOP, 978,650 shares of our common stock issued in the offering. The ESOP funded its stock purchase with a loan from us equal to the aggregate purchase price of the common stock. The loan will be repaid principally through Territorial Savings Bank’s contribution to the ESOP and dividends payable on common stock held by the ESOP over the anticipated 20-year term of the loan. The interest rate for the ESOP loan is an adjustable rate equal to the prime rate, as published in The Wall Street Journal, which adjusts annually.
The trustee holds the shares purchased by the ESOP in an unallocated suspense account, and shares are released from the suspense account on a pro-rata basis as we repay the loan. The trustee allocates the shares released among participants on the basis of each participant’s proportional share of compensation relative to all participants. Participants become 100% vested upon the completion of three years of service. Participants also will become fully vested automatically upon normal retirement, death, or disability, a change in control, or termination of the ESOP. Generally, participants will receive distributions from the ESOP upon separation from service. The ESOP reallocates any unvested shares forfeited upon termination of employment among the remaining participants.
The ESOP permits participants to direct the trustee as to how to vote the shares of common stock allocated to their accounts. The trustee votes unallocated shares and allocated shares for which participants do not provide instructions on any matter in the same ratio as those shares for which participants provide instructions, subject to fulfillment of the trustee’s fiduciary responsibilities.
Under applicable accounting requirements, Territorial Savings Bank records compensation expense for the ESOP at the fair market value of the shares as they are committed to be released from the unallocated suspense account to participants’ accounts. The compensation expense resulting from the release of the common stock from the suspense account and allocation to plan participants results in a corresponding reduction in our earnings.
Director Fees
The same individuals serve as the directors of Territorial Savings Bank and Territorial Bancorp, Inc. Each of Territorial Savings Bank’s outside directors receives an annual retainer for board meetings of $32,650 per year and an annual retainer for committee meetings of $2,450 per year. Each of Territorial Bancorp Inc.’s outside directors receives an annual retainer for board meetings of $5,100 per year and an annual retainer for committee meetings of $615 per year. The retainer fees are increased to the following amounts for the following committees: the Chairman of Territorial Savings Bank’s Audit Committee receives a committee retainer of $2,650 and the Chairman of Territorial Bancorp Inc.’s Audit Committee receives a committee retainer of $8,570; the Chairman of Territorial Savings Bank’s Compensation Committee receives a committee retainer of $4,900; and the Chairman of Territorial Bancorp Inc.’s Compensation Committee receives a committee retainer of $1,225. Receipt of full retainer payments is based upon a director attending at least 75% of board or committee meetings, as applicable, with reductions for the failure to attend such number of board or committee meetings.
Component
Holding Company Board
Bank Board
Annual Board Retainer
$5,100
$32,600
Committee Member Retainer
$615
$2,450
Audit Committee Chair Retainer
$8,570
$2,650
Compensation Committee Chair Retainer
$1,225
$4,900
The following table sets forth for the year ended December 31, 2024, certain information as to the total remuneration we paid to our directors. Mr. Kitagawa does not receive separate fees for service as a director.
Director Compensation Table for the Year Ended
December 31, 2024
Name
Fees earned or paid in cash ($)
Total ($)
Howard Y. Ikeda
48,980
48,980
Kirk W. Caldwell
43,892
43,892
Francis E. Tanaka (1)
6,802
6,802
Jennifer Isobe
40,832
40,832
John M. Ohama
40,832
40,832
Jan M. Sam
40,832
40,832
(1) Mr. Tanaka retired from the Board of Directors in February 2024.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table provides information as of December 31, 2024, with respect to persons known by the Company to be the beneficial owners of more than 5% of the Company’s outstanding common stock. A person may be considered to own any shares of common stock over which he or she has, directly or indirectly, sole or shared voting or investing power. Percentages are based on 8,832,210 shares of Company common stock issued and outstanding as of December 31, 2024.
Name and Address
Number of Shares Owned
Percent of Common Stock Outstanding
Wellington Management Co., LLP (1)
874,388
9.90%
280 Congress Street
Boston, Massachusetts 02210
Territorial Savings Bank Employee Stock Ownership Plan
838,101
9.49%
1003 Bishop Street, Suite 500
Honolulu, Hawaii 96813
Bay Pond Partners, L.P. (2)
545,780
6.18%
c/o Wellington Management Company LLP
280 Congress Street
Boston MA 02210
AllianceBernstein L.P. (3)
500,523
5.67%
501 Commerce Street
Nashville, Tennessee 37203
___________________
(1)
As disclosed in Schedule 13G/A filed with the Securities and Exchange Commission on November 8, 2024.
(2)
As disclosed in Schedule 13G filed with the Securities and Exchange Commission on February 14, 2025.
(3)
As disclosed in Schedule 13G/A filed with the Securities and Exchange Commission on February 24, 2024.
The table below sets forth certain information regarding our directors, nominees proposed by the Board of Directors, and executive officers. Shares beneficially owned include shares of common stock over which a person has, directly or indirectly, sole or shared voting or investment power. Unless otherwise indicated, none of the shares listed are pledged
as security, and each of the named individuals has sole voting power and sole investment power with respect to the number of shares shown. Percentages of common stock owned are based on 8,832,210 shares of Company common stock issued and outstanding as of December 31, 2024.
Number of Shares Owned
Percent of Common Stock Outstanding
DIRECTORS
Kirk W. Caldwell
34,227
*
Howard Y. Ikeda
40,300
(1)
*
Jennifer Isobe
-
-
Allan S. Kitagawa
262,230
(2)
2.97%
John M. Ohama
10,000
(3)
*
Jan M. Sam
-
-
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Vernon Hirata
179,043
(4)
2.03%
Ralph Y. Nakatsuka
186,922
(5)
2.12%
Karen J. Cox
48,886
(6)
*
Troy Yoshimasu
7,313
(7)
*
Melvin M. Miyamoto
43,437
(8)
*
All Directors and Executive Officers as a Group (12 persons)
812,358
9.20%
*
Less than 1%.
(1)
Includes 3,200 shares held by an individual retirement account and 10,022 shares owned by Mr. Ikeda’s spouse.
(2)
Includes 42,321 shares held through the Territorial Savings Bank 401(k) Plan, 17,742 shares held through the Territorial Savings Bank Employee Stock Ownership Plan, 14,546 restricted stock units and 10,000 shares owned by Mr. Kitagawa’s spouse.
(3)
All of such shares are held by an estate over which Mr. Ohama is the executor.
(4)
Includes 57,774 shares held through the Territorial Savings Bank 401(k) Plan, 17,742 shares held through the Territorial Savings Bank Employee Stock Ownership Plan, 6,059 restricted stock units, 15,600 shares held in trust and 441 shares owned by Mr. Hirata’s spouse.
(5)
Includes 17,742 shares held through the Territorial Savings Bank Employee Stock Ownership Plan and 6,059 restricted stock units.
(6)
Includes 14,604 shares held through the Territorial Savings Bank 401(k) Plan, 15,156 shares held through the Territorial Savings Bank Employee Stock Ownership Plan and 500 shares held as trustee for two grandchildren.
(7)
Includes 3,374 shares held through the Territorial Savings Bank 401(k) Plan and 5,038 shares held through the Territorial Savings Bank Employee Stock Ownership Plan.
(8)
Includes 16,798 shares held through the Territorial Savings Bank 401(k) Plan and 11,451 shares held through the Territorial Savings Bank Employee Stock Ownership Plan.
Equity Compensation Plan Information
Set forth below is information as of December 31, 2024 with respect to compensation plans (other than our employee stock ownership plan) under which equity securities of the Registrant are authorized for issuance.
Equity Compensation Plan Information
Number of Securities
Remaining Available for
Future Issuance Under
Number of Securities to
Weighted-average
Share-based
Be Issued Upon Exercise
Exercise Price of
Compensation Plans
of Outstanding Options,
Outstanding Options,
(excluding securities
Warrants and Rights
Warrants and Rights
reflected in first column)
Equity compensation plans approved by security holders
-
$
-
4,949

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
Director Independence
The Board of Directors has determined that each of our directors, with the exception of Chairman of the Board, President and Chief Executive Officer Allan S. Kitagawa, is “independent” as defined in the listing standards of the NASDAQ Stock Market. Mr. Kitagawa is not independent because he is one of our executive officers.
In determining the independence of the directors listed above, the Board of Directors reviewed the following transaction, which is not required to be reported under “Transactions with Certain Related Persons” below. Director Kirk W. Caldwell has a mortgage loan and overdraft protection with Territorial Savings Bank.
Transactions with Certain Related Persons
The Sarbanes-Oxley Act of 2002 generally prohibits us from making loans to our executive officers and directors, but it contains a specific exemption from such prohibition for loans made by Territorial Savings Bank to our executive officers and directors in compliance with federal banking regulations.
At December 31, 2024, all of our loans to directors and executive officers were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to Territorial Savings Bank, and did not involve more than the normal risk of collectability or present other unfavorable features. These loans were performing according to their original terms at December 31, 2024, and were made in compliance with federal banking regulations.
Pursuant to Territorial Bancorp Inc.’s Policy and Procedures for Approval of Related Person Transactions, the Audit Committee periodically reviews, no less frequently than once a year, a summary of transactions in excess of $50,000 with our directors, executive officers, and their family members, for the purpose of determining whether the transactions are within our policies and should be ratified and approved. Additionally, pursuant to our Code of Ethics and Business Conduct, all of our executive officers and directors must disclose any existing or emerging conflicts of interest to our Chairman of the Board and Chief Executive Officer. Such potential conflicts of interest include, but are not limited to, the following: (i) our conducting business with or competing against an organization in which a family member of an executive officer or director has an ownership or employment interest; and (ii) the ownership of more than 1% of the outstanding securities or 5% of total assets of any business entity that does business with or is in competition with us.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14.
Principal Accountant Fees and Services
Audit Fees
The following table sets forth the fees to Moss Adams LLP for the years ended December 31, 2024 and 2023.
Audit fees
$
606,700
$
560,000
Audit-related fees (1)
$
82,500
$
79,300
Tax fees (2)
$
37,400
$
41,700
All other fees
$
-
$
-
(1)
Audit-related fees pertain to the audit of the financial statements of certain employee benefit plans.
(2)
Tax fees for 2024 and 2023 consist of tax return preparation and other tax matters.
Pre-Approval of Services by the Independent Registered Public Accounting Firm
The Audit Committee is responsible for appointing, setting compensation and overseeing the work of the independent registered public accounting firm. In accordance with its charter and written policy, the Audit Committee approves, in advance, all audit and permissible non-audit services to be performed by the independent registered public accounting firm, or such services can be performed in accordance with the Audit Committee’s written pre-approval policy. Such approval process ensures that the external auditor does not provide any non-audit services to us that are prohibited by law or regulation.
During each of the years ended December 31, 2024 and 2023, 100% of the fees paid to Moss Adams LLP were either approved, in advance, by the Audit Committee, or pre-approved under the Audit Committee’s written pre-approval policy.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15.
Exhibits and Financial Statement Schedules
(a)Financial Statements
The following documents are filed as part of this annual report:
(i) Report of Independent Registered Public Accounting Firm (Moss Adams LLP, Portland, Oregon, PCAOB ID:659)
(ii) Consolidated Balance Sheets at December 31, 2024 and 2023
(iii) Consolidated Statements of Operations for the years ended December 31, 2024 and 2023
(iv) Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2024 and 2023
(v) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2024 and 2023
(vi) Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023
(vii) Notes to Consolidated Financial Statements
(b)Exhibits
3.1
Articles of Incorporation of Territorial Bancorp Inc. (Incorporated by reference to Exhibit 3.1 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
3.2
Bylaws of Territorial Bancorp Inc. (Incorporated by reference to Exhibit 3.2 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
4.1
Form of Common Stock Certificate of Territorial Bancorp Inc. (Incorporated by reference to Exhibit 4 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
4.2
Description of Registrant’s Securities (Incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-K (file no. 001-34403), filed March 19, 2021.
10.1
Employment Agreement between Territorial Bancorp Inc. and Allan S. Kitagawa (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (file no. 001-34403), filed with the Securities and Exchange Commission on November 18, 2009)
10.2
Employment Agreement between Territorial Savings Bank and Allan S. Kitagawa (Incorporated by reference to Exhibit 10.2 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.3
First Amendment to Employment Agreement between Territorial Savings Bank and Allan S. Kitagawa (Incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K/A (file no. 001-34403), filed with the Securities and Exchange Commission on March 29, 2011)
10.4
Employment Agreement between Territorial Bancorp Inc. and Vernon Hirata (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (file no. 001-34403), filed with the Securities and Exchange Commission on November 18, 2009)
10.5
Employment Agreement between Territorial Savings Bank and Vernon Hirata (Incorporated by reference to Exhibit 10.4 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.6
First Amendment to Employment Agreement between Territorial Savings Bank and Vernon Hirata (Incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K/A (file no. 001-34403), filed with the Securities and Exchange Commission on March 29, 2011)
10.7
Employment Agreement between Territorial Bancorp Inc. and Ralph Y. Nakatsuka (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (file no. 001-34403), filed with the Securities and Exchange Commission on November 18, 2009)
10.8
Employment Agreement between Territorial Savings Bank and Ralph Y. Nakatsuka (Incorporated by reference to Exhibit 10.6 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.9
First Amendment to Employment Agreement between Territorial Savings Bank and Ralph Y. Nakatsuka (Incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K/A (file no. 001-34403), filed with the Securities and Exchange Commission on March 29, 2011)
10.10
Supplemental Executive Retirement Agreement between Territorial Savings Bank and Allan S. Kitagawa (Incorporated by reference to Exhibit 10.7 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.11
Supplemental Executive Retirement Agreement between Territorial Savings Bank and Vernon Hirata (Incorporated by reference to Exhibit 10.8 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.12
Supplemental Executive Retirement Agreement between Territorial Savings Bank and Ralph Y. Nakatsuka (Incorporated by reference to Exhibit 10.9 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.13
Executive Deferred Incentive Agreement between Territorial Savings Bank and Allan S. Kitagawa (Incorporated by reference to Exhibit 10.10 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.14
Executive Deferred Incentive Agreement between Territorial Savings Bank and Vernon Hirata (Incorporated by reference to Exhibit 10.11 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.15
[Intentionally omitted]
10.16
Territorial Savings Bank Non-Qualified Supplemental Employee Stock Ownership Plan (Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K (file no. 001-34403), filed with the Securities and Exchange Commission on November 18, 2009)
10.17
Territorial Savings Bank Executive Incentive Compensation Plan (Incorporated by reference to Exhibit 10.14 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.18
First Amendment to Territorial Savings Bank Executive Incentive Compensation Plan (Incorporated by reference to Exhibit 10.15 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.19
Second Amendment to Territorial Savings Bank Executive Incentive Compensation Plan (Incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K/A (file no. 001-34403), filed with the Securities and Exchange Commission on March 29, 2011)
10.20
[Intentionally Omitted]
10.21
Form of Employee Restricted Stock Award (Incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K/A (file no. 001-34403), filed with the Securities and Exchange Commission on March 29, 2011)
10.22
Form of Employee Stock Option Award (Incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K/A (file no. 001-34403), filed with the Securities and Exchange Commission on March 29, 2011)
10.23
Form of Director Restricted Stock Award (Incorporated by reference to Exhibit 10.23 to the Annual Report on Form 10-K/A (file no. 001-34403), filed with the Securities and Exchange Commission on March 29, 2011)
10.24
Form of Director Stock Option Award (Incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K/A (file no. 001-34403), filed with the Securities and Exchange Commission on March 29, 2011)
10.25
Territorial Savings Bank Separation Pay Plan and Summary Plan Description (Incorporated by reference to Exhibit 10.16 of the Registration Statement on Form S-1 (file no. 333-155388), initially filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on November 14, 2008)
10.26
Amendment One to Territorial Savings Bank Amended and Restated Supplemental Employee Retirement Agreement for Vernon Hirata (Incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Commission on May 14, 2011)
10.27
Amendment One to Territorial Savings Bank Amended and Restated Supplemental Employee Retirement Agreement for Ralph Nakatsuka (Incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Commission on May 14, 2011)
10.28
[Intentionally Omitted]
10.29
Amendment Two to Territorial Savings Bank Amended and Restated Supplemental Employee Retirement Agreement for Vernon Hirata (Incorporated by reference to Exhibit 10.29 to the Annual Report on Form 10-K (file no. 001-34403), filed with the Securities and Exchange Commission on March 14, 2012)
10.30
Amendment Two to Territorial Savings Bank Amended and Restated Supplemental Employee Retirement Agreement for Ralph Nakatsuka (Incorporated by reference to Exhibit 10.30 to the Annual Report on Form 10-K (file no. 001-34403), filed with the Securities and Exchange Commission on March 14, 2012)
10.31
Second Amendment to Employment Agreement between Territorial Savings Bank and Vernon Hirata (Incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-K (file no. 001-34403), filed with the Securities and Exchange Committee on March 15, 2013)
10.32
Third Amendment to Employment Agreement between Territorial Savings Bank and Vernon Hirata (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.33
First Amendment to Employment Agreement between Territorial Bancorp Inc. and Vernon Hirata (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.34
Second Amendment to Employment Agreement between Territorial Savings Bank and Allan S. Kitagawa (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.35
First Amendment to Employment Agreement between Territorial Bancorp Inc. and Allan S. Kitagawa (Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.36
Second Amendment to Employment Agreement between Territorial Savings Bank and Ralph Nakatsuka (Incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.37
First Amendment to Employment Agreement between Territorial Bancorp Inc. and Ralph Nakatsuka (Incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.38
First Amendment to Amended and Restated Executive Deferred Incentive Agreement between Territorial Savings Bank and Vernon Hirata (Incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.39
First Amendment to Amended and Restated Supplemental Employee Retirement Agreement between Territorial Savings Bank and Allan S. Kitagawa (Incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.40
Third Amendment to Amended and Restated Supplemental Employee Retirement Agreement between Territorial Savings Bank and Vernon Hirata (Incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.41
Third Amendment to Amended and Restated Supplemental Employee Retirement Agreement between Territorial Savings Bank and Ralph Nakatsuka (Incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q (file no. 001-34403), filed with the Securities and Exchange Committee on November 7, 2014)
10.42
Territorial Bancorp Inc. 2010 Equity Incentive Plan, as amended and restated (Incorporated by reference to Appendix A to the definitive proxy statement for the Annual Meeting of Shareholders (file No. 001-34403), filed with the Securities and Exchange Commission on April 24, 2017)
10.43
Territorial Bancorp Inc. Annual Incentive Plan, as amended (Incorporated by reference to Appendix B to the definitive proxy statement for the Annual Meeting of Stockholders (file No. 001-34403), filed with the Securities and Exchange Commission on April 24, 2017)
10.44
Territorial Bancorp Inc. 2019 Equity Incentive Plan (Incorporated by reference to Appendix A to the definitive proxy statement for the Annual Meeting of Stockholders (file No. 001-34403), filed with the Securities and Exchange Commission on April 16, 2019)
10.45
Form of Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.2 of the Registration Statement on Form S-8 (file no. 333-237039), filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on March 9, 2020)
10.46
Form of Non-Qualified Stock Option Agreement (Incorporated by reference to Exhibit 10.3 of the Registration Statement on Form S-8 (file no. 333-237039), filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on March 9, 2020)
10.47
Form of Director Restricted Stock Award Agreement (Incorporated by reference to Exhibit 10.4 of the Registration Statement on Form S-8 (file no. 333-237039), filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on March 9, 2020)
10.48
Form of Employee Restricted Stock Award Agreement (Incorporated by reference to Exhibit 10.5 of the Registration Statement on Form S-8 (file no. 333-237039), filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on March 9, 2020)
10.49
Form of Restricted Stock Unit Agreement (time-based) (Incorporated by reference to Exhibit 10.6 of the Registration Statement on Form S-8 (file no. 333-237039), filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on March 9, 2020)
10.50
Form of Restricted Stock Unit Agreement (performance-based) (Incorporated by reference to Exhibit 10.7 of the Registration Statement on Form S-8 (file no. 333-237039), filed by Territorial Bancorp Inc. with the Securities and Exchange Commission on March 9, 2020)
10.51
Form of Amendment, dated October 8, 2021, to Amended and Restated Supplemental Executive Retirement Agreement for Allan S. Kitagawa, Vernon Hirata and Ralph Nakatsuka
Insider trading policies and procedures
Consent of Moss Adams LLP
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer 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
Policy relating to recovery of erroneously awarded compensation
The following financial statements from Territorial Bancorp Inc.’s Annual Report on Form 10-K for the year ended December 31, 2024, filed on March 31, 2025, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, (vi) the Notes to Consolidated Financial Statements.
101.INS
Interactive datafile XBRL Instance Document
101.SCH
Interactive datafile XBRL Taxonomy Extension Schema Document
101.CAL
Interactive datafile XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Interactive datafile XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Interactive datafile XBRL Taxonomy Extension Label Linkbase
101.PRE
Interactive datafile XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (formatted as inline XBRL document and contained in Exhibit 101)
(c)Financial Statement Schedules
Not applicable.