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Company News

Territorial Bancorp Inc.

11/13/2024 | Press release | Distributed by Public on 11/13/2024 11:32

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period ended September 30, 2024

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

For transition period from to

Commission File Number 001-34403

TERRITORIAL BANCORP INC.

(Exact Name of Registrant as Specified in Charter)

Maryland		26-4674701
(State or Other Jurisdiction of Incorporation)		(I.R.S. Employer Identification No.)

1003 Bishop Street, Pauahi Tower Suite 500, Honolulu, Hawaii		96813
(Address of Principal Executive Offices)		(Zip Code)

(808) 946-1400

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and formal fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
Common stock	TBNK	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Smaller reporting company ☒
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 8,832,210 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of October 31, 2024.

Table of Contents

TERRITORIAL BANCORP INC.

Form 10-Q Quarterly Report

Table of Contents

PART I

ITEM 1.	FINANCIAL STATEMENTS	1
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	29
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	43
ITEM 4.	CONTROLS AND PROCEDURES	44

PART II

ITEM 1.	LEGAL PROCEEDINGS	45
ITEM 1A.	RISK FACTORS	45
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES	45
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	45
ITEM 4.	MINE SAFETY DISCLOSURES	45
ITEM 5.	OTHER INFORMATION	45
ITEM 6.	EXHIBITS	45

SIGNATURES	47

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)

(Dollars in thousands, except share data)


	September 30,		December 31,
	2024		2023
ASSETS
Cash and cash equivalents	$	143,128		$	126,659
Investment securities available for sale, at fair value		19,920			20,171
Investment securities held to maturity, at amortized cost (fair value of $552,222and $568,128at September 30, 2024 and December 31, 2023, respectively)		654,349			685,728
Loans receivable		1,287,688			1,308,552
Allowance for credit losses		(5,055)			(5,121)
Loans receivable, net of allowance for credit losses		1,282,633			1,303,431
Federal Home Loan Bank stock, at cost		9,307			12,192
Federal Reserve Bank stock, at cost		3,187			3,180
Accrued interest receivable		6,056			6,105
Premises and equipment, net		7,257			7,185
Right-of-use asset, net		11,613			12,371
Bank-owned life insurance		49,388			48,638
Income taxes receivable		1,832			344
Deferred income tax assets, net		2,465			2,457
Prepaid expenses and other assets		7,297			8,211
Total assets	$	2,198,432		$	2,236,672

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits	$	1,670,281		$	1,636,604
Advances from the Federal Home Loan Bank		177,000			242,000
Advances from the Federal Reserve Bank		50,000			50,000
Securities sold under agreements to repurchase		10,000			10,000
Accounts payable and accrued expenses		22,176			23,334
Lease liability		17,090			17,297
Advance payments by borrowers for taxes and insurance		3,148			6,351
Total liabilities		1,949,695			1,985,586

Commitments and contingencies: (Note 16)

Stockholders' Equity:
Preferred stock, $0.01par value; authorized 50,000,000shares, noshares issued or outstanding		-			-
Common stock, $0.01par value; authorized 100,000,000shares; issuedand outstanding 8,832,210and 8,826,613shares at September 30, 2024 and December 31, 2023		88			88
Additional paid-in capital		48,163			48,022
Unearned ESOP shares		(2,079)			(2,447)
Retained earnings		208,504			211,644
Accumulated other comprehensive loss		(5,939)			(6,221)
Total stockholders' equity		248,737			251,086
Total liabilities and stockholders' equity	$	2,198,432		$	2,236,672

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

(Dollars in thousands, except per share data)


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2024		2023		2024	2023
Interest income:
Loans	$	12,229		$	11,886	$	36,540	$	35,037
Investment securities		4,183			4,447		12,753		13,512
Other investments		1,901			1,051		5,104		2,848
Total interest income		18,313			17,384		54,397		51,397

Interest expense:
Deposits		8,469			5,408		22,658		13,261
Advances from the Federal Home Loan Bank		1,714			1,896		5,330		4,782
Advances from the Federal Reserve Bank		600			-		1,789		-
Securities sold under agreements to repurchase		46			46		137		137
Total interest expense		10,829			7,350		29,914		18,180

Net interest income		7,484			10,034		24,483		33,217
Provision (reversal of provision) for credit losses		29			(259)		22		(147)

Net interest income after provision (reversal of provision) for credit losses		7,455			10,293		24,461		33,364

Noninterest income:
Service and other fees		273			298		885		1,022
Income on bank-owned life insurance		255			218		750		628
Net gain on sale of loans		19			-		19		10
Other		69			73		215		208
Total noninterest income		616			589		1,869		1,868

Noninterest expense:
Salaries and employee benefits		4,899			5,176		14,606		15,723
Occupancy		1,813			1,819		5,319		5,201
Equipment		1,335			1,263		3,987		3,878
Federal deposit insurance premiums		392			246		1,281		737
Other general and administrative expenses		1,561			1,163		4,851		3,251
Total noninterest expense		10,000			9,667		30,044		28,790

(Loss) income before income taxes		(1,929)			1,215		(3,714)		6,442
Income tax (benefit) expense		(611)			335		(1,139)		1,749
Net (loss) income	$	(1,318)		$	880	$	(2,575)	$	4,693

Basic (loss) earnings per share	$	(0.15)		$	0.10	$	(0.30)	$	0.54
Diluted (loss) earnings per share	$	(0.15)		$	0.10	$	(0.30)	$	0.53
Cash dividends declared per common share	$	0.01		$	0.23	$	0.07	$	0.69
Basic weighted-average shares outstanding		8,618,155			8,577,632		8,604,082		8,656,915
Diluted weighted-average shares outstanding		8,618,155			8,610,289		8,604,082		8,705,784

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(Dollars in thousands)


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2024		2023		2024	2023
Net (loss) income	$	(1,318)		$	880	$	(2,575)	$	4,693

Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities		793			(780)		282		(757)
Total other comprehensive income (loss), net of tax		793			(780)		282		(757)
Comprehensive (loss) income	$	(525)		$	100	$	(2,293)	$	3,936

See accompanying Notes to Consolidated Financial Statements.

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TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity (Unaudited)

(Dollars in thousands, except per share data)


													Accumulated
	Common				Additional		Unearned					Other	Total
	Shares	Common		Paid-in		ESOP		Retained		Comprehensive		Stockholders'
	Outstanding	Stock		Capital		Shares		Earnings		Loss		Equity
Balance at June 30, 2024	8,832,210	$	88		$	48,105		$	(2,203)		$	209,909	$	(6,732)	$	249,167

Net loss	-		-			-			-			(1,318)		-		(1,318)
Other comprehensive income	-		-			-			-			-		793		793
Cash dividends declared ($0.01 per share)	-		-			-			-			(87)		-		(87)
Share-based compensation	-		-			65			-			-		-		65
Allocation of 12,233 ESOP shares	-		-			(7)			124			-		-		117

Balances at September 30, 2024	8,832,210	$	88		$	48,163		$	(2,079)		$	208,504	$	(5,939)	$	248,737

Balances at December 31, 2023	8,826,613	$	88		$	48,022		$	(2,447)		$	211,644	$	(6,221)	$	251,086

Net loss	-		-			-			-			(2,575)		-		(2,575)
Other comprehensive income	-		-			-			-			-		282		282
Cash dividends declared ($0.07 per share)	-		-			-			-			(565)		-		(565)
Share-based compensation	12,178		-			231			-			-		-		231
Allocation of 36,700 ESOP shares	-		-			(39)			368			-		-		329
Repurchase of shares of common stock	(6,556)		-			(51)			-			-		-		(51)
Cancelled shares	(25)		-			-			-			-		-		-

Balances at September 30, 2024	8,832,210	$	88		$	48,163		$	(2,079)		$	208,504	$	(5,939)	$	248,737

See accompanying Notes to Consolidated Financial Statements.

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TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity (Unaudited)

(Dollars in thousands, except per share data)


													Accumulated
	Common				Additional		Unearned					Other	Total
	Shares	Common		Paid-in		ESOP		Retained		Comprehensive		Stockholders'
	Outstanding	Stock		Capital		Shares		Earnings		Loss		Equity
Balance at June 30, 2023	8,848,511	$	88		$	48,110		$	(2,691)		$	212,848	$	(7,721)	$	250,634

Net income	-		-			-			-			880		-		880
Other comprehensive loss	-		-			-			-			-		(780)		(780)
Cash dividends declared ($0.23 per share)	-		-			-			-			(1,987)		-		(1,987)
Share-based compensation	-		-			88			-			-		-		88
Allocation of 12,233 ESOP shares	-		-			14			122			-		-		136
Repurchase of shares of common stock	(21,898)		-			(221)			-			-		-		(221)

Balances at September 30, 2023	8,826,613	$	88		$	47,991		$	(2,569)		$	211,741	$	(8,501)	$	248,750

Balances at December 31, 2022	9,071,076	$	91		$	51,825		$	(2,936)		$	215,314	$	(7,744)	$	256,550

Net income	-		-			-			-			4,693		-		4,693
Other comprehensive loss	-		-			-			-			-		(757)		(757)
Cumulative change in accounting principle (1)												(2,319)				(2,319)
Cash dividends declared ($0.69 per share)	-		-			-			-			(5,947)		-		(5,947)
Share-based compensation	12,729		-			90			-			-		-		90
Allocation of 36,700 ESOP shares	-		-			221			367			-		-		588
Repurchase of shares of common stock	(257,192)		(3)			(4,145)			-			-		-		(4,148)

Balances at September 30, 2023	8,826,613	$	88		$	47,991		$	(2,569)		$	211,741	$	(8,501)	$	248,750

(1)	Represents the impact of the adoption of Accounting Standard Update 2016-13.

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)


	Nine Months Ended
	September 30,
	2024		2023
Cash flows from operating activities:
Net (loss) income	$	(2,575)		$	4,693
Adjustments to reconcile net (loss) income to net cash (used in) from operating activities:
Provision (reversal of provision) for credit losses		22			(147)
Depreciation and amortization		711			839
Deferred income tax benefit		(111)			(492)
Accretion of fees, discounts, and premiums, net		(312)			(267)
Amortization of right-of-use asset		2,120			2,124
Origination of loans held for sale		(861)			(813)
Proceeds from sales of loans held for sale		880			823
Gain on sale of loans, net		(19)			(10)
Net loss on disposal of premises and equipment		-			5
ESOP expense		329			588
Share-based compensation expense		231			90
Net increase in accrued interest receivable		(21)			(62)
Income on bank-owned life insurance		(750)			(629)
Net decrease (increase) in prepaid expenses and other assets		914			(103)
Net (decrease) increase in accounts payable and accrued expenses		(1,157)			137
Net (decrease) increase in lease liability		(1,569)			1,500
Net decrease in advance payments by borrowers for taxes and insurance		(3,203)			(2,326)
Net decrease in income taxes payable		(1,488)			(359)

Net cash (used in) from operating activities		(6,859)			5,591

Cash flows from investing activities:
Purchases of investment securities held to maturity		-			(6,693)
Principal repayments on investment securities held to maturity		31,456			28,900
Principal repayments on investment securities available for sale		674			686
Principal repayments on loans receivable, net of loan originations		21,043			(14,516)
Purchases of Federal Home Loan Bank stock		(40)			(5,887)
Proceeds from redemption of Federal Home Loan Bank stock		2,925			1,240
Purchases of Federal Reserve Bank stock		(7)			(8)
Proceeds from redemption of Federal Reserve Bank stock		-			1
Purchases of premises and equipment		(783)			(592)

Net cash from investing activities		55,268			3,131

(Continued)

Table of Contents

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)


	Nine Months Ended
	September 30,
	2024		2023
Cash flows from financing activities:
Net increase (decrease) in deposits	$	33,677		$	(65,139)
Proceeds from advances from the Federal Home Loan Bank		-			146,000
Repayments of advances from the Federal Home Loan Bank		(65,000)			(31,000)
Proceeds from advances from the Federal Reserve Bank		100,000			-
Repayments of advances from the Federal Reserve Bank		(100,000)			-
Purchase of Fed Funds		-			20
Sale of Fed Funds		-			(20)
Repurchases of common stock		-			(4,026)
Cash dividends paid		(617)			(5,988)

Net cash (used in) from financing activities		(31,940)			39,847

Net change in cash and cash equivalents		16,469			48,569

Cash and cash equivalents at beginning of the period		126,659			40,553

Cash and cash equivalents at end of the period	$	143,128		$	89,122

Supplemental disclosure of cash flow information:
Cash paid for:
Interest on deposits and borrowings	$	28,654		$	17,405
Income taxes		459			2,600

Supplemental disclosure of noncash investing and financing activities:
Company stock repurchased through stock swap and net settlement transactions	$	51		$	122
Establishment of right-of-use asset, net of incentives and modifications		1,362			590
Establishment of lease liability, net of modifications		1,362			590

See accompanying Notes to Consolidated Financial Statements.

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TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(1) Organization

Territorial Bancorp Inc. (the Company) is a Maryland corporation and is the holding company for Territorial Savings Bank (the 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 the nine months ended September 30, 2024.

(2) Summary of Significant Accounting Policies

(a)	Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements of Territorial Bancorp Inc. have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited interim condensed consolidated financial statements and notes should be read in conjunction with the Company's consolidated financial statements and notes thereto filed as part of the Annual Report on Form 10-K for the year ended December 31, 2023. In the opinion of management, all adjustments necessary for a fair presentation have been made and consist only of normal recurring adjustments. Interim results of operations are not necessarily indicative of results to be expected for the full year or for any other period.

(b)	Allowance of 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. 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 Accounting Standards Update (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

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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 within a specified 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 receivableon loans was $4.4million and $4.6million as of September 30, 2024 and December 31, 2023, respectively, 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. The Company had $900 in reserves for off-balance sheet credit exposures at September 30, 2024 and 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, 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

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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 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.

(3) Recently Issued and Adopted 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 Federal Reserve Bank (FRB) and in the Federal Home Loan Bank (FHLB), which is valued at historical cost, which also 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 U.S. Securities and Exchange Commission's (SEC) Disclosure Update and Simplification Initiative. The ASU is intended to clarify or improve disclosure and presentation requirements of a variety of topics. Many of the amendments will allow users to more easily compare entities subject to the SEC's existing disclosures with those entities that were not previously subject to the requirements and align the requirements in the FASB Accounting Standard Codification with the SEC's regulations. The Company is currently evaluating the effects that ASU 2023-06 will have on its consolidated financial statements.

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 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not expect the

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adoption of this ASU to have a material effect on its consolidated financial statements, though certain incremental disclosures will be required.

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.

(4) Cash and Cash Equivalents

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


	September 30,		December 31,
(Dollars in thousands)	2024		2023
Cash and due from banks	$	7,635		$	10,471
Interest-earning deposits in other banks		135,493			116,188
Cash and cash equivalents	$	143,128		$	126,659

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

(5) Investment Securities

The amortized cost, gross unrealized gains and losses, fair value, and related ACL of investment securities are as follows:


	Amortized		Gross Unrealized		Estimated
(Dollars in thousands)	Cost		Gains		Losses	Fair Value		ACL
September 30, 2024:
Available-for-sale:
Mortgage-backed securities issued by U.S. government-sponsored enterprises	$	21,927		$	-	$	(2,007)	$	19,920	$	-
Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises		654,349			102		(102,229)		552,222		-

Total	$	676,276		$	102	$	(104,236)	$	572,142	$	-

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			68		(117,668)		568,128		-

Total	$	708,291		$	68	$	(120,060)	$	588,299	$	-

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The amortized cost and estimated fair value of investment securities by maturity date at September 30, 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	$	21,927		$	19,920
Total	$	21,927		$	19,920

Held-to-maturity:
Due within 5 years	$	10		$	10
Due after 5 years through 10 years		8			8
Due after 10 years		654,331			552,204
Total	$	654,349		$	552,222

The Company did not sell any held-to-maturity or available-for-sale securities during the nine months ended September 30, 2024 and 2023.

Investment securitieswith amortized costs of $597.4million and $555.8million at September 30, 2024 and December 31, 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 $187.4million and $74.0million pledged to the Federal Reserve Bank's discount window at September 30, 2024 and December 31, 2023, respectively, and $51.1million and $202.1million pledged to the Federal Reserve Bank's Bank Term Funding Program at September 30, 2024 and December 31, 2023, respectively.

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Provided below is a summary of investment securities which were in an unrealized loss position at September 30, 2024 and December 31, 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)
September 30, 2024:
Available-for-sale:
Mortgage-backed securities issued by U.S. government-sponsored enterprises	$	-		$	-	$	19,920		$	(2,007)	4	$	19,920	$	(2,007)
Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises		368			(2)		541,078			(102,227)	147		541,446		(102,229)

Total	$	368		$	(2)	$	560,998		$	(104,234)	151	$	561,366	$	(104,236)

December 31, 2023:
Available-for-sale:
Mortgage-backed securities issued by U.S. government sponsored enterprises	$	-		$	-	$	20,171		$	(2,392)	4	$	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)	152		564,840		(117,668)

Total	$	10,326		$	(107)	$	574,685		$	(119,953)	156	$	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 September 30, 2024 or December 31, 2023.

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(6) Loans Receivable and Allowance for Credit Losses

The components of loans receivable, net of ACL as of September 30, 2024 and December 31, 2023 are as follows:


	September 30,		December 31,
(Dollars in thousands)	2024		2023
Real estate loans:
First mortgages:
One- to four-family residential	$	1,250,405		$	1,277,544
Multi-family residential		5,375			5,855
Construction, commercial, and other		12,668			11,631
Home equity loans and lines of credit		12,469			7,058
Total real estate loans		1,280,917			1,302,088
Other loans:
Loans on deposit accounts		377			196
Consumer and other loans		8,304			8,257
Total other loans		8,681			8,453

Total loans		1,289,598			1,310,541

Net unearned fees and discounts		(1,910)			(1,989)
Total loans, net of unearned fees and discounts		1,287,688			1,308,552

Allowance for credit losses		(5,055)			(5,121)
Loans receivable, net of allowance for credit losses	$	1,282,633		$	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	Totals
Three months ended September 30, 2024:
Balance, beginning of period	$	4,430		$	529	$	159	$	5,118
Provision (reversal of provision) for credit losses		51			(48)		26		29
		4,481			481		185		5,147
Charge-offs		(98)			-		(5)		(103)
Recoveries		10			-		1		11
Net charge-offs		(88)			-		(4)		(92)
Balance, end of period	$	4,393		$	481	$	181	$	5,055

Nine months ended September 30, 2024:
Balance, beginning of period	$	4,502		$	514	$	105	$	5,121
(Reversal of provision) provision for credit losses		(38)			(33)		93		22
		4,464			481		198		5,143
Charge-offs		(103)			-		(25)		(128)
Recoveries		32			-		8		40
Net charge-offs		(71)			-		(17)		(88)
Balance, end of period	$	4,393		$	481	$	181	$	5,055

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	Real Estate		Commercial		Consumer
(Dollars in thousands)	Loans		Loans		Loans	Unallocated		Totals
Three months ended September 30, 2023:
Balance, beginning of period	$	4,734		$	426	$	102		$	-	$	5,262
(Reversal of provision) provision for credit losses		(291)			14		18			-		(259)
		4,443			440		120			-		5,003
Charge-offs		(5)			-		(22)			-		(27)
Recoveries		25			-		2			-		27
Net recoveries (charge-offs)		20			-		(20)			-		-
Balance, end of period	$	4,463		$	440	$	100		$	-	$	5,003

Nine months ended September 30, 2023:
Balance, beginning of period	$	1,263		$	434	$	76		$	259	$	2,032
Adoption of ASU No. 2016-13		3,393			71		4			(259)		3,209
(Reversal of provision) provision for credit losses		(146)			(65)		64			-		(147)
		4,510			440		144			-		5,094
Charge-offs		(72)			-		(52)			-		(124)
Recoveries		25			-		8			-		33
Net charge-offs		(47)			-		(44)			-		(91)
Balance, end of period	$	4,463		$	440	$	100		$	-	$	5,003

The provision for credit losses in the three and nine months ended September 30, 2024 was primarily due to an increase in loans in the consumer loan portfolio and a decrease in its forecasted prepayments. This increase to the provision was partially offset by a decrease in the forecasted charge-offs in the real estate portfolio and an increase in the forecasted prepayments in the real estate and commercial portfolios. The reversal of provision for credit losses in the three and nine months ended September 30, 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.

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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 September 30, 2024.


																	Revolving Loans
	Amortized Cost of Term Loans by Origination Year		Amortized
(Dollars in thousands)		2024		2023		2022	2021		2020		Prior	Cost Basis		Total
September 30, 2024:
Commercial
30 - 59 days past due		$	-		$	-	$	-		$	-	$	-		$	-	$	-	$	-
60 - 89 days past due			-			-		-			-		-			-		-		-
90 days or more past due			-			-		-			-		-			-		-		-
Loans not past due			322			564		302			4,718		-			901		1,158		7,965
Total Commercial			322			564		302			4,718		-			901		1,158		7,965

Consumer
30 - 59 days past due			11			-		-			-		-			-		-		11
60 - 89 days past due			-			-		-			-		-			-		-		-
90 days or more past due			-			-		-			-		-			-		-		-
Loans not past due			432			25		58			10		1			41		11,621		12,188
Total Consumer			443			25		58			10		1			41		11,621		12,199

Real Estate
30 - 59 days past due			-			1,064		-			-		-			391		-		1,455
60 - 89 days past due			-			-		-			-		-			1,219		-		1,219
90 days or more past due			-			-		-			-		-			-		-		-
Loans not past due			36,251			88,094		125,988			271,572		176,052			566,893		-		1,264,850
Total Real Estate			36,251			89,158		125,988			271,572		176,052			568,503		-		1,267,524

Total		$	37,016		$	89,747	$	126,348		$	276,300	$	176,053		$	569,445	$	12,779	$	1,287,688

The Company did not have any revolving loans that converted to term loans during the nine months ended September 30, 2024.

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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)		2023		2022		2021	2020		2019		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			387			353		4,836			-		203			856		1,230		7,865
Total Commercial			387			353		4,836			-		203			856		1,230		7,865

Consumer
30 - 59 days past due			4			-		-			-		-			-		-		4
60 - 89 days past due			-			-		-			-		-			-		-		-
90 days or more past due			-			-		-			-		-			-		-		-
Loans not past due			271			80		20			4		14			42		6,137		6,568
Total Consumer			275			80		20			4		14			42		6,137		6,572

Real Estate
30 - 59 days past due			-			-		-			-		-			428		-		428
60 - 89 days past due			-			-		-			-		-			-		-		-
90 days or more past due			-			-		-			-		140			87		-		227
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 three and nine months ended September 30, 2024 and 2023.


(Dollars in thousands)	2024		2023		2022	2021		2020		Prior	Total
Three months ended September 30, 2024:
One- to four-family residential mortgages	$	-		$	-	$	-		$	-	$	-	$	98	$	98
Loans on deposit accounts		5			-		-			-		-		-		5
Total	$	5		$	-	$	-		$	-	$	-	$	98	$	103

Nine months ended September 30, 2024:
One- to four-family residential mortgages	$	-		$	-	$	-		$	-	$	-	$	103	$	103
Loans on deposit accounts		19			3		-			-		-		-		22
Consumer and other		-			2		-			-		-		1		3
Total	$	19		$	5	$	-		$	-	$	-	$	104	$	128


(Dollars in thousands)	2023		2022		2021	2020		2019		Prior	Total
Three months ended September 30, 2023:
One- to four-family residential mortgages	$	-		$	-	$	-		$	-	$	1	$	4	$	5
Loans on deposit accounts		21			-		-			-		-		-		21
Consumer and other		1			-		-			-		-		-		1
Total	$	22		$	-	$	-		$	-	$	1	$	4	$	27

Nine months ended September 30, 2023:
One- to four-family residential mortgages	$	-		$	-	$	-		$	-	$	11	$	61	$	72
Loans on deposit accounts		48			-		-			-		-		-		48
Consumer and other		1			-		-			-		3		-		4
Total	$	49		$	-	$	-		$	-	$	14	$	61	$	124

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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
September 30, 2024:
One- to four-family residential mortgages	$	1,455		$	1,219	$	-		$	2,674	$	1,245,877		$	1,248,551	$	2,172	$	-
Multi-family residential mortgages		-			-		-			-		5,368			5,368		-		-
Construction, commercial, and other mortgages		-			-		-			-		12,614			12,614		-		-
Home equity loans and lines of credit		-			-		-			-		12,471			12,471		4		-
Loans on deposit accounts		-			-		-			-		377			377		-		-
Consumer and other		11			-		-			11		8,296			8,307		163		-

Total	$	1,466		$	1,219	$	-		$	2,685	$	1,285,003		$	1,287,688	$	2,339	$	-

December 31, 2023:
One- to four-family residential mortgages	$	428		$	-	$	227		$	655	$	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		11		-
Loans on deposit accounts		-			-		-			-		196			196		-		-
Consumer and other		4			-		-			4		8,259			8,263		170		-

Total	$	432		$	-	$	227		$	659	$	1,307,893		$	1,308,552	$	2,260	$	-

The table below presents the amortized cost basis of loans on nonaccrual status as of September 30, 2024 and December 31, 2023.


(Dollars in thousands)	Nonaccrual Loans With a Related ACL		Nonaccrual Loans Without a Related ACL		Total Nonaccrual Loans
September 30, 2024
One- to four-family residential mortgages	$	2,172		$	-	$	2,172
Home equity loans and lines of credit		4			-		4
Consumer and other		163			-		163
Total Nonaccrual Loans and Leases	$	2,339		$	-	$	2,339

December 31, 2023:
One- to four-family residential mortgages	$	1,030		$	1,049	$	2,079
Home equity loans and lines of credit		11			-		11
Consumer and other		170			-		170
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 daysor 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 monthsdelinquent. 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 $227,000at 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

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exceeded the amortized cost basis and there was no ACL calculated on collateral-dependent loans. There were no collateral-dependent loans at September 30, 2024.

The Company had noreal estate owned as of September 30, 2024 or December 31, 2023. There was one one- to four-family residential mortgage loan with a principal balance of $1.2million in the process of foreclosure at September 30, 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 of our real estate loans are collateralized by real estate located in the State of Hawaii. Loan-to-value ratios on these real estate loans generally do not exceed 80% at the time of origination.

During the nine months ended September 30, 2024 and 2023, the Company sold mortgage loans held for sale with principal balances of $877,000 and $827,000, respectively, and recognized gains of $19,000 and $10,000, respectively. The Company had no loans held for sale at September 30, 2024 and 2023.

The Company serviced loans for others with principal balances of $31.5 million at September 30, 2024 and $33.2million at December 31, 2023. Of these amounts, $18.5 million and $19.3million of loan balances relate to securitizations for which the Company continues to hold the related mortgage-backed securities at September 30, 2024 and December 31, 2023, respectively. The amount of contractually specified servicing fees earned for the three months ended September, 2024 and 2023 was $21,000 and $23,000, respectively. The amount of contractually specified servicing fees earned for the nine months ended September 30, 2024 and 2023 was $63,000 and $69,000, respectively. The fees are reported in service and other fees in the Consolidated Statements of Operations.

(7)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 September 30, 2024 and December 31, 2023, our credit limit with the FHLB of Des Moines was equal to 25%and 45%, respectively, of Territorial Savings Bank's total assets and we had the capacity to borrow an additional $364.3million and $612.6million, respectively.

Advances outstanding consisted of the following:


	September 30, 2024			December 31, 2023
				Weighted					Weighted
				Average					Average
(Dollars in thousands)	Amount		Rate			Amount		Rate
Due within one year	$	52,000		1.99	%		$	82,000	1.40	%
Due over 1 year to 2 years		30,000		3.64				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	$	177,000		3.51	%		$	242,000	2.96	%

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(8) 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 September 30, 2024, we had the ability to borrow up to $158.7 million using the market value of pledged collateral.

Advances outstanding consisted of the following:


	September 30, 2024			December 31, 2023
				Weighted					Weighted
				Average					Average
(Dollars in thousands)	Amount		Rate			Amount		Rate
Due within one year	$	50,000		4.76	%		$	50,000	4.89	%
Total	$	50,000		4.76	%		$	50,000	4.89	%

(9) Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are treated as financings and the obligations to repurchase the identical securities sold are reflected as a liability with the securities collateralizing the agreements classified as an asset. Securities sold under agreements to repurchase are summarized as follows:


	September 30, 2024			December 31, 2023
				Weighted					Weighted
	Repurchase		Average			Repurchase		Average
(Dollars in thousands)	Liability		Rate			Liability		Rate
Maturing:
1 year or less	$	10,000		1.81	%		$	5,000	1.88	%
Over 1 year to 2 years		-		-				5,000	1.73
Total	$	10,000		1.81	%		$	10,000	1.81	%

Below is a summary comparing the carrying value and fair value of securities pledged to secure repurchase agreements, the repurchase liability, and the amount at risk at September 30, 2024. The amount at risk is the greater of the carrying value or fair value over the repurchase liability and refers to the potential loss to the Company if the secured lender fails to return the security at the maturity date of the agreement. All the agreements to repurchase are with JP Morgan Securities and the securities pledged are mortgage-backed securities issued and guaranteed by U.S. government agencies or U.S. government-sponsored enterprises. The fair value of the securities pledged must exceed the repurchase liability by 5.00%. In the event of a decline in the fair value of securities pledged to less than the required amount due to market conditions or principal repayments, the Company is obligated to pledge additional securities or other suitable collateral to cure the deficiency.

Weighted

Carrying

Fair

Average

Value of

Repurchase

Amount

Months to

(Dollars in thousands)

Securities

Liability

at Risk

Maturity

Maturing:

Over 90 days

13,512

11,786

10,000

3,512

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(10) Offsetting of Financial Liabilities

Securities sold under agreements to repurchase are subject to a right of offset in the event of default. See Note 9, 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
September 30, 2024:
Securities sold under agreements to repurchase	$	10,000		$	-	$	10,000		$	10,000	$	-	$	-

December 31, 2023:
Securities sold under agreements to repurchase	$	10,000		$	-	$	10,000		$	10,000	$	-	$	-

(11) 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-yearterm of the loan with funds from Territorial Savings Bank's contributions to the ESOP and dividends payable on the shares. The interest rate on the ESOP loan is an adjustable rate equal to the prime rate, as published in The Wall Street Journal. The interest rate adjusts annually and will be the prime rate on the first business day of the calendar year.

Shares purchased by the ESOP are held by a trustee in an unallocated suspense account, and shares are released annually from the suspense account on a pro-rata basis as principal and interest payments are made by the ESOP to the Company. The trustee allocates the shares released among participants on the basis of each participant's proportional share of compensation relative to all participants. As shares are committed to be released from the suspense account, Territorial Savings Bank reports compensation expense based on the average fair value of shares released with a corresponding credit to stockholders' equity. The shares committed to be released are considered outstanding for earnings per share computations. Compensation expense recognized for the three months ended September 30, 2024 and 2023 amounted to $117,000 and $136,000, respectively. Compensation expense recognized for the nine months ended September 30, 2024 and 2023 amounted to $329,000 and $588,000, respectively.

Shares held by the ESOP trust were as follows:


	September 30,		December 31,
	2024		2023
Allocated shares		630,136			619,938
Unearned shares		207,965			244,665
Total ESOP shares		838,101			864,603
Fair value of unearned shares, in thousands	$	2,171		$	2,728

The ESOP restoration plan is a nonqualified plan that provides supplemental benefits to certain executives who are prevented from receiving the full benefits contemplated by the ESOP's benefit formula. The supplemental cash payments consist of payments representing shares that cannot be allocated to the participants under the ESOP due to IRS limitations imposed on tax-qualified plans. We accrue for these benefits over the period during which employees provide services to earn these benefits. For the three months ended September 30, 2024 and 2023, we accrued $13,000 and $9,000, respectively, and for the nine months ended September 30, 2024 and 2023, we reversed $14,000 and $12,000, respectively, for the ESOP restoration plan.

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(12) 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 restricted stock is based on the closing price of the Company's stock on the grant date. The fair value of 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 4,949remaining shares 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:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(Dollars in thousands)	2024		2023		2024	2023
Compensation expense	$	65		$	88	$	231	$	90
Income tax benefit		18			24		63		24

Restricted Stock

Restricted stock awards are accounted for as fixed grants using the fair value of the Company's stock at the time of grant. Unvested restricted stock may not be disposed of or transferred during the vesting period. Restricted stock carries the right to receive dividends, although dividends attributable to restricted stock are retained by the Company until the shares vest, at which time they are paid to the award recipient. Unvested restricted stock that is time-based contain nonforfeitable dividend rights. Accrued dividends on restricted stock that do not vest based on performance or market conditions are forfeited.

The table below presents the time-based restricted stock activity:


		Weighted
	Time-Based	Average Grant
	Restricted	Date Fair
	Stock	Value
Unvested at December 31, 2023	25,738	$	21.61
Granted	26,664		7.03
Vested	12,178		22.83
Forfeited	-		-
Unvested at September 30, 2024	40,224	$	11.57

Unvested at December 31, 2022	23,664	$	24.15
Granted	14,803		19.29
Vested	12,729		23.64
Forfeited	-		-
Unvested at September 30, 2023	25,738	$	21.61

As of September 30, 2024, the Company had $351,000 of unrecognized compensation costs related to time-based restricted stock.

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The table below presents the performance-based restricted stock (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, 2023	44,967	$	22.85
Granted	31,995		7.03
Vested	-		-
Forfeited	12,797		26.77
Unvested at September 30, 2024	64,165	$	14.18

Unvested at December 31, 2022	43,557	$	23.63
Granted	17,758		19.29
Vested	-		-
Forfeited	16,348		21.05
Unvested at September 30, 2023	44,967	$	22.85

The fair value of these PRSUs is based on the fair value of the Company's stock on the date of grant. As of September 30, 2024, the Company had no unrecognized compensation costs related to the PRSUs. Additional compensation expense up to $607,000may be recognized in the future if achievement of the performance condition becomes probable for previously issued grants. Performance will be measured over a three-yearperformance period and will be cliff vested. The performance condition is measured quarterly by comparing the Company's three-yearreturn 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 PRSUs 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, 2023	11,245	$	22.31
Granted	8,000		5.55
Vested	-		-
Forfeited	3,199		26.00
Unvested at September 30, 2024	16,046	$	13.22

Unvested at December 31, 2022	10,889	$	24.04
Granted	4,443		17.95
Vested	-		-
Forfeited	4,087		22.16
Unvested at September 30, 2023	11,245	$	22.31

As of September 30, 2024, the Company had $54,000of unrecognized compensation costs related to the PRSUs that are based on a market condition. The market value of PRSUs that will vest on a market condition is determined by a Monte Carlo valuation of the Company's stock as of the grant date. Performance will be measured over a three-yearperformance period and will be cliff vested. The market condition is measured quarterly by comparing the Company's three-yearaverage 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.

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(13) Earnings Per Share

Holders of unvested restricted stock accrue dividends at the same rate as common shareholders and they both share equally in undistributed earnings. Unvested restricted stock awards that are time-based contain nonforfeitable rights to dividends or dividend equivalents and are considered to be participating securities in the earnings per share computation using the two-class method. Under the two-class method, earnings are allocated to common shareholders and participating securities according to their respective rights to earnings. Unvested restricted stock awards that vest based on performance or market conditions are not considered to be participating securities in the earnings per share calculation because accrued dividends on shares that do not vest are forfeited.

The table below presents the information used to compute basic and diluted earnings per share:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(Dollars in thousands, except per share data)	2024		2023		2024	2023
Net (loss) income	$	(1,318)		$	880	$	(2,575)	$	4,693
Income allocated to participating securities		-			(15)		-		(44)
Net (loss) income available to common shareholders	$	(1,318)		$	865	$	(2,575)	$	4,649

Weighted-average number of shares used in:
Basic earnings per share		8,618,155			8,577,632		8,604,082		8,656,915
Dilutive common stock equivalents:
Stock options and restricted stock units		-			32,657		-		48,869
Diluted earnings per share		8,618,155			8,610,289		8,604,082		8,705,784

Net (loss) income per common share, basic	$	(0.15)		$	0.10	$	(0.30)	$	0.54
Net (loss) income per common share, diluted	$	(0.15)		$	0.10	$	(0.30)	$	0.53

Dilutive common stock equivalents were not included in calculating the net loss per share for the three months

and nine months ended September 30, 2024 because these equivalents are anti-dilutive.

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(14) Accumulated Other Comprehensive Loss

The table below presents the changes in the components of accumulated other comprehensive loss, net of taxes:


	Unfunded		Unrealized
	Pension		(Gain)/Loss on
(Dollars in thousands)	Liability		Securities		Total
Three months ended September 30, 2024
Balances at beginning of period	$	4,466		$	2,266	$	6,732
Other comprehensive income, net of taxes		-			(793)		(793)
Net current period other comprehensive income		-			(793)		(793)
Balances at end of period	$	4,466		$	1,473	$	5,939

Three months ended September 30, 2023
Balances at beginning of period	$	5,746		$	1,975	$	7,721
Other comprehensive loss, net of taxes		-			780		780
Net current period other comprehensive loss		-			780		780
Balances at end of period	$	5,746		$	2,755	$	8,501

Nine months ended September 30, 2024
Balances at beginning of period	$	4,466		$	1,755	$	6,221
Other comprehensive income, net of taxes		-			(282)		(282)
Net current period other comprehensive income		-			(282)		(282)
Balances at end of period	$	4,466		$	1,473	$	5,939

Nine months ended September 30, 2023
Balances at beginning of period	$	5,746		$	1,998	$	7,744
Other comprehensive loss, net of taxes		-			757		757
Net current period other comprehensive loss		-			757		757
Balances at end of period	$	5,746		$	2,755	$	8,501

The table below presents the tax effect on each component of accumulated other comprehensive loss:


	Three Months Ended September 30,
	2024		2023
	Pretax					After Tax		Pretax				After Tax
(Dollars in thousands)	Amount		Tax		Amount		Amount		Tax		Amount
Unrealized (gain) loss on securities	$	(1,082)		$	289		$	(793)		$	1,063	$	(283)	$	780
Total	$	(1,082)		$	289		$	(793)		$	1,063	$	(283)	$	780


	Nine Months Ended September 30,
	2024		2023
	Pretax					After Tax		Pretax				After Tax
(Dollars in thousands)	Amount		Tax		Amount		Amount		Tax		Amount
Unrealized (gain) loss on securities	$	(385)		$	103		$	(282)		$	1,032	$	(275)	$	757
Total	$	(385)		$	103		$	(282)		$	1,032	$	(275)	$	757

(15) 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

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concurrent or closely timed. Contracts related to financial instruments, such as loans, investments, and debt, are excluded from the scope of this reporting requirement.

After analyzing the Company's revenue sources, including the amount of revenue received, the timing of services rendered, and the timing of payment for these services, the Company has determined that the rendering of services and the payment for such services are generally closely matched. Any differences are not material to the Company's Consolidated Financial Statements. Accordingly, the Company generally records income when payment for services is received.

Revenue from contracts with customers is reported in service and other fees 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
Three months ended September 30, 2024
Revenue from contracts with customers	$	241		$	23	$	264
Other revenue		32			46		78
Total	$	273		$	69	$	342

Three months ended September 30, 2023
Revenue from contracts with customers	$	265		$	16	$	281
Other revenue		33			57		90
Total	$	298		$	73	$	371

Nine months ended September 30, 2024
Revenue from contracts with customers	$	787		$	100	$	887
Other revenue		98			115		213
Total	$	885		$	215	$	1,100

Nine months ended September 30, 2023
Revenue from contracts with customers	$	917		$	85	$	1,002
Other revenue		105			123		228
Total	$	1,022		$	208	$	1,230

(16) Leases

The table below presents lease costs and other information for the periods indicated:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(Dollars in thousands)	2024		2023		2024	2023
Lease costs:
Operating lease costs	$	707		$	689	$	2,096	$	2,084
Short-term lease costs		143			160		437		375
Variable lease costs		41			45		120		122
Total lease costs	$	891		$	894	$	2,653	$	2,581

Cash paid for amounts included in measurement of lease liabilities	$	882		$	(1,901)	$	1,856	$	(1,271)
ROU assets obtained in exchange for new operating lease liabilities	$	263		$	84	$	1,362	$	590

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Future minimum rental commitments under noncancellable operating leases are as follows:


	September 30,
(Dollars in thousands)	2024
2024	$	2,570
2025		2,320
2026		2,224
2027		1,965
2028		1,661
Thereafter		8,209
Total		18,949

Less present value discount		(1,859)
Present value of leases	$	17,090

The table below presents additional lease-related information:


	September 30,			December 31,
	2024			2023
Weighted-average remaining lease term (years)		9.43			9.77
Weighted-average discount rate		2.22	%		2.15	%

(17) Fair Value

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, individually evaluated 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.

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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
September 30, 2024
Assets
Cash and cash equivalents	$	143,128		$	143,128		$	143,128		$	-	$	-
Investment securities available for sale		19,920			19,920			-			19,920		-
Investment securities held to maturity		654,349			552,222			-			552,222		-
Loans receivable, net		1,282,633			1,113,762			-			-		1,113,762
FHLB stock		9,307			9,307			-			9,307		-
FRB stock		3,187			3,187			-			3,187		-
Accrued interest receivable		6,056			6,056			223			1,416		4,417

Liabilities
Deposits		1,670,281			1,668,752			-			1,023,196		645,556
Advances from the Federal Home Loan Bank		177,000			178,069			-			178,069		-
Advances from the Federal Reserve Bank		50,000			50,016			-			50,016		-
Securities sold under agreements to repurchase		10,000			9,940			-			9,940		-
Accrued interest payable		2,443			2,443			-			1,748		695

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			79			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			-			157		1,026

At September 30, 2024 and December 31, 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.

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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
September 30, 2024
Investment securities available for sale	$	-		$	19,920	$	-	$	19,920

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 September 30, 2024 or December 31, 2023.

(18) Subsequent Events

On October 25, 2024, the Board of Directors of Territorial Bancorp Inc. declared a quarterly cash dividend of $0.01per share of common stock. The dividend is expected to be paid on November 22, 2024to stockholders of record as of November 8, 2024.

On November 6, 2024, shareholders of the Company approved the Merger Agreement with Hope Bancorp, Inc. described below.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Hope Bancorp Merger Agreement

On April 26, 2024, Hope Bancorp, Inc., a Delaware corporation ("Hope Bancorp"), and the Company entered into an Agreement and Plan of Merger (the "Merger Agreement"). Under the terms of the merger agreement, the Company's shareholders will receive a fixed exchange ratio of 0.8048 share of Hope Bancorp common stock in exchange for each share of the Company's common stock they own, in a 100% stock-for-stock transaction valued at approximately $78.6 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 the Company's shareholders.

The transaction is subject to regulatory approvals and the satisfaction of other customary closing conditions.

Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as "estimate," "project," "believe," "intend," "anticipate," "plan," "seek," "expect," "will," "may," "continue," and words of similar meaning. These forward-looking statements include, but are not limited to:

●	statements of our goals, intentions, and expectations;

●	statements regarding our business plans, prospects, growth, and operating strategies;

●	statements regarding the asset quality of our loan and investment portfolios; and

●	estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and

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decisions that are subject to change. You should not place undue reliance on such statements. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

●	factors related to the proposed transaction with Hope Bancorp, including the receipt of regulatory and shareholder approvals, and other customary closing conditions;

●	general economic conditions, internationally, nationally or in our market areas, that are worse than expected;

●	competition among depository and other financial institutions;

●	inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

●	adverse changes in the securities or credit markets;

●	changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

●	changes in monetary or fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board;

●	our ability to enter new markets successfully and capitalize on growth opportunities;

●	a failure to maintain adequate levels of capital and liquidity to support our operations;

●	our ability to successfully integrate acquired entities, if any;

●	changes in consumer demand, spending, borrowing, and savings habits;

●	changes in accounting and auditing policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

●	changes in our organization, compensation, and benefit plans;

●	the timing and amount of revenues that we may recognize;

●	the value and marketability of collateral underlying our loan portfolios;

●	our ability to retain key employees;

●	cyber attacks, computer viruses, and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data or disable our systems;

●	technological changes that may be more difficult or expensive than expected;

●	the ability of third-party providers to perform their obligations to us;

●	the ability of the U.S. Government to manage federal debt limits;

●	the effects of any federal government shutdown;

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●

risks, uncertainties and other factors relating to a pandemic, including the length of time that the pandemic continues, the imposition of any restrictions on individual or business activities; the severity and duration of the effect of the pandemic on the general economy and on the businesses of our borrowers and their ability to make payments on their obligations; the remedial actions and stimulus measures adopted by federal, state and local governments, including the effects of any vaccine mandate; and the inability of employees to work due to illness, quarantine, or government mandates;

●	changes in the quality and/or composition of our loan portfolio, including changes in our allowance for credit losses;

●	the quality and composition of our investment portfolio;

●	changes in market and other conditions that would affect our ability to repurchase our common stock;

●	changes in our financial condition or results of operations that reduce capital available to pay dividends;

●	the effects of climate change and societal, investor, and governmental responses to climate change;

●	the effects of social and governance change and societal and investor sentiment and governmental responses to social and governance matters;

●	the effects of domestic and international hostilities, including terrorism; and

●	changes in the financial condition or future prospects of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Overview

We have historically operated as a traditional thrift institution. The significant majority of our assets consist of long-term, fixed-rate residential mortgage loans and mortgage-backed securities, which we have funded primarily with deposit inflows, cash balances at the Federal Reserve Bank, loan and security repayments, advances from the Federal Home Loan Bank and the Federal Reserve Bank, proceeds from securities sold under agreements to repurchase, and proceeds from loan and security sales. As a result, we may be vulnerable to increases in interest rates, as our interest-bearing liabilities mature or reprice more quickly than our interest-earning assets, 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 $2.3 million, or 0.11% of total assets at September 30, 2024 compared to $2.3 million, or 0.10% of total assets at December 31, 2023. We recorded a provision for credit losses of $22,000 and a reversal of provision for credit losses of $147,000 during the nine months ended September 30, 2024 and 2023, respectively. The provision for credit losses in the nine months ended September 30, 2024 was primarily due to an increase in loans in the consumer loan portfolio and a decrease in its forecasted prepayments. This increase to the provision was partially offset by a decrease in the forecasted charge-offs in the real estate portfolio and an increase in the forecasted prepayments in the real estate and commercial portfolio. The reversal of provision for credit losses in the nine months ended September 30, 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.

Federal Home Loan Bank advances decreased by $65.0 million to $177.0 million and Federal Reserve Bank advances remained constant at $50.0 million for the nine months ended September 30, 2024. Federal Home Loan Bank advances had a net increase of $115.0 million to $256.0 million during the nine months ended September 30, 2023. We had no Federal Reserve Bank advances at September 30, 2023. Securities sold under agreements to repurchase remained constant at $10.0 million during the nine months ended September 30, 2024 and 2023.

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Our investments in mortgage-backed securities have been issued by Freddie Mac or Fannie Mae, which are U.S. government-sponsored enterprises, or Ginnie Mae, which is a U.S. government agency. These entities guarantee the payment of principal and interest on our mortgage-backed securities. As of September 30, 2024 and December 31, 2023, we owned $674.3 million and $705.9 million, respectively, of mortgage-backed securities issued by Freddie Mac, Fannie Mae, and Ginnie Mae. We did not record a provision for credit losses on investment securities during the nine months ended September 30, 2024 or 2023 as all our securities were issued either by U.S. government agencies or U.S. government-sponsored enterprises.

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in Territorial Bancorp Inc.'s Annual Report on Form 10-K for the year ended December 31, 2023.

Comparison of Financial Condition at September 30, 2024 and December 31, 2023

Assets. At September 30, 2024, our total assets were $2.2 billion, a decrease of $38.2 million, or 1.7%, from December 31, 2023. The decrease in assets was primarily due to decreases of $31.6 million in total investment securities and $20.8 million in total loans, that were partially offset by a $16.5 million increase in cash and cash equivalents.

Cash and Cash Equivalents. Cash and cash equivalents were $143.1 million at September 30, 2024, an increase of $16.5 million, or 13.0%, since December 31, 2023. The increase in cash and cash equivalents was primarily due to a $33.7 million increase in deposits, a $31.6 million decrease in total investment securities, and a $20.8 million decrease in the loan portfolio, that were partially offset by a $65.0 million decrease in Federal Home Loan Bank (FHLB) advances.

Loans.Total loans were $1.3 billion at September 30, 2024, or 58.3% of total assets. During the nine months ended September 30, 2024, the loan portfolio decreased by $20.8 million, or 1.6%. The decrease in the loan portfolio primarily occurred as principal repayments exceeded the origination of new loans.

Securities. Total investment securities, including $19.9 million of investment securities available for sale, were $674.3 million at September 30, 2024, or 30.7% of total assets. During the nine months ended September 30, 2024, the investment securities portfolio decreased by $31.6 million, or 4.5%. The decrease in the investment securities balance was primarily due to principal repayments. At September 30, 2024, none of the underlying collateral for the securities consisted of subprime or Alt-A (traditionally defined as nonconforming loans having less than full documentation) loans.

Deposits.Deposits were $1.7 billion at September 30, 2024, an increase of $33.7 million, or 2.1%, since December 31, 2023. The growth in deposits was primarily due to an increase of $114.7 million in certificates of deposit, which was partially offset by decreases of $51.0 million in passbook savings and $26.7 million in checking accounts. The increase in certificates in deposit was primarily due to a $92.7 million increase in certificates of deposit held by state and local governments. The decrease in passbook savings and checking accounts occurred as customers sought higher interest rates than what we offer.

Borrowings.Total borrowings were $237.0 million at September 30, 2024, a decrease of $65.0 million, or 21.5%, since December 31, 2023. Our borrowings consist of advances from the FHLB and Federal Reserve Bank (FRB) and funds borrowed under securities sold under agreements to repurchase.

Stockholders' Equity.Total stockholders' equity was $248.7 million at September 30, 2024, a decrease of $2.3 million, or 0.9%, from $251.1 million at December 31, 2023. The decrease in stockholders' equity was primarily due to the net loss incurred during the year.

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Average Balance and Yields

The following tables set forth the average balance sheet, yields and rates, and certain other information for the periods 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 tables. However, no interest income was attributed to nonaccrual loans. The yields set forth below include the effect of net deferred costs, discounts, and premiums that are amortized or accreted to interest income of $71,000 and $197,000 for the three and nine months ended September 30, 2024, respectively, and $51,000 and $153,000 for the three and nine months ended September 30, 2023, respectively.

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	For the Three Months Ended September 30,
	2024			2023
	Average								Average
	Outstanding					Yield/Rate			Outstanding					Yield/Rate
	Balance		Interest		(1)			Balance		Interest		(1)

	(Dollars in thousands)
Interest-earning assets:
Loans:
Real estate loans:
First mortgage:
One- to four-family residential (2)	$	1,257,046		$	11,723		3.73	%		$	1,271,467		$	11,423	3.59	%
Multi-family residential		5,425			63		4.65				6,027			72	4.78
Construction, commercial, and other		12,270			142		4.63				17,333			173	3.99
Home equity loans and lines of credit		12,296			202		6.57				7,276			126	6.93
Other loans		8,657			99		4.57				8,327			92	4.42
Total loans		1,295,694			12,229		3.78				1,310,430			11,886	3.63
Investment securities:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises (2)		680,545			4,183		2.46				721,619			4,447	2.47
Total securities		680,545			4,183		2.46				721,619			4,447	2.47
Other investments		136,595			1,901		5.57				80,405			1,051	5.23
Total interest-earning assets		2,112,834			18,313		3.47				2,112,454			17,384	3.29
Non-interest-earning assets		89,058									88,387
Total assets	$	2,201,892								$	2,200,841

Interest-bearing liabilities:
Savings accounts	$	692,637			1,729		1.00	%		$	775,092			672	0.35	%
Certificates of deposit		606,483			6,726		4.44				499,188			4,720	3.78
Money market accounts		2,417			1		0.17				4,486			2	0.18
Checking and Super NOW accounts		265,564			13		0.02				284,272			14	0.02
Total interest-bearing deposits		1,567,101			8,469		2.16				1,563,038			5,408	1.38
Federal Home Loan Bank advances		209,771			1,714		3.27				260,620			1,896	2.91
Federal Reserve Bank advances		50,000			600		4.80				-			-
Securities sold under agreements to repurchase		10,000			46		1.84				10,000			46	1.84
Total interest-bearing liabilities		1,836,872			10,829		2.36				1,833,658			7,350	1.60
Non-interest-bearing liabilities		114,020									115,744
Total liabilities		1,950,892									1,949,402
Stockholders' equity		251,000									251,439
Total liabilities and stockholders' equity	$	2,201,892								$	2,200,841

Net interest income				$	7,484								$	10,034
Net interest rate spread (3)							1.11	%							1.69	%
Net interest-earning assets (4)	$	275,962								$	278,796
Net interest margin (5)							1.42	%							1.90	%
Interest-earning assets to interest-bearing liabilities		115.02	%								115.20	%

(1)	Annualized by using the ratio of the number of months in a year over the number of months in the period.

(2)	Average balance includes loans or investments held to maturity and available for sale, as applicable.

(3)	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(4)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(5)	Net interest margin represents net interest income divided by average total interest-earning assets.

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	For the Nine Months Ended September 30,
	2024			2023
	Average								Average
	Outstanding					Yield/Rate			Outstanding					Yield/Rate
	Balance		Interest		(1)			Balance		Interest		(1)

	(Dollars in thousands)
Interest-earning assets:
Loans:
Real estate loans:
First mortgage:
One- to four-family residential (2)	$	1,266,049		$	35,142		3.70	%		$	1,259,987		$	33,559	3.55	%
Multi-family residential		5,550			194		4.66				5,655			205	4.83
Construction, commercial, and other		12,201			422		4.61				21,071			647	4.09
Home equity loans and lines of credit		10,145			493		6.48				6,920			355	6.84
Other loans		8,491			289		4.54				8,353			271	4.33
Total loans		1,302,436			36,540		3.74				1,301,986			35,037	3.59
Investment securities:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises (2)		691,578			12,753		2.46				731,495			13,512	2.46
Total securities		691,578			12,753		2.46				731,495			13,512	2.46
Other investments		124,013			5,104		5.49				79,150			2,848	4.80
Total interest-earning assets		2,118,027			54,397		3.42				2,112,631			51,397	3.24
Non-interest-earning assets		89,005									88,584
Total assets	$	2,207,032								$	2,201,215

Interest-bearing liabilities:
Savings accounts	$	710,726			4,573		0.86	%		$	820,324			1,498	0.24	%
Certificates of deposit		559,642			18,041		4.30				467,487			11,715	3.34
Money market accounts		2,570			2		0.10				4,966			4	0.11
Checking and Super NOW accounts		275,368			42		0.02				290,682			44	0.02
Total interest-bearing deposits		1,548,306			22,658		1.95				1,583,459			13,261	1.12
Federal Home Loan Bank advances		230,814			5,330		3.08				238,363			4,782	2.67
Federal Reserve Bank advances		50,000			1,789		4.77				-			-	-
Securities sold under agreements to repurchase		10,000			137		1.83				10,000			137	1.83
Total interest-bearing liabilities		1,839,120			29,914		2.17				1,831,822			18,180	1.32
Non-interest-bearing liabilities		116,194									116,027
Total liabilities		1,955,314									1,947,849
Stockholders' equity		251,718									253,366
Total liabilities and stockholders' equity	$	2,207,032								$	2,201,215

Net interest income				$	24,483								$	33,217
Net interest rate spread (3)							1.25	%							1.92	%
Net interest-earning assets (4)	$	278,907								$	280,809
Net interest margin (5)							1.54	%							2.10	%
Interest-earning assets to interest-bearing liabilities		115.17	%								115.33	%

(1)	Annualized by using the ratio of the number of months in a year over the number of months in the period.

(2)	Average balance includes loans or investments held to maturity and available for sale, as applicable.

(3)	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(4)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(5)	Net interest margin represents net interest income divided by average total interest-earning assets.

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Comparison of Operating Results for the Three Months Ended September 30, 2024 and 2023

General. We had a net loss of $1.3 million for the three months ended September 30, 2024, a $2.2 million decrease in earnings compared to net income of$880,000 for the three months ended September 30, 2023. The decrease in net income was primarily due to a $2.6 million decrease in net interest income which was partially offset by a $946,000 decrease in income taxes.

Net Interest Income. Net interest income decreased by $2.6 million, or 25.4%, to $7.5 million for the three months ended September 30, 2024 from $10.0 million for the three months ended September 30, 2023. Interest expense increased by $3.5 million, or 47.3%, primarily due to a 76 basis point increase in the cost of average interest-bearing liabilities. Interest income increased by $929,000, or 5.3%, primarily due to an 18 basis point increase in the yield on average interest-earning assets. The net interest rate spread and net interest margin were 1.11% and 1.42%, respectively, for the three months ended September 30, 2024, compared to 1.69% and 1.90%, respectively, for the three months ended September 30, 2023. The decrease in the net interest rate spread and in the net interest margin are attributable to the 76 basis point increase in the cost of average interest-bearing liabilities, which was partially offset by the 18 basis point increase in the yield of average interest-earning assets.

Interest Income. Interest income increased by $929,000, or 5.3%, to $18.3 million for the three months ended September 30, 2024 from $17.4 million for the three months ended September 30, 2023. Interest income on other investments increased by $850,000, or 80.9%, to $1.9 million for the three months ended September 30, 2024 from $1.1 million for the three months ended September 30, 2023. The increase in interest income on other investments was primarily due to an increase in the interest earned on our cash balances at the FRB. Our average cash balance at the FRB increased by $57.9 million from $63.7 million for the three months ended September 30, 2023, to $121.6 million for the three months ended September 30, 2024. In addition, the yield earned increased from 4.84% for the three months ended September 30, 2023 to 5.15% for the three months ended September 30, 2024. Interest income on loans increased by $343,000, or 2.9%, from $11.9 million for the three months ended September 30, 2023 to $12.2 million for the three months ended September 30, 2024. The increase in interest income on loans occurred because of a 15 basis point increase in the yield on loans which was partially offset by a $14.7 million, or 1.1%, decrease in the average balance of loans which occurred as loan repayments exceeded new loan originations. These increases in interest income were partially offset by a decrease in interest income on investment securities of $264,000, or 5.9%, from $4.4 million for the three months ended September 30, 2023 to $4.2 million for the three months ended September 30, 2024. The decrease in interest income on investment securities was primarily due to a $41.1 million decrease in the average balance that was primarily due to principal repayments.

Interest Expense. Interest expense increased by $3.5 million, or 47.3%, to $10.8 million for the three months ended September 30, 2024 from $7.4 million for the three months ended September 30, 2023. Interest expense on interest-bearing deposits increased by $3.1 million, or 56.6%, to $8.5 million for the three months ended September 30, 2024 from $5.4 million for the three months ended September 30, 2023. The increase in interest expense on interest-bearing deposits was primarily due to a $107.3 million, or 21.5%, increase in the average balance of certificates of deposit and a 66 basis point increase in the rate paid on certificates of deposit. The increase in the average balance was primarily due to an increase in state and local government certificates of deposit. The rate paid on certificates of deposit increased to 4.44% for the three months ended September 30, 2024 from 3.78% for the three months ended September 30, 2023, primarily due to increases in market interest rates. Interest expense on savings accounts increased by $1.1 million, or 157.3%, to $1.7 million for the three months ended September 30, 2024 from $672,000 for the three months ended September 30, 2023. The increase in interest expense on savings accounts occurred primarily because of a 65 basis point increase in the rate which was partially offset by a $82.5 million, or 10.6%, decrease in the average balance of savings accounts.The increase in the rates on savings accounts was primarily due to increases in market interest rates. The decrease in the average balance of savings accounts occurred primarily as customers transferred their funds to certificates of deposits, which had higher interest rates, or sought higher interest rates elsewhere.Interest expense on FRB advances was $600,000 for the three months ended September 30, 2024 due to a $50.0 million advance from the FRB Bank Term Funding Program (BTFP) that was obtained to enhance our liquidity and to fund the decrease in deposits. There were no advances from the FRB during the three months ended September 30, 2023. Interest expense on FHLB advances decreased by $182,000, or 9.6%, from $1.9 million for the three months ended September 30, 2023 to $1.7 million for the three months ended September 30, 2024. The decrease in interest expense on FHLB advances

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was primarily due to a $50.8 million decrease in the average balance of FHLB advances, which was partially offset by a 36 basis point increase in the average cost of advances. The changes in the average balance and average cost of FHLB advances was primarily due to $60.0 million of maturing FHLB advances that were paid off in the three months ended September 30, 2024 which had a relatively low average interest rate of 1.47%.

Provision for Credit Losses. We recorded a provision for credit losses of $29,000 and a reversal of provision for credit losses of $259,000 for the three months ended September 30, 2024 and 2023, respectively. The provision for credit losses in the three months ended September 30, 2024 was primarily due to an increase in loans in the consumer loan portfolio and a decrease in its forecasted prepayments. This increase to the provision was partially offset by a decrease in the forecasted charge-offs in the real estate portfolio and an increase in the forecasted prepayments in the real estate and commercial portfolio. The reversal of provision for credit losses in the nine months ended September 30, 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 the ratios of the allowance for credit losses to total loans of 0.39% and 0.38% at September 30, 2024 and 2023, respectively. Nonaccrual loans totaled $2.3 million, or 0.18% of total loans at September 30, 2024 and 2023. Nonaccrual loans as of September 30, 2024 and 2023 consisted primarily of one- to four-family residential real estate loans. The allowance at September 30, 2024 and 2023 reflects management's best estimate of losses over the life of loans in our portfolio in accordance with the CECL approach. For additional information, see Note (6), "Loans Receivable and Allowance for Credit Losses" in our Notes to Consolidated Financial Statements.

Noninterest Income. The following table summarizes changes in noninterest income between the three months ended September 30, 2024 and 2023.


	Three Months Ended
	September 30,		Change
	2024		2023		$ Change	% Change

					(Dollars in thousands)
Service and other fees	$	273		$	298	$	(25)	(8.4)	%
Income on bank-owned life insurance		255			218		37	17.0	%
Net gain on sale of loans		19			-		19	-	%
Other		69			73		(4)	(5.5)	%
Total	$	616		$	589	$	27	4.6	%

Noninterest income increased by $27,000 for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase in bank-owned life insurance income was primarily due to higher market interest rates.

Noninterest Expense. The following table summarizes changes in noninterest expense between the three months ended September 30, 2024 and 2023.


	Three Months Ended
	September 30,			Change
	2024		2023		$ Change	% Change

					(Dollars in thousands)
Salaries and employee benefits	$	4,899		$	5,176	$	(277)	(5.4)	%
Occupancy		1,813			1,819		(6)	(0.3)	%
Equipment		1,335			1,263		72	5.7	%
Federal deposit insurance premiums		392			246		146	59.3	%
Other general and administrative expenses		1,561			1,163		398	34.2	%
Total	$	10,000		$	9,667	$	333	3.4	%

Noninterest expense increased by $333,000 for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Other general and administrative expenses included $353,000 of merger related legal and consulting expenses and a writeoff of $135,000 of cash destroyed in the Maui wildfire that was deemed unrecoverable. The increase in federal deposit insurance premiums was primarily due to an increase in the Federal

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Deposit Insurance Corporation (FDIC) premium rate. The increase in equipment expense was due to an increase in service bureau expense. The decrease in salaries and employee benefits was primarily due to a decrease in compensation expense and various benefit expenses, which was partially offset by a decrease in deferred salary expense for originating new loans.

Income Tax (Benefit) Expense.The income tax benefit was $611,000 for the three months ended September 30, 2024, reflecting an effective tax benefit rate of 31.7%, compared to income tax expense of $335,000 for the three months ended September 30, 2023, reflecting an effective tax rate of 27.6%.

Comparison of Operating Results for the Nine Months Ended September 30, 2024 and 2023

General. We had a net loss of $2.6 million for the nine months ended September 30, 2024, a decrease in earnings of $7.3 million compared to net income of $4.7 million for the nine months ended September 30, 2023. The decrease in earnings was primarily due to an $8.7 million decrease in net interest income, a $1.3 million increase in non-interest expense, and a $169,000 increase in the provision for credit losses. These decreases in earnings were partially offset by a $2.9 million decrease in income taxes.

Net Interest Income. Net interest income decreased by $8.7 million,or 26.3%, to $24.5 million for the nine months ended September 30, 2024 from $33.2 million for the nine months ended September 30, 2023. Interest expense increased by $11.7 million, or 64.5%, due to an 85 basis point increase in the cost of average interest-bearing liabilities and a $7.3 million increase in the average balance of interest-bearing liabilities. Interest income increased by $3.0 million, or 5.8%, due to an 18 basis point increase in the yield on average interest-earning assets and a $5.4 million increase in the average balance of interest-earning assets. The net interest rate spread and net interest margin were 1.25% and 1.54%, respectively, for the nine months ended September 30, 2024, compared to 1.92% and 2.10%, respectively, for the nine months ended September 30, 2023. The decreases in the net interest rate spread and in the net interest margin are attributable to the 85 basis point increase in the cost of average interest-bearing liabilities, which was partially offset by the 18 basis point increase in the yield on average interest-earning assets.

Interest Income. Interest income increased by $3.0 million, or 5.8%, to $54.4 million for the nine months ended September 30, 2024 from $51.4 million for the nine months ended September 30, 2023. Interest income on other investments increased by $2.3 million, or 79.2%, to $5.1 million for the nine months ended September 30, 2024 from $2.8 million for the nine months ended September 30, 2023. The increase in interest income on other investments was primarily due to an increase in the interest earned on our cash balances at the FRB. Our average cash balance at the FRB increased by $45.1 million from $63.5 million during the nine months ended September 30, 2023, to $108.5 million during the nine months ended September 30, 2024. In addition, the yield earned increased from 4.55% for the nine months ended September 30, 2023 to 5.09% for the nine months ended September 30, 2024. Interest income on loans increased by $1.5 million, or 4.3%, to $36.5 million for the nine months ended September 30, 2024 from $35.0 million for the nine months ended September 30, 2023. The increase in interest income on loans occurred because of a 15 basis point increase in the yield. These increases in interest income were partially offset by a $759,000, or 5.6%, decrease in interest income on investment securities from $13.5 million for the nine months ended September 30, 2023 to $12.8 million for the nine months ended September 30, 2024. The decrease in interest income on investment securities was primarily due to a $39.9 million decrease in the average balance that was primarily due to principal repayments.

Interest Expense. Interest expense increased by $11.7 million, or 64.5%, to $29.9 million for the nine months ended September 30, 2024 from $18.2 million for the nine months ended September 30, 2023. Interest expense on interest-bearing deposits increased by $9.4 million, or 70.9%, to $22.7 million for the nine months ended September 30, 2024 from $13.3 million for the nine months ended September 30, 2023. The increase in interest expense on interest-bearing deposits was primarily due to a 96 basis point increase in the rate paid on certificates of deposit and a $92.2 million increase in the average balance of certificates of deposit. The average rate paid on certificates of deposit increased to 4.30% for the nine months ended September 30, 2024, from 3.34% for the nine months ended September 30, 2023. Interest expense on savings accounts increased by $3.1 million, or 205.3%, to $4.6 million for the nine months ended September 30, 2024 from $1.5 million for the nine months ended September 30, 2023. The increase in interest expense on savings accounts occurred primarily because of a 62 basis point increase in the rate which was partially offset by a $109.6 million, or 13.4%, decrease in the average balance of savings accounts. The increase in the rates on

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certificates of deposit and savings accounts were primarily due to increases in market interest rates. 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 our certificates of deposit with higher interest rates or withdrew their deposits and sought higher interest rates elsewhere. Interest expense on advances from the FRB was $1.8 million for the nine months ended September 30, 2024 due to a $50.0 million advance from the FRB BTFP that was obtained to enhance our liquidity and to fund the decrease in deposits. There were no advances from the FRB during the nine months ended September 30, 2023. Interest expense on FHLB advances rose by $548,000, or 11.5%, from $4.8 million for the nine months ended September 30, 2023 to $5.3 million for the nine months ended September 30, 2024. The increase in interest expense occurred because of a 41 basis point increase in the cost of FHLB advances and was partially offset by a $7.5 million, or 3.2%, decrease in the average FHLB advance balance.

Provision for Credit Losses. We recorded a provision for credit losses of $22,000 and a reversal of provision for credit losses of $147,000 during the nine months ended September 30, 2024 and 2023, respectively. The provision for credit losses in the nine months ended September 30, 2024 was primarily due to an increase in loans in the consumer loan portfolio and a decrease in its forecasted prepayments. This increase to the provision was partially offset by a decrease in the forecasted charge-offs in the real estate portfolio and an increase in the forecasted prepayments in the real estate and commercial portfolio. The reversal of provision for credit losses in the nine months ended September 30, 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 0.39% and 0.38% at September 30, 2024 and 2023, respectively. Nonaccrual loans totaled $2.3 million, or 0.18% of total loans at September 30, 2024 and 2023. Nonaccrual loans as of September 30, 2024 and 2023 consisted primarily of one- to four-family residential real estate loans. The allowance at September 30, 2024 and 2023 reflects management's best estimate of losses over the life of loans in our portfolio in accordance with the CECL approach. For additional information see Note (6), "Loans Receivable and Allowance for Credit Losses" in our Notes to Consolidated Financial Statements.

Noninterest Income. The following table summarizes changes in noninterest income between the nine months ended September 30, 2024 and 2023.


	Nine Months Ended
	September 30,		Change
	2024		2023		$ Change	% Change

					(Dollars in thousands)
Service and other fees	$	885		$	1,022	$	(137)	(13.4)	%
Income on bank-owned life insurance		750			628		122	19.4	%
Net gain on sale of loans		19			10		9	90.0	%
Other		215			208		7	3.4	%
Total	$	1,869		$	1,868	$	1	0.1	%

Noninterest income increased by $1,000 for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase in bank-owned life insurance income was primarily due to higher market interest rates. Service and other fees decreased primarily due to a decrease in broker fee income, appraisal fee income, and NOW return item fees.

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Noninterest Expense. The following table summarizes changes in noninterest expense between the nine months ended September 30, 2024 and 2023.


	Nine Months Ended
	September 30,		Change
	2024		2023		$ Change	% Change

					(Dollars in thousands)
Salaries and employee benefits	$	14,606		$	15,723	$	(1,117)	(7.1)	%
Occupancy		5,319			5,201		118	2.3	%
Equipment		3,987			3,878		109	2.8	%
Federal deposit insurance premiums		1,281			737		544	73.8	%
Other general and administrative expenses		4,851			3,251		1,600	49.2	%
Total	$	30,044		$	28,790	$	1,254	4.4	%

Noninterest expense increased by $1.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Other general and administrative expenses included $1.2 million of merger related legal and consulting expenses and a writeoff of $135,000 of cash destroyed in the Maui wildfire that was deemed unrecoverable. The increase in federal deposit insurance premiums was primarily due to an increase in the FDIC premium rate. The decrease in salaries and employee benefits was primarily due to a decrease in compensation expense and various benefit expenses which was partially offset by a decrease in deferred salary expense for originating new loans.

Income Tax (Benefit) Expense.The income tax benefit was $1.1 million for the nine months ended September 30, 2024, reflecting an effective tax benefit rate of 30.7%, compared to income tax expense of $1.7 million for the nine months ended September 30, 2023, reflecting an effective tax rate of 27.1%.

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 payment on deposits, and repayment of borrowings. Our primary sources of funds consist of deposit inflows, cash balances at the FRB, loan and security repayments, advances from the FHLB and FRB, securities sold under agreements to repurchase, and proceeds from loan and security sales. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage and mortgage-backed security prepayments are greatly influenced by general interest rates, economic conditions, and competition. We have established an Asset/Liability Management Committee, consisting of our President and Chief Executive Officer, our Vice Chairman and Co-Chief Operating Officer, our 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 September 30, 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.

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Our most liquid asset is cash. The amount of this asset is dependent on our operating, financing, lending, and investing activities during any given period. At September 30, 2024, our cash and cash equivalents totaled $143.1 million. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB and FRB, which provide an additional source of funds. We also utilize securities sold under agreements to repurchase as another borrowing source. At September 30, 2024, we had the ability to borrow an additional $364.3 million and $158.7 million from the FHLB and FRB, respectively. In addition, we had the ability to borrow up to $61.1 million, using our unpledged securities as collateral, from the FRB or using securities sold under agreements to repurchase.

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.

We had estimated uninsured deposits (in excess of the federal deposit insurance limit of $250,000) of $507.0 million, or 30.4% of total deposits as of September 30, 2024, compared to an estimated $419.4 million, or 25.6% of total deposits as of December 31, 2023. The increase in uninsured deposits was primarily due to a $92.7 million increase in certificates of deposit held by state and local governments which was used to payoff $65.0 million of maturing FHLB advances and to increase our liquidity. Our estimate is calculated on the same basis used for regulatory reporting. We have no deposits that are uninsured for any other reason.

At September 30, 2024, we had $3.1 million in loan commitments outstanding for fixed-rate loans and had $17.6 million in unused lines of credit to borrowers. Certificates of deposit due within one year of September 30, 2024 totaled $628.4 million, or 37.6% of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including loan and security sales, brokered deposits, securities sold under agreements to repurchase, and 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 September 30, 2025. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Our primary investing activities are originating loans and purchasing mortgage-backed securities. During the nine months ended September 30, 2024 and 2023, we originated $51.3 million and $83.0 million of loans, respectively. During the nine months ended September 30, 2023, we purchased securities with a face value of $6.8 million. We did not purchase any securities in the nine months ended September 30, 2024.

Financing activities consist primarily of activity in deposit accounts, FHLB advances, FRB advances, securities sold under agreements to repurchase, stock repurchases, and dividend payments. We experienced a net increase in deposits of $33.7 million for the nine months ended September 30, 2024. 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. At September 30, 2024, FHLB and FRB advances were $177.0 million and $50.0 million, respectively. At December 31, 2023, FHLB and FRB advances were $242.0 million and $50.0 million, respectively.

Territorial Bancorp Inc. is a separate legal entity from Territorial Savings Bank and must provide for its own liquidity to pay dividends, repurchase shares of its common stock, and for other corporate purposes. Territorial Bancorp Inc.'s primary source of liquidity is dividend payments from Territorial Savings Bank. The ability of Territorial Savings Bank to pay dividends to Territorial Bancorp Inc. is subject to regulatory requirements. At September 30, 2024, Territorial Bancorp Inc. (on an unconsolidated, stand-alone basis) had liquid assets of $15.8 million.

Territorial Savings Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. Territorial Bancorp Inc. is not subject to regulatory capital requirements because its total assets are less than $3.0 billion. At September 30, 2024, Territorial Savings Bank exceeded all of the fully phased in regulatory capital requirements and is considered to be "well capitalized" under regulatory guidelines.

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The tables below present the fully-phased in capital required to be considered "well-capitalized" and meet the regulatory capital conservation buffer requirement as a percentage of total and risk-weighted assets and the percentage and the total amount of capital maintained for Territorial Savings Bank and the Company at September 30, 2024 and December 31, 2023:


(Dollars in thousands)	Required Ratio		Actual Amount		Actual Ratio
September 30, 2024:
Tier 1 Leverage Capital
Territorial Savings Bank	5.00	%	$	238,079		10.82	%
Territorial Bancorp Inc.			$	254,676		11.57	%
Common Equity Tier 1 Risk-Based Capital (1)
Territorial Savings Bank	9.00	%	$	238,079		26.67	%
Territorial Bancorp Inc.			$	254,676		28.51	%
Tier 1 Risk-Based Capital (1)
Territorial Savings Bank	10.50	%	$	238,079		26.67	%
Territorial Bancorp Inc.			$	254,676		28.51	%
Total Risk-Based Capital (1)
Territorial Savings Bank	12.50	%	$	243,134		27.24	%
Territorial Bancorp Inc.			$	259,731		29.07	%

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 our Consolidated Financial Statements.

Prompt Corrective Action provisions impose certain restrictions on institutions that are undercapitalized. The restrictions imposed become increasingly more severe as an institution's capital category declines from "undercapitalized" to "critically undercapitalized."

At September 30, 2024 and December 31, 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.

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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 currently adopted 9% as the applicable ratio. We have not elected to follow the alternative framework.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments.As a financial services provider, we routinely are a party to various financial instruments with off-balance sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. In addition, we enter into commitments to sell mortgage loans.

Contractual Obligations.In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities, and agreements with respect to investments. Between December 31, 2023 and September 30, 2024, there have not been any material changes in our contractual obligations or funding needs.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our net interest income to changes in market interest rates. Our Board of Directors has established an Asset/Liability Management Committee, which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity, and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors.

Because we have historically operated as a traditional thrift institution, the significant majority of our assets consist of long-term, fixed-rate residential mortgage loans and mortgage-backed securities, which we have funded primarily with deposit inflows, cash balances at the FRB, loan and security repayments, advances from the FHLB and FRB, our capital, proceeds from securities sold under agreements to repurchase, and proceeds from loan and security sales. In addition, there is little demand for adjustable-rate mortgage loans in the Hawaii market area. This has resulted in our being particularly vulnerable to increases in interest rates, as our interest-bearing liabilities mature or reprice more quickly than our interest-earning assets.

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.

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The following table presents our internal calculations of the estimated changes in our EVE as of June 30, 2024 (the latest date for which we have available information) that would result from the designated instantaneous changes in the interest rate yield curve.


										Increase
										(Decrease) in
				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	$	(53,943)		$	(201,647)	(136.52)	%	(3.72)	%	(11.85)	%
+300	$	(9,386)		$	(157,090)	(106.35)	%	(0.61)	%	(8.74)	%
+200	$	39,570		$	(108,134)	(73.21)	%	2.44	%	(5.69)	%
+100	$	92,421		$	(55,283)	(37.43)	%	5.39	%	(2.74)	%
0	$	147,704		$	-	-	%	8.13	%	-	%
-100	$	200,681		$	52,977	35.87	%	10.44	%	2.31	%
-200	$	249,913		$	102,209	69.20	%	12.31	%	4.18	%
-300	$	290,475		$	142,771	96.66	%	13.60	%	5.47	%
-400	$	294,036		$	146,332	99.07	%	13.30	%	5.17	%

(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.

Interest rates on Freddie Mac mortgage-backed securities decreased by 57 basis points between June 30, 2024 and Septemer 30, 2024. The decrease in mortgage interest rates has increased the value of our interest-earning 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.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company's management, including the Chairman of the Board, President and Chief Executive Officer and the 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 September 30, 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 September 30, 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.

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PART II

ITEM 1. LEGAL PROCEEDINGS

The Company and its subsidiaries are subject to various legal actions that are considered ordinary, routine litigation incidental to the business of the Company. In the opinion of management, based on currently available information, the resolution of these legal actions is not expected to have a material adverse effect on the Company's results of operations, and no claim for money damages exceeds ten percent of the Company's consolidated assets.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors as described in our Annual Report on Form 10-K for the period ended December 31, 2023 filed with the Securities and Exchange Commission.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) Not applicable.

(b) Not applicable.

(c) Stock Repurchases. There were no repurchases of our shares of common stock during the three months ended September 30, 2024.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The exhibits required by Item 601 of Regulation S-K are included with this Quarterly Report on Form 10-Q and are listed below.

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INDEX TO EXHIBITS


Exhibit
Number		Description
31.1		Certification of Allan S. Kitagawa, Chairman of the Board, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

31.2		Certification of Melvin M. Miyamoto, Executive Vice President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

32		Certification of Allan S. Kitagawa, Chairman of the Board, President and Chief Executive Officer, and Melvin M. Miyamoto, Executive Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from Territorial Bancorp Inc.'s Form 10-Q report for the quarter ended September 30, 2024, formatted in Inline XBRL pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Stockholders' Equity (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.

101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL document and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	TERRITORIAL BANCORP INC.
	(Registrant)


Date: November 13, 2024	/s/ Allan S. Kitagawa
	Allan S. Kitagawa
	Chairman of the Board, President and
	Chief Executive Officer


Date: November 13, 2024	/s/ Melvin M. Miyamoto
	Melvin M. Miyamoto
	Executive Vice President and Chief Financial Officer

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