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, 2017~~March 31, 2023

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

For transition period from to

Commission File Number ~~1-34403~~001-34403

TERRITORIAL BANCORP INC.

(Exact Name of Registrant as Specified in Charter)

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

~~1132~~1003 Bishop Street, Pauahi Tower Suite ~~2200,~~ 500, Honolulu, Hawaii		96813
(Address of Principal Executive Offices)		(Zip Code)

~~(808)~~ (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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ 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 ☐☒		~~(Do not check if a smaller~~Smaller reporting ~~company)~~company ☒
~~Smaller reporting company ☐~~		Emerging growth company ☐

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: ~~9,880,501~~8,924,931 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of ~~October 31, 2017.~~April 30, 2023.

PART I

~~PART I~~

ITEM 1. FINANCIAL ~~STATEMENTS~~STATEMENTS

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)

(Dollars in thousands, except share data)

September 30,

December 31,

2017

2016

ASSETS

Cash and cash equivalents

$
38,385

$
61,273

Investment securities available for sale

2,910

—

Investment securities held to maturity, at amortized cost (fair value of $415,112 and $407,922 at September 30, 2017 and December 31, 2016, respectively)

411,657

407,656

Loans held for sale

495

1,601

Loans receivable, net

1,434,753

1,335,987

Federal Home Loan Bank stock, at cost

5,013

4,945

Federal Reserve Bank stock, at cost

3,103

3,095

Accrued interest receivable

4,985

4,732

Premises and equipment, net

5,658

4,327

Bank-owned life insurance

43,976

43,294

Deferred income tax assets, net

7,172

7,905

Prepaid expenses and other assets

4,350

2,747

Total assets

$
1,962,457

$
1,877,562

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:

Deposits

$
1,571,367

$
1,493,200

Advances from the Federal Home Loan Bank

69,000

69,000

Securities sold under agreements to repurchase

55,000

55,000

Accounts payable and accrued expenses

24,341

23,258

Income taxes payable

1,693

1,616

Advance payments by borrowers for taxes and insurance

3,764

5,702

  Total liabilities

1,725,165

1,647,776

Stockholders’ Equity:

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

—

—

Common stock, $.01 par value; authorized 100,000,000 shares; issued and outstanding 9,855,555 and 9,778,974 shares at September 30, 2017 and December 31, 2016, respectively

99

98

Additional paid-in capital

72,729

71,914

Unearned ESOP shares

(5,505)

(5,872)

Retained earnings

175,286

168,962

Accumulated other comprehensive loss

(5,317)

(5,316)

  Total stockholders’ equity

237,292

229,786

  Total liabilities and stockholders’ equity

$
1,962,457

$
1,877,562


	March 31,		December 31,
	2023		2022
ASSETS
Cash and cash equivalents	$	84,860	$	40,553
Investment securities available for sale, at fair value		21,073		20,821
Investment securities held to maturity, at amortized cost (fair value of $602,045 and $591,084 at March 31, 2023 and December 31, 2022, respectively)		715,601		717,773
Loans receivable, net		1,291,310		1,294,764
Federal Home Loan Bank stock, at cost		12,444		8,197
Federal Reserve Bank stock, at cost		3,177		3,170
Accrued interest receivable		6,128		6,115
Premises and equipment, net		7,422		7,599
Right-of-use asset, net		13,901		14,498
Bank-owned life insurance		47,986		47,783
Deferred income tax assets, net		2,097		1,643
Prepaid expenses and other assets		6,828		6,676
Total assets	$	2,212,827	$	2,169,592

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits	$	1,661,973	$	1,716,152
Advances from the Federal Home Loan Bank		246,000		141,000
Securities sold under agreements to repurchase		10,000		10,000
Accounts payable and accrued expenses		22,453		24,180
Lease liability		14,720		15,295
Income taxes payable		1,034		838
Advance payments by borrowers for taxes and insurance		2,886		5,577
Total liabilities		1,959,066		1,913,042

Commitments and contingencies

Stockholders’ Equity:
Preferred stock, $0.01 par value; authorized 50,000,000 shares, no shares issued or outstanding		—		—
Common stock, $0.01 par value; authorized 100,000,000 shares; issued and outstanding 9,006,551 and 9,071,076 shares at March 31, 2023 and December 31, 2022, respectively		90		91
Additional paid-in capital		50,556		51,825
Unearned ESOP shares		(2,814)		(2,936)
Retained earnings		213,336		215,314
Accumulated other comprehensive loss		(7,407)		(7,744)
Total stockholders’ equity		253,761		256,550
Total liabilities and stockholders’ equity	$	2,212,827	$	2,169,592

See accompanying ~~notes~~Notes to ~~consolidated financial statements.~~Consolidated Financial Statements.

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Interest income:

Loans

$
13,837

$
13,052

$
40,877

$
38,060

Investment securities

3,169

3,496

9,328

11,121

Other investments

171

121

530

411

Total interest income

17,177

16,669

50,735

49,592

Interest expense:

Deposits

2,033

1,485

5,459

4,363

Advances from the Federal Home Loan Bank

264

259

779

772

Securities sold under agreements to repurchase

221

220

654

656

Total interest expense

2,518

1,964

6,892

5,791

Net interest income

14,659

14,705

43,843

43,801

Provision for loan losses

54

107

2

219

Net interest income after provision for loan losses

14,605

14,598

43,841

43,582

Noninterest income:

Service fees on loan and deposit accounts

427

493

1,490

1,422

Income on bank-owned life insurance

228

240

681

727

Gain on sale of investment securities

150

60

431

250

Gain on sale of loans

28

114

154

304

Other

76

96

234

320

Total noninterest income

909

1,003

2,990

3,023

Noninterest expense:

Salaries and employee benefits

5,201

5,265

15,254

15,947

Occupancy

1,529

1,432

4,439

4,285

Equipment

882

865

2,630

2,683

Federal deposit insurance premiums

152

144

448

596

Other general and administrative expenses

997

939

3,451

3,181

Total noninterest expense

8,761

8,645

26,222

26,692

Income before income taxes

6,753

6,956

20,609

19,913

Income taxes

2,580

2,792

7,814

7,928

Net income

$
4,173

$
4,164

$
12,795

$
11,985

Basic earnings per share

$
0.45

$
0.45

$
1.38

$
1.31

Diluted earnings per share

$
0.44

$
0.44

$
1.34

$
1.28

Cash dividends paid per common share

$
0.30

$
0.18

$
0.70

$
0.54

Basic weighted-average shares outstanding

9,280,018

9,102,837

9,250,537

9,065,892

Diluted weighted-average shares outstanding

9,521,201

9,325,506

9,535,875

9,280,260


	Three Months Ended
	March 31,
	2023		2022
Interest income:
Loans	$	11,454	$	11,357
Investment securities		4,540		3,423
Other investments		727		176
Total interest income		16,721		14,956

Interest expense:
Deposits		3,530		597
Advances from the Federal Home Loan Bank		1,054		511
Securities sold under agreements to repurchase		46		44
Total interest expense		4,630		1,152

Net interest income		12,091		13,804
Reversal of provision for credit losses		(100)		(168)

Net interest income after reversal of provision for credit losses		12,191		13,972

Noninterest income:
Service and other fees		310		341
Income on bank-owned life insurance		203		197
Net gain on sale of loans		1		18
Other		75		1,097
Total noninterest income		589		1,653

Noninterest expense:
Salaries and employee benefits		5,404		5,613
Occupancy		1,623		1,594
Equipment		1,312		1,196
Federal deposit insurance premiums		245		141
Other general and administrative expenses		1,029		1,054
Total noninterest expense		9,613		9,598

Income before income taxes		3,167		6,027
Income taxes		851		1,317
Net income	$	2,316	$	4,710

Basic earnings per share	$	0.26	$	0.52
Diluted earnings per share	$	0.26	$	0.52
Cash dividends declared per common share	$	0.23	$	0.23
Basic weighted-average shares outstanding		8,774,634		8,980,135
Diluted weighted-average shares outstanding		8,806,744		9,014,454

See accompanying ~~notes~~Notes to ~~consolidated financial statements.~~Consolidated Financial Statements.

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Net income

$
4,173

$
4,164

$
12,795

$
11,985

Change in unfunded pension liability

—

—

—

(21)

Change in unrealized loss on securities

12

4

(1)

10

Change in noncredit related loss on trust preferred securities

—

45

—

91

Other comprehensive income (loss), net of tax

12

49

(1)

80

Comprehensive income

$
4,185

$
4,213

$
12,794

$
12,065


	Three Months Ended
	March 31,
	2023		2022
Net income	$	2,316	$	4,710

Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities		337		(103)
Total other comprehensive income (loss), net of tax		337		(103)
Comprehensive income	$	2,653	$	4,607

See accompanying ~~notes~~Notes to ~~consolidated financial statements.~~Consolidated Financial Statements.

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity (Unaudited)

(Dollars in thousands, except per share data)

Accumulated

Additional

Unearned

Other

Total

Common

Paid-in

ESOP

Retained

Comprehensive

Stockholders’

Stock

Capital

Shares

Earnings

Income (Loss)

Equity

Balances at December 31, 2015

$
96

$
70,118

$
(6,361)

$
161,024

$
(5,236)

$
219,641

Net income

—

—

—

11,985

—

11,985

Other comprehensive income

—

—

—

—

80

80

Cash dividends paid ($0.54 per share)

—

—

—

(4,938)

—

(4,938)

Share-based compensation

1

1,778

—

—

—

1,779

Allocation of 36,699 ESOP shares

—

612

367

—

—

979

Repurchase of 100,758 shares of company common stock

(1)

(2,724)

—

—

—

(2,725)

Exercise of 93,100 options for common stock

1

1,616

—

—

—

1,617

Balances at September 30, 2016

$
97

$
71,400

$
(5,994)

$
168,071

$
(5,156)

$
228,418

Balances at December 31, 2016

$
98

$
71,914

$
(5,872)

$
168,962

$
(5,316)

$
229,786

Net income

—

—

—

12,795

—

12,795

Other comprehensive loss

—

—

—

—

(1)

(1)

Cash dividends paid ($0.70 per share)

—

—

—

(6,471)

—

(6,471)

Share-based compensation

—

48

—

—

—

48

Allocation of 36,699 ESOP shares

—

777

367

—

—

1,144

Repurchase of 91,456 shares of company common stock

(1)

(2,905)

—

—

—

(2,906)

Exercise of 166,837 options for common stock

2

2,895

—

—

—

2,897

Balances at September 30, 2017

$
99

$
72,729

$
(5,505)

$
175,286

$
(5,317)

$
237,292


										Accumulated
	Common			Additional		Unearned				Other		Total
	Shares	Common		Paid-in		ESOP		Retained		Comprehensive		Stockholders’
	Outstanding	Stock		Capital		Shares		Earnings		Loss		Equity
Balances at December 31, 2021	9,324,060	$	93	$	56,951	$	(3,425)	$	208,227	$	(5,524)	$	256,322

Net income	—		—		—		—		4,710		—		4,710
Other comprehensive loss	—		—		—		—		—		(103)		(103)
Cash dividends declared ($0.23 per share)	—		—		—		—		(2,055)		—		(2,055)
Share-based compensation	15,671		—		134		—		—		—		134
Allocation of 12,234 ESOP shares	—		—		182		122		—		—		304
Repurchase of shares of common stock	(53,741)		—		(1,330)		—		—		—		(1,330)

Balances at March 31, 2022	9,285,990	$	93	$	55,937	$	(3,303)	$	210,882	$	(5,627)	$	257,982

See accompanying ~~notes~~Notes to ~~consolidated financial statements.~~

Consolidated Financial Statements.

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

Net income	—		—		—		—		2,316		—		2,316
Other comprehensive income	—		—		—		—		—		337		337
Cumulative change in accounting principle (1)									(2,319)				(2,319)
Cash dividends declared ($0.23 per share)	—		—		—		—		(1,975)		—		(1,975)
Share-based compensation	4,540		—		(42)		—		—		—		(42)
Allocation of 12,234 ESOP shares	—		—		159		122		—		—		281
Repurchase of shares of common stock	(69,065)		(1)		(1,386)		—		—		—		(1,387)

Balances at March 31, 2023	9,006,551	$	90	$	50,556	$	(2,814)	$	213,336	$	(7,407)	$	253,761

(1) Represents the impact of the adoption of Accounting Standards Update 2016-13. See Note 6 to the consolidated financial statements for additional information.

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,

2017

2016

Cash flows from operating activities:

Net income

$
12,795

$
11,985

Adjustments to reconcile net income to net cash from operating activities:

Provision for loan losses

2

219

Depreciation and amortization

816

886

Deferred income tax expense

733

1,041

Amortization of fees, discounts, and premiums

(339)

(604)

Origination of loans held for sale

(19,023)

(39,336)

Proceeds from sales of loans held for sale

20,284

38,844

Gain on sale of loans, net

(154)

(304)

Gain on sale of investment securities held to maturity

(431)

(250)

Net loss on disposal of premises and equipment

25

—

ESOP expense

1,144

979

Share-based compensation expense

48

1,779

Increase in accrued interest receivable

(253)

(66)

Net increase in bank-owned life insurance

(682)

(727)

Net increase in prepaid expenses and other assets

(1,722)

(316)

Net increase in accounts payable and accrued expenses

1,083

1,558

Net decrease in advance payments by borrowers for taxes and insurance

(1,938)

(1,828)

Net (increase) decrease in income taxes receivable

119

(737)

Net increase (decrease) in income taxes payable

77

(444)

Net cash from operating activities

12,584

12,679

Cash flows from investing activities:

Purchases of investment securities held to maturity

(51,894)

(2,523)

Purchases of investment securities available for sale

(2,970)

—

Principal repayments on investment securities held to maturity

40,925

60,077

Principal repayments on investment securities available for sale

50

—

Proceeds from sale of investment securities held to maturity

7,446

3,923

Loan originations, net of principal repayments on loans receivable

(98,468)

(112,498)

Purchases of Federal Home Loan Bank stock

(1,609)

(275)

Proceeds from redemption of Federal Home Loan Bank stock

1,541

120

Purchases of Federal Reserve Bank stock

(8)

(59)

Purchases of premises and equipment

(2,172)

(190)

Net cash from investing activities

(107,159)

(51,425)


	Three Months Ended
	March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	2,316	$	4,710
Adjustments to reconcile net income to net cash used in operating activities:
Reversal of provision for credit losses		(100)		(168)
Depreciation and amortization		292		317
Deferred income tax expense		266		232
(Accretion) amortization of fees, discounts, and premiums, net		(90)		43
Amortization of right-of-use asset		716		700
Origination of loans held for sale		(355)		(3,032)
Proceeds from sales of loans held for sale		356		1,988
Gain on sale of loans, net		(1)		(7)
ESOP expense		281		304
Share-based compensation expense		(42)		134
Net increase in accrued interest receivable		(13)		(63)
Net increase in bank-owned life insurance		(203)		(197)
Net increase in prepaid expenses and other assets		(154)		(5,661)
Net decrease in accounts payable and accrued expenses		(1,661)		(233)
Net decrease in lease liability		(694)		(702)
Net decrease in advance payments by borrowers for taxes and insurance		(2,691)		(2,649)
Net increase in income taxes payable		196		610

Net cash used in operating activities		(1,581)		(3,674)

Cash flows from investing activities:
Purchases of investment securities held to maturity		(6,693)		(46,832)
Purchases of investment securities available for sale		—		(5,408)
Principal repayments on investment securities held to maturity		8,879		19,403
Principal repayments on investment securities available for sale		220		—
Principal repayments on loans receivable, net of loan originations		409		7,680
Purchases of Federal Home Loan Bank stock		(5,087)		(24)
Proceeds from redemption of Federal Home Loan Bank stock		840		—
Purchases of Federal Reserve Bank stock		(7)		(5)
Proceeds from bank-owned life insurance		—		4,431
Purchases of premises and equipment		(116)		(138)

Net cash used in investing activities		(1,555)		(20,893)

(Continued)

Table of Contents

TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

Nine Months Ended

September 30,

2017

2016

Cash flows from financing activities:

Net increase in deposits

$
78,167

$
19,376

Proceeds from advances from the Federal Home Loan Bank

38,525

3,000

Repayments of advances from the Federal Home Loan Bank

(38,525)

(3,000)

Purchases of Fed Funds

10

10

Sales of Fed Funds

(10)

(10)

Proceeds from exercise of stock options

—

566

Repurchases of common stock

(9)

(1,674)

Cash dividends paid

(6,471)

(4,938)

Net cash from financing activities

71,687

13,330

Net decrease in cash and cash equivalents

(22,888)

(25,416)

Cash and cash equivalents at beginning of the period

61,273

65,919

Cash and cash equivalents at end of the period

$
38,385

$
40,503

Supplemental disclosure of cash flow information:

Cash paid for:

Interest on deposits and borrowings

$
6,698

$
5,770

Income taxes

6,956

8,068

Supplemental disclosure of noncash investing and financing activities:

Company stock acquired through stock swap and net settlement transactions

$
2,897

$
1,051


	2023		2022
Cash flows from financing activities:
Net decrease in deposits	$	(54,179)	$	(6,260)
Proceeds from advances from the Federal Home Loan Bank		126,000		—
Repayments of advances from the Federal Home Loan Bank		(21,000)		—
Repurchases of common stock		(1,345)		(1,135)
Cash dividends paid		(2,033)		(2,113)

Net cash provided by (used in) financing activities		47,443		(9,508)

Net change in cash and cash equivalents		44,307		(34,075)

Cash and cash equivalents at beginning of the year		40,553		99,859

Cash and cash equivalents at end of the year	$	84,860	$	65,784

Supplemental disclosure of cash flow information:
Cash paid for:
Interest on deposits and borrowings	$	4,318	$	1,141
Income taxes		390		475

Supplemental disclosure of noncash investing and financing activities:
Company stock repurchased through stock swap and net settlement transactions	$	43	$	194
Establishment of right-of-use asset, net of incentives and modifications		118		4,798
Establishment of lease liability, net of modifications		118		4,798

See accompanying ~~notes~~Notes to ~~consolidated financial statements.~~Consolidated Financial Statements.

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TERRITORIAL BANCORP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(1) ~~Basis~~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 ~~Presentation~~the Federal Reserve System. Territorial Savings Bank has an inactive subsidiary, Territorial Financial Services, Inc.

(2) Summary of Significant Accounting Policies

(a)

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements of Territorial Bancorp Inc. ~~(the Company)~~ 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, ~~2016.~~2022. In the opinion of management, all adjustments necessary for a fair presentation have been made and consist only of normal recurring adjustments. Interim results of operations are not necessarily indicative of results to be expected for the year.

(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. CECL replaces the incurred loss approach that delayed the recognition of a credit loss until it was probable and a loss event occurred.

~~(2) Organization~~

~~On July 10, 2009, Territorial Savings Bank completed a conversion from a mutual holding company to a stock holding company. As~~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 adjustment can include changes in the economy, loan underwriting standards, and delinquency trends. The Company then considers future economic conditions as part of the ~~conversion, Territorial Mutual Holding Company~~one year reasonable and ~~Territorial Savings Group, Inc.~~supportable forecast period.

The Bank’s loan portfolio is segmented into three pools: real estate, commercial and consumer loans. Only three pools are used to segment the Bank’s loan portfolio because they share the same 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.

The real estate pool consists primarily of residential mortgage loans secured by real estate in Hawaii. These loans have fixed interest rates, loan terms of up to 30 years, and were originated using similar loan terms. The commercial loan pool consists of business loans. The consumer loan pool consists primarily of home equity lines of credit secured by real estate in Hawaii.

The ACL on loans is estimated by calculating the ~~former holding companies~~total present value of expected cash flows discounted by the loan’s effective interest rate. The expected cash flows includes estimates of loan charge-offs and recoveries, loan prepayments, and credit utilization. The expected cash flows on the loans are adjusted using forecasts of economic variables which have a strong correlation with loan charge-offs and recoveries, prepayments, and credit utilization during the one year reasonable and supportable forecast period. After the reasonable and supportable forecast period, the

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historical reversion rate is used to calculate loan charge-offs and recoveries, prepayments, and credit utilization. The reversion rate is based on historical averages. Qualitative adjustments may be made to account for ~~Territorial Savings Bank, ceased to exist as separate legal entities,~~current conditions and ~~Territorial Bancorp Inc. became~~forward looking events not captured in the ~~holding company for Territorial Savings Bank. Upon completion~~historical information.

The ACL 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 ~~conversion and reorganization, a special “liquidation account” was established in an amount~~ACL is equal to the amortized cost basis minus the total ~~equity~~present value of ~~Territorial Mutual Holding~~cash flows on the loan discounted by the loan’s effective interest rate. Charge-offs to the ACL are made when management determines that the collectability of all or a portion of a loan is doubtful and available collateral is insufficient to repay the loan.

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 fair value, 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.

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.

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 interest income. 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.

Accrued interest receivable on loans was $4.5 million as of ~~December~~March 31, ~~2008.~~ 2023 and is included in Accrued interest receivable on the Consolidated Balance Sheet.

The ~~liquidation account~~Company is required to ~~provide eligible account holders~~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 ~~supplemental eligible account holders who maintain their deposit accounts with Territorial Savings Bank after~~have a long history of no credit losses, the ~~conversion with~~Company did not record a ~~liquidation~~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 ~~unlikely event~~credit quality of the ~~complete liquidation~~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 ~~Territorial Savings Bank after the conversion. The balance~~its amortized cost basis. If either of the ~~liquidation account at December 31, 2016 was $12.2 million.~~

~~On June 25, 2014, Territorial Savings Bank converted~~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 ~~a federal savings bank~~credit losses or other factors. In making this assessment, management considers the extent to ~~a Hawaii state-chartered savings bank. On July 10, 2014, Territorial Savings Bank became a member~~which fair value is less than amortized cost, any changes to the rating of the ~~Federal Reserve System.~~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.

Changes in the ACL are recorded as a provision for (or reversal of) 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.

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Since all of the Company’s AFS investment securities were issued by U.S. government agencies or U.S. government sponsored enterprises and include the explicit and/or implicit guarantee of the U.S. government, the Company did not record a credit loss on these securities. The unrealized loss on AFS securities were due to changes in interest rates, relative to when the securities were purchased. Management has concluded that the long history with no credit losses from these issuers indicates an expectation that nonpayment of the amortized cost basis is zero and an ACL was not recorded.

(3) Recently Issued Accounting Pronouncements

In ~~May 2014,~~June 2016, the Financial Accounting Standards Board (FASB) ~~amended the Revenue Recognition topic~~issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of ~~the FASB Accounting Standards Codification (ASC).~~Credit Losses on Financial Instruments. The amendment seeks to clarify the principles for recognizing revenue as well as to develop common revenue standards for U.S. generally accepted accounting principles and International Financial Reporting Standards. The Company has reviewed all revenue sources to determine if the sources are in scope for this guidance. Net interest income from financial assets and liabilities are explicitly excluded from the scope of the amendment. The Company’s overall assessment of key in-scope revenue sources include service charges on deposit accounts, rental income from safe deposit boxes and commissions on insurance and annuity sales. The guidance is not expected to have a significant impact on the Company’s revenue recognition for these key in-scope revenue sources. The Company plans to adopt this amendment effective January 1, 2018, under the modified retrospective approach with a cumulative effect adjustment to opening retained earnings, if such adjustment is considered to be significant.

In January 2016, the FASB amended the Financial Instruments – Overall topic of the FASB ASC. The amendment addresses several aspects of recognition, measurement, presentation and disclosure of financial instruments. Included are: (a) a requirement to measure equity investments at fair value, with changes in fair value recognized in net income, (b) a simplification of the impairment assessment of equity investments without readily determinable fair values, (c) the elimination of the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet, and (d) a requirement to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. Since the Company does not own any equity securities subject to the amendment in its investment portfolio, the amendment will not have a significant impact on its consolidated financial statements. The Company will continue to evaluate the effects that the

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~~use of exit prices will have on its fair value disclosures. The amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.~~

In February 2016, the FASB amended the Leases topic of the FASB ASC. The primary effects of the amendment will be to recognize lease assets and lease liabilities on the balance sheet and to disclose certain information about leasing arrangements. The amendment is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company has several lease agreements for branch locations and equipment that will require recognition on the consolidated balance sheets upon adoption of the amendment. The Company will continue to evaluate the effects that the adoption of this amendment will have on its consolidated financial statements.

In March 2016, the FASB amended the Compensation – Stock Compensation topic of the FASB ASC. The amendment includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. Some of the key provisions of the amendment require companies to record all excess tax benefits and tax deficiencies as income tax benefit or expense in the income statement rather than as an adjustment to additional paid-in capital. In addition, the amendment requires that excess tax benefits should be reported as an operating activity on the statement of cash flows and increases the amount an employer can withhold for taxes for share-based compensation awards. The amendment is effective for annual periods beginning after December 15, 2016. The Company adopted this amendment effective January 1, 2017. The adoption of this amendment has resulted in increased volatility to income tax expense related to excess tax benefits and tax deficiencies for share-based compensation. The amount of tax benefits or deficiencies recognized in income tax expense depends on the number of options exercised and the difference in the stock prices at the exercise and grant dates. For the three and nine months ended September 30, 2017, the Company recognized $150,000 and $541,000, respectively, of tax benefits related to the exercise of stock options.

~~In June 2016, the FASB amended various sections of the FASB ASC related to the accounting for credit losses on financial instruments. The amendment~~ASU changes the threshold for recognizing losses from a “probable” to an “expected” model. The new model is referred to as the current expected credit loss model and applies to loans, leases, held-to-maturity investments, loan commitments, and financial guarantees. The ~~amendment~~standard requires the measurement of all expected credit losses for financial assets as of the reporting date (including historical experience, current conditions, and reasonable and supportable forecasts) and enhanced disclosures that will help financial statement users understand the estimates and judgments used in estimating credit losses and evaluating the credit quality of an organization’s portfolio. The amendment iswas effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In November 2019, the FASB issued an update that delays the effective date of the amendment for smaller reporting companies, as defined by the Securities and Exchange Commission, to fiscal years beginning after December 15, 2022. The Company ~~will apply~~is a smaller reporting company. The Company adopted the ~~amendment’s~~standard on January 1, 2023, and applied the standard’s provisions as a cumulative-effect adjustment to retained earnings ~~at the beginning~~as of January 1, 2023. Upon adoption of the ~~first period~~standard, the ~~amendment is effective. The~~ Company ~~is currently evaluating~~recorded a $3.2 million increase to the effects that the adoption of this amendment will have on its consolidated financial statements by gathering the information that is necessary to make the calculations required by the amendment. This may result in increasedreserve for credit losses, ~~on financial instruments recorded~~which resulted in ~~the consolidated financial statements.~~a $2.3 million after-tax decrease to retained earnings as of January 1, 2023. The tax effect resulted in an increase to deferred tax assets.

In March ~~2017,~~2022, the FASB ~~amended~~issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The ASU eliminates the ~~Compensation – Retirement Benefits topic~~accounting guidance for loans modified as troubled debt restructurings by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, the ASU requires public business entities to disclose current-period gross write-offs by year of ~~the FASB ASC. The amendment requires the service cost component of~~origination for financing receivables and net ~~benefit cost to be reported~~investments in the same line item as other compensation costs arising from employee services. It also requires the other components of net benefit cost to be reported in the income statement separately from the service cost component. The amendment isleases. This ASU was effective for ~~annual periods~~fiscal years beginning after December 15, ~~2017,~~2022, including interim periods within those ~~annual periods.~~fiscal years, upon the Company’s adoption of the amendments in ASU 2016-13. The Company ~~has performed~~adopted the standard on January 1, 2023, and it did not have a ~~preliminary evaluation~~material effect on the Company’s consolidated financial statements.

In June 2022, the 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 approximates fair value. Ownership of stock is a condition for services the Company receives from the FRB and FHLB. The stock is not publically traded and can only be issued, exchanged, redeemed or repurchased by the FRB and the FHLB. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023. The Company does not expect the adoption of this ~~amendment~~ASU to have a material effect on its consolidated financial statements.

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(4) Cash and Cash Equivalents

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



	September 30,		December 31,		March 31,		December 31,
(Dollars in thousands)	2017		2016		2023		2022
Cash and due from banks	$	10,118	$	9,043	$	11,782	$	9,722
Interest-earning deposits in other banks		28,267		52,230		73,078		30,831
Cash and cash equivalents	$	38,385	$	61,273	$	84,860	$	40,553

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 ~~values~~value, and related ACL of investment securities are as follows:


	Amortized		Gross Unrealized				Estimated
(Dollars in thousands)	Cost		Gains		Losses		Fair Value			ACL
March 31, 2023:
Available-for-sale:
Mortgage-backed securities issued by U.S. government-sponsored enterprises	$	23,337	$	—	$	(2,264)	$	21,073	$	—
Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises		715,601		80		(113,636)		602,045		—

Total	$	738,938	$	80	$	(115,900)	$	623,118	$	—

December 31, 2022:
Available-for-sale:
Mortgage-backed securities issued by U.S. government-sponsored enterprises	$	23,544	$	—	$	(2,723)	$	20,821	$	—
Held-to-maturity:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises		717,773		62		(126,751)		591,084		—

Total	$	741,317	$	62	$	(129,474)	$	611,905	$	—

Amortized

Gross Unrealized

Estimated

(Dollars in thousands)

Cost

Gains

Losses

Fair Value

September 30, 2017:

Available-for-sale:

U.S. government-sponsored mortgage-backed securities

$
2,920

$
—

$
(10)

$
2,910

Total

$
2,920

$
—

$
(10)

$
2,910

Held-to-maturity:

U.S. government-sponsored mortgage-backed securities

$
411,065

$
7,374

$
(4,252)

$
414,187

Trust preferred securities

592

333

—

925

Total

$
411,657

$
7,707

$
(4,252)

$
415,112

December 31, 2016:

Held-to-maturity:

U.S. government-sponsored mortgage-backed securities

$
406,498

$
7,285

$
(7,024)

$
406,759

Trust preferred securities

1,158

5

—

1,163

Total

$
407,656

$
7,290

$
(7,024)

$
407,922

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The amortized cost and estimated fair value of investment securities by maturity date at ~~September 30, 2017~~March 31, 2023 are shown below. Incorporated in the maturity schedule are mortgage-backed ~~and trust preferred~~ securities, which are

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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		Amortized		Estimated
(Dollars in thousands)	Cost		Fair Value		Cost		Fair Value
Available-for-sale:
Due within 5 years	$	—	$	—
Due after 5 years through 10 years		—		—
Due after 10 years		2,920		2,910	$	23,337	$	21,073
Total	$	2,920	$	2,910	$	23,337	$	21,073


Held-to-maturity:
Due within 5 years	$	12	$	13	$	19	$	19
Due after 5 years through 10 years		50		50		9		8
Due after 10 years		411,595		415,049		715,573		602,018
Total	$	411,657	$	415,112	$	715,601	$	602,045

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2017

2016

2017

2016

Proceeds from sales

$
2,393

$
801

$
7,446

$
3,923

Gross gains

150

60

431

250

Gross losses

—

—

—

—

The ~~sale of these mortgage-backed~~Company did not sell any held-to-maturity or available-for-sale securities ~~for which~~during the ~~Company had already collected a substantial portion of the outstanding purchased principal (at least 85%), is in accordance with the Investments – Debt~~three months ended March 31, 2023 and ~~Equity Securities topic of the FASB ASC and does not taint management’s assertion of intent to hold remaining securities in the held-to-maturity portfolio to maturity.~~2022.

Investmentsecurities with amortized costs of ~~$275.6~~$241.5 million and ~~$239.9~~ $272.8 million at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, respectively, were pledged to secure ~~public~~ deposits made by state and local governments, securities sold under agreements to repurchase, ~~and~~ transaction clearing ~~accounts.~~accounts, and Federal Reserve Bank borrowings. The Company did not have any outstanding borrowings at the Federal Reserve Bank at March 31, 2023 or December 31, 2022.

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Provided below is a summary of investment securities which were in an unrealized loss position at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016.~~2022. The Company does not intend to sell ~~held-to-maturity and available-for-sale~~ securities

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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					Less Than 12 Months				12 Months or Longer				Total
			Unrealized				Unrealized		Number of			Unrealized				Unrealized				Unrealized		Number of			Unrealized
Description of securities	Fair Value		Losses		Fair Value		Losses		Securities	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses		Securities	Fair Value		Losses
(Dollars in thousands)
September 30, 2017:
March 31, 2023:
Available-for-sale:
U.S. government-sponsored mortgage-backed securities	$	2,910	$	10	$	—	$	—	1	$	2,910	$	10

Mortgage-backed securities issued by U.S. government-sponsored enterprises														$	4,414	$	(250)	$	16,659	$	(2,014)	4	$	21,073	$	(2,264)
Held-to-maturity:
U.S. government-sponsored mortgage-backed securities	$	117,700	$	1,875	$	67,276	$	2,377	47	$	184,976	$	4,252

December 31, 2016:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises															92,902		(3,738)		502,468		(109,898)	150		595,370		(113,636)

Total														$	97,316	$	(3,988)	$	519,127	$	(111,912)	154	$	616,443	$	(115,900)
December 31, 2022:
Available-for-sale:
Mortgage-backed securities issued by U.S. government sponsored enterprises														$	20,821	$	(2,723)	$	—	$	—	4	$	20,821	$	(2,723)
Held-to-maturity:
U.S. government-sponsored mortgage-backed securities	$	179,741	$	5,599	$	23,402	$	1,425	50	$	203,143	$	7,024

Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises															210,128		(22,209)		377,418		(104,542)	148		587,546		(126,751)

Total														$	230,949	$	(24,932)	$	377,418	$	(104,542)	152	$	608,367	$	(129,474)

Mortgage-Backed Securities. The unrealized losses on the Company’s investment in mortgage-backed securities were caused by increases in market interest rates subsequent to purchase. All of the mortgage-backed securities are guaranteed by Freddie Mac or Fannie Mae, which are U.S. government-sponsored enterprises, or Ginnie Mae, which is a U.S. government agency. Since the decline in market value is attributable to changes in interest rates and not credit quality, ~~and~~ the Company does not intend to sell these investments until maturity, and it is not more likely than not that the Company will be required to sell such investments prior to recovery of its cost basis, the Company does not consider these investments to be other-than-temporarily impaired as of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016.~~2022. Securities that are issued or contain collateral issues by U.S. government-sponsored enterprises carry the explicit and/or implicit guarantee from the U.S. government, have a long history of no credit losses and are widely recognized as “risk free.” Therefore, no allowance for credit losses was recorded for these securities as of March 31, 2023.

~~Trust Preferred Securities~~. At September 30, 2017, the Company owned one trust preferred security, PreTSL XXIII. PreTSL XXIII has an amortized cost and a remaining cost basis of $592,000 at September 30, 2017. The trust preferred security represents an investment in a pool of debt obligations issued primarily by holding companies for Federal Deposit Insurance Corporation-insured financial institutions. This security is classified in the Company’s held-to-maturity investment portfolio.

The trust preferred securities market is considered to be inactive as only six transactions have occurred over the past 69 months in the same tranche of securities that we own and no new issuances of pooled trust preferred securities have occurred since 2007. We used a discounted cash flow model to determine whether this security is other-than-temporarily impaired. The assumptions used in preparing the discounted cash flow model include the following: estimated discount rates, estimated deferral and default rates on collateral, and estimated cash flows.

Based on the Company’s review, the Company’s investment in PreTSL XXIII did not incur additional impairment during the nine months ended September 30, 2017 and there is no accumulated other comprehensive loss related to noncredit factors.

It is reasonably possible that the fair value of the trust preferred security could decline in the near term if the overall economy and the financial condition of some of the issuers deteriorate further and the liquidity of this security remains low. As a result, there is a risk that the Company’s remaining cost basis of $592,000 on the trust preferred security could be credit-related other-than-temporarily impaired in the near term. The impairment, if any, could be material to the Company’s consolidated statements of income.

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

Nine Months Ended September 30,

(Dollars in thousands)

2017

2016

Balance at the beginning of the period

$
2,403

$
2,403

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

—

—

Credit losses on debt securities which were sold

—

—

Balance at the end of the period

$
2,403

$
2,403

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

September 30,

(Dollars in thousands)

2017

2016

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

$
—

$
56

(6) Loans Receivable and Allowance for ~~Loan~~Credit Losses

The components of loans receivable, net of allowance for credit losses (ACL) under ASC 326 as of March 31, 2023 and net of allowance for credit losses under ASC 310 as of December 31, 2022 are as follows:


	September 30,		December 31,

					March 31,		December 31,
(Dollars in thousands)	2017		2016		2023		2022
Real estate loans:
First mortgages:
One- to four-family residential	$	1,390,037	$	1,289,364	$	1,253,020	$	1,253,558
Multi-family residential		9,334		9,551		6,239		6,448
Construction, commercial and other		22,490		23,346
Construction, commercial, and other						24,587		23,903
Home equity loans and lines of credit		13,474		14,805		6,303		6,426
Total real estate loans		1,435,335		1,337,066		1,290,149		1,290,335
Other loans:
Loans on deposit accounts		285		204		241		216
Consumer and other loans		4,798		4,360		8,087		8,381
Total other loans		5,083		4,564		8,328		8,597
Less:
Net unearned fees and discounts		(3,166)		(3,191)		(2,040)		(2,136)
Allowance for loan losses		(2,499)		(2,452)
Total unearned fees, discounts and allowance for loan losses		(5,665)		(5,643)
Allowance for credit losses						(5,127)		(2,032)
Total unearned fees, discounts, and allowance for credit losses						(7,167)		(4,168)
Loans receivable, net	$	1,434,753	$	1,335,987	$	1,291,310	$	1,294,764

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

Construction,

Home

Commercial

Equity

and Other

Loans and

Residential

Mortgage

Lines of

Consumer

(Dollars in thousands)

Mortgage

Loans

Credit

and Other

Unallocated

Totals

Three months ended September 30, 2017:

Balance, beginning of period

$
1,602

$
556

$
1

$
53

$
245

$
2,457

Provision (reversal of provision) for loan losses

30

16

—

18

(10)

54

1,632

572

1

71

235

2,511

Charge-offs

—

—

—

(12)

—

(12)

Recoveries

—

—

—

—

—

—

Net charge-offs

—

—

—

(12)

—

(12)

Balance, end of period

$
1,632

$
572

$
1

$
59

$
235

$
2,499

Nine months ended September 30, 2017:

Balance, beginning of period

$
1,594

$
519

$
2

$
115

$
222

$
2,452

Provision (reversal of provision) for loan losses

(26)

53

(1)

(37)

13

2

1,568

572

1

78

235

2,454

Charge-offs

(11)

—

—

(24)

—

(35)

Recoveries

75

—

—

5

—

80

Net recoveries (charge-offs)

64

—

—

(19)

—

45

Balance, end of period

$
1,632

$
572

$
1

$
59

$
235

$
2,499

Construction,

Home

Commercial

Equity

and Other

Loans and

Residential

Mortgage

Lines of

Consumer

(Dollars in thousands)

Mortgage

Loans

Credit

and Other

Unallocated

Totals

Three months ended September 30, 2016:

Balance, beginning of period

$
1,444

$
567

$
3

$
56

$
206

$
2,276

Provision (reversal of provision) for loan losses

133

(87)

(1)

54

8

107

1,577

480

2

110

214

2,383

Charge-offs

(33)

—

—

(5)

—

(38)

Recoveries

15

—

—

2

—

17

Net charge-offs

(18)

—

—

(3)

—

(21)

Balance, end of period

$
1,559

$
480

$
2

$
107

$
214

$
2,362

Nine months ended September 30, 2016:

Balance, beginning of period

$
1,380

$
517

$
3

$
72

$
194

$
2,166

Provision (reversal of provision) for loan losses

190

(37)

(1)

47

20

219

1,570

480

2

119

214

2,385

Charge-offs

(33)

—

—

(23)

—

(56)

Recoveries

22

—

—

11

—

33

Net charge-offs

(11)

—

—

(12)

—

(23)

Balance, end of period

$
1,559

$
480

$
2

$
107

$
214

$
2,362

In 2016, the Company changed the look-back period that is used to calculate the historical loss rates from five to seven years. The look-back period was extended to seven years because the longer look-back period is considered to be more representative of an entire economic cycle. The seven year look-back period includes loan charge-offs and recoveries related to the recession and the subsequent economic recovery. The change in the look-back period did not have a material effect on the allowance for loan losses.


					Home
					Equity
					Loans and
	Real		Commercial		Lines of		Consumer
(Dollars in thousands)	Estate		Loans		Credit		Loans		Unallocated		Totals
Three months ended March 31, 2023:
Balance, beginning of period	$	1,263	$	434	$	1	$	75	$	259	$	2,032
Adoption of ASU No. 2016-13		3,393		71		(1)		5		(259)		3,209
(Reversal of provision) provision for credit losses		(27)		(88)		—		15		—		(100)
		4,629		417		—		95		—		5,141
Charge-offs		—		—		—		(15)		—		(15)
Recoveries		—		—		—		1		—		1
Net charge-offs		—		—		—		(14)		—		(14)
Balance, end of period	$	4,629	$	417	$	—	$	81	$	—	$	5,127

			Construction,		Home
			Commercial,		Equity
			and Other		Loans and
	Residential		Mortgage		Lines of		Consumer
(Dollars in thousands)	Mortgage		Loans		Credit		and Other		Unallocated		Totals
Three months ended March 31, 2022:
Balance, beginning of period	$	1,814	$	435	$	1	$	89	$	330	$	2,669
(Reversal of provision) provision for credit losses		(180)		(1)		—		45		(32)		(168)
		1,634		434		1		134		298		2,501
Charge-offs		—		—		—		(42)		—		(42)
Recoveries		—		—		—		—		—		—
Net charge-offs		—		—		—		(42)		—		(42)
Balance, end of period	$	1,634	$	434	$	1	$	92	$	298	$	2,459

1314

Table of Contents

Management considers the allowance for loan losses at September 30, 2017 to be at an appropriate level to provide for probable losses that can be reasonably estimated based on general and specific conditions at that date. While the Company uses the best information it has available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations. To the extent actual outcomes differ from the estimates, additional provisions for credit losses may be required that would reduce future earnings. In addition, as an integral part of their examination process, the bank regulators periodically review the allowance for loan losses and may require the Company to increase the allowance based on their analysis of information available at the time of their examination.

The table below presents the balance in the allowance for ~~loan~~credit losses and the recorded investment in loans, net of unearned fees and discounts, by portfolio segment, and based on impairment ~~method:~~method as of December 31, 2022, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13:



			Construction,		Home										Construction,		Home
			Commercial		Equity										Commercial,		Equity
			and Other		Loans and										and Other		Loans and
	Residential		Mortgage		Lines of		Consumer						Residential		Mortgage		Lines of		Consumer
(Dollars in thousands)	Mortgage		Loans		Credit		and Other		Unallocated		Totals		Mortgage		Loans		Credit		and Other		Unallocated		Totals
September 30, 2017:
Allowance for loan losses:

December 31, 2022:
Allowance for credit losses:
Ending allowance balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,632		572		1		59		235		2,499		1,263		434		1		75		259		2,032
Total ending allowance balance	$	1,632	$	572	$	1	$	59	$	235	$	2,499	$	1,263	$	434	$	1	$	75	$	259	$	2,032


Loans:
Ending loan balance:
Individually evaluated for impairment	$	4,099	$	—	$	170	$	—	$	—	$	4,269	$	2,693	$	—	$	16	$	—	$	6	$	2,715
Collectively evaluated for impairment		1,392,170		22,405		13,310		5,098		—		1,432,983		1,255,300		23,775		6,411		8,595		—		1,294,081
Total ending loan balance	$	1,396,269	$	22,405	$	13,480	$	5,098	$	—	$	1,437,252	$	1,257,993	$	23,775	$	6,427	$	8,595	$	6	$	1,296,796

December 31, 2016:
Allowance for loan losses:
Ending allowance balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,594		519		2		115		222		2,452
Total ending allowance balance	$	1,594	$	519	$	2	$	115	$	222	$	2,452

Loans:
Ending loan balance:
Individually evaluated for impairment	$	5,587	$	—	$	156	$	1	$	—	$	5,744
Collectively evaluated for impairment		1,290,209		23,256		14,656		4,574		—		1,332,695
Total ending loan balance	$	1,295,796	$	23,256	$	14,812	$	4,575	$	—	$	1,338,439

~~Table of Contents~~

The table below presents the balance of impaired loans individually evaluated for impairment by class of ~~loans:~~loans as of December 31, 2022, in accordance with ASC 310 prior to the adoption of ASU 2016-13:



			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal
(Dollars in thousands)	Investment		Balance		Investment		Balance
September 30, 2017:
December 31, 2022:
With no related allowance recorded:
One- to four-family residential mortgages	$	4,099	$	4,976	$	2,693	$	3,209
Home equity loans and lines of credit		170		229		16		30
Consumer Loans						6		6
Total	$	4,269	$	5,205	$	2,715	$	3,245

December 31, 2016:
With no related allowance recorded:
One- to four-family residential mortgages	$	5,587	$	6,469
Home equity loans and lines of credit		156		204
Consumer and other		1		1
Total	$	5,744	$	6,674

The table below presents the average recorded investment and interest income recognized on impaired loans by class of ~~loans:~~loans as of March 31, 2022, in accordance with ASC 310 prior to the adoption of ASU 2016-13:



	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended
	September 30,				September 30,				March 31, 2022
	Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized		Investment		Recognized
2017:
With no related allowance recorded:
One- to four-family residential mortgages	$	4,135	$	13	$	4,203	$	43	$	3,782	$	7
Home equity loans and lines of credit		172		—		177		—		18		—
Total	$	4,307	$	13	$	4,380	$	43	$	3,800	$	7

2016:
With no related allowance recorded:
One- to four-family residential mortgages	$	5,936	$	19	$	6,000	$	57
Home equity loans and lines of credit		162		—		163		—
Total	$	6,098	$	19	$	6,163	$	57

There were no loans individually evaluated for impairment with a related allowance for ~~loan~~credit loss as of ~~September 30, 2017 or~~ December 31, ~~2016. Loans~~2022. At December 31, 2022, loans individually evaluated for impairment do not have an allocated allowance for ~~loan loss~~credit losses because they ~~were~~are written down to fair value at the time of impairment. At December 31, 2022, an impaired loan would also not have an allocated allowance if the value of the property securing the loan, less the cost to sell the property, is greater than the loan balance.

Table of Contents

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

Loans

More Than

90 Days

30 - 59

60 - 89

90 Days or

Past Due

Days Past

Days Past

Greater

Total Past

Loans Not

Total

Nonaccrual

and Still

(Dollars in thousands)

Due

Due

Past Due

Due

Past Due

Loans

Loans

Accruing

September 30, 2017:

One- to four-family residential mortgages

$
438

$
—

$
652

$
1,090

$
1,385,864

$
1,386,954

$
3,179

$
—

Multi-family residential mortgages

—

—

—

—

9,315

9,315

—

—

Construction, commercial and other mortgages

—

—

—

—

22,405

22,405

—

—

Home equity loans and lines of credit

—

—

41

41

13,439

13,480

170

—

Loans on deposit accounts

—

—

—

—

285

285

—

—

Consumer and other

1

3

—

4

4,809

4,813

—

—

Total

$
439

$
3

$
693

$
1,135

$
1,436,117

$
1,437,252

$
3,349

$
—

December 31, 2016:

One- to four-family residential mortgages

$
185

$
133

$
1,358

$
1,676

$
1,284,590

$
1,286,266

$
4,402

$
—

Multi-family residential mortgages

—

—

—

—

9,530

9,530

—

—

Construction, commercial and other mortgages

—

—

—

—

23,256

23,256

—

—

Home equity loans and lines of credit

16

35

49

100

14,712

14,812

156

—

Loans on deposit accounts

—

—

—

—

204

204

—

—

Consumer and other

3

—

1

4

4,367

4,371

1

—

Total

$
204

$
168

$
1,408

$
1,780

$
1,336,659

$
1,338,439

$
4,559

$
—

The Company primarily uses the aging of loans and accrual status 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 March 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
March 31, 2023:
Commercial
30 - 59 days past due		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
60 - 89 days past due			—		—		—		—		—		—		—		—
90 days or more past due			—		—		—		—		—		—		—		—
Loans not past due			—		396		4,952		—		228		1,171		1,218		7,965
Total Commercial			—		396		4,952		—		228		1,171		1,218		7,965

Consumer
30 - 59 days past due			1		—		—		—		—		—		—		1
60 - 89 days past due			—		3		—		—		—		—		—		3
90 days or more past due			—		—		—		—		—		—		—		—
Loans not past due			78		113		39		88		29		48		5,324		5,719
Total Consumer			79		116		39		88		29		48		5,324		5,723

Real Estate
30 - 59 days past due			—		—		—		—		—		874		—		874
60 - 89 days past due			—		—		—		—		—		51		—		51
90 days or more past due			—		—		—		—		140		827		—		967
Loans not past due			19,531		132,417		290,917		191,102		95,150		551,740		—		1,280,857
Total Real Estate			19,531		132,417		290,917		191,102		95,290		553,492		—		1,282,749

Total		$	19,610	$	132,929	$	295,908	$	191,190	$	95,547	$	554,711	$	6,542	$	1,296,437

The Company did not have any revolving loans that converted to term loans during the three months ended March 31, 2023.

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
March 31, 2023:
One- to four-family residential mortgages	$	859	$	51	$	967	$	1,877	$	1,249,239	$	1,251,116	$	2,357	$	—
Multi-family residential mortgages		—		—		—		—		6,230		6,230		—		—
Construction, commercial, and other mortgages		—		—		—		—		24,456		24,456		—		—
Home equity loans and lines of credit		15		—		—		15		6,290		6,305		15		—
Loans on deposit accounts		—		—		—		—		241		241		—		—
Consumer and other		1		3		—		4		8,085		8,089		—		—

Total	$	875	$	54	$	967	$	1,896	$	1,294,541	$	1,296,437	$	2,372	$	—

December 31, 2022:
One- to four-family residential mortgages	$	—	$	409	$	559	$	968	$	1,250,586	$	1,251,554	$	2,279	$	—
Multi-family residential mortgages		—		—		—		—		6,439		6,439		—		—
Construction, commercial, and other mortgages		—		—		—		—		23,775		23,775		—		—
Home equity loans and lines of credit		—		—		—		—		6,427		6,427		16		—
Loans on deposit accounts		—		—		—		—		217		217		—		—
Consumer and other		6		—		6		12		8,372		8,384		6		—

Total	$	6	$	409	$	565	$	980	$	1,295,816	$	1,296,796	$	2,301	$	—

Table of Contents

The table below presents the amortized cost basis of loans on nonaccrual status as of March 31, 2023 and December 31, 2022.


	March 31, 2023						December 31, 2022
(Dollars in thousands)	Nonaccrual Loans with a related ACL		Nonaccrual loans without a related ACL		Total Nonaccrual Loans		Total Nonaccrual Loans

Real Estate	$	878	$	1,494	$	2,372	$	2,295
Consumer		—		—		—		6
Commercial		—		—		—		—
Total Nonaccrual Loans and Leases	$	878	$	1,494	$	2,372	$	2,301

The Company does not recognize interest income while loans are on nonaccrual status. All payments received while on nonaccrual status are applied against the principal balance of the loan.

When a mortgage loan becomes seriously delinquent (90 days or more contractually past due), it displays weaknesses that may result in a loss. As a loan becomes more delinquent, the likelihood of the borrower repaying the loan decreases and the loan becomes more collateral-dependent. A mortgage loan becomes collateral-dependent when the proceeds for repayment can be expected to come only from the sale or operation of the collateral and not from borrower repayments. Generally, appraisals are obtained after a loan becomes collateral-dependent or is four months delinquent. The carrying value of collateral-dependent loans is adjusted to the fair value of the collateral less selling costs. Any commercial real estate, commercial, construction or equity loan that has a loan balance in excess of a specified amount is also periodically reviewed to determine whether the loan exhibits any weaknesses and is performing in accordance with its contractual terms.

The ~~Company had 16 nonaccrual~~amortized cost basis of collateral dependent loans ~~with a book~~was $967,000 and $559,000 at March 31, 2023 and December 31, 2022, respectively. These loans were collateralized by residential real estate in Hawaii. As of March 31, 2023 and December 31, 2022, the fair value of ~~$3.3 million at September 30, 2017 and 19 nonaccrual~~the collateral less selling costs of these collateral dependent loans ~~with a book value of $4.6 million as of December 31, 2016. The Company collected interest~~exceeded the amortized cost basis. There was no ACL on ~~nonaccrual~~collateral dependent loans.

There were no loans ~~of $137,000 and $149,000~~modified during the ~~nine~~three months ended ~~September 30, 2017 and 2016, respectively, but due to regulatory requirements,~~March 31, 2023 or 2022.

Since the ~~Company recorded~~beginning of the ~~interest as~~year, there has not been a ~~reduction~~significant increase in loan delinquencies, significant changes in deposits or significant drawdowns on any lines of principal. The Company would have recognized additional interest income of $169,000 and $211,000 during the nine months ended September 30, 2017 and 2016, had the loans been accruing interest. The Company didcredit. We do not have any commercial loans ~~more than 90 days past due and still accruing interest as of September 30, 2017 and December 31, 2016.~~to hotels, businesses in the transportation industry, restaurants or retail establishments.

There were no loans modified in a troubled debt restructuring during the nine months ended September 30, 2017 or 2016. There were no new troubled debt restructurings within the past 12 months that subsequently defaulted.

~~Table of Contents~~

~~The table below summarizes troubled debt restructurings by class of loans:~~

Number of

Accrual

Number of

Nonaccrual

(Dollars in thousands)
Loans

Status

Loans

Status

Total
September 30, 2017:







One- to four-family residential mortgages

4

$
920

5

$
1,097

$
2,017
Home equity loans and lines of credit

—

—

1

96

96
Total

4

$
920

6

$
1,193

$
2,113

December 31, 2016:

One- to four-family residential mortgages

5

$
1,185

7

$
1,629

$
2,814
Home equity loans and lines of credit

—

—

1

107

107
Total

5

$
1,185

8

$
1,736

$
2,921

One of the restructured loans, for $149,000, was more than 149 days delinquent and not accruing interest as of September 30, 2017 and December 31, 2016. Restructurings include deferrals of interest and/or principal payments and temporary or permanent reductions in interest rates due to the financial difficulties of the borrowers. At September 30, 2017, we had no commitments to lend any additional funds to these borrowers.

The Company had no real estate owned as of ~~September 30, 2017~~March 31, 2023 or December 31, ~~2016.~~2022. There were three one- to four-family residential mortgage loans totaling ~~$652,000 and one home equity loan for $41,000~~$279,000 in the process of foreclosure ~~as of September 30, 2017, and four~~at March 31, 2023. There were two one- to four-family residential mortgage loans totaling ~~$702,000~~$227,000 in the process of foreclosure ~~as of~~at December 31, ~~2016.~~ 2022.

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~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, the Company sold ~~$20.3 million and $38.6 million, respectively, of~~ mortgage loans held for sale with principal balances of $360,000 and $2.0 million, respectively, and recognized gains of ~~$154,000~~$1,000 and ~~$304,000,~~$18,000, respectively. The Company had ~~one loan held for sale for $495,000 at September 30, 2017 and five~~no loans held for sale ~~totaling $1.6 million~~ at ~~December~~March 31, ~~2016.~~2023.

The Company serviced loans for others with principal balances of ~~$37.5~~$35.5 million at ~~September 30, 2017~~March 31, 2023 and ~~$41.5~~$36.0 million at December 31, ~~2016.~~2022. Of these amounts, ~~$2.0~~$20.4 million and ~~$2.2~~$20.7 million of loan balances relate to securitizations for which the Company continues to hold the related mortgage-backed securities at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, respectively. The amount of contractually specified servicing fees earned for the ~~nine-month periods~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 was ~~$80,000~~$23,000 and ~~$99,000, respectively. The amount of contractually specified servicing fees earned for the three-month periods ended September 30, 2017 and 2016 was $26,000 and $31,000,~~$27,000, respectively. The fees are reported in service ~~fees on loan~~ and ~~deposit accounts~~other fees in the ~~consolidated statements~~Consolidated Statements of ~~income.~~Income.

Table of Contents

(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 March 31, 2023 and December 31, 2022, our credit limit with the FHLB of Des Moines was equal to 45% of Territorial Savings Bank’s total assets and we had the capacity to borrow an additional $630.1 million and $769.1 million, respectively.

Advances outstanding consisted of the following:


	March 31, 2023				December 31, 2022
			Weighted				Weighted
			Average				Average
(Dollars in thousands)	Amount		Rate		Amount		Rate
Due within one year	$	24,000	1.27	%	$	24,000	1.27	%
Due over 1 year to 2 years		82,000	1.40			82,000	1.40
Due over 2 years to 3 years		25,000	1.58			25,000	1.58
Due over 3 years to 4 years		40,000	3.70			10,000	1.97
Due over 4 years to 5 years		35,000	4.22			—	—
Due over 5 years to 6 years		40,000	4.41			—	—
Total	$	246,000	2.67	%	$	141,000	1.45	%

(8) 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, 2017				December 31, 2016				March 31, 2023				December 31, 2022
			Weighted				Weighted				Weighted				Weighted
	Repurchase		Average		Repurchase		Average		Repurchase		Average		Repurchase		Average
(Dollars in thousands)	Liability		Rate		Liability		Rate		Liability		Rate		Liability		Rate
Maturing:
1 year or less	$	25,000	1.46	%	$	25,000	1.46	%
Over 1 year to 2 years		20,000	1.66			—	—		$	10,000	1.81	%	$	5,000	1.88	%
Over 2 years to 3 years		10,000	1.65			25,000	1.66			—	—			5,000	1.73
Over 3 years to 4 years		—	—			5,000	1.65
Total	$	55,000	1.57	%	$	55,000	1.57	%	$	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, 2017.~~March 31, 2023. 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 repurchase liability cannot exceed 90% of the fair value of securities pledged. In the event of a decline in the fair value of securities pledged to less than the required amount due to market conditions or principal repayments, the Company is obligated to pledge additional securities or other suitable collateral to cure the deficiency.

Weighted

Weighted

Carrying

Fair

Average

Carrying

Fair

Average

Value of

Repurchase

Amount

Months to

Value of

Repurchase

Amount

Months to

(Dollars in thousands)

Securities

Liability

at Risk

Maturity

Securities

Liability

at Risk

Maturity

Maturing:

Over 90 days

61,372

61,614

55,000

6,614

13,373

11,355

10,000

3,373

~~(8)~~18

Table of Contents

(9) Offsetting of Financial Liabilities

Securities sold under agreements to repurchase are subject to a right of offset in the event of default. See ~~note 7,~~Note 8, Securities Sold Under Agreements to Repurchase, for additional information.



					Net Amount of		Gross Amount Not Offset in the										Net Amount of		Gross Amount Not Offset in the
	Gross Amount		Gross Amount		Liabilities		Balance Sheet						Gross Amount		Gross Amount		Liabilities		Balance Sheet
	of Recognized		Offset in the		Presented in the		Financial		Cash Collateral				of Recognized		Offset in the		Presented in the		Financial		Cash Collateral
(Dollars in thousands)	Liabilities		Balance Sheet		Balance Sheet		Instruments		Pledged		Net Amount		Liabilities		Balance Sheet		Balance Sheet		Instruments		Pledged		Net Amount
September 30, 2017:
March 31, 2023:
Securities sold under agreements to repurchase	$	55,000	$	—	$	55,000	$	55,000	$	—	$	—	$	10,000	$	—	$	10,000	$	10,000	$	—	$	—

December 31, 2016:

December 31, 2022:
Securities sold under agreements to repurchase	$	55,000	$	—	$	55,000	$	55,000	$	—	$	—	$	10,000	$	—	$	10,000	$	10,000	$	—	$	—

~~(9) Employee Benefit Plans~~

The Company has a noncontributory defined benefit pension plan (Pension Plan) that covers most employees with at least one year of service. Effective December 31, 2008, under approved changes to the Pension Plan, there were no further accruals of benefits for any participants and benefits will not increase with any additional years of service. Net periodic benefit cost, subsequent to December 31, 2008, has not been significant and is not disclosed in the table below.

~~Table of Contents~~

The Company also sponsors a Supplemental Employee Retirement Plan (SERP), a noncontributory supplemental retirement benefit plan, which covers certain current and former employees of the Company for amounts in addition to those provided under the Pension Plan.

~~The components of net periodic benefit cost were as follows:~~

SERP

SERP

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2017

2016

2017

2016

Net periodic benefit cost for the period:

Service cost

$
19

$
15

$
39

$
44

Interest cost

34

32

104

98

Expected return on plan assets

—

—

—

—

Amortization of prior service cost

—

—

—

—

Recognized actuarial loss

—

—

—

—

Recognized curtailment loss

—

—

—

—

Net periodic benefit cost

$
53

$
47

$
143

$
142

(10) Employee Stock Ownership Plan

Effective January 1, 2009, Territorial Savings Bank adopted an Employee Stock Ownership Plan (ESOP) for eligible employees. The ESOP borrowed ~~$9.8~~$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~~$10.00 per share.

The loan is secured by the shares purchased with the loan proceeds and will be repaid by the ESOP over the 20-year term of the loan with funds from Territorial Savings Bank’s contributions to the ESOP and dividends payable on the shares. The interest rate on the ESOP loan is an adjustable rate equal to the prime rate, as published in The Wall Street ~~Journal.~~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, 2017~~March 31, 2023 and ~~2016~~2022 amounted to ~~$298,000~~$281,000 and ~~$283,000,~~$305,000, respectively. ~~Compensation expense recognized for the nine months ended September 30, 2017 and 2016 amounted to $923,000 and $804,000, respectively.~~

Shares held by the ESOP trust were as follows:



	September 30,		December 31,		March 31,		December 31,
	2017		2016		2023		2022
Allocated shares		392,351		372,997		595,708		583,474
Unearned shares		550,494		587,193		281,364		293,598
Total ESOP shares		942,845		960,190		877,072		877,072
Fair value of unearned shares, in thousands	$	17,379	$	19,283	$	5,433	$	7,049

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

~~Table of Contents~~

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, 2017~~March 31, 2023 and ~~2016,~~2022, we accrued ~~$97,000~~$7,000 and ~~$122,000,~~$36,000, respectively, for the ESOP restoration plan. ~~For the nine months ended September 30, 2017 and 2016, we accrued $161,000 and $244,000, respectively, for the ESOP restoration plan.~~

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(11) Share-Based Compensation

~~On August 19, 2010,~~The shareholders of Territorial Bancorp Inc. adopted the 2010 Equity Incentive Plan ~~which provides~~and the 2019 Equity Incentive Plan. These plans provide for ~~awards~~the award of stock options and restricted stock to key officers and ~~outside~~ directors. In accordance with the Compensation – Stock Compensation topic of the FASB ASC, the cost of the ~~2010 Equity Incentive Plan~~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 fair value of time-based stock options is estimated using a Black-Scholes option pricing model using assumptions for dividend yield, stock price volatility, risk-free interest rate, and option term. These assumptions are based on our judgments regarding future events, are subjective in nature, and cannot be determined with precision. The cost of the awards will be recognized on a straight-line basis over the three ~~five-~~, five- or six-year vesting period during which participants are required to provide services in exchange for the awards. No new awards can be made under the 2010 Equity Plan, but awards previously made can continue to vest. There are 144,630 remaining 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 ~~statement~~Consolidated Statements of ~~income~~Income as a component of salaries and employee benefits with a corresponding increase in ~~shareholders’~~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				Three Months Ended
	September 30,				September 30,				March 31,
(In thousands)	2017		2016		2017		2016		2023		2022
Compensation expense	$	58	$	457	$	95	$	1,780	$	(42)	$	134
Income tax benefit		23		183		38		714		(11)		37

~~Shares of our common stock issued under~~Share-based compensation expense and the ~~2010 Equity Incentive Plan shall come from authorized shares.~~income tax benefit had credit balances during the three months ended March 31, 2023. The ~~maximum~~credit balances occurred when the number of ~~shares that will be awarded under~~performance-based restricted stock units (PRSUs), which are based on a performance condition, decreased because the ~~plan will be 1,862,637 shares.~~Company’s three-year return on average equity declined in comparison to a peer group of banks.

Stock Options

The table below presents the stock option activity for the ~~nine~~three months ended ~~September 30, 2017 and 2016:~~March 31, 2022:


								Weighted			Aggregate
		Weighted			Aggregate			Average		Remaining	Intrinsic
		Average		Remaining	Intrinsic			Exercise		Contractual	Value
		Exercise		Contractual	Value		Options	Price		Life (years)	(in thousands)
	Options	Price		Life (years)	(in thousands)
Options outstanding at December 31, 2016	706,430	$	17.43	3.70	$	10,884
Options outstanding at December 31, 2021							3,085	$	23.62	0.67	$	5
Granted	—		—	—		—	—		—	—		—
Exercised	166,837		17.36	—		2,414	—		—	—		—
Forfeited	—		—	—		—	—		—	—		—
Expired	—		—	—		—	—		—	—		—
Options outstanding at September 30, 2017	539,593	$	17.45	2.96	$	7,616

Options outstanding at December 31, 2015	832,300	$	17.42	4.70	$	8,588
Granted	—		—	—		—
Exercised	93,100		17.36	—		908
Forfeited	—		—	—		—
Expired	—		—	—		—
Options outstanding at September 30, 2016	739,200	$	17.43	3.95	$	8,302

Options vested and exercisable at September 30, 2017	538,393	$	17.44	2.95	$	7,610
Options outstanding at March 31, 2022							3,085	$	23.62	0.42	$	1

~~Table of Contents~~

~~The following summarizes certain stock option activity of~~There were no options exercised or vested during the ~~Company:~~

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

(In thousands)

2017

2016

2017

2016

Intrinsic value of stock options exercised

$
744

$
368

$
2,414

$
908

Proceeds received from stock options exercised

971

551

2,897

1,616

Tax benefits realized from stock options exercised

245

121

838

216

Total fair value of stock options that vested

38

3,923

38

3,923

~~During the nine~~three months ended ~~September 30, 2017, we issued 75,707 shares of common stock, net, in exchange for 166,837 stock~~March 31, 2022. There were no options ~~and 91,130 shares of common stock. Pursuant to~~outstanding during the ~~provisions of our equity incentive plan, optionees are permitted to use the value of our common stock they own in a stock swap transaction or net settlement to pay the exercise price of stock options.~~

three months ended March 31, 2023. As of ~~September 30, 2017,~~March 31, 2023, the Company had ~~$4,000 of~~no unrecognized compensation costs related to the stock option ~~plan that will be amortized over a three-year vesting period.~~plans.

Table of Contents

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
		Weighted		Time-Based		Average Grant
		Average Grant		Restricted		Date Fair
	Restricted	Date Fair		Stock		Value
	Stock Awards	Value
Nonvested at December 31, 2016	2,400	$	26.23
Unvested at December 31, 2022					23,664		$	24.15
Granted	9,604		29.53		—			—
Vested	1,200		26.23		4,540			21.05
Forfeited	—		—		—			—
Nonvested at September 30, 2017	10,804	$	29.16

Nonvested at December 31, 2015	114,542	$	17.67
Unvested at March 31, 2023					19,124		$	24.89

Unvested at December 31, 2021					23,208		$	24.61
Granted	—		—		—			—
Vested	112,142		17.49		8,001			23.75
Forfeited	—		—		—			—
Nonvested at September 30, 2016	2,400	$	26.23
Unvested at March 31, 2022					15,207		$	25.06

During the nine months ended September 30, 2017, the Company issued 9,604 shares of restricted stock to certain members of executive management under the 2010 Equity Incentive Plan. The fair value of the restricted stock is based on the value of the Company’s stock on the date of grant. Restricted stock will vest over three years from the date of grant.

As of ~~September 30, 2017,~~March 31, 2023, the Company had ~~$278,000~~$288,000 of unrecognized compensation costs related to time-based restricted stock.

During the nine months ended September 30, 2017, the Company issued 11,525 of performance-based restricted stock units (PRSUs) to certain members of executive management under the 2010 Equity Incentive Plan. These PRSUs will vest in the first quarter of 2020 after our Compensation Committee determines whether a performance condition that compares the Company’s return on average equity to the SNL Bank Index is achieved. Depending on the Company’s

~~Table of Contents~~

performance, the actual number of these PRSUs that are issued at the end of the vesting period can vary between 0% to 150% of the target award. For the PRSUs, an estimate is made of the number of shares expected to vest based on the probability that the performance criteria will be achieved to determine the amount of compensation expense to be recognized. This estimate is re-evaluated quarterly and total compensation expense is adjusted for any change in the current period.

The table below presents the PRSUs that will vest on a performance condition:


				Performance-
				Based Restricted
	Performance-			Stock Units	Weighted
				Based on a	Average Grant
				Performance	Date Fair
	Based Restricted			Condition	Value
	Stock Units	Weighted
	Based on a	Average Grant
	Performance	Date Fair
	Condition	Value
Nonvested at December 31, 2016	—	$	—
Unvested at December 31, 2022				43,557	$	23.63
Granted	11,525		29.53	—		—
Vested	—		—	—		—
Forfeited	—		—	16,348		21.05
Nonvested at September 30, 2017	11,525	$	29.53
Unvested at March 31, 2023				27,209	$	25.18

Unvested at December 31, 2021				41,583	$	24.68
Granted				—		—
Vested				7,670		27.30
Forfeited				4,768		27.30
Unvested at March 31, 2022				29,145	$	23.56

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, 2017,~~March 31, 2023, the Company had ~~$215,000~~$73,000 of unrecognized compensation costs related to these PRSUs. Performance will be measured over a three-year performance period and will be cliff vested.

~~During~~ The performance condition is measured quarterly by comparing the ~~nine months ended September 30, 2017,~~Company’s three-year return on average equity to a peer group of banks. The Company’s percentile ranking in the ~~Company issued 2,881~~peer group is used to adjust the number of PRSUs that are expected to ~~certain members~~vest.

Table of executive management under the 2010 Equity Incentive Plan. These PRSUs will vest in the first quarter of 2020 after our Compensation Committee determines whether a market condition that compares the Company’s total stock return to the SNL Bank Index is achieved. The number of shares that will be expensed will not be adjusted for performance. The fair value of these PRSUs is based on a Monte Carlo valuation of the Company’s stock on the date of grant. The assumptions which were used in the Monte Carlo valuation of the PRSUs are:Contents

~~Grant date: May 25, 2017~~

~~Performance period: January 1, 2017 to December 31, 2019~~

~~2.60 year risk-free rate on grant date: 1.40%~~

~~December 31, 2016 closing price: $32.84~~

~~Closing stock price on the date of grant: $29.53~~

~~Annualized volatility (based on 2.60 year historical volatility as of the grant date): 15.7%~~

~~Annual dividend preceding the grant date: $0.80~~

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
	Performance-
	Based Restricted	Monte Carlo
	Stock Units	Valuation of
	Based on a	the Company's
	Market Condition	Stock
Nonvested at December 31, 2016	—	$	—
Unvested at December 31, 2022				10,889	$	24.04
Granted	2,881		24.44	—		—
Vested	—		—	—		—
Forfeited	—		—	4,087		22.16
Nonvested at September 30, 2017	2,881	$	24.44
Unvested at March 31, 2023				6,802	$	25.16

Unvested at December 31, 2021				10,396	$	24.03
Granted				—		—
Vested				—		—
Forfeited				3,110		24.45
Unvested at March 31, 2022				7,286	$	23.85

As of ~~September 30, 2017,~~March 31, 2023, the Company had ~~$41,000~~$53,000 of 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-year performance period and will be cliff vested. The market condition is measured quarterly by comparing the Company’s three-year average total stock return to a peer group of other banks. The Company’s percentile ranking in the peer group determines how many PRSUs will vest.

~~Table of Contents~~

(12) Earnings Per Share

Holders of unvested restricted stock ~~receive nonforfeitable~~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				Three Months Ended
	September 30,				September 30,				March 31,
(Dollars in thousands, except per share data)	2017		2016		2017		2016		2023		2022
Net income	$	4,173	$	4,164	$	12,795	$	11,985	$	2,316	$	4,710
Income allocated to participating securities		(10)		(47)		(15)		(136)		(19)		(24)
Net income available to common shareholders	$	4,163	$	4,117	$	12,780	$	11,849	$	2,297	$	4,686


Weighted-average number of shares used in:
Basic earnings per share		9,280,018		9,102,837		9,250,537		9,065,892		8,774,634		8,980,135
Dilutive common stock equivalents:
Stock options and restricted stock units		241,183		222,669		285,338		214,368		32,110		34,319
Diluted earnings per share		9,521,201		9,325,506		9,535,875		9,280,260		8,806,744		9,014,454


Net income per common share, basic	$	0.45	$	0.45	$	1.38	$	1.31	$	0.26	$	0.52
Net income per common share, diluted	$	0.44	$	0.44	$	1.34	$	1.28	$	0.26	$	0.52

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Table of Contents

(13) Accumulated Other Comprehensive ~~Income and~~ Loss

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


			Noncredit
			Related
			Loss on

	Unfunded		Trust		Unrealized				Unfunded		Unrealized
	Pension		Preferred		Loss on				Pension		(Gain)/Loss on
(Dollars in thousands)	Liability		Securities		Securities		Total		Liability		Securities		Total
Three months ended September 30, 2017
Three months ended March 31, 2023
Balances at beginning of period	$	5,284	$	—	$	45	$	5,329	$	5,746	$	1,998	$	7,744
Other comprehensive income, net of taxes		—		—		(12)		(12)		—		(337)		(337)
Amounts reclassified from accumulated other comprehensive loss		—		—		—		—
Net current period other comprehensive income		—		—		(12)		(12)		—		(337)		(337)
Balances at end of period	$	5,284	$	—	$	33	$	5,317	$	5,746	$	1,661	$	7,407

Three months ended September 30, 2016
Balances at beginning of period	$	5,065	$	101	$	39	$	5,205
Other comprehensive income, net of taxes		—		(45)		(4)		(49)
Amounts reclassified from accumulated other comprehensive loss		—		—		—		—
Net current period other comprehensive income		—		(45)		(4)		(49)
Balances at end of period	$	5,065	$	56	$	35	$	5,156

Nine months ended September 30, 2017

Three months ended March 31, 2022
Balances at beginning of period	$	5,284	$	—	$	32	$	5,316	$	5,524	$	—	$	5,524
Other comprehensive loss, net of taxes		—		—		1		1		—		103		103
Amounts reclassified from accumulated other comprehensive loss		—		—		—		—
Net current period other comprehensive loss		—		—		1		1		—		103		103
Balances at end of period	$	5,284	$	—	$	33	$	5,317	$	5,524	$	103	$	5,627

Nine months ended September 30, 2016
Balances at beginning of period	$	5,044	$	147	$	45	$	5,236
Other comprehensive loss (income), net of taxes		21		(91)		(10)		(80)
Amounts reclassified from accumulated other comprehensive loss		—		—		—		—
Net current period other comprehensive loss (income)		21		(91)		(10)		(80)
Balances at end of period	$	5,065	$	56	$	35	$	5,156

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

Three Months Ended September 30,

2017

2016

Pretax

After Tax

Pretax

After Tax

(Dollars in thousands)

Amount

Tax

Amount

Amount

Tax

Amount

Unfunded pension liability

$
—

$
—

$
—

$
—

$
—

$
—

Noncredit related loss on trust preferred securities

—

—

—

(74)

29

(45)

Unrealized loss on securities

(21)

9

(12)

(7)

3

(4)

Total

$
(21)

$
9

$
(12)

$
(81)

$
32

$
(49)


	Three Months Ended March 31,
	2023						2022
	Pretax				After Tax		Pretax				After Tax
(Dollars in thousands)	Amount		Tax		Amount		Amount		Tax		Amount
Unrealized (gain) loss on securities	$	(459)	$	122	$	(337)	$	141	$	(38)	$	103
Total	$	(459)	$	122	$	(337)	$	141	$	(38)	$	103

(14) Revenue Recognition

The Company’s contracts with customers are generally short-term in nature, with cycles of one year or less. These can range from an immediate term for services such as wire transfers, foreign currency exchanges, and cashier’s check purchases, to several days for services such as processing annuity and mutual fund sales. Some contracts may be of an ongoing nature, such as providing deposit account services, including ATM access, check processing, account analysis, and check ordering. However, provision of an assessable service and payment for such service is usually concurrent or closely timed. Contracts related to financial instruments, such as loans, investments, and debt, are excluded from the scope of this reporting requirement.

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

2423

Table of Contents

Revenue from contracts with customers is reported in service and other fees in other noninterest income in the Consolidated Statements of Income. The table below reconciles the revenue from contracts with customers and other revenue reported in those line items:


	Service and
(Dollars in thousands)	Other Fees		Other		Total
Three months ended March 31, 2023
Revenue from contracts with customers	$	275	$	42	$	317
Other revenue		35		33		68
Total	$	310	$	75	$	385

Three months ended March 31, 2022
Revenue from contracts with customers	$	310	$	44	$	354
Other revenue		31		1,053		1,084
Total	$	341	$	1,097	$	1,438

(15) Leases

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


	Three Months Ended
	March 31,
(Dollars in thousands)	2023		2022
Lease costs:
Operating lease costs	$	705	$	762
Short-term lease costs		104		15
Variable lease costs		43		38
Total lease costs	$	852	$	815

Cash paid for amounts included in measurement of lease liabilities	$	769	$	763
ROU assets obtained in exchange for new operating lease liabilities	$	118	$	4,798

Nine Months Ended September 30,

2017

2016

Pretax

After Tax

Pretax

After Tax

(Dollars in thousands)

Amount

Tax

Amount

Amount

Tax

Amount

Unfunded pension liability

$
—

$
—

$
—

$
—

$
21

$
21

Noncredit related loss on trust preferred securities

—

—

—

(150)

59

(91)

Unrealized loss on securities

1

—

1

(17)

7

(10)

Total

$
1

$
—

$
1

$
(167)

$
87

$
(80)

Table of Contents

At March 31, 2023, future minimum rental commitments under noncancellable operating leases are as follows:


(Dollars in thousands)
2023	$	2,216
2024		2,757
2025		2,137
2026		1,974
2027		1,896
Thereafter		10,995
Total		21,975
Less lease incentives to be received in 2023		(4,996)
Less present value discount		(2,259)
Present value of leases	$	14,720

The table below presents other lease related information:


	March 31,			March 31,
	2023			2022
Weighted-average remaining lease term (years)		8.80			8.92
Weighted-average discount rate		2.09	%		1.90	%

~~(14)~~

(16) Fair Value ~~of Financial Instruments~~

In accordance with the Fair Value Measurements and Disclosures topic of the FASB ASC, the Company groups its financial assets and liabilities ~~valued~~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 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 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.

●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 ~~held~~available for sale and derivatives are recorded at fair value on a recurring basis. From time to time, the Company may be required to record other financial assets at fair value on a nonrecurring basis, such as loans held for sale, impaired loans and investments, and mortgage servicing assets. These nonrecurring fair value adjustments typically involve application of the lower of cost or fair value accounting or write-downs of individual assets.

~~Cash and Cash Equivalents, Accrued Interest Receivable and Accrued Interest Payable.~~ ~~The carrying amount approximates fair value because~~25

Table of ~~the short maturity of these instruments.~~Contents

Investment ~~Securities.~~ Securities Available for Sale. The estimated fair values of mortgage-back securities issued by U.S. government-sponsored ~~mortgage-backed securities~~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.

The trust preferred securities represent investments in a pool of debt obligations issued primarily by holding companies for Federal Deposit Insurance Corporation-insured financial institutions. The trust preferred securities market is considered to be inactive as only six transactions have occurred over the past 69 months in the same tranche of securities we own and no new issues of pooled trust preferred securities have occurred since 2007. The fair value of our trust preferred securities was determined using a discounted cash flow model. Our model used a discount rate equal to three-month LIBOR plus 20.00%.

~~Table of Contents~~

The discounted cash flow analysis includes a review of all issuers within the pool. The fair value of the trust preferred securities are classified as Level 3 inputs because they are based on discounted cash flow models.

~~FHLB Stock.~~ ~~FHLB stock, which is redeemable for cash at par value, is reported at its par value.~~

~~FRB Stock.~~ ~~FRB stock, which is redeemable for cash at par value, is reported at its par value.~~

~~Loans.~~ The fair value of loans is estimated by discounting the future cash flows, including estimated prepayments, using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of loans is not based on the concept of exit price.

~~Loans Held for Sale.~~ ~~The fair value of loans held for sale is determined based on the prices quoted in the secondary market for similar loans.~~

~~Deposits.~~ The fair value of checking and Super NOW savings accounts, passbook accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting future cash flows using the rates currently offered for deposits with similar remaining maturities.

~~Advances From the FHLB and Securities Sold Under Agreements to Repurchase.~~ ~~Fair value is estimated by discounting future cash flows using the rates currently offered to the Company for debt with similar remaining maturities.~~

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~~Consolidated Balance Sheet while interest rate contracts that are classified as liabilities are included with accounts payable and accrued expenses.

~~Table of Contents~~

The estimated fair values of the Company’s financial instruments are as follows:


	Carrying				Fair Value Measurements Using

											Carrying				Fair Value Measurements Using
(Dollars in thousands)	Amount		Fair Value		Level 1		Level 2		Level 3		Amount		Fair Value		Level 1		Level 2		Level 3
September 30, 2017
March 31, 2023
Assets
Cash and cash equivalents	$	38,385	$	38,385	$	38,385	$	—	$	—	$	84,860	$	84,860	$	84,860	$	—	$	—
Investment securities available for sale		2,910		2,910		—		2,910		—		21,073		21,073		—		21,073		—
Investment securities held to maturity		411,657		415,112		—		414,187		925		715,601		602,045		—		602,045		—
Loans held for sale		495		499		—		499		—
Loans receivable, net		1,434,753		1,455,571		—		—		1,455,571		1,291,310		1,159,417		—		—		1,159,417
FHLB stock		5,013		5,013		—		5,013		—		12,444		12,444		—		12,444		—
FRB stock		3,103		3,103		—		3,103		—		3,177		3,177		—		3,177		—
Accrued interest receivable		4,985		4,985		2		1,111		3,872		6,128		6,128		100		1,554		4,474
Interest rate contracts		2		2		—		2		—


Liabilities
Deposits		1,571,367		1,570,959		—		1,272,086		298,873		1,661,973		1,655,368		—		1,211,525		443,843
Advances from the Federal Home Loan Bank		69,000		68,933		—		68,933		—		246,000		239,598		—		239,598		—
Securities sold under agreements to repurchase		55,000		54,986		—		54,986		—		10,000		9,530		—		9,530		—
Accrued interest payable		412		412		—		174		238		1,012		1,012		—		36		976
Interest rate contracts		2		2		—		2		—

December 31, 2016

December 31, 2022
Assets
Cash and cash equivalents	$	61,273	$	61,273	$	61,273	$	—	$	—	$	40,553	$	40,553	$	40,553	$	—	$	—
Investment securities available for sale												20,821		20,821		—		20,821		—
Investment securities held to maturity		407,656		407,922		—		406,759		1,163		717,773		591,084		—		591,084		—
Loans held for sale		1,601		1,601		—		1,601		—
Loans receivable, net		1,335,987		1,352,137		—		—		1,352,137		1,294,764		1,180,840		—		—		1,180,840
FHLB stock		4,945		4,945		—		4,945		—		8,197		8,197		—		8,197		—
FRB stock		3,095		3,095		—		3,095		—		3,170		3,170		—		3,170		—
Accrued interest receivable		4,732		4,732		10		1,064		3,658		6,115		6,115		23		1,497		4,595
Interest rate contracts		104		104		—		104		—


Liabilities
Deposits		1,493,200		1,493,094		—		1,257,157		235,937		1,716,152		1,708,612		—		1,286,465		422,147
Advances from the Federal Home Loan Bank		69,000		69,068		—		69,068		—		141,000		133,145		—		133,145		—
Securities sold under agreements to repurchase		55,000		55,123		—		55,123		—		10,000		9,440		—		9,440		—
Accrued interest payable		218		218		—		172		46		701		701		—		33		668
Interest rate contracts		104		104		—		104		—

At ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, neither the commitment fees received on commitments to extend credit nor the fair value thereof was material to the ~~consolidated financial statements~~Consolidated Financial Statements of the Company.

2726

Table of Contents

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, 2017

Interest rate contracts — assets

$
—

$
2

$
—

$
2

Interest rate contracts — liabilities

—

(2)

—

(2)

Available-for-sale investments

—

2,910

—

2,910

December 31, 2016

Interest rate contracts — assets

$
—

$
104

$
—

$
104

Interest rate contracts — liabilities

—

(104)

—

(104)


(Dollars in thousands)	Level 1		Level 2		Level 3		Total

March 31, 2023
Investment securities available for sale	$	—	$	21,073	$	—	$	21,073

December 31, 2022
Investment securities available for sale		—		20,821		—		20,821

The fair value of interest rate contracts was determined by referring to prices quoted in the secondary market for similar contracts. The fair value of available-for-sale investments was determined using quoted market prices.

~~The table below presents the balance of~~There were no assets or liabilities measured at fair value on a nonrecurring basis as of ~~September 30, 2017 and~~March 31, 2023 or December 31, ~~2016 and the related gains and losses for the nine months ended September 30, 2017 and the year ended December 31, 2016:~~2022.

Fair Value

(Dollars in thousands)

Adjustment Date

Level 1

Level 2

Level 3

Total

Total Gains (Losses)

September 30, 2017

Impaired loans

3/31/2017

$
—

$
87

$
—

$
87

$
(11)

December 31, 2016

Trust preferred securities

9/30/2016

$
—

$
—

$
1,066

$
1,066

$
242

Mortgage servicing assets

6/30/2016

—

—

341

341

(49)

Impaired loans

8/31/2016

—

64

—

64

(33)

Loans held for sale

12/31/2016

—

1,601

—

1,601

(1)

The fair value of trust preferred securities is determined using a discounted cash flow model. The assumptions used in the discounted cash flow model are discussed above. Gains and losses on trust preferred securities that are credit related are included in net other-than-temporary impairment losses in the consolidated statements of income. Gains and losses on trust preferred securities that are not credit related are included in other comprehensive income in the consolidated statements of comprehensive income. Mortgage servicing assets are valued using a discounted cash flow model. Assumptions used in the model include mortgage prepayment speeds, discount rates and cost of servicing. Losses on mortgage servicing assets are included in service fees on loan and deposit accounts in the consolidated statements of income. The fair value of impaired loans is determined using the value of collateral less estimated selling costs. Gains and losses on impaired loans are included in the provision for loan losses in the consolidated statements of income. The fair value of loans held for sale is determined based on the prices quoted in the secondary market for similar loans. Losses on loans held for sale are included in gain on sale of loans in the consolidated statements of income.

~~Table of Contents~~

~~The table below presents the significant unobservable inputs for Level 3 nonrecurring fair value measurements:~~

Unobservable

(Dollars in thousands)

Fair Value

Valuation Technique

Input

Value

December 31, 2016:

Trust preferred securities

$
1,066

Discounted cash flow

Discount rate

Three-month LIBOR plus 20.00%

Mortgage servicing assets

341

Discounted cash flow

Discount rate

10.50%

Prepayment speed (PSA)

158.4 - 203.5

Annual cost to service (per loan)

$
65

~~(15)~~(18) Subsequent Events

On ~~October 25, 2017,~~April 27, 2023, the Board of Directors of Territorial Bancorp Inc. declared a quarterly cash dividend of ~~$0.20~~$0.23 per share of common stock. The dividend is expected to be paid on ~~November 22, 2017~~May 25, 2023 to stockholders of record as of ~~November 8, 2017.~~May 11, 2023.

~~Table of Contents~~

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

Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may,” ~~“continue”~~“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 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:

●

general economic conditions, ~~either~~including conditions caused by the COVID-19 pandemic, other public health emergencies, international conflict, inflation, and recessionary pressures, 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;~~

instruments or our ability to originate mortgage loans;

Table of Contents

●

changes in liquidity, including the size and composition of our deposit portfolio, and the percentage of uninsured deposits in the portfolio;

●

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;

●

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 ~~and~~or the Public Company Accounting Oversight Board;

●

changes in our organization, compensation, and benefit plans;

●

~~fluctuations in~~ the ~~demand for loans;~~

timing and amount of revenues that we may recognize;

●

~~significant increases in~~the value and marketability of collateral underlying our loan ~~losses;~~

portfolios;

~~Table of Contents~~

●

~~success in introducing new products and services;~~

~~failure or breaches of IT security systems;~~

our ability to retain ~~management team;~~

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;

●

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; ~~and~~

●

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.

Table of Contents

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~~Recent Developments

Recent bank failures have led to uncertainty and volatility in the financial services industry. In response to these events, we took a series of precautionary measures, which included enhanced monitoring of deposit and funding flows, evaluating other sources of liquidity and our securities portfolio to improve our liquidity and mitigate other potential risks that were highlighted by these events.

As a result of these procedures, we obtained $105.0 million of advances from the Federal Home Loan Bank. The proceeds of these advances were used to enhance our liquidity and let interest-rate sensitive certificates of deposit with state and local governments mature without being renewed. These actions resulted in a stronger liquidity position and a reduction in our interest rate risk. We continue to monitor these events and the impact they may have in future periods, and will respond accordingly. Refer to the “Liquidity and Capital Resources” section and to Part II. Item 1A. “Risk Factors” for further information regarding liquidity.

Additionally, the United States government, particularly the Federal Deposit Insurance Company (“FDIC”), U.S Department of Treasury, and the Board of Governors of the Federal Reserve System, have taken measures designed to restore confidence in the financial markets.

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 ~~accounts,~~inflows, cash balances at the Federal Reserve Bank, loan and security repayments, advances from the Federal Home Loan Bank, proceeds from securities sold under agreements to repurchase, and ~~Federal Home Loan Bank advances.~~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.

We have continued our focus on originating one- to four-family residential real estate loans. Our emphasis on conservative loan underwriting has resulted in continued low levels of nonperforming assets. Our nonperforming assets, which can include nonaccrual loans and real estate owned, totaled ~~$3.3~~$2.4 million, or ~~0.17%~~0.11% of total assets at ~~September 30, 2017,~~March 31, 2023 compared to ~~$4.6~~$2.3 million, or ~~0.24%~~0.11% of total assets at December 31, ~~2016. Our nonperforming loans~~2022. We recorded reversals of credit loss provisions of $100,000 under ASC 326 and loss experience has enabled us to maintain a relatively low allowance for loan losses in relation to other peer institutions and correspondingly resulted in low levels of provisions for loan losses. Our provisions for loan losses were $2,000 and $219,000 for$168,000 under ASC 310 during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, respectively.

~~Other than our loans~~ ASC 326 requires organizations to measure all expected credit losses for ~~the construction of one- to four-family residential homes, we do~~financial instruments based on historical experience, current conditions, and reasonable and supportable forecasts. We did not ~~offer “interest only” mortgage loans (where the borrower pays only interest~~record a provision for ~~an initial period, after which the loan converts to a fully amortizing loan)~~credit losses on one- to four-family residential properties. We also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on their loan, resulting in an increased principal balanceinvestment securities during the ~~life~~three months ended March 31, 2023 or 2022. The reversal of credit loss provisions in the ~~loan. We do not offer “subprime loans” (loans that generally target~~three months ended March 31, 2023 was primarily due to an improvement in economic conditions. The reversal of credit loss provisions in the three months ended March 31, 2022 occurred primarily due to decreases in the amount of loans in our loan payment deferral program, Hawaii’s unemployment rate, and the size of our loan portfolio. The loan payment deferral program was created to assist borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (traditionally defined as nonconforming loans having less than full documentation). We also do not own any private label mortgage-backed securities that are collateralized by Alt-A, low or no documentation or subprime mortgage loans.who were experiencing financial hardship due to the COVID-19 pandemic.

We sold ~~$20.3 million and $38.6 million of~~ fixed-rate mortgage loans held for sale with principal balances of $360,000 and $2.0 million during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, respectively. ~~Long-term, fixed-rate borrowings~~Federal Home Loan Bank advances increased by $105.0 million to $246.0 million during the three months ended March 31, 2023 and remained constant at ~~September 30, 2017~~$141.0 million during the three months ended March 31, 2022. Securities sold under agreements to repurchase remained constant at $10.0 million during the three months ended March 31, 2023 and ~~2016.~~2022.

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 ~~agencies~~entities guarantee the payment of principal and interest on our mortgage-backed securities. ~~We do not own any preferred stock issued by Fannie Mae or Freddie Mac.~~ As of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, we

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owned ~~$414.0~~$736.7 million and ~~$406.5~~$738.6 million, respectively, of mortgage-backed securities issued by Freddie Mac, Fannie Mae, and Ginnie Mae.

Critical Accounting Policies

~~There are no~~On January 1, 2023, we adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which created material changes to ~~the~~our critical accounting policies ~~disclosed in Territorial Bancorp Inc.’s Annual Report on Form 10-K for the year ended~~that existed at December 31, ~~2016.~~2022. This standard replaces the “incurred loss” model, which estimates a loss allowance based on current known and inherent losses within a loan portfolio to an “expected loss” model known as current expected credit loss (CECL), which estimates a loss based on losses expected to be recorded over the life of the loan portfolio.

~~Table~~The estimate of ~~Contents~~

the ACL under CECL is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of cash flows. Refer to Note 2 Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements in this report for further discussions on the risk factors considered by management in establishing the ACL.

Comparison of Financial Condition at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016~~2022

Assets.~~At September 30, 2017, our~~Our total assets ~~were $1.962 billion, an increase of $84.9~~increased by$43.2 million, or ~~4.5%~~2.0%, ~~from $1.878~~to $2.2 billion at ~~December~~March 31, ~~2016.~~2023. The increase in assets was primarily ~~the result of~~due to a ~~$97.7~~$44.3 million increase in ~~total loans receivable and a $6.9 million increase in investment securities, which was partially offset by a $22.9 million decrease in cash and cash equivalents.~~cash.

Cash and Cash Equivalents. Cash and cash equivalents were ~~$38.4~~$84.9 million at ~~September 30, 2017, a decrease~~March 31, 2023, an increase of ~~$22.9~~$44.3 million, or 109.3%, since December 31, ~~2016.~~2022. The ~~decrease~~increase in cash and cash equivalents was primarily caused by a ~~$97.7~~$105.0 million increase in ~~total loans,~~Federal Home Loan Bank advances, which was partially offset by a ~~$78.2~~$54.2 million ~~increase~~decrease in ~~deposits.~~deposits, each as described below.

Loans. Total loans ~~including $495,000 of loans held for sale,~~ were ~~$1.435~~$1.3 billion at ~~September 30, 2017,~~March 31, 2023, or ~~73.1%~~58.4% of total assets. During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023, the loan portfolio ~~including loans held for sale, increased~~decreased by ~~$97.7~~$3.5 million, or ~~7.3%~~0.3%. The ~~increase~~decrease in the loan portfolio primarily occurred as ~~the production of new one- to four-family residential loans exceeded~~ principal repayments and loan ~~sales.~~sales exceeded the origination of new loans.

Securities. ~~At September 30, 2017, our~~Total investment securities, ~~portfolio totaled $414.6~~including $21.1 million of investment securities available for sale, were $736.7 million at March 31, 2023, or ~~21.1%~~33.3% of total assets. During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023, the investment securities portfolio ~~increased~~decreased by ~~$6.9~~$1.9 million, or ~~1.7%~~0.3%. The ~~increase~~decrease in the investment securities ~~portfolio is due to purchases of new securities exceeding~~balance occurred as principal repayments ~~and sales. During the nine months ended September 30, 2017, $52.0 million and $2.9 million of securities were purchased for the held-to-maturity and available-for-sale portfolios, respectively.~~exceeded purchases.

At ~~September 30, 2017,~~March 31, 2023, 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.

At September 30, 2017, we owned a trust preferred security with an amortized cost of $592,000. This security represents an investment in a pool of debt obligations primarily issued by holding companies of Federal Deposit Insurance Corporation-insured financial institutions.

The trust preferred securities market is considered to be inactive as only six transactions have occurred over the past 69 months in the same tranche of securities we own and no new issuances of pooled trust preferred securities have occurred since 2007. We use a discounted cash flow model to determine whether this security is other-than-temporarily impaired. The assumptions used in preparing the discounted cash flow model include the following: estimated discount rates, estimated deferral and default rates on collateral, and estimated cash flows.

~~Based on our review, our investment in the trust preferred security did not incur additional impairment during the nine months ended September 30, 2017.~~

It is reasonably possible that the fair value of the trust preferred security could decline in the near term if the overall economy and the financial condition of some of the issuers deteriorate further and the liquidity of this security remains low. As a result, there is a risk that our remaining cost basis of $592,000 on the trust preferred security could be credit-related other-than-temporarily impaired in the near term. The impairment, if any, could be material to our consolidated statements of income.

Deposits. Deposits were ~~$1.571~~$1.7 billion at ~~September 30, 2017, an increase~~March 31, 2023, a decrease of ~~$78.2~~$54.2 million, or ~~5.2%~~3.2%, since December 31, ~~2016.~~2022. The ~~growth~~decrease in deposits was primarily due to ~~an increase of $63.2~~a $71.4 million decrease in ~~certificates of deposit and an increase of $13.2~~passbook savings that was partially offset by a $20.8 million ~~in savings accounts during the nine months ended September 30, 2017. The~~ increase in certificates of deposit ~~is primarily due~~during the three months ended March 31, 2023. The decrease in passbook savings occurred as funds were transferred by customers from savings accounts for higher interest rates and to ~~a $34.7 million increase in public deposits and $14.6 million in new accounts at our new Keeaumoku branch, which was opened in April 2017.~~obtain FDIC insurance on balances over $250,000.

Borrowings. Our borrowings consist of advances from the Federal Home Loan Bank (FHLB) and funds borrowed under securities sold under agreements to repurchase. At ~~September 30, 2017 and December~~March 31, ~~2016,~~ 2023 total borrowings ~~remained constant at $124.0 million. We have not required any additional borrowings to fund our operations. Instead, we have primarily funded our operations with additional deposits, proceeds~~were $256.0 million, an increase of $105.0 million, or 69.5%, from ~~loan sales and principal repayments on loans and mortgage-backed securities.~~

~~Table of Contents~~

~~Stockholders’ Equity.~~ ~~Total stockholders’ equity increased to $237.3 million at September 30, 2017 from $229.8~~$151.0 million at December 31, ~~2016.~~2022. The ~~increase~~proceeds from the advances were used to enhance liquidity and fund the decrease in deposits.

Stockholders’ Equity. Total stockholders’ equity was $253.8 million at March 31, 2023, a decrease of $2.8 million, or 1.1% from $256.6 million at December 31, 2022. The decrease in stockholders’ equity occurred primarily as ~~our~~the reduction in retained earnings from the adoption of the CECL accounting standard, dividends declared and shares repurchased exceeded net ~~income for the year exceeded dividends paid to stockholders.~~income.

Table of Contents

Average Balances and Yields

The following ~~tables set~~table sets forth average balance sheets, ~~average~~ yields and rates, and certain other information ~~at and~~ for the periods indicated. No tax-equivalent yield adjustments were made, as ~~the effect thereof was~~we did not ~~material.~~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.~~income of $64,000 and $1,000 for the three months ended March 31, 2023 and 2022, respectively.

3331

Table of Contents


	For the Three Months Ended March 31,
	2023							2022
	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)	$	1,250,060		$	10,948	3.50	%	$	1,261,293		$	10,923	3.46	%
Multi-family residential		4,766			61	5.12			5,265			59	4.48
Construction, commercial, and other		24,041			251	4.18			20,075			208	4.14
Home equity loans and lines of credit		6,279			104	6.63			6,866			88	5.13
Other loans		8,439			90	4.27			8,741			79	3.62
Total loans		1,293,585			11,454	3.54			1,302,240			11,357	3.49
Investment securities:
Mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises (2)		740,350			4,540	2.45			656,885			3,423	2.08
Total securities		740,350			4,540	2.45			656,885			3,423	2.08
Other		67,217			727	4.33			71,918			176	0.98
Total interest-earning assets		2,101,152			16,721	3.18			2,031,043			14,956	2.95
Non-interest-earning assets		88,719							88,764
Total assets	$	2,189,871						$	2,119,807

Interest-bearing liabilities:
Savings accounts	$	875,870			346	0.16	%	$	1,080,757			193	0.07	%
Certificates of deposit		438,593			3,168	2.89			207,925			388	0.75
Money market accounts		5,273			1	0.08			5,382			1	0.07
Checking and Super NOW accounts		296,024			15	0.02			300,827			15	0.02
Total interest-bearing deposits		1,615,760			3,530	0.87			1,594,891			597	0.15
Federal Home Loan Bank advances		192,333			1,054	2.19			141,000			511	1.45
Securities sold under agreements to repurchase		10,000			46	1.84			10,000			44	1.76
Total interest-bearing liabilities		1,818,093			4,630	1.02			1,745,891			1,152	0.26
Non-interest-bearing liabilities		116,103							115,458
Total liabilities		1,934,196							1,861,349
Stockholders’ equity		255,675							258,458
Total liabilities and stockholders’ equity	$	2,189,871						$	2,119,807

Net interest income				$	12,091						$	13,804
Net interest rate spread (3)						2.16	%						2.69	%
Net interest-earning assets (4)	$	283,059						$	285,152
Net interest margin (5)						2.30	%						2.72	%
Interest-earning assets to interest-bearing liabilities		115.57	%						116.33	%

For the Three Months Ended September 30,

2017

2016

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)

$
1,371,678

$
13,248

3.86
%
$
1,226,054

$
12,433

4.06
%

Multi-family residential

9,363

111

4.74

9,656

114

4.72

Construction, commercial and other

22,046

250

4.54

25,189

278

4.41

Home equity loans and lines of credit

13,607

162

4.76

15,428

169

4.38

Other loans

4,984

66

5.30

4,297

58

5.40

Total loans

1,421,678

13,837

3.89

1,280,624

13,052

4.08

Investment securities:

U.S. government sponsored mortgage-backed securities (2)

407,547

3,169

3.11

444,514

3,496

3.15

Trust preferred securities

745

—

—

992

—

—

Total securities

408,292

3,169

3.10

445,506

3,496

3.14

Other

47,138

171

1.45

54,658

121

0.89

Total interest-earning assets

1,877,108

17,177

3.66

1,780,788

16,669

3.74

Non-interest-earning assets

70,268

68,176

Total assets

$
1,947,376

$
1,848,964

Interest-bearing liabilities:

Savings accounts

$
1,036,734

1,146

0.44
%
$
1,022,748

1,050

0.41
%

Certificates of deposit

278,375

871

1.25

213,409

423

0.79

Money market accounts

5,719

6

0.42

2,651

2

0.30

Checking and Super NOW accounts

179,670

10

0.02

171,624

10

0.02

Total interest-bearing deposits

1,500,498

2,033

0.54

1,410,432

1,485

0.42

Federal Home Loan Bank advances

70,262

264

1.50

69,033

259

1.50

Securities sold under agreements to repurchase

55,000

221

1.61

55,000

220

1.60

Total interest-bearing liabilities

1,625,760

2,518

0.62

1,534,465

1,964

0.51

Non-interest-bearing liabilities

84,177

85,962

Total liabilities

1,709,937

1,620,427

Stockholders’ equity

237,439

228,537

Total liabilities and stockholders’ equity

$
1,947,376

$
1,848,964

Net interest income

$
14,659

$
14,705

Net interest rate spread (3)

3.04
%

3.23
%

Net interest-earning assets (4)

$
251,347

$
246,323

Net interest margin (5)

3.12
%

3.30
%

Interest-earning assets to interest-bearing liabilities

115.46
%

116.05
%

(1)

~~(1)~~

~~Annualized.~~

Annualized by using the ratio of the number of months in the year over the number of months in the period.

(2)

~~(2)~~

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

(3)

~~(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)

~~(4)~~

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(5)

~~(5)~~

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

3432

Table of Contents

For the Nine Months Ended September 30,

2017

2016

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)

$
1,336,843

$
39,079

3.90
%

$
1,189,741

$
36,240

4.06
%

Multi-family residential

9,432

333

4.71

9,721

342

4.69

Construction, commercial and other

22,666

772

4.54

23,306

795

4.55

Home equity loans and lines of credit

14,219

499

4.68

15,580

504

4.31

Other loans

4,968

194

5.21

4,424

179

5.39

Total loans

1,388,128

40,877

3.93

1,242,772

38,060

4.08

Investment securities:

U.S. government sponsored mortgage-backed securities (2)

400,323

9,328

3.11

466,516

11,121

3.18

Trust preferred securities

967

—

—

943

—

—

Total securities

401,290

9,328

3.10

467,459

11,121

3.17

Other

58,094

530

1.22

67,627

411

0.81

Total interest-earning assets

1,847,512

50,735

3.66

1,777,858

49,592

3.72

Non-interest-earning assets

69,385

68,463

Total assets

$
1,916,897

$
1,846,321

Interest-bearing liabilities:

Savings accounts

$
1,031,650

3,261

0.42
%

$
1,015,992

3,107

0.41
%

Certificates of deposit

257,074

2,153

1.12

225,221

1,222

0.72

Money market accounts

4,936

16

0.43

2,204

6

0.36

Checking and Super NOW accounts

180,134

29

0.02

170,449

28

0.02

Total interest-bearing deposits

1,473,794

5,459

0.49

1,413,866

4,363

0.41

Federal Home Loan Bank advances

69,900

779

1.49

69,011

772

1.49

Securities sold under agreements to repurchase

55,000

654

1.59

55,000

656

1.59

Total interest-bearing liabilities

1,598,694

6,892

0.57

1,537,877

5,791

0.50

Non-interest-bearing liabilities

82,926

82,714

Total liabilities

1,681,620

1,620,591

Stockholders’ equity

235,277

225,730

Total liabilities and stockholders’ equity

$
1,916,897

$
1,846,321

Net interest income

$
43,843

$
43,801

Net interest rate spread (3)

3.09
%

3.22
%

Net interest-earning assets (4)

$
248,818

$
239,981

Net interest margin (5)

3.16
%

3.28
%

Interest-earning assets to interest-bearing liabilities

115.56
%

115.60
%

~~(1)~~

~~Annualized.~~

~~(2)~~

~~Average balance includes loans or investments 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.~~

~~Table of Contents~~

Comparison of Operating Results for the Three Months Ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022

General. Net income ~~increased~~decreased by ~~$9,000,~~$2.4 million, or ~~0.2%~~50.8%, to ~~$4.2~~$2.3 million for the three months ended ~~September 30, 2017.~~March 31, 2023 from $4.7 million for the three months ended March 31, 2022. The ~~increase~~decrease in net income was due to a ~~$212,000~~$1.7 million decrease in net interest income, ~~taxes~~a $1.1 million decrease in non-interest income and a ~~$53,000 decrease~~$68,000 reduction in ~~loan~~the reversal of credit loss provisions. These decreases to net income were partially offset by a ~~$116,000 increase in noninterest expense, a $94,000~~$466,000 decrease in ~~noninterest~~ income ~~and a $46,000 decrease in net interest income.~~taxes.

Net Interest Income. Net interest income decreased by ~~$46,000,~~$1.7 million, or ~~0.3%~~12.4%, to ~~$14.7~~$12.1 million for the three months ended ~~September 30, 2017.~~March 31, 2023 from $13.8 million for the three months ended March 31, 2022. Interest expense increased by $3.5 million, or 301.9%, due to a 76 basis point increase in the cost of average interest-bearing liabilities and a $72.2 million increase in the average balance of interest-bearing liabilities. Interest income increased by ~~$508,000,~~$1.8 million, or ~~3.0%~~11.8%, due to a ~~$96.3~~23 basis point increase in the yield of average interest-earning assets and a $70.1 million increase in the average balance of interest-earning assets. This was offset by an eight basis point decrease in the yield of average interest-earning assets. Interest expense increased by $554,000, or 28.2%, due to a $91.3 million increase in the average balance of interest-bearing liabilities and an 11 basis point increase in the cost of average interest-bearing liabilities. The net interest rate spread and net interest margin were ~~3.04%~~2.16% and ~~3.12%~~2.30%, respectively, for the three months ended March 31, 2023, compared to 2.69% and 2.72%, respectively, for the three months ended ~~September 30, 2017, compared to 3.23% and 3.30% respectively, for the three months ended September 30, 2016.~~March 31, 2022. The decreases in the net interest rate spread and in the net interest margin are ~~attributed~~attributable to ~~an eight basis point decrease in~~ the ~~yield of average interest-earning assets and an 11~~76 basis point increase in the cost of average interest-bearing ~~liabilities. The decrease~~liabilities, which was partially offset by a 23 basis point increase in the yield on average interest-earning assets was primarily due to the principal repayments on higher-yielding mortgage loans and securities and the addition of new mortgage loans and securities with lower rates. The increase in the cost of average interest-bearing liabilities was primarily due to a 46 basis point increase in the cost of certificates of deposit, primarily public deposits, as new certificates of deposit with higher interest rates were opened.assets.

Interest Income. Interest income increased by ~~$508,000,~~$1.8 million, or ~~3.0%~~11.8%, to ~~$17.2 million for the three months ended September 30, 2017 from~~ $16.7 million for the three months ended ~~September 30, 2016.~~March 31, 2023 from $15.0 million for the three months ended March 31, 2022. Interest income on securities increased by $1.1 million, or 32.6%, to $4.5 million for the three months ended March 31, 2023 from $3.4 million for the three months ended March 31, 2022. The increase in interest income on securities occurred primarily because of an $83.5 million, or 12.7%, increase in the average balance of securities as security purchases exceeded security repayments. This increase was augmented by a 37 basis point increase in the yield on average securities, which occurred as higher yielding securities were purchased. Interest income on loans increased by ~~$785,000,~~$97,000, or ~~6.0%~~0.9%, to ~~$13.8~~$11.5 million for the three months ended ~~September 30, 2017~~March 31, 2023 from ~~$13.1~~$11.4 million for the three months ended ~~September 30, 2016.~~March 31, 2022. The increase in interest income on loans occurred ~~primarily~~ because the average ~~balance of loans grew~~loan yield increased by ~~$141.1 million,~~five basis points, or ~~11.0%~~1.4%, ~~as new loan originations exceeded loan repayments and loan sales. The increase in interest income that occurred because of growth in the loan portfolio~~which was partially offset by ~~a 19 basis point decline~~the average loan balance decreasing by $8.7 million, or 0.7%. The increase in the average loan yield was primarily due to ~~3.89%~~an increase in market rates. The decrease in the average loan balance was primarily due to loan repayments and loan sales exceeding new loan originations.

Interest Expense. Interest expense increased by $3.5 million, or 301.9%, to $4.6 million for the three months ended ~~September 30, 2017~~March 31, 2023 from ~~4.08%~~$1.2 million for the three months ended ~~September 30, 2016. The decline in~~March 31, 2022. Interest expense on interest-bearing deposits increased by $2.9 million, or 491.3%, to $3.5 million for the ~~average yield~~three months ended March 31, 2023 from $597,000 for the three months ended March 31, 2022. Interest expense on ~~loans occurred because~~certificates of ~~repayments on higher-yielding loans and additions of new loans with lower yields to the loan portfolio. Interest income on investment securities decreased~~deposit increased by ~~$327,000,~~$2.8 million, or ~~9.4%~~716.5%, to $3.2 million for the three months ended ~~September 30, 2017~~March 31, 2023 from ~~$3.5 million~~$388,000 for the three months ended September 30, 2016. The decrease in interest income on securities occurred because of a $37.2 million decrease in the average securities balance and a four basis point decrease in the average securities yield. The decline in the average balance and yield on securities occurred because repayments exceeded the amount of securities purchased and new securities added to the portfolio had lower yields.

~~Interest Expense.~~ Interest expense increased by $554,000, or 28.2%, to $2.5 million for the three months ended September 30, 2017. Interest expense on deposits increased by $548,000, or 36.9%, from $1.5 million for the three months ended September 30, 2016 to $2.0 million for the three months ended September 30, 2017.March 31, 2022. The increase in interest expense on ~~deposits was due to an~~certificates of deposit occurred because of a 214 basis point increase in the average ~~outstanding balance and~~rate which was augmented by a $230.7 million increase in the average ~~rate paid on deposits. The average outstanding~~ balance of ~~deposits~~certificates of deposit. Interest expense on savings accounts increased by ~~$90.1 million,~~$153,000, or ~~6.4%~~79.3%, to ~~$1.500 billion~~$346,000 for the three months ended ~~September 30, 2017 compared to $1.410 billion~~March 31, 2023 from $193,000 for the three months ended ~~September 30, 2016.~~March 31, 2022. The ~~growth~~increase in ~~deposits is~~interest expense on savings accounts occurred primarily because of a nine basis point increase in the average rate which was partially offset by a $204.9 million, or 19.0%, decrease in the average balance of savings accounts. The increase in the average rates on certificates of deposit and savings accounts were primarily due to ~~a $65.0 million~~increases in market rates. The increase in the average balance of certificates of deposit and ~~a $25.1 million increase~~the decrease in the average balance of savings ~~money market and checking accounts. The average~~accounts occurred as customers transferred funds from lower rate ~~paid~~savings accounts for higher interest rates. Interest expense on ~~deposits increased~~FHLB advances rose by ~~12 basis points~~$543,000, or 106.3%, from ~~0.42%~~$511,000 for the three months ended ~~September 30, 2016~~March 31, 2022 to ~~0.54%~~$1.1 million for the three months ended ~~September 30, 2017, primarily due~~March 31, 2023. The increase in interest expense occurred because of a $51.3 million, or 36.4%, increase in the average FHLB advance balance. This increase to interest expense was augmented by a 4674 basis point increase in ~~certificate~~the average cost of ~~deposit rates.~~FHLB advances. The increase in the average ~~rate paid on certificates~~balance and the average cost of ~~deposit is~~FHLB advances was primarily due to ~~higher interest rates paid on newly opened public deposits. Because our public deposits carry higher rates than retail deposits, any increase~~$105.0 million in ~~current interest rates or in the balance of public deposits may continue to increase our interest expense.~~

~~Provision for Loan Losses.~~ ~~We recorded provisions for loan losses of $54,000 and $107,000 for~~additional FHLB advances obtained during the three months ended ~~September 30, 2017~~March 31, 2023 to enhance our liquidity and ~~September 30, 2016, respectively. The~~to reduce interest rate risk by allowing interest-rate sensitive State and local government certificates of deposit to mature.

Table of Contents

Provision for Credit Losses. We recorded reversals of credit loss provisions ~~for loan losses included net charge-offs~~ of ~~$12,000~~$100,000 under ASC 326 and ~~$21,000 for~~$168,000 under ASC 310 during the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, respectively. We did not record a provision for credit losses on investment securities during the three months ended March 31, 2023 or 2022. The ~~decrease in loan~~reversal of credit loss provisions in the three months ended ~~September 30, 2017~~March 31, 2023 was primarily due to an improvement in economic conditions. The reversal of credit loss provisions in the three months ended March 31, 2022 occurred ~~as a result~~primarily due to decreases in the amount of ~~improving credit quality~~loans in our loan payment deferral program, Hawaii’s unemployment rate, and the size of ~~the~~

~~Table of Contents~~

our loan ~~portfolio and a reduction in~~portfolio. The loan ~~losses.~~payment deferral program was created to assist borrowers who were experiencing financial hardship due to the COVID-19 pandemic. The provisions recorded resulted in ratios of the allowance for ~~loan~~credit losses to total loans of ~~0.17%~~0.40% and ~~0.18%~~0.19% at ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, respectively. Nonaccrual loans totaled ~~$3.3~~$2.4 million at ~~September 30, 2017,~~March 31, 2023, or ~~0.23%~~0.18% of total loans at that date, compared to ~~$4.8~~$3.2 million of nonaccrual loans at ~~September 30, 2016,~~March 31, 2022, or ~~0.37%~~0.25% of total loans at that date. Nonaccrual loans as of ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 consisted primarily of one- to four-family residential real estate loans. ~~To the best of our knowledge, we~~We have provided for all losses that ~~are both probable~~can be reasonably estimated based on general and ~~reasonable to estimate~~specific conditions at ~~September 30, 2017~~March 31, 2023 and ~~2016.~~2022. For additional information see ~~note (6), “Loans~~Note 6 Loans Receivable and Allowance for ~~Loan Losses”~~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, 2017~~March 31, 2023 and ~~2016.~~2022.


													Three Months Ended
	Three Months Ended								March 31,					Change
	September 30,				Change				2023		2022			$ Change			% Change
	2017		2016		$ Change		% Change
				(Dollars in thousands)
Service fees on loan and deposit accounts	$	427	$	493	$	(66)	(13.4)	%
																	(Dollars in thousands)
Service and other fees													$	310		$	341		$	(31)	(9.1)	%
Income on bank-owned life insurance		228		240		(12)	(5.0)	%		203		197			6		3.0	%
Gain on sale of investment securities		150		60		90	150.0	%
Gain on sale of loans		28		114		(86)	(75.4)	%
Net gain on sale of loans														1			18			(17)	(94.4)	%
Other		76		96		(20)	(20.8)	%		75		1,097			(1,022)		(93.2)	%
Total	$	909	$	1,003	$	(94)	(9.4)	%	$	589	$	1,653		$	(1,064)		(64.4)	%

Noninterest income decreased by ~~$94,000~~$1.0 million for the three months ended ~~September 30, 2017~~March 31, 2023 compared to the three months ended ~~September 30, 2016. During~~March 31, 2022. Other income decreased primarily due to $1.0 million of bank-owned life insurance net proceeds received during the three months ended September 30, 2017 and 2016, $3.7 million and $14.5 million, respectively, of mortgage loans held for sale were sold and gains of $28,000 and $114,000, respectively, were recognized. The decrease in service fees on loan and deposit accounts was primarily due to a decrease in fee income from brokering loans to other financial institutions. The decrease in other income was primarily due to a decrease in commissions earned on annuity and mutual fund sales. These decreases were partially offset by an increase in the gain on sale of investment securities. During the three months ended September 30, 2017 and 2016, we received proceeds of $2.4 million and $801,000, respectively, from the sale of $2.2 million and $741,000, respectively, of held-to maturity mortgage-backed securities, resulting in gross realized gains of $150,000 and $60,000, respectively. The sale of these mortgage-backed securities, for which we had already collected a substantial portion of the original purchased principal (at least 85%), was in accordance with the Investments — Debt and Equity Securities topic of the FASB ASC and does not taint management’s assertion of intent to hold remaining securities in the held-to-maturity portfolio to maturity.March 31, 2022.

Noninterest Expense. The following table summarizes changes in noninterest expense between the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016.~~2022.


									Three Months Ended
	Three Months Ended								March 31,				Change
	September 30,					Change			2023		2022		$ Change		% Change
	2017		2016		$ Change		% Change
				(Dollars in thousands)
												(Dollars in thousands)
Salaries and employee benefits	$	5,201	$	5,265	$	(64)	(1.2)	%	$	5,404	$	5,613	$	(209)	(3.7)	%
Occupancy		1,529		1,432		97	6.8	%		1,623		1,594		29	1.8	%
Equipment		882		865		17	2.0	%		1,312		1,196		116	9.7	%
Federal deposit insurance premiums		152		144		8	5.6	%		245		141		104	73.8	%
Other general and administrative expenses		997		939		58	6.2	%		1,029		1,054		(25)	(2.4)	%
Total	$	8,761	$	8,645	$	116	1.3	%	$	9,613	$	9,598	$	15	0.2	%

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Noninterest expense increased by ~~$116,000~~$15,000 for the three months ended ~~September 30, 2017~~March 31, 2023 compared to the three months ended ~~September 30, 2016. Occupancy~~March 31, 2022. The increase in equipment expense ~~increased by $97,000~~was primarily due to ~~$1.5~~an increase in service bureau expense and data processing expense. The increase in federal deposit insurance premiums was primarily due to an increase in the Federal Deposit Insurance Corporation (FDIC) premium rate beginning January 1, 2023. The decrease in salaries and employee benefits was primarily due to a decrease in stock benefit plan expenses and deferred compensation accruals.

Income Tax Expense. Income tax expense was $851,000 for the three months ended March 31, 2023, reflecting an effective tax rate of 26.9%, compared to $1.3 million for the three months ended September 20, 2017 from $1.4 million for the three months ended September 30, 2016 primarily due to an increase in repairs and maintenance and rent expense. The increase in other general and administrative expenses was mainly due to increases in marketing and other miscellaneous expenses. These increases were partially offset by a decrease in salaries

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and employee benefits expense. Salaries and employee benefits expense decreased primarily due to a decrease in share-based compensation. The reduction in the cost of share-based compensation plans occurred as the majority of awards under our 2010 equity incentive plan became fully vested in 2016. The decrease in share-based compensation expense was partially offset by an annual salary increase and a decrease in the capitalized cost of new loan originations. The decrease in the capitalized cost of new loan originations in 2017 occurred as we closed fewer loans during the three months ended September 30, 2017 compared to the three months ended September 30, 2016.

~~Income Tax Expense.~~ ~~Income taxes were $2.6 million for the three months ended September 30, 2017,~~March 31, 2022, reflecting an effective tax rate of ~~38.2%, compared~~21.9%. The decrease to ~~$2.8 million for~~income tax expense during the three months ended ~~September 30, 2016, reflecting an~~March 31, 2023, was primarily due to a $2.9 million decrease in income before income taxes. The higher effective tax rate ~~of 40.1%.~~

~~Income tax expense for~~during the three months ending September 30, 2017 included a $150,000 tax benefit related to the exercise of stock options. Starting in 2017 a new accounting standard requires that any excess tax benefits resulting from the exercise of stock options be recognized in income tax expense. Prior to the adoption of the new standard, the excess tax benefits were recorded as additional paid-in-capital. The amount of tax benefits or deficiencies recognized in income tax expense depends on the number of options exercised and the difference in the stock prices at the exercise and grant dates.

~~Comparison of Operating Results for the Nine Months Ended September 30, 2017 and 2016~~

~~General.~~ ~~Net income increased by $810,000, or 6.8%, from $12.0 million for the nine months~~ ended September 30, 2016 to $12.8 million for the nine months ended September 30, 2017. The increase in net income was due to a $470,000 decrease in noninterest expense, a $217,000 decrease in loan loss provisions, a $114,000 decrease in income taxes and a $42,000 increase in net interest income. These were partially offset by a $33,000 decrease in noninterest income.

~~Net Interest Income~~. Net interest income increased by $42,000, or 0.1%, to $43.8 million for the nine months ended September 30, 2017. Interest income increased by $1.1 million, or 2.3%, due to a $69.7 million increase in the average balance of interest-earning assets. This was offset by a six basis point decrease in the yield of average interest-earning assets. Interest expense increased by $1.1 million, or 19.0%, due to a $60.8 million increase in the average balance of interest-bearing liabilities and a seven basis point increase in the cost of average interest-bearing liabilities. The interest rate spread and net interest margin were 3.09% and 3.16% respectively, for the nine months ended September 30, 2017, compared to 3.22% and 3.28% respectively, for the nine months ended September 30, 2016. The decreases in the interest rate spread and in the net interest margin are attributed to a six basis point decrease in the yield of average interest-earning assets and a seven basis point increase in the cost of average interest-bearing liabilities. The decrease in the yield of average interest-earning assetsMarch 31, 2023 was primarily due to the ~~principal repayments~~receipt of $1.0 million of proceeds on ~~higher-yielding mortgage loans and securities and the addition of new mortgage loans and securities with lower rates. The increase~~bank-owned life insurance that was not taxable in the cost of average interest-bearing liabilities was primarily due to a 40 basis point increase in the cost of certificates of deposit, primarily public deposits, as new certificates of deposit with higher interest rates were opened.

~~Interest Income.~~ ~~Interest income increased by $1.1 million, or 2.3%, to $50.7 million for the nine~~three months ended September 30, 2017 from $49.6 million for the nine months ended September 30, 2016. Interest income on loans increased by $2.8 million, or 7.4%, to $40.9 million for the nine months ended September 30, 2017 from $38.1 million for the nine months ended September 30, 2016. The increase in interest income on loans occurred primarily because the average balance of loans grew by $145.4 million, or 11.7%, as new loan originations exceeded loan repayments and loan sales. The increase in interest income that occurred because of growth in the loan portfolio was partially offset by a 15 basis point decline in the average loan yield to 3.93% for the nine months ended September 30, 2017 from 4.08% for the nine months ended September 30, 2016. The decline in the average yield on loans occurred because of repayments on higher-yielding loans and additions of new loans with lower yields to the loan portfolio. Interest income on investment securities decreased by $1.8 million, or 16.1%, to $9.3 million for the nine months ended September 30, 2017 from $11.1 million for the nine months ended September 30, 2016. The decrease in interest income on securities occurred because of a $66.2 million decrease in the average securities balance and a seven basis point decrease in the average

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securities yield. The decline in the average balance and yield on securities occurred because repayments exceeded the amount of securities purchased and new securities added to the portfolio had lower yields.March 31, 2022.

~~Interest Expense.~~ Interest expense increased by $1.1 million, or 19.0%, to $6.9 million for the nine months ended September 30, 2017. Interest expense on deposits increased by $1.1 million, or 25.1%, from $4.4 million for the nine months ended September 30, 2016 to $5.5 million for the nine months ended September 30, 2017. The increase in interest expense on deposits was due to an increase in the average outstanding balance and the average rate paid on deposits. The average outstanding balance of deposits increased by $59.9 million, or 4.2%, to $1.474 billion for the nine months ended September 30, 2017 compared to $1.414 billion for the nine months ended September 30, 2016. The growth in deposits is primarily due to a $31.9 million increase in the average balance of certificates of deposit and a $28.1 million increase in the average balance of savings, money market and checking accounts. The average rate paid on deposits increased by eight basis points from 0.41% for the nine months ended September 30, 2016 to 0.49% for the nine months ended September 30, 2017, primarily due to a 40 basis point increase in certificate of deposit rates. The increase in the average rate paid on certificates of deposit is primarily due to higher interest rates paid on public deposits. Because our public deposits carry higher rates than retail deposits, any increase in current interest rates or in the balance of public deposits may continue to increase our interest expense.

~~Provision for Loan Losses.~~ We recorded provisions for loan losses of $2,000 and $219,000 for the nine months ended September 30, 2017 and 2016, respectively. The provision for loan losses included net recoveries of $45,000 for the nine months ended September 30, 2017 and net charge-offs of $23,000 for the nine months ended September 30, 2016. The decrease in loan loss provisions in the nine months ended September 30, 2017 occurred as a result of improving credit quality of the loan portfolio and a reduction in loan losses. The provisions recorded resulted in ratios of the allowance for loan losses to total loans of 0.17% and 0.18% at September 30, 2017 and 2016, respectively. Nonaccrual loans totaled $3.3 million at September 30, 2017, or 0.23% of total loans at that date, compared to $4.8 million of nonaccrual loans at September 30, 2016, or 0.37% of total loans at that date. Nonaccrual loans as of September 30, 2017 and 2016 consisted primarily of one- to four-family residential real estate loans. To the best of our knowledge, we have provided for all losses that are both probable and reasonable to estimate at September 30, 2017 and 2016. For additional information see note (6), “Loans Receivable and Allowance for Loan Losses” in our Notes to Consolidated Financial Statements.

~~Noninterest Income.~~ ~~The following table summarizes changes in noninterest income between the nine months ended September 30, 2017 and 2016.~~

Nine Months Ended

September 30,

Change

2017

2016

$ Change

% Change

(Dollars in thousands)

Service fees on loan and deposit accounts

$
1,490

$
1,422

$
68

4.8
%

Income on bank-owned life insurance

681

727

(46)

(6.3)
%

Gain on sale of investment securities

431

250

181

72.4
%

Gain on sale of loans

154

304

(150)

(49.3)
%

Other

234

320

(86)

(26.9)
%

Total

$
2,990

$
3,023

$
(33)

(1.1)
%

Noninterest income decreased by $33,000 for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. During the nine months ended September 30, 2017 and 2016, the Company sold $20.3 million and $38.6 million, respectively, of mortgage loans held for sale and recognized gains of $154,000 and $304,000, respectively. Other income decreased by $86,000 primarily due to a decrease in commissions earned on annuity and mututal fund sales. These decreases were partially offset by increases in the gain on sale of investment securities and in service fees on loan and deposit accounts. During the nine months ended September 30, 2017 and 2016, we received proceeds of $7.4 million and $3.9 million, respectively, from the sale of $7.0 million and $3.7 million, respectively, of held-to-maturity mortgage-backed securities, resulting in gross realized gains of $431,000 and $250,000, respectively. The sale of these mortgage-backed securities, for which we had already collected a substantial portion of

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the original purchased principal (at least 85%), was in accordance with the Investments — Debt and Equity Securities topic of the FASB ASC and does not taint management’s assertion of intent to hold remaining securities in the held-to-maturity portfolio to maturity. During the nine months ended September 30, 2017, service fees on loan and deposit accounts increased by $68,000, primarily due to incentives received on a new debit card agreement and a decrease in the amortization of premiums on loans sold. These were partially offset by decreases in return item fees and ATM fees.

~~Noninterest Expense.~~ ~~The following table summarizes changes in noninterest expense between the nine months ended September 30, 2017 and 2016.~~

Nine Months Ended

September 30,

Change


2017

2016

$ Change

% Change

(Dollars in thousands)

Salaries and employee benefits

$
15,254

$
15,947

$
(693)

(4.3)
%

Occupancy

4,439

4,285

154

3.6
%

Equipment

2,630

2,683

(53)

(2.0)
%

Federal deposit insurance premiums

448

596

(148)

(24.8)
%

Other general and administrative expenses

3,451

3,181

270

8.5
%

Total

$
26,222

$
26,692

$
(470)

(1.8)
%

Noninterest expense decreased by $470,000 for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Salaries and employee benefits expense decreased by $693,000 primarily due to a decrease in share-based compensation. The reduction in the cost of share-based compensation plans occurred as the majority of awards under our 2010 equity incentive plan became fully vested in 2016. The decrease in share-based compensation expense was partially offset by an annual salary increase, an increase in ESOP plan expenses that occurred because of the Company’s higher stock price and a decrease in the capitalized cost of new loan originations. The decrease in the capitalized cost of new loan originations in 2017 occurred as we closed fewer loans during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Federal deposit insurance premiums declined because of a decrease in the insurance premium rate on deposits. These decreases were partially offset by increases in other general and administrative and occupancy expenses. The increase in other general and administrative expenses was mainly due to increases in marketing, audit, and other miscellaneous expenses. The increase in occupancy expense was due to an increase in rent expense and repairs and maintenance expenses.

~~Income Tax Expense.~~ Income taxes were $7.8 million for the nine months ended September 30, 2017, reflecting an effective tax rate of 37.9%, compared to $7.9 million for the nine months ended September 30, 2016, reflecting an effective tax rate of 39.8%.

Income tax expense for the nine months ended September 30, 2017 included a $541,000 tax benefit related to the exercise of stock options. Starting in 2017 a new accounting standard requires that any excess tax benefits resulting from the exercise of stock options be recognized in income tax expense. Prior to the adoption of the new standard, the excess tax benefits were recorded as additional paid-in-capital. The amount of tax benefits or deficiencies recognized in income tax expense depends on the number of options exercised and the difference in the stock prices at the exercise and grant dates.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations. Our primary sources of funds consist of deposit inflows, cash balances at the Federal Reserve Bank, loan and security repayments, advances from the Federal Home Loan Bank, proceeds from securities sold under agreements to repurchase, and proceeds from loan ~~sales~~ and ~~principal repayments on securities.~~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

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Vice Chairman and Co-Chief Operating Officer, our ~~Senior~~Executive Vice President and Chief Financial Officer, and our Vice President and ~~Controller,~~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, 2017.~~March 31, 2023.

We regularly monitor and adjust our investments in liquid assets based upon our assessment of:

(i)

expected loan demand;

(ii)

purchases and sales of investment securities;

(iii)

expected deposit flows and borrowing maturities;

(iv)

yields available on interest-earning deposits and securities; and

(v)

the objectives of our asset/liability management program.

Excess liquid assets are invested generally in interest-earning deposits or securities and may also be used to pay off short-term borrowings.

Our most liquid asset is cash. The amount of this asset is dependent on our operating, financing, lending, and investing activities during any given period. At ~~September 30, 2017,~~March 31, 2023, our cash and cash equivalents totaled ~~$38.4~~$84.9 million. On that date, we had ~~$55.0~~$10.0 million in securities sold under agreements to repurchase outstanding and ~~$69.0~~$246.0 million of Federal Home Loan Bank advances outstanding with the ability to borrow an additional ~~$604.3~~$630.1 million under Federal Home Loan Bank advances. We have unpledged securities with a market value of $424.2 million and have the ability to borrow up to $398.7 million using these securities as collateral by borrowing from the Federal Reserve Bank or using securities sold under agreements to repurchase. We also have securities with a market value of $4.8 million pledged to the Federal Reserve Bank and have the ability to borrow up to $4.5 million using these securities as collateral.

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.

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At ~~September 30, 2017,~~March 31, 2023, we had ~~$30.8~~$3.5 million in loan commitments outstanding ~~most of which were~~ for fixed-rate loans and had ~~$26.6~~$15.3 million in unused lines of credit to borrowers. Certificates of deposit due within one year ~~at September 30, 2017~~of March 31, 2023 totaled ~~$149.8~~$387.1 million, or ~~9.5%~~23.3% of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including loan and security sales, brokered deposits, securities sold under agreements to repurchase, and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before ~~September 30, 2018. We believe, however, based on past experience that a significant portion of such deposits will remain with us.~~March 31, 2024. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Our primary investing activities are originating loans and purchasing mortgage-backed securities. During the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022, we originated ~~$242.7~~$21.2 million and ~~$280.7~~$58.9 million of loans, ~~respectively~~respectively. During the three months ended March 31, 2023 and 2022, we purchased ~~$54.9~~securities with a face value of $6.8 million and ~~$2.4~~$53.1 million, ~~of securities,~~ respectively.

Financing activities consist primarily of activity in deposit accounts, Federal Home Loan Bank advances, securities sold under agreements to repurchase, stock repurchases, and dividend payments. We experienced net ~~increases~~decreases in deposits of ~~$78.2~~$54.2 million and ~~$19.4~~$6.3 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, respectively. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, and by other factors.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank, which provide an additional source of funds. Federal Home Loan Bank advances remained constant at $69.0 million at September 30, 2017 and 2016. We had the ability to borrow up to an additional $604.3 million and $577.9 million from the Federal Home Loan Bank as of September 30, 2017 and December 31, 2016, respectively. We also utilize securities

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sold under agreements to repurchase as another borrowing source. Securities sold under agreements to repurchase remained constant at $55.0 million at the nine months ended September 30, 2017 and 2016.

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, 2017,~~March 31, 2023, Territorial Bancorp Inc. (on an unconsolidated, stand-alone basis) had liquid assets of ~~$24.4~~$25.5 million.

Territorial Savings Bank ~~and the Company are~~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. ~~Effective January 1, 2015, the well capitalized threshold for Tier 1 risk-based capital was increased from 6.0%~~Territorial Bancorp Inc. is not subject to 8.0% and a new capital standard, common equity tier 1 risk-based capital, was implemented with a 6.5% ratio requirement for a financial institution to be considered well capitalized. Additionally, effective January 1, 2015, consolidated regulatory capital requirements ~~identical to those applicable to the subsidiary depository institutions became applicable to savings and loan holding companies over $1.0 billion in~~because its total assets ~~such as the Company. The capital requirements become fully-phased in on January 1, 2019.~~are less than $3.0 billion. At ~~September 30, 2017,~~March 31, 2023, Territorial Savings Bank ~~and the Company~~ exceeded all of the ~~fully-phased~~fully phased in regulatory capital requirements and ~~are~~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, 2017~~March 31, 2023 and December 31, ~~2016:~~2022:


(Dollars in thousands)	Required Ratio			Actual Amount	Actual Ratio
March 31, 2023:
Tier 1 Leverage Capital
Territorial Savings Bank	5.00	%	$	235,515	10.76	%
Territorial Bancorp Inc.			$	261,168	11.93	%
Common Equity Tier 1 Risk-Based Capital (1)
Territorial Savings Bank	9.00	%	$	235,515	25.96	%
Territorial Bancorp Inc.			$	261,168	28.79	%
Tier 1 Risk-Based Capital (1)
Territorial Savings Bank	10.50	%	$	235,515	25.96	%
Territorial Bancorp Inc.			$	261,168	28.79	%
Total Risk-Based Capital (1)
Territorial Savings Bank	12.50	%	$	240,642	26.53	%
Territorial Bancorp Inc.			$	266,295	29.36	%

December 31, 2022:
Tier 1 Leverage Capital
Territorial Savings Bank	5.00	%	$	235,408	10.87	%
Territorial Bancorp Inc.			$	264,295	12.21	%
Common Equity Tier 1 Risk-Based Capital (1)
Territorial Savings Bank	9.00	%	$	235,408	25.98	%
Territorial Bancorp Inc.			$	264,295	29.16	%
Tier 1 Risk-Based Capital (1)
Territorial Savings Bank	10.50	%	$	235,408	25.98	%
Territorial Bancorp Inc.			$	264,295	29.16	%
Total Risk-Based Capital (1)
Territorial Savings Bank	12.50	%	$	237,488	26.20	%
Territorial Bancorp Inc.			$	266,375	29.39	%

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(Dollars in thousands)

Required Ratio


Actual Amount

Actual Ratio

September 30, 2017:

Tier 1 Leverage Capital

Territorial Savings Bank

5.00
%
$
216,506

11.14
%
Territorial Bancorp Inc.

5.00
%
$
242,609

12.48
%
Common Equity Tier 1 Risk-Based Capital (1)

Territorial Savings Bank

9.00
%
$
216,506

23.74
%
Territorial Bancorp Inc.

9.00
%
$
242,609

26.58
%
Tier 1 Risk-Based Capital (1)

Territorial Savings Bank

10.50
%
$
216,506

23.74
%
Territorial Bancorp Inc.

10.50
%
$
242,609

26.58
%
Total Risk-Based Capital (1)

Territorial Savings Bank

12.50
%
$
219,090

24.02
%
Territorial Bancorp Inc.

12.50
%
$
245,193

26.86
%

December 31, 2016:

Tier 1 Leverage Capital

Territorial Savings Bank (2)

9.00
%
$
219,365

11.76
%
Territorial Bancorp Inc.

5.00
%
$
235,102

12.60
%
Common Equity Tier 1 Risk-Based Capital (1)

Territorial Savings Bank

9.00
%
$
219,365

25.30
%
Territorial Bancorp Inc.

9.00
%
$
235,102

27.11
%
Tier 1 Risk-Based Capital (1)

Territorial Savings Bank

10.50
%
$
219,365

25.30
%
Territorial Bancorp Inc.

10.50
%
$
235,102

27.11
%
Total Risk-Based Capital (1)

Territorial Savings Bank

12.50
%
$
221,912

25.59
%
Territorial Bancorp Inc.

12.50
%
$
237,649

27.41
%

(1)

~~(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 that becomes effective on January 1, 2019.~~

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 March 31, 2023 and December 31, 2022, 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.

~~(2)~~

On July 10, 2014, Territorial Savings Bank became a member of the Federal Reserve System. As a condition of membership, Territorial Savings Bank was required to maintain a Tier 1 Leverage Capital ratio of 9.00% for three years.

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Legislation enacted in 2018 required the federal banking agencies, including the Federal Reserve Board, to establish a “community bank leverage ratio” between 8% to 10% of average total consolidated assets for qualifying institutions with assets of less than $10 billion. Institutions with capital meeting the specified requirements and electing to follow the alternative framework would be deemed to comply with the applicable regulatory capital requirements, including the risk based requirements. The federal regulators have 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. Except for an increase of ~~$63.0~~$20.8 million in certificates of deposit and ~~a decrease~~an increase of ~~$19.7~~$2.3 million in loan commitments between December 31, ~~2016~~2022 and ~~September 30, 2017,~~March 31, 2023, there have not been any material changes in our contractual obligations and funding needs since December 31, ~~2016.~~2022.

~~Table of Contents~~

ITEM 3.QUANTITATIVE AND QUALITATIVE ~~DISCLOSURES~~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 ~~accounts,~~inflows, cash balances at the Federal Reserve Bank, loan and security repayments, advances from the Federal Home Loan Bank, our capital, proceeds from securities sold under agreements to repurchase, and ~~Federal Home Loan Bank advances.~~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. WeDuring the three months ended March 31, 2023, we obtained $105.0 million of three- to six-year FHLB advances and during the three months ended March 31, 2023 and 2022, we sold ~~$20.3~~$360,000 and $2.0 million, ~~and $38.6 million~~respectively, of fixed-rate mortgage loans ~~for the nine months ended September 30, 2017 and 2016, respectively,~~ to reduce our interest rate risk.

Our policies do not permit hedging activities, such as engaging in futures, options or swap transactions, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage-backed securities.

Economic Value of Equity. We use an interest rate sensitivity analysis that computes changes in the economic value of equity (EVE) of our cash flows from assets, liabilities, and off-balance sheet items in the event of a range of assumed changes in market interest rates. EVE represents the market value of portfolio equity and is equal to the present value of assets minus the present value of liabilities, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in market-risk-sensitive instruments in the event of an instantaneous and sustained 100 to 400 basis point increase or a 100 to 200 basis point decrease in market interest rates with no effect given to any steps that we might take to counter the effect of that interest rate movement. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below. ~~Given the current relatively low level of market interest rates, an EVE calculation for an interest rate decrease of greater than 100 basis points has not been prepared.~~

4438

Table of Contents

The following table presents our internal calculations of the estimated changes in our EVE as of ~~June 30, 2017~~December 31, 2022 (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	$	83,653	$	(176,982)	(67.90)	%	5.75	%	(8.30)	%
+300	$	119,458	$	(141,177)	(54.17)	%	7.76	%	(6.29)	%
+200	$	164,141	$	(96,494)	(37.02)	%	10.03	%	(4.02)	%
+100	$	211,748	$	(48,887)	(18.76)	%	12.15	%	(1.90)	%
0	$	260,635	$	—	—	%	14.05	%	—	%
-100	$	304,359	$	43,724	16.78	%	15.46	%	1.41	%
-200	$	336,317	$	75,682	29.04	%	16.19	%	2.14	%

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

$
178,580

$
(70,231)

(28.23)
%
11.47
%
(1.56)
%

+300

$
202,267

$
(46,544)

(18.71)
%
12.32
%
(0.71)
%

+200

$
226,226

$
(22,585)

(9.08)
%
13.05
%
0.02
%

+100

$
245,573

$
(3,238)

(1.30)
%
13.45
%
0.42
%

0

$
248,811

$
—

—
%
13.03
%
—
%

-100

$
219,529

$
(29,282)

(11.77)
%
11.16
%
(1.87)
%

(1)

~~(1)~~

Assumes an instantaneous uniform change in interest rates at all maturities.

(2)

~~(2)~~

EVE is the difference between the present value of an institution’s assets and liabilities.

(3)

~~(3)~~

Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4)

~~(4)~~

EVE Ratio represents EVE divided by the present value of assets.

Interest rates on Freddie Mac mortgage-backed securities ~~have declined~~decreased by ~~eight~~25 basis points between ~~June 30, 2017~~December 31, 2022 and ~~September 30, 2017.~~March 31, 2023. The decrease in mortgage interest rates ~~has~~increased the value of our interest-earning assets. The decrease in mortgage interest rates is not ~~likely had~~expected to have a ~~material~~significant effect on estimated EVE.

Certain shortcomings are inherent in the methodologies used in determining interest rate risk through changes in EVE. Modeling changes in EVE requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the EVE table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the EVE table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our EVE and net interest income and will differ from actual results.

ITEM 4.CONTROLS AND ~~PROCEDURES~~PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chairman of the Board, President and Chief Executive Officer and the ~~Senior~~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, 2017.~~March 31, 2023. Based on that evaluation, the Company’s management, including the Chairman of the Board, President and Chief Executive Officer and the ~~Senior~~Executive Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

~~The Company has determined that~~During the ~~new amendment on revenue recognition will not~~quarter ended March 31, 2023, there have ~~a significant impact on key in-scope revenue sources. The Company will be adopting new controls and procedures, which would identify any~~been no changes in ~~volume~~the Company’s internal control over financial reporting that have materially affected, or ~~new sources of in-scope revenue.~~

are reasonably likely to materially affect, the Company’s internal control over financial reporting.

4539

Table of Contents

PART II

~~PART II~~

ITEM 1.LEGAL ~~PROCEEDINGS~~PROCEEDINGS

The Company and its subsidiaries are subject to various legal actions that are considered ordinary, routine litigation incidental to the business of the ~~Company, and no claim for money damages exceeds ten percent of the Company’s consolidated assets.~~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.~~operations, and no claim for money damages exceeds ten percent of the Company’s consolidated assets.

ITEM 1A.RISK ~~FACTORS~~FACTORS

There have been no material changes to the risk factors as ~~disclosed~~described in our Annual Report on Form 10-K for the period ended December 31, 2022 filed with the Securities and Exchange Commission ~~for~~with the ~~period ended December 31, 2016.~~exception of the following:

Our stock price may be negatively impacted by unrelated bank failures and negative depositor confidence in depository institutions. Further, if we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, which have come under greater scrutiny in light of recent bank failures, it may have a material adverse effect on our financial condition and results of operations.

On March 9, 2023, Silvergate Bank, La Jolla, California, announced its decision to voluntarily liquidate its assets and wind down operations. On March 10, 2023, Silicon Valley Bank, Santa Clara, California, was closed by the California Department of Financial Protection and Innovation and on March 12, 2023, Signature Bank, New York, New York, was closed by the New York State Department of Financial Services. These banks also had elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits. These failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions.

These events have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of its deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management. If we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, it may have a material adverse effect on our financial condition and results of operations.

ITEM 2.UNREGISTERED SALES OF EQUITY ~~SECURITIES~~SECURITIES AND USE OF PROCEEDS

(a) Not applicable.

(b) Not applicable.

(c) Stock Repurchases. The following table sets forth information in connection with repurchases of our shares of common stock during the three months ended ~~September 30, 2017:~~March 31, 2023:

Total Number of

Maximum Number of

Shares Purchased as

Shares That May Yet

Average Price

Part of Publicly

be Purchased Under

Total Number of

Paid per

Announced Plans or

the Plans or

Period

Shares Purchased (1)

Share

Programs

Programs (2)

July 1, 2017 through July 31, 2017

—

$
—

—

217,300

August 1, 2017 through August 31, 2017

21,289

30.13

—

217,300

September 1, 2017 through September 30, 2017

10,737

31.57

—

217,300

Total

32,026

$
30.61

—

217,300


				Total Number of	Maximum Approximate
				Shares Purchased as	Dollar Value of Shares
	Total Number	Average Price		Part of Publicly	That May Yet be
	of Shares	Paid per		Announced Plans or	Purchased Under the
Period	Purchased	Share		Programs	Plans or Programs (1)
January 1, 2023 through January 31, 2023	—	$	—	—	$	—
February 1, 2023 through February 28, 2023	—		—	—		—
March 1, 2023 through March 31, 2023	69,065		20.08	66,841		2,681,504

Total	69,065	$	20.08	66,841	$	2,681,504

Table of Contents

~~(1)~~

~~Includes shares repurchased by the Company to pay the exercise price in connection with stock swap or net settlement transactions related to the exercise of stock options.~~

(1)

~~(2)~~

On ~~or about March 7, 2016, our~~December 5, 2022, the Board of Directors ~~authorized~~announced a twelfth share repurchase program. Under this share repurchase program, the Company may repurchase of up to ~~275,000 shares~~$5,000,000 of ~~our common stock. We have entered into a Rule 10b5-1 plan with respect to our stock repurchase plan. The repurchase plan has no expiration date.~~the Company’s outstanding shares.

ITEM 3.DEFAULTS UPON SENIOR ~~SECURITIES~~SECURITIES

None.

ITEM 4.MINE SAFETY ~~DISCLOSURES~~DISCLOSURES

Not applicable.

ITEM 5.OTHER ~~INFORMATION~~INFORMATION

None.

ITEM 6.~~EXHIBITS~~EXHIBITS

The exhibits required by Item 601 of Regulation S-K are included with this Quarterly Report on Form 10-Q and are listed ~~on the “Index to Exhibits” immediately following the Signatures.~~below.

4641

Table of Contents

INDEX TO EXHIBITS


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

31.2		Certification of Melvin M. Miyamoto, ~~Senior~~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, ~~Senior~~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~~Inc.’s Form 10-Q report for the quarter ended ~~September 30, 2017,~~March 31, 2023, 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		~~Interactive datafile~~ 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		~~Interactive datafile~~Inline XBRL Taxonomy Extension Schema Document
101.CAL		~~Interactive datafile~~Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		~~Interactive datafile~~Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		~~Interactive datafile~~Inline XBRL Taxonomy Extension Label Linkbase
101.PRE		~~Interactive datafile~~Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL document and contained in Exhibit 101)

4742

Table of Contents

SIGNATURES

~~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.
	~~TERRITORIAL BANCORP INC.~~
	(Registrant)


Date: ~~November 8, 2017~~May 12, 2023	/s/ Allan S. Kitagawa
	Allan S. Kitagawa
	Chairman of the Board, President and
	Chief Executive Officer


Date: ~~November 8, 2017~~May 12, 2023	/s/ Melvin M. Miyamoto
	Melvin M. Miyamoto
	~~Senior~~Executive Vice President and Chief Financial Officer

4843

PART I

ITEM 1.	FINANCIAL STATEMENTS	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30 27
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	44
~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~	45
		38
~~PART II~~ITEM 4.	CONTROLS AND PROCEDURES	39

~~ITEM 1.~~			~~LEGAL PROCEEDINGS~~PART II
46
ITEM ~~1A.~~1.	~~RISK FACTORS~~LEGAL PROCEEDINGS	46 40
ITEM 2.1A.	RISK FACTORS	40
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	46 40
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	46
~~ITEM 4.~~	~~MINE SAFETY DISCLOSURES~~	46
~~ITEM 5.~~	~~OTHER INFORMATION~~	46
~~ITEM 6.~~	~~EXHIBITS~~	46
		41
~~SIGNATURES~~ITEM 4.	48 MINE SAFETY DISCLOSURES	41
ITEM 5.	OTHER INFORMATION	41
ITEM 6.	EXHIBITS	41

SIGNATURES		43


									Accumulated
			Additional		Unearned				Other		Total
	Common		Paid-in		ESOP		Retained		Comprehensive		Stockholders’
	Stock		Capital		Shares		Earnings		Income (Loss)		Equity
Balances at December 31, 2015	$	96	$	70,118	$	(6,361)	$	161,024	$	(5,236)	$	219,641

Net income		—		—		—		11,985		—		11,985
Other comprehensive income		—		—		—		—		80		80
Cash dividends paid ($0.54 per share)		—		—		—		(4,938)		—		(4,938)
Share-based compensation		1		1,778		—		—		—		1,779
Allocation of 36,699 ESOP shares		—		612		367		—		—		979
Repurchase of 100,758 shares of company common stock		(1)		(2,724)		—		—		—		(2,725)
Exercise of 93,100 options for common stock		1		1,616		—		—		—		1,617

Balances at September 30, 2016	$	97	$	71,400	$	(5,994)	$	168,071	$	(5,156)	$	228,418

Balances at December 31, 2016	$	98	$	71,914	$	(5,872)	$	168,962	$	(5,316)	$	229,786

Net income		—		—		—		12,795		—		12,795
Other comprehensive loss		—		—		—		—		(1)		(1)
Cash dividends paid ($0.70 per share)		—		—		—		(6,471)		—		(6,471)
Share-based compensation		—		48		—		—		—		48
Allocation of 36,699 ESOP shares		—		777		367		—		—		1,144
Repurchase of 91,456 shares of company common stock		(1)		(2,905)		—		—		—		(2,906)
Exercise of 166,837 options for common stock		2		2,895		—		—		—		2,897

Balances at September 30, 2017	$	99	$	72,729	$	(5,505)	$	175,286	$	(5,317)	$	237,292


	Amortized		Gross Unrealized				Estimated
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
September 30, 2017:
Available-for-sale:
U.S. government-sponsored mortgage-backed securities	$	2,920	$	—	$	(10)	$	2,910
Total	$	2,920	$	—	$	(10)	$	2,910

Held-to-maturity:
U.S. government-sponsored mortgage-backed securities	$	411,065	$	7,374	$	(4,252)	$	414,187
Trust preferred securities		592		333		—		925
Total	$	411,657	$	7,707	$	(4,252)	$	415,112

December 31, 2016:
Held-to-maturity:
U.S. government-sponsored mortgage-backed securities	$	406,498	$	7,285	$	(7,024)	$	406,759
Trust preferred securities		1,158		5		—		1,163
Total	$	407,656	$	7,290	$	(7,024)	$	407,922


	Nine Months Ended September 30,
(Dollars in thousands)	2017		2016
Balance at the beginning of the period	$	2,403	$	2,403
Credit losses on debt securities for which other-than-temporary impairment was not previously recognized		—		—
Credit losses on debt securities which were sold		—		—
Balance at the end of the period	$	2,403	$	2,403


															Loans
															More Than
															90 Days
	30 - 59		60 - 89		90 Days or										Past Due
	Days Past		Days Past		Greater		Total Past		Loans Not		Total		Nonaccrual		and Still
(Dollars in thousands)	Due		Due		Past Due		Due		Past Due		Loans		Loans		Accruing
September 30, 2017:
One- to four-family residential mortgages	$	438	$	—	$	652	$	1,090	$	1,385,864	$	1,386,954	$	3,179	$	—
Multi-family residential mortgages		—		—		—		—		9,315		9,315		—		—
Construction, commercial and other mortgages		—		—		—		—		22,405		22,405		—		—
Home equity loans and lines of credit		—		—		41		41		13,439		13,480		170		—
Loans on deposit accounts		—		—		—		—		285		285		—		—
Consumer and other		1		3		—		4		4,809		4,813		—		—

Total	$	439	$	3	$	693	$	1,135	$	1,436,117	$	1,437,252	$	3,349	$	—

December 31, 2016:
One- to four-family residential mortgages	$	185	$	133	$	1,358	$	1,676	$	1,284,590	$	1,286,266	$	4,402	$	—
Multi-family residential mortgages		—		—		—		—		9,530		9,530		—		—
Construction, commercial and other mortgages		—		—		—		—		23,256		23,256		—		—
Home equity loans and lines of credit		16		35		49		100		14,712		14,812		156		—
Loans on deposit accounts		—		—		—		—		204		204		—		—
Consumer and other		3		—		1		4		4,367		4,371		1		—

Total	$	204	$	168	$	1,408	$	1,780	$	1,336,659	$	1,338,439	$	4,559	$	—


	Number of		Accrual		Number of		Nonaccrual
(Dollars in thousands)	Loans		Status		Loans		Status		Total
September 30, 2017:
One- to four-family residential mortgages		4	$	920		5	$	1,097	$	2,017
Home equity loans and lines of credit		—		—		1		96		96
Total		4	$	920		6	$	1,193	$	2,113

December 31, 2016:
One- to four-family residential mortgages		5	$	1,185		7	$	1,629	$	2,814
Home equity loans and lines of credit		—		—		1		107		107
Total		5	$	1,185		8	$	1,736	$	2,921


	SERP				SERP
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2017		2016		2017		2016
Net periodic benefit cost for the period:
Service cost	$	19	$	15	$	39	$	44
Interest cost		34		32		104		98
Expected return on plan assets		—		—		—		—
Amortization of prior service cost		—		—		—		—
Recognized actuarial loss		—		—		—		—
Recognized curtailment loss		—		—		—		—
Net periodic benefit cost	$	53	$	47	$	143	$	142


	Three Months Ended September 30,
	2017						2016
	Pretax				After Tax		Pretax				After Tax
(Dollars in thousands)	Amount		Tax		Amount		Amount		Tax		Amount
Unfunded pension liability	$	—	$	—	$	—	$	—	$	—	$	—
Noncredit related loss on trust preferred securities		—		—		—		(74)		29		(45)
Unrealized loss on securities		(21)		9		(12)		(7)		3		(4)
Total	$	(21)	$	9	$	(12)	$	(81)	$	32	$	(49)


	Fair Value
(Dollars in thousands)	Adjustment Date	Level 1		Level 2		Level 3		Total			Total Gains (Losses)

September 30, 2017
Impaired loans	3/31/2017	$	—	$	87	$	—	$	87	$	(11)

December 31, 2016
Trust preferred securities	9/30/2016	$	—	$	—	$	1,066	$	1,066	$	242
Mortgage servicing assets	6/30/2016		—		—		341		341		(49)
Impaired loans	8/31/2016		—		64		—		64		(33)
Loans held for sale	12/31/2016		—		1,601		—		1,601		(1)


				Unobservable
(Dollars in thousands)	Fair Value		Valuation Technique	Input	Value

December 31, 2016:
Trust preferred securities	$	1,066	Discounted cash flow	Discount rate		Three-month LIBOR plus 20.00%
Mortgage servicing assets		341	Discounted cash flow	Discount rate		10.50%
				Prepayment speed (PSA)		158.4 - 203.5
				Annual cost to service (per loan)	$	65


	For the Nine Months Ended September 30,
	2017							2016
	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)	$	1,336,843		$	39,079	3.90	%	$	1,189,741		$	36,240	4.06	%
Multi-family residential		9,432			333	4.71			9,721			342	4.69
Construction, commercial and other		22,666			772	4.54			23,306			795	4.55
Home equity loans and lines of credit		14,219			499	4.68			15,580			504	4.31
Other loans		4,968			194	5.21			4,424			179	5.39
Total loans		1,388,128			40,877	3.93			1,242,772			38,060	4.08
Investment securities:
U.S. government sponsored mortgage-backed securities (2)		400,323			9,328	3.11			466,516			11,121	3.18
Trust preferred securities		967			—	—			943			—	—
Total securities		401,290			9,328	3.10			467,459			11,121	3.17
Other		58,094			530	1.22			67,627			411	0.81
Total interest-earning assets		1,847,512			50,735	3.66			1,777,858			49,592	3.72
Non-interest-earning assets		69,385							68,463
Total assets	$	1,916,897						$	1,846,321

Interest-bearing liabilities:
Savings accounts	$	1,031,650			3,261	0.42	%	$	1,015,992			3,107	0.41	%
Certificates of deposit		257,074			2,153	1.12			225,221			1,222	0.72
Money market accounts		4,936			16	0.43			2,204			6	0.36
Checking and Super NOW accounts		180,134			29	0.02			170,449			28	0.02
Total interest-bearing deposits		1,473,794			5,459	0.49			1,413,866			4,363	0.41
Federal Home Loan Bank advances		69,900			779	1.49			69,011			772	1.49
Securities sold under agreements to repurchase		55,000			654	1.59			55,000			656	1.59
Total interest-bearing liabilities		1,598,694			6,892	0.57			1,537,877			5,791	0.50
Non-interest-bearing liabilities		82,926							82,714
Total liabilities		1,681,620							1,620,591
Stockholders’ equity		235,277							225,730
Total liabilities and stockholders’ equity	$	1,916,897						$	1,846,321

Net interest income				$	43,843						$	43,801
Net interest rate spread (3)						3.09	%						3.22	%
Net interest-earning assets (4)	$	248,818						$	239,981
Net interest margin (5)						3.16	%						3.28	%
Interest-earning assets to interest-bearing liabilities		115.56	%						115.60	%


(Dollars in thousands)	Required Ratio			Actual Amount	Actual Ratio
September 30, 2017:
Tier 1 Leverage Capital
Territorial Savings Bank	5.00	%	$	216,506	11.14	%
Territorial Bancorp Inc.	5.00	%	$	242,609	12.48	%
Common Equity Tier 1 Risk-Based Capital (1)
Territorial Savings Bank	9.00	%	$	216,506	23.74	%
Territorial Bancorp Inc.	9.00	%	$	242,609	26.58	%
Tier 1 Risk-Based Capital (1)
Territorial Savings Bank	10.50	%	$	216,506	23.74	%
Territorial Bancorp Inc.	10.50	%	$	242,609	26.58	%
Total Risk-Based Capital (1)
Territorial Savings Bank	12.50	%	$	219,090	24.02	%
Territorial Bancorp Inc.	12.50	%	$	245,193	26.86	%

December 31, 2016:
Tier 1 Leverage Capital
Territorial Savings Bank (2)	9.00	%	$	219,365	11.76	%
Territorial Bancorp Inc.	5.00	%	$	235,102	12.60	%
Common Equity Tier 1 Risk-Based Capital (1)
Territorial Savings Bank	9.00	%	$	219,365	25.30	%
Territorial Bancorp Inc.	9.00	%	$	235,102	27.11	%
Tier 1 Risk-Based Capital (1)
Territorial Savings Bank	10.50	%	$	219,365	25.30	%
Territorial Bancorp Inc.	10.50	%	$	235,102	27.11	%
Total Risk-Based Capital (1)
Territorial Savings Bank	12.50	%	$	221,912	25.59	%
Territorial Bancorp Inc.	12.50	%	$	237,649	27.41	%


									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	$	178,580	$	(70,231)	(28.23)	%	11.47	%	(1.56)	%
+300	$	202,267	$	(46,544)	(18.71)	%	12.32	%	(0.71)	%
+200	$	226,226	$	(22,585)	(9.08)	%	13.05	%	0.02	%
+100	$	245,573	$	(3,238)	(1.30)	%	13.45	%	0.42	%
0	$	248,811	$	—	—	%	13.03	%	—	%
-100	$	219,529	$	(29,282)	(11.77)	%	11.16	%	(1.87)	%


				Total Number of	Maximum Number of
				Shares Purchased as	Shares That May Yet
		Average Price		Part of Publicly	be Purchased Under
	Total Number of	Paid per		Announced Plans or	the Plans or
Period	Shares Purchased (1)	Share		Programs	Programs (2)
July 1, 2017 through July 31, 2017	—	$	—	—	217,300
August 1, 2017 through August 31, 2017	21,289		30.13	—	217,300
September 1, 2017 through September 30, 2017	10,737		31.57	—	217,300

Total	32,026	$	30.61	—	217,300