Financial Position - Total assets increased by $49.4 million, or 2.3%, to $2.2 billion at June 30, 2022[127]. - Total loans decreased by $16.2 million, or 1.2%, to $1.3 billion at June 30, 2022, representing 59.0% of total assets[129]. - Total securities increased by $92.7 million, or 14.6%, to $729.1 million at June 30, 2022, accounting for 33.4% of total assets[131]. - Deposits rose by $47.8 million, or 2.8%, to $1.7 billion at June 30, 2022, driven by an increase in certificates of deposit[133]. - Total stockholders' equity decreased by $417,000, or 0.2%, to $255.9 million at June 30, 2022, due to dividends declared and shares repurchased exceeding net income[135]. - Total liabilities were $1.901 billion, with stockholders' equity at $257.9 million as of June 30, 2022[140]. - Cash and cash equivalents totaled $70.6 million as of June 30, 2022, with $10.0 million in securities sold under agreements to repurchase[171]. Loan Performance - Nonperforming assets totaled $4.0 million, or 0.18% of total assets, at June 30, 2022, compared to $3.3 million, or 0.15% at December 31, 2021[122]. - The company does not offer subprime or Alt-A loans, maintaining a conservative loan underwriting approach[123]. - Nonaccrual loans totaled $4.0 million at June 30, 2022, or 0.31% of total loans, compared to $4.2 million, or 0.32%, at June 30, 2021[161]. - The allowance for loan losses to total loans ratio was 0.17% at June 30, 2022, down from 0.23% at June 30, 2021[161]. - Total loans originated decreased to $97.7 million in the six months ended June 30, 2022, down from $176.7 million in the same period of 2021[176]. Income and Expenses - Net income for the three months ended June 30, 2022, was $4.1 million, an increase of $52,000 or 1.3% compared to the same period in 2021[143]. - Net income decreased by $251,000, or 2.8%, to $8.8 million for the six months ended June 30, 2022, from $9.1 million for the same period in 2021[155]. - Net interest income rose by $986,000 or 7.5% to $14.1 million for the three months ended June 30, 2022, driven by a $615,000 increase in interest income[144]. - Net interest income increased by $1.6 million, or 6.0%, to $27.9 million for the six months ended June 30, 2022, compared to $26.3 million for the same period in 2021[156]. - Noninterest income decreased by $927,000 for the three months ended June 30, 2022, totaling $800,000 compared to $1.7 million for the same period in 2021[151]. - Noninterest income decreased by $1.5 million to $2.453 million for the six months ended June 30, 2022, a decline of 38.1% compared to the same period in 2021[163]. - Interest expense decreased by $371,000, or 22.2%, to $1.3 million for the three months ended June 30, 2022, from $1.7 million for the same period in 2021[146]. - Interest expense decreased by $1.1 million, or 31.3%, to $2.5 million for the six months ended June 30, 2022, from $3.6 million for the same period in 2021[158]. Interest Rate Sensitivity - An increase in interest rates from 3% to 4% represents a 100 basis point increase, impacting the company's interest rate sensitivity[192]. - The estimated Economic Value of Equity (EVE) decreased by $136.1 million (46.76%) with a 400 basis point increase in interest rates, resulting in an EVE ratio of 9.91%[194]. - The EVE calculation indicates that the present value of assets decreased due to a 39 basis point increase in mortgage interest rates between March 31, 2022, and June 30, 2022[195]. - The company’s interest-sensitive assets and liabilities are primarily long-term, fixed-rate residential mortgage loans, making it vulnerable to interest rate increases[189]. - The Board of Directors has established an Asset/Liability Management Committee to evaluate and manage interest rate risk[188]. - The methodologies used to determine interest rate risk through changes in EVE have inherent shortcomings, as they rely on certain assumptions that may not reflect actual market conditions[196]. Capital and Commitments - The total risk-based capital ratio for Territorial Savings Bank was 27.41% as of June 30, 2022, exceeding the required 12.50%[181]. - The company has unpledged securities with a market value of $440.9 million, allowing for additional borrowing capacity[171]. - At June 30, 2022, the company had $3.9 million in loan commitments outstanding for fixed-rate loans and $13.7 million in unused lines of credit[175]. - The company experienced a net increase in deposits of $47.8 million for the six months ended June 30, 2022, compared to $18.9 million in the same period of 2021[177].

Financial Position - Total assets decreased by $2.6 million, or 0.1%, to $2.1 billion at March 31, 2022[124]. - Total loans decreased by $6.5 million, or 0.5%, to $1.3 billion at March 31, 2022, representing 60.9% of total assets[128]. - Total securities increased by $32.7 million, or 5.1%, to $669.1 million at March 31, 2022, accounting for 31.4% of total assets[129]. - Deposits decreased by $6.3 million, or 0.4%, to $1.7 billion at March 31, 2022[131]. - Total stockholders' equity increased by $1.7 million, or 0.6%, to $258.0 million at March 31, 2022[133]. - Cash and cash equivalents decreased by $34.1 million, or 34.1%, to $65.8 million at March 31, 2022[125]. - Federal Home Loan Bank advances remained constant at $141.0 million for the three months ended March 31, 2022[121]. - Cash and cash equivalents totaled $65.8 million as of March 31, 2022, with $10.0 million in securities sold under agreements to repurchase and $141.0 million in Federal Home Loan Bank advances outstanding[151]. Loan Performance - Nonperforming assets totaled $3.2 million, or 0.15% of total assets, at March 31, 2022, unchanged from December 31, 2021[119]. - The company does not offer subprime or Alt-A loans, maintaining a conservative loan underwriting approach[120]. - The company originated $58.9 million in loans during the three months ended March 31, 2022, compared to $82.5 million in the same period of 2021[157]. - Nonaccrual loans decreased to $3.2 million, or 0.25% of total loans, in Q1 2022, down from $4.2 million, or 0.31%, in Q1 2021[143]. - The provision for loan losses recorded a reversal of $168,000 in Q1 2022 compared to $913,000 in Q1 2021, reflecting improved loan performance[142]. Income and Expenses - Net income decreased by $303,000, or 6.0%, from $5.0 million in Q1 2021 to $4.7 million in Q1 2022, primarily due to a reduction in loan loss provisions and non-interest income[138]. - Net interest income increased by $598,000, or 4.5%, to $13.8 million in Q1 2022, driven by a decrease in interest expense of $747,000, or 39.3%[139]. - Interest income decreased by $149,000, or 1.0%, to $15.0 million in Q1 2022, with a significant drop in loan interest income by $1.7 million, or 13.0%[140]. - Interest expense on interest-bearing deposits decreased by $720,000, or 54.7%, to $597,000 in Q1 2022, reflecting a decline in market interest rates[141]. - Noninterest income decreased by $586,000, or 26.2%, to $1.7 million in Q1 2022, primarily due to a drop in service fees and gains on securities sales[145]. - Noninterest expense increased by $44,000 to $9,598,000 for the three months ended March 31, 2022, compared to $9,554,000 for the same period in 2021, reflecting a 0.5% increase[147]. - Salaries and employee benefits rose by 1.6% to $5,613,000, primarily due to a decrease in deferred salary expense for originating new loans[147]. - Income tax expense decreased to $1.3 million for the three months ended March 31, 2022, with an effective tax rate of 21.9%, down from $1.8 million and 26.3% in the same period of 2021[148]. Capital and Regulatory Compliance - At March 31, 2022, Territorial Savings Bank exceeded all regulatory capital requirements and is considered "well capitalized" under regulatory guidelines[161]. - The Tier 1 Leverage Capital ratio for Territorial Savings Bank was 11.38% as of March 31, 2022, exceeding the required 5.00%[162]. - The company has $7.2 million in loan commitments outstanding for fixed-rate loans and $14.6 million in unused lines of credit as of March 31, 2022[153]. Interest Rate Sensitivity - As of December 31, 2021, the estimated Economic Value of Equity (EVE) was $342,393,000, with a ratio of 15.81% of the present value of assets[175]. - A 400 basis point increase in interest rates would decrease EVE by $104,640,000, representing a 30.56% decline[175]. - A 300 basis point increase in interest rates would decrease EVE by $65,328,000, representing a 19.08% decline[175]. - A 200 basis point increase in interest rates would decrease EVE by $22,048,000, representing a 6.44% decline[175]. - A 100 basis point increase in interest rates would increase EVE by $4,258,000, representing a 1.24% increase[175]. - A 100 basis point decrease in interest rates would decrease EVE by $59,776,000, representing a 17.46% decline[175]. - Interest rates on Freddie Mac mortgage-backed securities increased by 90 basis points between December 31, 2021, and March 31, 2022[176]. - The increase in mortgage interest rates has decreased the value of interest-earning assets, but this was offset by a decrease in the value of interest-bearing liabilities[176]. - The EVE table assumes a constant composition of interest-sensitive assets and liabilities over the measured period[177]. - The EVE measurements are not intended to provide a precise forecast of the effect of changes in market interest rates on EVE and net interest income[177].

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-34403 Territorial Bancorp Inc. (Name of Registrant as Specified in its Charter) Maryland 26-4674701 (State or Other Jurisdict ...

Financial Position - Total assets increased by $6.3 million, or 0.3%, to $2.1 billion at September 30, 2021[150]. - Total loans decreased by $104.7 million, or 7.4%, to $1.3 billion, representing 61.6% of total assets[152]. - Securities portfolio increased by $370.2 million, totaling $621.4 million, or 29.4% of total assets[153]. - Deposits grew by $5.2 million, or 0.3%, to $1.7 billion, driven by increases in savings and checking accounts[155]. - Total stockholders' equity rose by $3.0 million, or 1.2%, to $251.7 million, primarily due to net income of $13.2 million[157]. - Cash and cash equivalents decreased by $262.2 million to $101.4 million, mainly due to increased investment securities[151]. - Federal Home Loan Bank advances remained constant at $141.0 million for the nine months ended September 30, 2021[147]. Loan Performance - The company recorded a $1.5 million reversal of loan loss provisions for the nine months ended September 30, 2021[143]. - Nonperforming assets totaled $4.2 million, or 0.20% of total assets, showing a slight improvement from $4.4 million, or 0.21%[143]. - Nonaccrual loans totaled $4.2 million at September 30, 2021, or 0.32% of total loans, compared to $2.2 million, or 0.15% of total loans, at September 30, 2020[184]. - The company does not offer subprime or Alt-A loans, maintaining a conservative loan underwriting approach[144]. - The company originated $264.9 million in loans during the nine months ended September 30, 2021, compared to $190.9 million in the same period of 2020[200]. - The company had $22.1 million in loan commitments outstanding for fixed-rate loans and $16.5 million in unused lines of credit as of September 30, 2021[199]. Income and Expenses - Net income decreased by $156,000, or 3.6%, to $4.2 million for the three months ended September 30, 2021, compared to $4.3 million for the same period in 2020[165]. - Net interest income decreased by $601,000, or 4.2%, to $13.9 million for the three months ended September 30, 2021, from $14.5 million for the same period in 2020[166]. - Interest income decreased by $1.9 million, or 10.8%, to $15.3 million for the three months ended September 30, 2021, from $17.1 million for the same period in 2020[167]. - Interest income on loans decreased by $2.8 million, or 19.1%, to $11.8 million for the three months ended September 30, 2021, from $14.6 million for the same period in 2020[167]. - Non-interest income decreased by $354,000 for the three months ended September 30, 2021[165]. - Non-interest expense increased by $178,000 for the three months ended September 30, 2021[165]. - Interest expense decreased by $1.3 million, or 47.1%, to $1.4 million for the three months ended September 30, 2021, from $2.7 million for the same period in 2020[168]. - Noninterest income decreased by $354,000, or 22.4%, to $1.2 million for the three months ended September 30, 2021, compared to $1.6 million for the same period in 2020[171]. - Net interest income decreased by $3.6 million, or 8.2%, to $40.2 million for the nine months ended September 30, 2021, from $43.7 million for the same period in 2020[179]. - Interest income decreased by $8.6 million, or 16.0%, to $45.1 million for the nine months ended September 30, 2021, compared to $53.7 million for the same period in 2020[180]. - Provision for loan losses recorded a reversal of $1.5 million for the nine months ended September 30, 2021, compared to $2.3 million of provisions for the same period in 2020[184]. - Interest expense on interest-bearing deposits decreased by $4.1 million, or 56.0%, to $3.3 million for the nine months ended September 30, 2021, from $7.4 million for the same period in 2020[181]. - Total noninterest expense increased by $178,000, or 1.9%, to $9.6 million for the three months ended September 30, 2021, from $9.4 million for the same period in 2020[174]. - Total noninterest expense increased by $835,000 to $28.730 million for the nine months ended September 30, 2021, compared to $27.895 million in 2020, a 3.0% rise[189]. - Salaries and employee benefits increased by 1.7% to $16.576 million, primarily due to higher compensation and health insurance costs[189]. - Income tax expense remained stable at $4.8 million for both periods, with an effective tax rate of 26.7% in 2021 compared to 26.9% in 2020[191]. Capital and Regulatory Compliance - Territorial Savings Bank exceeded all regulatory capital requirements and is considered "well capitalized" under regulatory guidelines as of September 30, 2021[206]. - Total risk-based capital ratio for Territorial Savings Bank was 27.58% as of September 30, 2021, significantly above the required 12.50%[207]. - The federal regulators have established a community bank leverage ratio of 9%, effective March 31, 2020, temporarily reduced to 8% due to the CARES Act, transitioning back to 9% by year-end 2021[211]. Interest Rate Risk - The estimated economic value of equity (EVE) as of June 30, 2021, was $357.132 million, with a ratio of 16.25% of the present value of assets[220]. - A 400 basis point increase in interest rates would result in a decrease of $130.5 million in EVE, representing a 36.54% decline[220]. - Interest rates on Freddie Mac mortgage-backed securities increased by 10 basis points between June 30, 2021, and September 30, 2021, but this is not expected to significantly affect estimated EVE[221]. - The company sold $26.2 million of fixed-rate mortgage loans during the nine months ended September 30, 2021, to mitigate interest rate risk[215]. - The company does not engage in hedging activities or invest in high-risk mortgage derivatives[216]. - The majority of the company's assets consist of long-term, fixed-rate residential mortgage loans, making it vulnerable to interest rate increases[215]. - The company has established an Asset/Liability Management Committee to evaluate and manage interest rate risk[214]. - The EVE analysis assumes a uniform change in interest rates across all maturities, which may not reflect actual market conditions[222].

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period ended June 30, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For transition period from to Commission File Number 001-34403 TERRITORIAL BANCORP INC. (Exact Name of Registrant as Specified in Charter) Maryland 26-4674701 (State or Other Jurisdic ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period ended March 31, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For transition period from to Commission File Number 001-34403 (Exact Name of Registrant as Specified in Charter) Maryland 26-4674701 (State or Other Jurisdiction of Incorporation) ( ...

Financial Risks and Market Conditions - As of December 31, 2020, 94.6% of the company's loans had maturities of 15 years or longer, while 68.9% of its certificates of deposits had maturities of one year or less, indicating a significant duration mismatch between assets and liabilities [160]. - The fair value of the company's held-to-maturity securities was $262.8 million with net unrealized gains of $15.2 million as of December 31, 2020 [161]. - A hypothetical 200 basis point increase in market interest rates would increase the economic value of equity by $4.4 million [162]. - The company faces risks from a prolonged low interest rate environment, which could adversely affect net interest income and profitability due to increased repayments on higher-yielding loans [164]. - Increased competition in the banking sector may limit the company's growth and profitability, as larger competitors can price loans and deposits more aggressively [181]. - Legal and regulatory proceedings could adversely affect the financial services industry and the company's financial condition, with potential substantial costs and management diversion [186]. Economic Impact and Sector Performance - The tourism sector, which is critical to Hawaii's economy, saw a 73.8% decline in visitor arrivals in 2020 compared to 2019, significantly impacting loan origination and repayment capabilities [166]. - Climate change poses a long-term risk to the company's real estate loans due to rising sea levels and potential impacts on tourism, which is vital for Hawaii's economy [178]. Funding and Growth Strategies - The company relies on various funding sources, including FHLB advances and brokered certificates of deposit, to support future growth, which may become constrained if access to these sources is limited [177]. - The company has opened four de novo branches since 2010, with the latest in 2017, which may increase expenses faster than revenues until economies of scale are achieved [182]. Corporate Governance and Management - Management's estimates and assumptions may significantly impact the Consolidated Financial Statements and financial condition, with areas of concern including investment securities valuation and income tax provision [183]. - The employee stock ownership plan purchased 8% of total shares in the stock offering, which may increase compensation expenses and reduce net income if share values appreciate [184]. - The company's reputation as a community bank is critical for business success, and any negative impact could adversely affect performance and operating results [187]. - Corporate governance provisions may impede common stockholders from obtaining board representation and complicate potential takeovers, including a classified board structure requiring two annual elections for majority changes [188].

Loan Performance and Provisions - As of October 19, 2020, the company granted loan payment deferrals on $142.5 million of loans, representing 9.6% of total loans receivable as of September 30, 2020[135]. - The company has originated 23 Paycheck Protection Program loans totaling $1.7 million to assist customers during COVID-19[137]. - Nonperforming assets totaled $2.2 million, or 0.10% of total assets at September 30, 2020, compared to $736,000, or 0.04% of total assets at December 31, 2019[143]. - The company recorded $2.3 million in provisions for loan losses for the nine months ended September 30, 2020, compared to $65,000 for the same period in 2019[143]. - The allowance for loan losses to total loans ratio was 0.33% at September 30, 2020, compared to 0.17% at September 30, 2019[171]. - Nonaccrual loans totaled $2.2 million at September 30, 2020, or 0.15% of total loans, compared to $864,000, or 0.05% of total loans, at September 30, 2019[171]. - Provision for loan losses increased to $2.3 million for the nine months ended September 30, 2020, compared to $65,000 for the same period in 2019, reflecting increased qualitative factors due to rising unemployment[185]. Financial Performance - Net income decreased by $1.0 million, or 19.5%, to $4.3 million for the three months ended September 30, 2020, compared to $5.4 million for the same period in 2019[166]. - Net income decreased by $3.9 million, or 22.8%, from $17.0 million for the nine months ended September 30, 2019 to $13.1 million for the nine months ended September 30, 2020[179]. - Noninterest income decreased by $525,000 for the three months ended September 30, 2020, totaling $1.577 million compared to $2.102 million for the same period in 2019[173]. - Noninterest income decreased by $2.5 million, or 36.3%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to a significant decrease in gains on the sale of investment securities[187]. - Net interest income for the three months ended September 30, 2020, was $14.464 million, with a net interest margin of 2.89%[161]. - Net interest income decreased by $302,000, or 0.7%, to $43.7 million for the nine months ended September 30, 2020 from $44.0 million for the same period in 2019[180]. Asset and Liability Management - Total assets increased by $20.0 million, or 1.0%, to $2.1 billion as of September 30, 2020[150]. - Cash and cash equivalents rose to $237.5 million, an increase of $192.7 million since December 31, 2019[151]. - Total loans decreased by $101.8 million, or 6.4%, to $1.5 billion, representing 70.4% of total assets[152]. - The securities portfolio decreased by $76.0 million, or 20.4%, to $296.5 million, or 14.1% of total assets[154]. - Total borrowings decreased to $151.0 million from $166.0 million, with a restructuring of $55.0 million of FHLB advances lowering the average cost from 2.28% to 1.54%[157]. - The company has established an Asset/Liability Management Committee to monitor liquidity targets and strategies, ensuring sufficient liquidity for customer needs[197]. - The company has not adopted the alternative framework for regulatory capital requirements, maintaining compliance with existing guidelines[212]. Deposits and Borrowings - Deposits increased by $30.8 million, or 1.9%, to $1.7 billion, driven by increases in savings and checking accounts[156]. - The company experienced a net increase in deposits of $30.8 million for the nine months ended September 30, 2020, compared to a net decrease of $24.0 million for the same period in 2019[201]. - As of September 30, 2020, the company had the ability to borrow an additional $798.8 million from the Federal Home Loan Bank, maintaining strong liquidity[202]. Capital Ratios - The company's Tier 1 Leverage Capital ratio was 11.61% as of September 30, 2020, exceeding the required ratio of 5.00%[208]. - The Common Equity Tier 1 Risk-Based Capital ratio for Territorial Savings Bank was 26.30% as of September 30, 2020, significantly above the required minimum of 9.00%[208]. Interest Rate Sensitivity - Estimated Economic Value (EVE) at 0 interest rate is $250,528,000[221]. - A 400 basis point increase in interest rates would decrease EVE by $112,802,000, a reduction of 45.03%[221]. - A 300 basis point increase in interest rates would decrease EVE by $78,620,000, a reduction of 31.38%[221]. - A 200 basis point increase in interest rates would decrease EVE by $39,682,000, a reduction of 15.84%[221]. - A 100 basis point increase in interest rates would decrease EVE by $6,138,000, a reduction of 2.45%[221]. - A 100 basis point decrease in interest rates would decrease EVE by $62,332,000, a reduction of 24.88%[221]. - Interest rates on Freddie Mac mortgage-backed securities decreased by 25 basis points from June 30, 2020, to September 30, 2020[223]. - The decrease in mortgage interest rates is not expected to significantly affect estimated EVE[223]. - EVE is defined as the difference between the present value of assets and liabilities[222]. - The EVE table assumes a constant composition of interest-sensitive assets and liabilities over the measured period[224].

PART I. FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements of Territorial Bancorp Inc. and its subsidiaries for the quarter ended June 30, 2020, including balance sheets, income statements, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, financial instrument specifics, and other relevant disclosures [Consolidated Balance Sheets (Unaudited)](index=4&type=section&id=Consolidated%20Balance%20Sheets%20%28Unaudited%29) | Metric (Dollars in thousands) | June 30, 2020 | December 31, 2019 | | :---------------------------- | :------------ | :---------------- | | **ASSETS** | | | | Cash and cash equivalents | $126,192 | $44,806 | | Total assets | $2,088,587 | $2,086,313 | | **LIABILITIES** | | | | Deposits | $1,645,312 | $1,631,933 | | Total liabilities | $1,844,560 | $1,842,423 | | **STOCKHOLDERS' EQUITY** | | | | Total stockholders' equity | $244,027 | $243,890 | | Total liabilities and stockholders' equity | $2,088,587 | $2,086,313 | [Consolidated Statements of Income (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Income%20%28Unaudited%29) | Metric (Dollars in thousands, except per share data) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest income | $18,005 | $19,114 | $36,586 | $37,819 | | Total interest expense | $3,239 | $4,452 | $7,303 | $8,321 | | Net interest income | $14,766 | $14,662 | $29,283 | $29,498 | | Provision (reversal of provision) for loan losses | $1,395 | $(51) | $1,612 | $(46) | | Total noninterest income | $1,461 | $1,273 | $2,762 | $4,713 | | Total noninterest expense | $8,971 | $9,511 | $18,509 | $19,285 | | Net income | $4,291 | $5,060 | $8,764 | $11,584 | | Basic earnings per share | $0.47 | $0.55 | $0.95 | $1.26 | | Diluted earnings per share | $0.47 | $0.54 | $0.94 | $1.24 | [Consolidated Statements of Comprehensive Income (Unaudited)](index=8&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Unaudited%29) | Metric (Dollars in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $4,291 | $5,060 | $8,764 | $11,584 | | Other comprehensive (loss) gain, net of tax | $(93) | $119 | $(195) | $609 | | Comprehensive income | $4,198 | $5,179 | $8,569 | $12,193 | [Consolidated Statements of Stockholders' Equity (Unaudited)](index=9&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%28Unaudited%29) | Metric (Dollars in thousands) | Balances at December 31, 2019 | Balances at June 30, 2020 | | :---------------------------- | :---------------------------- | :------------------------ | | Common Stock | $97 | $95 | | Additional Paid-in Capital | $65,057 | $60,606 | | Unearned ESOP Shares | $(4,404) | $(4,159) | | Retained Earnings | $190,808 | $195,348 | | Accumulated Other Comprehensive Loss | $(7,668) | $(7,863) | | Total Stockholders' Equity | $243,890 | $244,027 | - Total stockholders' equity increased slightly from **$243.89 million** at December 31, 2019, to **$244.03 million** at June 30, 2020, driven by net income and stock issuances, partially offset by common stock repurchases and dividends[14](index=14&type=chunk)[24](index=24&type=chunk) [Consolidated Statements of Cash Flows (Unaudited)](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29) | Metric (Dollars in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------------- | :----------------------------- | :----------------------------- | | Net cash from operating activities | $10,220 | $10,098 | | Net cash from investing activities | $82,057 | $(9,861) | | Net cash from financing activities | $(10,891) | $(5,772) | | Net increase (decrease) in cash and cash equivalents | $81,386 | $(5,535) | | Cash and cash equivalents at end of the period | $126,192 | $41,528 | [Notes to Consolidated Financial Statements (Unaudited)](index=13&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20%28Unaudited%29) [(1) Organization](index=13&type=section&id=%281%29%20Organization) - Territorial Bancorp Inc. became the holding company for Territorial Savings Bank in 2009 after a conversion from a mutual holding company, and in 2014, Territorial Savings Bank converted to a Hawaii state-chartered savings bank and became a member of the Federal Reserve System[30](index=30&type=chunk)[31](index=31&type=chunk) [(2) Basis of Presentation](index=13&type=section&id=%282%29%20Basis%20of%20Presentation) - The unaudited consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions, with certain disclosures condensed or omitted, and interim results are not necessarily indicative of full-year results[32](index=32&type=chunk) [(3) Recently Issued Accounting Pronouncements](index=13&type=section&id=%283%29%20Recently%20Issued%20Accounting%20Pronouncements) - The FASB amended accounting for credit losses (CECL model) effective for fiscal years beginning after December 15, 2019, but delayed for smaller reporting companies like the Company until after December 15, 2022, and the Company is evaluating the impact[33](index=33&type=chunk) - The Company adopted FASB amendments to Fair Value Measurement disclosures as of January 1, 2020, with no material effect, and amendments to Compensation – Retirement Benefits disclosures are effective after December 15, 2020, and are not expected to have a material effect[36](index=36&type=chunk)[37](index=37&type=chunk) [(4) Cash and Cash Equivalents](index=15&type=section&id=%284%29%20Cash%20and%20Cash%20Equivalents) | (Dollars in thousands) | June 30, 2020 | December 31, 2019 | | :--------------------- | :------------ | :---------------- | | Cash and due from banks | $11,271 | $9,571 | | Interest-earning deposits in other banks | $114,921 | $35,235 | | Cash and cash equivalents | $126,192 | $44,806 | - Interest-earning deposits primarily consist of deposits at the Federal Reserve Bank of San Francisco[39](index=39&type=chunk) [(5) Investment Securities](index=15&type=section&id=%285%29%20Investment%20Securities) | (Dollars in thousands) | Amortized Cost (June 30, 2020) | Fair Value (June 30, 2020) | Amortized Cost (Dec 31, 2019) | Fair Value (Dec 31, 2019) | | :--------------------- | :----------------------------- | :------------------------- | :---------------------------- | :------------------------ | | Available-for-sale: U.S. government-sponsored mortgage-backed securities | $3,782 | $4,212 | $7,905 | $8,628 | | Held-to-maturity: U.S. government-sponsored mortgage-backed securities | $332,533 | $351,799 | $363,883 | $371,305 | | (Dollars in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Proceeds from sales | $5,710 | $1,595 | $8,360 | $4,336 | | Gross gains | $419 | $70 | $597 | $2,787 | | Gross losses | — | — | — | — | - During the six months ended June 30, 2020, the Company sold **$4.4 million** of held-to-maturity mortgage-backed securities, recording a gain of **$307,000**, and **$3.4 million** of available-for-sale mortgage-backed securities, recording a gain of **$290,000**[44](index=44&type=chunk)[45](index=45&type=chunk) - Unrealized losses on mortgage-backed securities are due to increases in market interest rates, not credit quality, and are not considered other-than-temporarily impaired as the Company intends to hold them to maturity[48](index=48&type=chunk) - The Company securitized **$9.4 million** of fixed-rate first mortgage loans into Freddie Mac mortgage-backed securities, recording them at a fair value of **$9.8 million** and recognizing a net gain of **$377,000**[49](index=49&type=chunk) [(6) Loans Receivable and Allowance for Loan Losses](index=19&type=section&id=%286%29%20Loans%20Receivable%20and%20Allowance%20for%20Loan%20Losses) | (Dollars in thousands) | June 30, 2020 | December 31, 2019 | | :--------------------- | :------------ | :---------------- | | Real estate loans: One- to four-family residential | $1,491,552 | $1,536,781 | | Total real estate loans | $1,532,692 | $1,580,212 | | Total other loans | $11,381 | $9,719 | | Allowance for loan losses | $(4,256) | $(2,712) | | Loans receivable, net | $1,537,567 | $1,584,784 | | (Dollars in thousands) | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :--------------------- | :------------------------------- | :----------------------------- | :------------------------------- | :----------------------------- | | Provision (reversal of provision) for loan losses | $1,395 | $1,612 | $(51) | $(46) | | Net recoveries (charge-offs) | $(57) | $(68) | $8 | $20 | | Balance, end of period | $4,256 | $4,256 | $2,616 | $2,616 | - The loan loss provision increased significantly to **$1.4 million** for Q2 2020 (from a **$51,000** reversal in Q2 2019) due to an increase in qualitative factors reflecting Hawaii's rising unemployment rate from COVID-19 mandates[55](index=55&type=chunk) - As of June 30, 2020, the Company had seven nonaccrual loans with a book value of **$763,000**, up from six nonaccrual loans with a book value of **$736,000** at December 31, 2019[59](index=59&type=chunk) - The Company received loan forbearance requests totaling **$167.1 million** (**10.9%** of total loans) as of June 30, 2020, primarily for one- to four-family residential mortgage loans, due to COVID-19 impacts, and these loans are included in the ALLL calculation and are not considered contractually past due[68](index=68&type=chunk) [(7) Securities Sold Under Agreements to Repurchase](index=29&type=section&id=%287%29%20Securities%20Sold%20Under%20Agreements%20to%20Repurchase) | (Dollars in thousands) | June 30, 2020 Repurchase Liability | June 30, 2020 Weighted Average Rate | December 31, 2019 Repurchase Liability | December 31, 2019 Weighted Average Rate | | :--------------------- | :--------------------------------- | :---------------------------------- | :------------------------------------- | :------------------------------------ | | Maturing: 1 year or less | $— | — % | $5,000 | 1.65 % | | Maturing: Over 4 year to 5 years | $10,000 | 1.81 % | $5,000 | 1.88 % | | Total | $10,000 | 1.81 % | $10,000 | 1.77 % | - Securities sold under agreements to repurchase remained constant at **$10.0 million** from December 31, 2019, to June 30, 2020, with a weighted average rate of **1.81%** at June 30, 2020[75](index=75&type=chunk) [(8) Offsetting of Financial Liabilities](index=30&type=section&id=%288%29%20Offsetting%20of%20Financial%20Liabilities) | (Dollars in thousands) | Gross Amount of Recognized Liabilities | Gross Amount Offset in the Balance Sheet | Net Amount of Liabilities Presented in the Balance Sheet | | :--------------------- | :------------------------------------- | :--------------------------------------- | :------------------------------------------------------- | | June 30, 2020: Securities sold under agreements to repurchase | $10,000 | $10,000 | $10,000 | | December 31, 2019: Securities sold under agreements to repurchase | $10,000 | $10,000 | $10,000 | [(9) Employee Benefit Plans](index=30&type=section&id=%289%29%20Employee%20Benefit%20Plans) - The Company has a noncontributory defined benefit pension plan (Pension Plan) with no further benefit accruals since December 31, 2008, and also sponsors a Supplemental Employee Retirement Plan (SERP) for certain employees[79](index=79&type=chunk)[80](index=80&type=chunk) | Metric (Dollars in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net periodic benefit cost (SERP) | $66 | $66 | $131 | $132 | [(10) Employee Stock Ownership Plan](index=30&type=section&id=%2810%29%20Employee%20Stock%20Ownership%20Plan) - The ESOP acquired **978,650 shares** (**8%** of total shares) in 2009 for **$9.8 million**, with shares released annually from a suspense account as loan payments are made[82](index=82&type=chunk)[83](index=83&type=chunk) | Metric (Dollars in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Compensation expense recognized | $302 | $345 | $641 | $679 | | ESOP Shares | June 30, 2020 | December 31, 2019 | | :------------ | :------------ | :---------------- | | Allocated shares | 489,423 | 466,807 | | Unearned shares | 415,931 | 440,397 | | Total ESOP shares | 905,354 | 907,204 | | Fair value of unearned shares | $9,895 | $13,626 | [(11) Share-Based Compensation](index=32&type=section&id=%2811%29%20Share-Based%20Compensation) - The 2010 Equity Incentive Plan provides stock options and restricted stock awards to key officers and directors, with costs recognized over vesting periods (three, five, or six years)[86](index=86&type=chunk) | (In thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Compensation expense | $209 | $285 | $366 | $371 | | Income tax benefit | $57 | $78 | $100 | $101 | | Stock Options Activity | Options Outstanding at Dec 31, 2019 | Options Outstanding at June 30, 2020 | | :--------------------- | :---------------------------------- | :----------------------------------- | | Options | 116,409 | 34,582 | | Weighted Average Exercise Price | $17.53 | $17.92 | - As of June 30, 2020, the Company had no unrecognized compensation costs related to the stock option plan, but **$483,000** for restricted stock and **$531,000** for performance-based restricted stock units (PRSUs) based on performance conditions[91](index=91&type=chunk)[94](index=94&type=chunk)[97](index=97&type=chunk) [(12) Earnings Per Share](index=38&type=section&id=%2812%29%20Earnings%20Per%20Share) | (Dollars in thousands, except per share data) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income available to common shareholders | $4,254 | $5,023 | $8,716 | $11,510 | | Basic earnings per share | $0.47 | $0.55 | $0.95 | $1.26 | | Diluted earnings per share | $0.47 | $0.54 | $0.94 | $1.24 | - Unvested restricted stock awards are considered participating securities in EPS computation using the two-class method due to nonforfeitable dividend rights[99](index=99&type=chunk) [(13) Other Comprehensive Income and Loss](index=40&type=section&id=%2813%29%20Other%20Comprehensive%20Income%20and%20Loss) | (Dollars in thousands) | Balances at Beginning of Period (June 30, 2020) | Balances at End of Period (June 30, 2020) | | :--------------------- | :---------------------------------------------- | :---------------------------------------- | | Unfunded Pension Liability | $8,178 | $8,178 | | Unrealized (Gain)/Loss on Securities | $(510) | $(315) | | Total | $7,668 | $7,863 | - For the six months ended June 30, 2020, the Company reported a net current period other comprehensive loss of **$195,000**, primarily driven by unrealized losses on securities[102](index=102&type=chunk) [(14) Revenue Recognition](index=42&type=section&id=%2814%29%20Revenue%20Recognition) - The Company's customer contracts are generally short-term, with service rendering and payment closely matched, leading to income recognition when payment is received, and revenue from financial instruments is excluded from this reporting requirement[104](index=104&type=chunk)[105](index=105&type=chunk) | (Dollars in thousands) | Service Fees on Loan and Deposit Accounts (Six Months Ended June 30, 2020) | Other (Six Months Ended June 30, 2020) | Total (Six Months Ended June 30, 2020) | | :--------------------- | :----------------------------------------------------------- | :------------------------------------- | :------------------------------------- | | Revenue from contracts with customers | $643 | $53 | $696 | | Other revenue | $345 | $55 | $400 | | Total | $988 | $108 | $1,096 | [(15) Leases](index=42&type=section&id=%2815%29%20Leases) - The Company leases premises, vehicles, and equipment under operating leases expiring through 2029, and has elected practical expedients for lease accounting and estimates discount rates using FHLB advance rates[107](index=107&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) | Lease Costs (Dollars in thousands) | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :--------------------------------- | :------------------------------- | :----------------------------- | | Operating lease costs | $816 | $1,631 | | Short-term lease costs | $6 | $12 | | Variable lease costs | $36 | $77 | | Total lease costs | $858 | $1,720 | | Lease Information | June 30, 2020 | | :---------------- | :------------ | | Weighted-average remaining lease term (years) | 5.64 | | Weighted-average discount rate | 2.75 % | | Present value of leases (Dollars in thousands) | $12,542 | [(16) Fair Value](index=45&type=section&id=%2816%29%20Fair%20Value) - The Company categorizes assets and liabilities measured at fair value into three levels based on observability of inputs: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) | (Dollars in thousands) | Carrying Amount (June 30, 2020) | Fair Value (June 30, 2020) | Level 1 | Level 2 | Level 3 | | :--------------------- | :------------------------------ | :------------------------- | :------ | :------ | :------ | | **Assets** | | | | | | | Cash and cash equivalents | $126,192 | $126,192 | $126,192 | $— | $— | | Investment securities available for sale | $4,212 | $4,212 | $— | $4,212 | $— | | Loans receivable, net | $1,537,567 | $1,642,432 | $— | $— | $1,642,432 | | **Liabilities** | | | | | | | Deposits | $1,645,312 | $1,650,538 | $— | $1,242,879 | $407,659 | | (Dollars in thousands) | Fair Value (June 30, 2020) | Valuation Technique | Unobservable Input | Range (Weighted Average) | | :--------------------- | :------------------------- | :------------------ | :----------------- | :----------------------- | | Mortgage servicing assets | $510 | Discounted cash flow | Discount rate | 9.25% - 11.25% (10.25%) | | | | | Prepayment speed (CPR) | 9.39 - 17.52 (13.38) | | | | | Annual cost to service (per loan, in dollars) | $75 | [(17) Subsequent Events](index=49&type=section&id=%2817%29%20Subsequent%20Events) - On July 30, 2020, the Board of Directors declared a quarterly cash dividend of **$0.23** per common share, payable on August 27, 2020[129](index=129&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=51&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the Company's financial condition and operating results, highlighting the impact of COVID-19 on the Hawaiian economy and the Company's operations, detailing changes in assets, liabilities, equity, and income statement components, along with discussions on liquidity, capital resources, and critical accounting policies [Cautionary Statement Regarding Forward-Looking Information](index=51&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Information) - The report contains forward-looking statements subject to significant business, economic, and competitive uncertainties, including the impact of COVID-19, general economic conditions, interest rate changes, and regulatory policies[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk) - Specific risks related to COVID-19 include potential declines in demand for products/services, increased loan delinquencies, decreased collateral values, higher loan loss allowances, reduced net interest margin, and increased cybersecurity risks[138](index=138&type=chunk) [Overview](index=55&type=section&id=Overview) - The Company operates as a traditional thrift, primarily funded by deposits and mortgage-backed securities, making it vulnerable to interest rate increases[140](index=140&type=chunk) - Hawaii's economy has been significantly impacted by COVID-19, leading to increased unemployment due to tourism decline and government mandates[141](index=141&type=chunk) - The Company provided forbearance to COVID-19-affected borrowers, originated Paycheck Protection Program loans, and waived certain fees, with forbearance inquiries totaling **$164.2 million** (**10.7%** of total loans) as of July 9, 2020, primarily residential mortgages[143](index=143&type=chunk)[144](index=144&type=chunk)[146](index=146&type=chunk) - Nonperforming assets remained low at **$763,000** (**0.04%** of total assets) at June 30, 2020, but loan loss provisions increased to **$1.6 million** for the six months ended June 30, 2020, due to rising unemployment in Hawaii[151](index=151&type=chunk) [Critical Accounting Policies](index=59&type=section&id=Critical%20Accounting%20Policies) - There are no material changes to the critical accounting policies disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2019[155](index=155&type=chunk) [Comparison of Financial Condition at June 30, 2020 and December 31, 2019](index=59&type=section&id=Comparison%20of%20Financial%20Condition%20at%20June%2030%2C%202020%20and%20December%2031%2C%202019) [Assets](index=59&type=section&id=Assets) - Total assets increased by **$2.3 million** (**0.1%**) to **$2.1 billion** at June 30, 2020, primarily due to an **$81.4 million** increase in cash and cash equivalents, offset by decreases in loans and investment securities[156](index=156&type=chunk) [Cash and Cash Equivalents](index=59&type=section&id=Cash%20and%20Cash%20Equivalents) - Cash and cash equivalents increased by **$81.4 million** to **$126.2 million** at June 30, 2020, driven by decreases in total loans receivable and total investment securities[157](index=157&type=chunk) [Loans](index=59&type=section&id=Loans) - Total loans, including loans held for sale, decreased by **$44.8 million** (**2.8%**) to **$1.5 billion** at June 30, 2020, mainly due to principal repayments, loan sales, and securitizations exceeding new originations[158](index=158&type=chunk) [Securities](index=59&type=section&id=Securities) - The securities portfolio decreased by **$35.8 million** (**9.6%**) to **$336.7 million** at June 30, 2020, as repayments and sales outpaced loan securitizations[159](index=159&type=chunk) [Deposits](index=59&type=section&id=Deposits) - Deposits increased by **$13.4 million** (**0.8%**) to **$1.6 billion** at June 30, 2020, primarily from increases in passbook savings, checking, and noninterest-bearing accounts, partially offset by a **$61.5 million** decrease in certificates of deposit[161](index=161&type=chunk) [Borrowings](index=59&type=section&id=Borrowings) - Total borrowings decreased by **$15.0 million** to **$151.0 million** at June 30, 2020, with Federal Home Loan Bank advances decreasing and securities sold under agreements to repurchase remaining constant[162](index=162&type=chunk) [Stockholders' Equity](index=59&type=section&id=Stockholders%27%20Equity) - Total stockholders' equity increased slightly to **$244.0 million** at June 30, 2020, from **$243.9 million** at December 31, 2019, due to net income and stock issuances, offset by stock repurchases and dividends[163](index=163&type=chunk) [Average Balances and Yields](index=59&type=section&id=Average%20Balances%20and%20Yields) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :----- | :------------------------------- | :------------------------------- | | Average Interest-Earning Assets | $2,008,819 | $1,999,650 | | Yield on Interest-Earning Assets | 3.59 % | 3.82 % | | Average Interest-Bearing Liabilities | $1,736,758 | $1,736,245 | | Cost of Interest-Bearing Liabilities | 0.75 % | 1.03 % | | Net Interest Rate Spread | 2.84 % | 2.79 % | | Net Interest Margin | 2.94 % | 2.93 % | | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----- | :----------------------------- | :----------------------------- | | Average Interest-Earning Assets | $2,017,141 | $1,992,569 | | Yield on Interest-Earning Assets | 3.63 % | 3.80 % | | Average Interest-Bearing Liabilities | $1,746,061 | $1,729,718 | | Cost of Interest-Bearing Liabilities | 0.84 % | 0.96 % | | Net Interest Rate Spread | 2.79 % | 2.84 % | | Net Interest Margin | 2.90 % | 2.96 % | [Comparison of Operating Results for the Three Months Ended June 30, 2020 and 2019](index=65&type=section&id=Comparison%20of%20Operating%20Results%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202020%20and%202019) [General](index=65&type=section&id=General) - Net income decreased by **$769,000** (**15.2%**) to **$4.3 million** for Q2 2020, primarily due to a **$1.4 million** increase in loan loss provisions and a **$1.1 million** decrease in interest income, partially offset by lower interest and noninterest expenses[172](index=172&type=chunk) [Net Interest Income](index=65&type=section&id=Net%20Interest%20Income) - Net interest income increased by **$104,000** (**0.7%**) to **$14.8 million** for Q2 2020, with the net interest rate spread improving to **2.84%** (from **2.79%**) and net interest margin to **2.94%** (from **2.93%**), driven by a larger decrease in the cost of interest-bearing liabilities than the yield on interest-earning assets[173](index=173&type=chunk) [Interest Income](index=65&type=section&id=Interest%20Income) - Interest income decreased by **$1.1 million** (**5.8%**) to **$18.0 million** for Q2 2020, mainly due to a **23 basis point** decrease in the average yield on interest-earning assets, with loan interest income falling by **$778,000** due to lower average balances and yields, and securities interest income decreasing by **$237,000** due to lower average balances and yields[174](index=174&type=chunk) [Interest Expense](index=65&type=section&id=Interest%20Expense) - Interest expense decreased by **$1.2 million** (**27.2%**) to **$3.2 million** for Q2 2020, primarily due to a **$1.2 million** (**32.7%**) decrease in interest expense on interest-bearing deposits, driven by a **28 basis point** decrease in the average rate paid on deposits, particularly savings accounts and certificates of deposit[175](index=175&type=chunk) [Provision for Loan Losses](index=65&type=section&id=Provision%20for%20Loan%20Losses) - The Company recorded **$1.4 million** in loan loss provisions for Q2 2020, a significant increase from a **$51,000** reversal in Q2 2019, attributed to higher qualitative factors reflecting increased unemployment in Hawaii due to COVID-19[176](index=176&type=chunk) - Nonaccrual loans totaled **$763,000** (**0.05%** of total loans) at June 30, 2020, compared to **$892,000** (**0.06%**) at June 30, 2019[177](index=177&type=chunk)[178](index=178&type=chunk) [Noninterest Income](index=67&type=section&id=Noninterest%20Income) | (Dollars in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | $ Change | % Change | | :--------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Service fees on loan and deposit accounts | $535 | $485 | $50 | 10.3 % | | Gain on sale of investment securities | $419 | $70 | $349 | 498.6 % | | Gain on sale of loans | $259 | $— | $259 | — % | | Other | $47 | $508 | $(461) | (90.7)% | | Total | $1,461 | $1,273 | $188 | 14.8 % | - Noninterest income increased by **$188,000** for Q2 2020, primarily due to higher gains on sale of investment securities (**$419,000** vs. **$70,000**) and gains on sale of loans (**$259,000** vs. **$0**), partially offset by a decrease in other income due to bank-owned life insurance proceeds in the prior year[180](index=180&type=chunk) [Noninterest Expense](index=67&type=section&id=Noninterest%20Expense) | (Dollars in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | $ Change | % Change | | :--------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Salaries and employee benefits | $5,264 | $5,730 | $(466) | (8.1)% | | Equipment | $1,164 | $1,018 | $146 | 14.3 % | | Other general and administrative expenses | $843 | $1,042 | $(199) | (19.1)% | | Total | $8,971 | $9,511 | $(540) | (5.7)% | - Noninterest expense decreased by **$540,000** for Q2 2020, mainly due to lower salaries and employee benefits (driven by increased capitalized loan origination costs and decreased ESOP expense) and reduced advertising and accounting expenses[182](index=182&type=chunk) [Income Tax Expense](index=67&type=section&id=Income%20Tax%20Expense) - Income taxes were **$1.6 million** for Q2 2020, with an effective tax rate of **26.8%**, compared to **$1.4 million** and **21.9%** for Q2 2019, with the Q2 2019 rate being lower due to non-taxable bank-owned life insurance proceeds[183](index=183&type=chunk)[185](index=185&type=chunk) [Comparison of Operating Results for the Six Months Ended June 30, 2020 and 2019](index=69&type=section&id=Comparison%20of%20Operating%20Results%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202020%20and%202019) [General](index=69&type=section&id=General) - Net income decreased by **$2.8 million** (**24.3%**) to **$8.8 million** for the six months ended June 30, 2020, primarily due to lower noninterest income, higher loan loss provisions, and decreased interest income, partially offset by reduced interest and noninterest expenses[186](index=186&type=chunk) [Net Interest Income](index=69&type=section&id=Net%20Interest%20Income) - Net interest income decreased by **$215,000** (**0.7%**) to **$29.3 million** for the six months ended June 30, 2020, with the net interest rate spread decreasing to **2.79%** (from **2.84%**) and net interest margin to **2.90%** (from **2.96%**), mainly due to a larger decrease in asset yields than liability costs[187](index=187&type=chunk) [Interest Income](index=69&type=section&id=Interest%20Income) - Interest income decreased by **$1.2 million** (**3.3%**) to **$36.6 million** for the six months ended June 30, 2020, driven by a **17 basis point** decrease in the average yield of interest-earning assets, with loan interest income falling by **$929,000** due to lower average balances and yields, and securities interest income decreasing by **$328,000** due to lower average balances and yields[188](index=188&type=chunk) [Interest Expense](index=69&type=section&id=Interest%20Expense) - Interest expense decreased by **$1.0 million** (**12.2%**) to **$7.3 million** for the six months ended June 30, 2020, with interest expense on deposits decreasing by **$1.3 million** (**18.6%**) due to lower average rates on savings and certificates of deposit, while interest expense on Federal Home Loan Bank advances rose by **$272,000** due to a **$34.5 million** increase in average balance[189](index=189&type=chunk)[191](index=191&type=chunk) [Provision for Loan Losses](index=71&type=section&id=Provision%20for%20Loan%20Losses) - The Company recorded **$1.6 million** in loan loss provisions for the six months ended June 30, 2020, compared to a **$46,000** reversal in the prior year, primarily due to increased qualitative factors reflecting Hawaii's rising unemployment from COVID-19[192](index=192&type=chunk) - Nonaccrual loans totaled **$763,000** (**0.05%** of total loans) at June 30, 2020, compared to **$892,000** (**0.06%**) at June 30, 2019[192](index=192&type=chunk) [Noninterest Income](index=71&type=section&id=Noninterest%20Income) | (Dollars in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | $ Change | % Change | | :--------------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Gain on sale of investment securities | $597 | $2,787 | $(2,190) | (78.6)% | | Gain on sale of loans | $666 | $6 | $660 | 11,000.0 % | | Other | $108 | $580 | $(472) | (81.4)% | | Total | $2,762 | $4,713 | $(1,951) | (41.4)% | - Noninterest income decreased by **$2.0 million** for the six months ended June 30, 2020, primarily due to a **$2.7 million** gain on sale of a trust preferred security in the prior year, partially offset by increased gains on loan sales and securitization transactions in 2020[194](index=194&type=chunk) [Noninterest Expense](index=72&type=section&id=Noninterest%20Expense) | (Dollars in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | $ Change | % Change | | :--------------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Salaries and employee benefits | $10,948 | $11,416 | $(468) | (4.1)% | | Federal deposit insurance premiums | $74 | $287 | $(213) | (74.2)% | | Other general and administrative expenses | $1,932 | $2,301 | $(369) | (16.0)% | | Total | $18,509 | $19,285 | $(776) | (4.0)% | - Noninterest expense decreased by **$776,000** for the six months ended June 30, 2020, mainly due to lower salaries and employee benefits (increased loan capitalization and decreased ESOP expense), reduced federal deposit insurance premiums (due to FDIC credits), and lower advertising and accounting expenses[196](index=196&type=chunk) [Income Tax Expense](index=72&type=section&id=Income%20Tax%20Expense) - Income taxes were **$3.2 million** for the six months ended June 30, 2020, with an effective tax rate of **26.5%**, compared to **$3.4 million** and **22.6%** for the prior year, with the prior year's rate being lower due to non-taxable bank-owned life insurance proceeds[197](index=197&type=chunk) [Liquidity and Capital Resources](index=72&type=section&id=Liquidity%20and%20Capital%20Resources) - The Company's primary liquidity sources include deposit inflows, cash balances, loan/security repayments, FHLB advances, and proceeds from securities/loan sales, with an Asset/Liability Management Committee monitoring liquidity targets[198](index=198&type=chunk) - At June 30, 2020, cash and cash equivalents totaled **$126.2 million**, and the Company had **$141.0 million** in FHLB advances outstanding with an additional borrowing capacity of **$808.5 million**, and **$10.0 million** in securities sold under repurchase agreements[203](index=203&type=chunk)[208](index=208&type=chunk) - Territorial Savings Bank is considered 'well capitalized' under regulatory guidelines, exceeding all required capital ratios at June 30, 2020, and December 31, 2019[213](index=213&type=chunk)[217](index=217&type=chunk) | Capital Ratio | Required Ratio (Well-Capitalized) | Actual Ratio (June 30, 2020) | | :------------ | :-------------------------------- | :--------------------------- | | Tier 1 Leverage Capital | 5.00 % | 11.37 % | | Common Equity Tier 1 Risk-Based Capital | 9.00 % | 24.94 % | | Tier 1 Risk-Based Capital | 10.50 % | 24.94 % | | Total Risk-Based Capital | 12.50 % | 25.40 % | [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=79&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discusses the Company's exposure to market risk, primarily interest rate risk, due to its traditional thrift operations with long-term, fixed-rate assets funded by shorter-term liabilities, detailing the use of Economic Value of Equity (EVE) analysis to assess risk and stating the Company's policy against hedging activities - The Company's primary market risk is interest rate risk, as its long-term, fixed-rate residential mortgage loans and mortgage-backed securities are funded by liabilities that reprice more quickly[222](index=222&type=chunk)[223](index=223&type=chunk) - The Company uses Economic Value of Equity (EVE) analysis to compute changes in the present value of assets, liabilities, and off-balance sheet items under various interest rate scenarios (e.g., 100 to 400 basis point increases, 100 basis point decrease)[225](index=225&type=chunk) | Change in Interest Rates (bp) | Estimated EVE (March 31, 2020, Dollars in thousands) | Percentage Change in EVE | | :---------------------------- | :--------------------------------------------------- | :----------------------- | | +400 | $159,477 | (45.42)% | | +300 | $206,691 | (29.26)% | | +200 | $256,510 | (12.21)% | | +100 | $291,595 | (0.20)% | | 0 | $292,174 | — % | | -100 | $231,534 | (20.75)% | - The Company's policies do not permit hedging activities or investments in high-risk mortgage derivatives[224](index=224&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=81&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2020, and no material changes to internal control over financial reporting occurred during the quarter - The Company's disclosure controls and procedures were effective as of June 30, 2020[232](index=232&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2020[233](index=233&type=chunk) PART II. OTHER INFORMATION [ITEM 1. LEGAL PROCEEDINGS](index=82&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The Company and its subsidiaries are involved in routine legal actions incidental to their business, and management believes the resolution of these actions will not have a material adverse effect on the Company's results of operations - Legal actions are considered ordinary and routine, with no claims for money damages exceeding ten percent of consolidated assets[235](index=235&type=chunk) - Management expects the resolution of current legal actions not to have a material adverse effect on the Company's results[235](index=235&type=chunk) [ITEM 1A. RISK FACTORS](index=82&type=section&id=ITEM%201A.%20RISK%20FACTORS) There have been no material changes to the risk factors previously disclosed in the Company's Form 10-Q for the period ended March 31, 2020, and its Annual Report on Form 10-K for the period ended December 31, 2019 - No material changes to risk factors since the last 10-Q and 10-K filings[236](index=236&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=82&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section details the Company's common stock repurchases during the three months ended June 30, 2020, including the completion of its ninth share repurchase program | Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | | :----- | :----------------------------------- | :--------------------------- | | April 1, 2020 through April 30, 2020 | 98,769 | $24.92 | | May 1, 2020 through May 31, 2020 | 20,975 | $24.03 | | June 1, 2020 through June 30, 2020 | 22,205 | $25.34 | | Total | 141,949 | $24.85 | - The Company completed its ninth share repurchase program, authorizing up to **$5,000,000** of common stock repurchases, on April 21, 2020[238](index=238&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=82&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The Company reported no defaults upon senior securities - No defaults upon senior securities[239](index=239&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=82&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the Company - Not applicable[240](index=240&type=chunk) [ITEM 5. OTHER INFORMATION](index=82&type=section&id=ITEM%205.%20OTHER%20INFORMATION) The Company reported no other information for this period - None[241](index=241&type=chunk) [ITEM 6. EXHIBITS](index=82&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications, XBRL interactive data files, and the cover page interactive data file - Exhibits include certifications (31.1, 31.2, 32) and XBRL interactive data files (101, 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[246](index=246&type=chunk) [SIGNATURES](index=85&type=section&id=SIGNATURES) The report is duly signed on behalf of Territorial Bancorp Inc. by Allan S. Kitagawa, Chairman of the Board, President and Chief Executive Officer, and Melvin M. Miyamoto, Senior Vice President and Chief Financial Officer, on August 7, 2020 - The report was signed by Allan S. Kitagawa (Chairman, President, CEO) and Melvin M. Miyamoto (SVP, CFO) on August 7, 2020[249](index=249&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period ended March 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For transition period from to Commission File Number 001-34403 TERRITORIAL BANCORP INC. (Exact Name of Registrant as Specified in Charter) Maryland 26-4674701 (State or Other Jurisdi ...