What changed in this filing

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Item 1. Financial Statements

2024-08-09 compared with 2024-05-10 · 177 added, 124 removed, 690 unchanged (30% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

March 31, 2024 (Unaudited) and December 31, 2023

June 30, 2024 (Unaudited) and December 31, 2023

(in thousands except share and per share data)

March 31, 2024

June 30, 2024

December 31, 2023

3 unchanged sentences

Available-for-sale securities, at fair value

Loans receivable

Loans receivable, net of deferred fees

Allowance for credit losses

1 unchanged sentence

Banking premises and equipment, net

Federal Home Loan Bank stock, at cost

Federal Home Loan Bank ("FHLB") stock, at cost

Federal Reserve Bank stock, at cost

13 unchanged sentences

Common stock, $ 0.01 par value, 120,000,000 shares authorized;

42,705,729 shares issued and outstanding

42,705,729 shares issued and outstanding at June 30, 2024 and December 31, 2023

Additional paid-in capital

Unallocated common shares held by the Employee Stock Ownership Plan

Unallocated common shares held by the Employee Stock Ownership Plan ("ESOP")

Retained earnings

7 unchanged sentences

For the Three Months Ended

For the Six Months Ended

INTEREST AND DIVIDEND INCOME

Interest and fees on loans

Interest on investments securities

Interest on securities

Interest on cash equivalents and other

7 unchanged sentences

Provision for credit losses - loans

Provision for credit losses - unfunded commitments

Provision for (release of) credit losses - unfunded commitments

Total provision for credit losses

24 unchanged sentences

For the Three Months Ended

For the Six Months Ended

OTHER COMPREHENSIVE INCOME, NET OF TAX:

7 unchanged sentences

(Unaudited - Dollars in thousands)

For the Three Months Ended

Stock Held by

1 unchanged sentence

Income (Loss)

Balance, December 31, 2022

Adoption of ASU 2016-13

Balance, March 31, 2023

Other comprehensive income, net of tax

Balance, June 30, 2023

Balance, March 31, 2024

Balance, December 31, 2023

Other comprehensive income, net of tax

Costs from stock offering and issuance of common shares

Purchase of common shares held by ESOP ( 2,416,458 shares)

ESOP shares committed to be released ( 42,589 shares)

Balance, March 31, 2024

Balance, June 30, 2024

For the Six Months Ended

Stock Held by

Comprehensive

Income (Loss)

Balance, December 31, 2022

Adoption of ASU 2016-13

Other comprehensive loss, net of tax

Balance, June 30, 2023

Balance, December 31, 2023

Other comprehensive loss, net of tax

Net costs from stock offering and issuance of common shares

Purchase of common shares by the ESOP ( 2,416,458 shares)

ESOP shares committed to be released ( 84,709 shares)

Balance, June 30, 2024

The accompanying notes are an integral part of these unaudited consolidated financial statements.

2 unchanged sentences

(Unaudited - Dollars in thousands)

For the Three Months Ended

March 31, 2024

March 31, 2023

For the Six Months Ended

June 30, 2024

June 30, 2023

CASH FLOWS FROM OPERATING ACTIVITIES

5 unchanged sentences

Change in net deferred loan origination fees

Mortgage loans originated for sale

Proceeds from sale of mortgage loans held for sale

Gain on sale of mortgage loans

Depreciation and amortization expense

4 unchanged sentences

Prepaid expenses and other assets

Income tax refunds receivable

Accrued expenses and other liabilities

Accrued retirement liabilities

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

NET CASH PROVIDED BY OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES

2 unchanged sentences

Proceeds from maturities, calls and paydowns of available-for-sale securities

Redemptions of Federal Home Loan Bank stock, net

Redemptions (purchases) of Federal Reserve stock, net

Redemptions (purchases) of Federal Home Loan Bank stock, net

Purchases of Federal Reserve stock, net

Recoveries of loans previously charged off

7 unchanged sentences

Net change in mortgagors' escrow accounts

Decrease in FHLB borrowings, net

Increase (decrease) in FHLB borrowings, net

NET CASH PROVIDED BY FINANCING ACTIVITIES

7 unchanged sentences

Unrealized holding losses on cash flow hedge

Mortgage loans transferred to loans held for sale

The accompanying notes are an integral part of these unaudited consolidated financial statements.

20 unchanged sentences

Intercompany transactions and balances are eliminated in consolidation.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company's financial position as of March 31, 2024 and the results of operations and cash flows for the interim periods ended March 31, 2024 and 2023.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company's financial position as of June 30, 2024 and the results of operations and cash flows for the interim periods ended June 30, 2024 and 2023.

All interim amounts have not been audited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for the fiscal year.

3 unchanged sentences

Certain previously reported amounts have been reclassified to conform to the current period’s presentation.

Note 3 – Investment Securities

Subsequent events are events or transactions that occur after the balance sheet date but before consolidated financial statements are issued.

Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the consolidated balance sheet, including the estimates inherent in the process of preparing consolidated financial statements.

Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the consolidated balance sheet but arose after that date.

Note 3 –Securities

The Company's available-for-sale securities are carried at fair value.

8 unchanged sentences

Losses are charged against the allowance when the uncollectibility of a security is confirmed, or when either of the aforementioned criteria surrounding intent or requirement to sell have been met.

Investments in securities have been classified on the consolidated balance sheets according to management’s intent.

Securities have been classified on the consolidated balance sheets according to management’s intent.

The following tables summarize the amortized cost, allowance for credit losses, and fair value of securities and their corresponding amounts of unrealized gains and losses at the dates indicated:

1 unchanged sentence

Credit Losses

March 31, 2024

June 30, 2024

(in thousands)

16 unchanged sentences

Municipal obligations

The Company did not record a provision for estimated credit losses on any available-for-sale securities for the three months ended March 31, 2024.

Excluded from the table above is accrued interest on available-for-sale securities of $ 1.5 million and $ 1.2 million at March 31, 2024 and December 31, 2023, respectively, which is included within accrued interest receivable on the consolidated balance sheets.

Additionally, the Company did no t record any write-offs of accrued interest income on available-for-sale securities for the three months ended March 31, 2024.

No securities held by the Company were delinquent on contractual payments at March 31, 2024, no r were any securities placed on non-accrual status for the three months then ended.

The following is a summary of actual maturities of certain available-for-sale securities as of March 31, 2024.

The Company did not record a provision for estimated credit losses on any available-for-sale securities for the three and six months ended June 30, 2024.

Excluded from the table above is accrued interest on available-for-sale securities of $ 1.5 million at June 30, 2024 and December 31, 2023, which is included within accrued interest receivable on the consolidated balance sheets.

Additionally, the Company did no t record any write-offs of accrued interest income on available-for-sale securities for the three and six months ended June 30, 2024.

No securities held by the Company were delinquent on contractual payments at June 30, 2024, no r were any securities placed on non-accrual status for the three and six months then ended.

The following is a summary of actual maturities of certain available-for-sale securities as of June 30, 2024.

The amortized cost and fair values are based on the contractual maturity dates.

10 unchanged sentences

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale.

There were no sales of securities during the three months ended March 31, 2024 and 2023.

The carrying value of securities pledged to secure borrowings from the Federal Reserve Bank was $ 50.9 million and $ 49.6 million as of March 31, 2024 and December 31, 2023, respectively.

There were no sales of securities during the three and six months ended June 30, 2024 and 2023.

The carrying value of securities pledged to secure borrowings from the Federal Reserve Bank was $ 48.4 million and $ 49.6 million as of June 30, 2024 and December 31, 2023, respectively.

The following tables present fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of the dates stated.

2 unchanged sentences

(Dollars in thousands)

March 31, 2024

June 30, 2024

Number of Securities

Government Agencies

Agency mortgage-backed securities

14 unchanged sentences

Included in corporate bonds are investments in senior and subordinated debt of banks and bank holding companies, some of which do not have investment ratings.

At March 31, 2024, available-for-sale debt securities had unrealized losses with aggregate depreciation of 8.5 %, from the Company’s amortized cost basis.

At June 30, 2024, available-for-sale debt securities had unrealized losses with aggregate depreciation of 8.4 %, from the Company’s amortized cost basis.

These unrealized losses relate to changes in market interest rates since acquiring the securities.

As management has the intent and ability to hold debt securities until maturity or cost recovery, no allowance for credit losses on securities is deemed necessary as of March 31, 2024.

As management has the intent and ability to hold debt securities until maturity or cost recovery, no allowance for credit losses on securities is deemed necessary as of June 30, 2024.

Note 4 – Loans Receivable, Allowance for Credit Losses and Credit Quality

28 unchanged sentences

This population of individually evaluated loans (or loan relationships with the same primary source of repayment) is determined on a quarterly basis and consists of loans with a risk rating of substandard or worse, a balance exceeding $ 500,000 , and loan terms differing significantly from other pooled loans.

In accordance with the Company’s policy, non-accrual residential real estate loans that are well secured (LTV < 75 %) are not considered to warrant a downgrade to substandard risk rating and are therefore excluded from individually evaluated loans.

In accordance with the Company’s policy, non-accrual residential real estate loans that are well secured (loan-to-value < 75 %) are not considered to warrant a downgrade to substandard risk rating and are therefore excluded from individually evaluated loans.

Measurement of credit loss is based on the expected future cash flows of an individually evaluated loan, discounted at the loan’s effective interest rate, or measured on an observable market value, if one exists, or the estimated market value of the collateral underlying the loan, discounted to consider estimated costs to sell the collateral for collateral-dependent loans.

2 unchanged sentences

Such financial instruments are recorded in the consolidated financial statements when they are funded.

The credit risk associated with these commitments is evaluated in a manner similar to the allowance for credit losses on loans.

The credit risk associated with these commitments is evaluated in a manner similar to the ACL on loans.

The reserve for unfunded commitments is included in other liabilities on the consolidated balance sheets.

Loans consist of the following as of the dates stated:

March 31, 2024

June 30, 2024

December 31, 2023

1 unchanged sentence

One-to-four-family residential

Residential real estate

Total residential real estate

Commercial real estate

Multi-family residential

Commercial real estate

Total commercial real estate

Construction and land development

Commercial and industrial

Total commercial

Consumer, net of premium/discount

1 unchanged sentence

Allowance for credit losses

Included in the above are approximately $ 334.3 million and $ 320.5 million in loans to borrowers in the cannabis industry at March 31, 2024 and December 31, 2023, respectively.

Of that total, $ 81.6 million and $ 102.1 million were direct loans to cannabis companies and were collateralized by real estate at March 31, 2024 and December 31, 2023, respectively.

During the three months ended March 31, 2024 and 2023, the Company purchased approximately $ 5.5 million and $ 4.9 million of consumer loan pools, respectively.

The loans purchased during the three months ended March 31, 2024 included loan pools collateralized by boats, recreational vehicles, and automobiles.

The loans purchased during the three months ended March 31, 2023 included loan pools collateralized by boats, recreational vehicles, automobiles and solar panels, as well as unsecured home improvement loans.

Included in the above are approximately $ 415.2 million and $ 365.9 million in loans to borrowers in the cannabis industry at June 30, 2024 and December 31, 2023, respectively.

Of that total, $ 252.7 million and $ 207.7 million were direct loans to cannabis companies and were collateralized by real estate at June 30, 2024 and December 31, 2023, respectively.

For the two most recent reporting periods ended December 31, 2023 and March 31, 2024, the Company disclosed loans to borrowers in the cannabis industry of $ 320.5 million and $ 334.3 million, respectively.

Based on revised classifications, the amount of loans to borrowers in the cannabis industry at December 31, 2023 and March 31, 2024 was $ 365.9 million and $ 373.4 million, respectively.

The reclassification did not have a significant impact on the calculation of the allowance for credit losses.

During the three months ended June 30, 2024 and 2023, the Company purchased approximately $ 14.1 million and $ 20.6 million of consumer loan pools, respectively.

During the six months ended June 30, 2024 and 2023, the Company purchased approximately $ 19.6 million and $ 25.6 million of consumer loan pools, respectively.

The loans purchased during the three and six months ended June 30, 2024 and 2023 included loan pools collateralized by boats, recreational vehicles, automobiles and solar panels.

The outstanding balances of these consumer purchased loan pools, shown net of premium (discount) are as follows as of the dates stated:

March 31, 2024

June 30, 2024

Premium (Discount)

13 unchanged sentences

Home improvement loans

The carrying value of loans pledged to secure advances from the FHLB were $ 1.24 billion and $ 1.33 billion as of March 31, 2024 and December 31, 2023, respectively.

The carrying value of loans pledged to secure advances from the FHLB were $ 1.25 billion and $ 1.24 billion as of June 30, 2024 and December 31, 2023, respectively.

The following table presents the aging of the amortized cost of loans receivable by loan category as of the date stated:

March 31, 2024

June 30, 2024

More Past Due

18 unchanged sentences

The following table presents the amortized cost of nonaccrual loans receivable by loan category as of the dates stated:

March 31, 2024

June 30, 2024

December 31, 2023

6 unchanged sentences

Commercial and industrial

During the three months ended March 31, 2024, the Company reversed $ 159 thousand of interest income for loans that were placed on non-accrual.

During the three months ended March 31, 2023, the Company did no t reverse any interest income for loans that were placed on non-accrual.

During the three and six months ended June 30, 2024, the Company reversed $ 149,000 of interest income for loans that were placed on non-accrual.

During the three and six months ended June 30, 2023, the Company did no t reverse any interest income for loans that were placed on non-accrual.

Credit Quality Information

18 unchanged sentences

Management uses the results of these reviews as part of its annual review process.

The following table presents the amortized cost of loans receivable by internal risk grade by year of origination as of March 31, 2024.

Also presented are current period gross charge-offs by loan type and vintage year for the three months ended March 31, 2024:

The following table presents the amortized cost of loans receivable by internal risk grade by year of origination as of June 30, 2024.

Also presented are current period gross charge-offs by loan type and vintage year for the three months ended June 30, 2024:

Term Loans Amortized Cost Basis by Origination Year (in thousands)

14 unchanged sentences

Current period gross charge-offs

Term Loans Amortized Cost Basis by Origination Year (in thousands)

Revolving Loans

Construction and Land Development

12 unchanged sentences

Current period gross charge-offs

(1) Consumer loans are not formally risk rated and included $ 1.4 million of loans on non-accrual as of March 31, 2024.

(1) Consumer loans are not formally risk rated and included $ 2.0 million of loans on non-accrual as of June 30, 2024.

The following table presents the amortized cost of loans receivable by internal risk grade by year of origination as of December 31, 2023.

24 unchanged sentences

Current period gross charge-offs

Term Loans Amortized Cost Basis by Origination Year (in thousands)

Revolving Loans

Special Mention

6 unchanged sentences

The following table presents an analysis of the change in the ACL by major loan segment for the periods stated:

For the Three Months Ended March 31, 2024

For the Three Months Ended June 30, 2024

Commercial and

(in thousands)

Balance at March 31, 2024

Provision for (release of) credit losses

Recoveries of loans previously charged-off

Balance at June 30, 2024

For the Six Months Ended June 30, 2024

Commercial and

(in thousands)

Balance at December 31, 2023

Provision (benefit) for credit losses

Provision for (release of) credit losses

Recoveries of loans previously charged-off

Balance at June 30, 2024

For the Three Months Ended June 30, 2023

Construction and

Commercial and

Land Development

(in thousands)

Balance at March 31, 2023

For the Three Months Ended March 31, 2023

Provision for (release of) credit losses

Recoveries of loans previously charged off

Balance at June 30, 2023

For the Six Months Ended June 30, 2023

Construction and

4 unchanged sentences

Adjustment to allowance for adoption of ASU 2016-13

Provision (benefit) for credit losses

Provision for (release of) credit losses

Recoveries of loans previously charged off

Balance at March 31, 2023

The following table presents the amortized cost of collateral-dependent loans of March 31, 2024 and December 31, 2023:

March 31, 2024

Balance at June 30, 2023

The following table presents the amortized cost of collateral-dependent loans as of June 30, 2024 and December 31, 2023:

June 30, 2024

December 31, 2023

1 unchanged sentence

One-to-four-family residential

Commercial real estate

Construction and land development

1 unchanged sentence

The Company closely monitors the performance of borrowers experiencing financial difficulty to understand the effectiveness of its loan modification efforts.

The Company did no t modify any loans to borrowers experiencing financial difficulty during the three months ended March 31, 2024 and 2023.

During the three and six months ended June 30, 2024, the Company modified one commercial real estate loan with an amortized cost basis of $ 6.2 million, or 0.01 % of total commercial real estate loans, through an interest rate reduction and maturity extension.

The modified loan has performed in accordance with its modified terms during the three and six months ended June 30, 2024.

The Company did no t modify any loans to borrowers experiencing financial difficulty during the three and six months ended June 30, 2023.

Note 5 – Employee Benefits

9 unchanged sentences

The Company’s liabilities for the Director Pension Plan are calculated by an independent actuary who used the “projected unit credit” actuarial method to determine the normal cost and actuarial liability.

The liability for the Director Pension Plan amounted to $ 5.8 million and $ 5.7 million as of March 31, 2024 and December 31, 2023, respectively, and are recorded on the consolidated balance sheets.

The expense under this plan (recorded in salaries and employee benefits in the consolidated statements of income) approximated $ 181,000 and $ 200,000 for the three months ended March 31, 2024 and 2023, respectively.

The liability for the Director Pension Plan amounted to $ 5.9 million and $ 5.7 million as of June 30, 2024 and December 31, 2023, respectively, and are recorded on the consolidated balance sheets.

The expense under this plan (recorded in salaries and employee benefits in the consolidated statements of income) approximated $ 181,000 and $ 283,000 for the three months ended June 30, 2024 and 2023, respectively, and $ 361,000 and $ 566,000 for the six months ended June 30, 2024 and 2023, respectively.

The Company records an estimate of net periodic pension cost for the director pension plan to accrued retirement liabilities on the consolidated balance sheet on a quarterly basis.

1 unchanged sentence

Deferred Compensation Plans – During 2014, the Company put into place an unfunded, defined contribution, Non-qualified Deferred Compensation Plan (“Deferred Comp Plan”) for select employees of the Company.

The Deferred Comp Plan was provided to key management of the Company and results in 5 % - 20 % of the employee’s then current base salary being credited to the participant’s account annually, subject to increases based upon increases in annual base compensation and the possibility of additional discretionary contributions.

The Deferred Comp Plan was provided to key management of the Company and results in 5 % - 20 % of the employee’s then current base salary being credited to the participant’s account annually, subject to increases in annual base compensation and the possibility of additional discretionary contributions.

The employees vest at varying dates in accordance with each individual’s deferred compensation participation agreement;

however, all key officers will be fully vested upon the attainment of age 65.

The obligations under these plans are included in accrued retirement liabilities on the Company’s consolidated balance sheets and approximated $ 2.5 million and $ 2.4 million as of March 31, 2024 and December 31, 2023, respectively.

The expense under these plans (recorded in salaries and employee benefits in the consolidated statements of income) approximated $ 100,000 and $ 89,000 for the three months ended March 31, 2024 and March 31, 2023, respectively.

Long-Term Incentive Plan – In January 2020, the Company put into place a long-term incentive plan for certain members of its management team where benefits are awarded annually on a discretionary basis and cliff vest after three years .

Under this plan, individuals are granted “phantom shares” and benefits are accrued based upon the projected growth of the Bank’s capital.

The obligations under this plan are included in accrued retirement liabilities on the Company’s consolidated balance sheets and approximated $ 9.9 million and $ 11.1 million as of March 31, 2024 and December 31, 2023, respectively.

The expense under this plan (recorded in salaries and employee benefits in the consolidated statements of income) approximated $ 1.4 million and $ 4.4 million for the three months ended March 31, 2024 and 2023, respectively.

The obligations under this plan are included in accrued retirement liabilities on the Company’s consolidated balance sheets and approximated $ 11.7 million and $ 11.1 million as of June 30, 2024 and December 31, 2023, respectively.

The expense under this plan (recorded in salaries and employee benefits in the consolidated statements of income) approximated $ 1.8 million and $ 1.1 million for the three months ended June 30, 2024 and 2023, respectively, and $ 3.2 million and $ 2.2 million for the six months ended June 30, 2024 and 2023, respectively.

401(k) Plan – The Company has an employee tax deferred incentive plan (the “401(k) plan”) under which the Company makes voluntary contributions within certain limitations.

1 unchanged sentence

The amount contributed by the Company to the 401(k) Plan is included in salaries and employee benefits expense.

The amounts contributed to the 401(k) plan for the three months ended March 31, 2024 and 2023 were $ 619,000 and $ 522,000 , respectively.

The amounts contributed to the 401(k) plan for the three months ended June 30, 2024 and 2023 were $ 726,000 and $ 476,000 , respectively, and $ 1.3 million and $ 934,000 for the six months ended June 30, 2024 and 2023, respectively.

Employment and Change in Control Agreements – The Company entered into employment agreements with the Chief Executive Officer and the Chief Operating Officer that renew for one additional year each January 1 st .

6 unchanged sentences

The Company accounts for its ESOP in accordance with FASB ASC 718-40, Compensation – Stock Compensation .

Under this guidance, unreleased shares are deducted from shareholders’ equity as unearned ESOP shares in the accompanying consolidated balance sheets.

Under this guidance, unreleased shares are deducted from shareholders’ equity as unearned ESOP shares on the accompanying consolidated balance sheets.

The Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they are committed to be released.

1 unchanged sentence

As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a liability on the Company’s consolidated balance sheets.

Total compensation expense recognized in connection with the ESOP was $ 588,000 for the three months ended March 31, 2024.

The Company did not recognize any compensation expense related to the ESOP for the three months ended March 31, 2023.

Total compensation expense recognized in connection with the ESOP was $ 628,000 and $ 1.2 million for the three and six months ended June 30, 2024, respectively.

The Company did no t recognize any compensation expense related to the ESOP for the three and six months ended June 30, 2023.

The following table presents share information held by the ESOP:

March 31, 2024

June 30, 2024

December 31, 2023

5 unchanged sentences

Note 6 – Fair Value Measurements

ASC 820-10, Fair Value Measurement – Overall , provides a framework for measuring fair value under U.S.

ASC 820-10, Fair Value Measurement – Overall (“ASC 820-10”) , provides a framework for measuring fair value under U.S.

This guidance also allows the Company the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis.

In accordance with ASC 820-10, Fair Value Measurement – Overall , the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

In accordance with ASC 820-10 , the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.

6 unchanged sentences

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for March 31, 2024 and December 31, 2023.

Available-for-sale investment securities – Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.

These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for June 30, 2024 and December 31, 2023.

Available-for-sale securities – Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.

Level 1 securities would include highly liquid government bonds (such as U.S.

4 unchanged sentences

In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

Derivative arrangements – The fair values of derivative arrangements are estimated by the Company using a third-party derivative valuation expert who relies on Level 2 inputs, namely interest cash flow models to determine a fair value by calculating a settlement termination value with the counterparty.

Derivative arrangements – The fair values of derivative arrangements are estimated by the Company using a third-party derivative valuation expert who relies on Level 2 inputs, namely discounted cash flow models to determine a fair value by calculating a settlement termination value with the counterparty.

Assets measured and reported at estimated fair value on a recurring basis are summarized below:

March 31, 2024

June 30, 2024

(in thousands)

20 unchanged sentences

Derivative liabilities

The Company had no purchases, sales, transfers or changes in fair value of level 3 assets during the three months ended March 31, 2024 and 2023.

The Company may also be required from time to time to measure certain other assets on a non-recurring basis in accordance with GAAP.

The Company had no purchases, sales, transfers or changes in fair value of level 3 assets during the three months ended June 30, 2024 and 2023.

The Company may also be required from time to time to measure certain other assets on a non-recurring basis in accordance with U.S.

Any adjustments to fair value usually result in write-downs of individual assets.

15 unchanged sentences

The following table summarizes assets measured at fair value on a non-recurring basis:

March 31, 2024

June 30, 2024

(in thousands)

5 unchanged sentences

Mortgage servicing rights

For Level 3 assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2024 and December 31, 2023, the significant unobservable inputs used in the fair value measurements were as follows:

For Level 3 assets and liabilities measured at fair value on a nonrecurring basis as of June 30, 2024 and December 31, 2023, the significant unobservable inputs used in the fair value measurements were as follows:

Collateral-dependent loans

6 unchanged sentences

Weighted average discount rate - 12 % Constant prepayment rate – 6.10 %

ASC Topic 825, Financial Instruments , requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring or non-recurring basis.

ASC Topic 825, Financial Instruments (ASC 825) , requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring or non-recurring basis.

The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above.

ASC Topic 825, Financial Instruments , requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

ASC 825 , requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

The exit price notion is a market-based measurement of fair value that is represented by the price to sell an asset or transfer a liability in the principal market (or most advantageous market in the absence of a principal market) on the measurement date.

For March 31, 2024 and December 31, 2023, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.

For June 30, 2024 and December 31, 2023, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.

The following tables present the estimated fair values, related carrying amounts, and valuation level of the financial instruments as of the dates stated:

March 31, 2024

June 30, 2024

(In thousands)

3 unchanged sentences

Accrued interest receivable

Federal Home Loan Bank stock

Federal Reserve Bank stock

Non-public investments

Bank-owned life insurance ("BOLI")

Financial Liabilities:

8 unchanged sentences

Accrued interest receivable

Federal Home Loan Bank stock

Federal Reserve Bank stock

Non-public investments

Bank-owned life insurance ("BOLI")

Financial Liabilities:

17 unchanged sentences

The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

As of March 31, 2024 and December 31, 2023, the maximum potential amount of the Company’s obligation was $ 7.3 million and $ 7.5 million, respectively, for standby letters of credit.

As of June 30, 2024 and December 31, 2023, the maximum potential amount of the Company’s obligation was $ 6.7 million and $ 7.5 million, respectively, for standby letters of credit.

The Company’s outstanding letters of credit generally have a term of less than one year.

2 unchanged sentences

Financial instruments whose contract amounts represents off-balance sheet credit risk and are not reflected on the Company’s consolidated balance sheets consist of the following at the dates stated:

March 31, 2024

June 30, 2024

December 31, 2023

6 unchanged sentences

Potential losses on off-balance sheet loan commitments are estimated using the same risk factors used to determine the allowance for credit losses on loans, adjusted for the likelihood that funding will occur.

The allowance for off-balance sheet commitments is recorded within other liabilities on the consolidated balance sheets and amounted to $ 6.6 million and $ 6.0 million as of March 31, 2024 and December 31, 2023, respectively.

For the three months ended March 31, 2024, a provision for unfunded commitments of $ 539,000 was recorded.

No provision for unfunded commitments was recorded during the three months ended March 31, 2023.

The allowance for off-balance sheet commitments is recorded within other liabilities on the consolidated balance sheets and amounted to $ 5.8 million and $ 6.0 million as of June 30, 2024 and December 31, 2023, respectively.

For the three months ended June 30, 2024 and 2023, the Company recorded a release of the allowance for unfunded commitments of $ 762,000 and a provision for unfunded commitments of $ 86,000 , respectively.

For the six months ended June 30, 2024 and 2023, the Company recorded a release of the allowance for unfunded commitments of $ 223,000 and a provision for unfunded commitments of $ 86,000 , respectively.

Note 8 – Derivatives and Hedging Activities

12 unchanged sentences

These fees were capitalized into loans receivable and are being amortized against loan income over the contractual lives of the remaining designated residential loans.

The unamortized amount of this cost basis adjustment is $ 1.0 million and $ 1.0 million at March 31, 2024 and December 31, 2023, respectively.

During the three months ended March 31, 2024 and 2023, the Company recognized amortization expense related to this cost basis adjustment of $ 24,000 and $ 31,000 , respectively.

The unamortized amount of this cost basis adjustment is $ 982,000 and $ 1.0 million at June 30, 2024 and December 31, 2023, respectively.

During the three months ended June 30, 2024 and 2023, the Company recognized amortization expense related to this cost basis adjustment of $ 26,000 and $ 41,000 , respectively.

During the six months ended June 30, 2024 and 2023, the Company recognized amortization expense related to this cost basis adjustment of $ 51,000 and $ 71,000 , respectively.

Non-designated Hedges – Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting.

2 unchanged sentences

Those interest rate swap and cap agreements are simultaneously hedged by offsetting interest rate swaps and caps that are executed with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.

As of March 31, 2024, the Company had 54 interest rate swap agreements with an aggregate notional amount of $ 340.9 million compared to 52 interest rate swap agreements and one interest rate cap agreement with an aggregate notional amount of $ 338.6 million related to this program as of December 31, 2023.

As of June 30, 2024, the Company had 54 interest rate swap agreements with an aggregate notional amount of $ 355.6 million compared to 52 interest rate swap agreements and one interest rate cap agreement with an aggregate notional amount of $ 338.6 million related to this program as of December 31, 2023.

Risk Participation Agreements – Risk Participation Agreements (“RPAs”) are guarantees issued by the Company to other parties for a fee, whereby the Company agrees to participate in the credit risk of a derivative customer of the other party.

7 unchanged sentences

Settlement amounts are generally calculated based on the fair value of the swap plus outstanding accrued interest receivable from the customer.

As of March 31, 2024, the Company had 17 RPAs with an aggregate notional amount of $ 45.0 million related to this program compared to 16 RPAs with an aggregate notional amount of $ 44.5 million as of December 31, 2023.

As of June 30, 2024, the Company had 17 RPAs with an aggregate notional amount of $ 45.0 million related to this program compared to 16 RPAs with an aggregate notional amount of $ 44.5 million as of December 31, 2023.

These RPAs all represent “participations-in” and generally have terms ranging from five to ten years .

1 unchanged sentence

Liabilities (2)

March 31, 2024

June 30, 2024

(in thousands)

12 unchanged sentences

Location of Gain or (Loss)

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

in Income on Derivative

3 unchanged sentences

Other non-interest income

Swap contract fees, net of brokerage costs, recognized in earnings on the above noted interest rate products and RPA contracts approximated $ 487,000 and $ 95,000 for the three months ended March 31, 2024 and 2023, respectively.

Swap contract fees, net of brokerage costs, recognized in earnings on the above noted interest rate products and RPA contracts approximated $ 265,000 and $ 1.0 million for the three months ended June 30, 2024 and 2023, respectively, and $ 752,000 and $ 1.1 million for the six months ended June 30, 2024 and 2023, respectively.

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults (or is capable of being declared in default) on any of its indebtedness, then the Company could also be declared in default on its derivative obligations, and it could be required to terminate its derivative positions with the counterparty.

The Company also has agreements with certain of its derivative counterparties that contain a provision whereby if the counterparty fails to maintain its status as a well-capitalized institution, then the Company could be required to terminate its derivative positions with the counterparty.

In order to mitigate counterparty default risk in conjunction with these interest rate products and RPA credit contracts, the Company was required to maintain $ 9.1 million of collateral deposit accounts with the counterparties to these agreements as of March 31, 2024 and December 31, 2023.

Note 9 – Other Comprehensive Income (Loss)

1 unchanged sentence

Although certain changes in assets and liabilities are reported as a separate component of the shareholders' equity section of the consolidated balance sheets, such items, along with net income, are components of comprehensive income (loss).

The components of other comprehensive income (loss) and related tax effects are as follows for the three months ended March 31, 2024 and 2023:

The components of other comprehensive income (loss) and related tax effects are as follows for the periods indicated:

For the Three Months Ended

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

(In thousands)

8 unchanged sentences

Total other comprehensive income (loss)

The following table presents the components of accumulated other comprehensive loss as of March 31, 2024 and December 31, 2023:

March 31, 2024

For the Six Months Ended

June 30, 2024

June 30, 2023

(In thousands)

Tax (Expense)

Change in fair value of available-for-sale securities

Reclassification adjustment for realized gains in net income

Net change in fair value of available-for-sale securities

Change in fair value of cash flow hedge

Net cash flow hedge gains (losses) reclassified into interest income or interest expense

Net change in fair value of cash flow hedge, net of tax

Total other comprehensive income (loss)

The following table presents the components of accumulated other comprehensive loss as of June 30, 2024 and December 31, 2023:

June 30, 2024

December 31, 2023

5 unchanged sentences

The Company is subject to various regulatory capital requirements administered by the federal banking agencies.

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.

Under regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.

4 unchanged sentences

As of December 31, 2023 the Bank met the minimum requirement with a CBLR of 13.6 %.

As of March 31, 2024, the Company did not meet the requirement for the CBLR framework due to its unfunded loan commitments being over 25.00% of its capital for more than two consecutive quarters.

As a result, the Company operated under the risk-based framework for the three months ended March 31, 2024.

The Company no longer meets the requirement for the CBLR framework due to its unfunded loan commitments being over 25.0% of its capital for more than two consecutive quarters.

As a result, the Company operated under the risk-based framework for the three and six months ended June 30, 2024.

Under this framework, quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of Total Capital, Tier 1 Capital and Common Equity Tier 1 Capital to Risk-Weighted Assets, and Tier 1 Capital to Total Average Assets (as defined in the regulations).

Management believes, as of March 31, 2024, that the Company and the Bank meet all capital adequacy requirements to which each is subject.

As of March 31, 2024, the Company and the Bank were categorized as well capitalized under the regulatory framework for prompt corrective action.

Management believes, as of June 30, 2024, that the Company and the Bank meet all capital adequacy requirements to which each is subject.

As of June 30, 2024, the Company and the Bank were categorized as well capitalized under the regulatory framework for prompt corrective action.

To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, Common Equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below.

6 unchanged sentences

action provisions

March 31, 2024

June 30, 2024

(in thousands)

7 unchanged sentences

(to Total Average Assets)

The Company’s consolidated capital ratios are consistent with the Bank’s regulatory capital ratios as reported above for March 31, 2024 and December 31, 2023.

The Company’s consolidated capital ratios are consistent with the Bank’s regulatory capital ratios as reported above for June 30, 2024 and December 31, 2023.

Note 11 – Earnings Per Share (“EPS”)

1 unchanged sentence

Diluted earnings per share have been calculated in a manner similar to that of basic earnings per share except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares (such as those resulting from the exercise of stock options) were issued during the period, computed using the treasury stock method.

There were no securities that had a dilutive effect during the three months ended March 31, 2024 and 2023.

There were no securities that had a dilutive effect during the three and six months ended June 30, 2024 and 2023.

Unallocated ESOP shares are not deemed outstanding for earnings per share calculations.

For the Three Months Ended

For the Six Months Ended

(Dollars in thousands, except per share data)

3 unchanged sentences

( 3,416,458 )

( 3,215,177 )

Average number of common shares outstanding used to calculate basic EPS

3 unchanged sentences

Basic and diluted

For the three months ended March 31, 2024, there were no anti-dilutive shares.

For the three and six months ended June 30, 2024 and 2023, there were no anti-dilutive shares.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements