What changed in this filing

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Item 1. Financial Statements

2020-08-07 compared with 2020-05-11 · 402 added, 235 removed, 619 unchanged (51% of the section changed)

4 unchanged sentences

(In thousands, except share and per share amounts)

2020 December 31,

Cash and cash equivalents $ 130,537 $ 55,770

11 unchanged sentences

Right of use assets 7,166 7,641

Other assets 3,570 3,696

Total assets $ 871,661 $ 719,853

Interest-bearing $ 551,841 $ 519,434

1 unchanged sentence

Total deposits 694,322 616,718

Borrowings 79,841 7,500

Accrued interest payable 204 226

6 unchanged sentences

Preferred stock, $ 0.01 par value, 10,000,000 shares authorized, none issued or outstanding

Common stock, $0.01 par value, 40,000,000 shares authorized, 2,591,494 and 2,567,389 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively

Common stock, $ 0.01 par value, 40,000,000 shares authorized, 2,593,152 and 2,567,389 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital 26,894 26,343

9 unchanged sentences

(In thousands, except share and per share amounts)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

INTEREST INCOME

1 unchanged sentence

Interest and dividends on investments, cash and cash equivalents

77 424 314 838

Total interest income 8,708 8,340 17,354 17,157

INTEREST EXPENSE

Deposits 1,749 1,622 3,607 3,088

Borrowings 63 256 123 574

Total interest expense 1,812 1,878 3,730 3,662

11 unchanged sentences

Salaries and benefits 2,818 2,654 6,053 6,293

Operations 1,326 1,450 2,720 3,084

Regulatory assessments 120 115 369 228

Occupancy 497 546 995 1,052

Data processing 645 460 1,215 960

3 unchanged sentences

Provision for income taxes 541 468 802 826

Net income $ 2,128 $ 1,817 $ 3,108 $ 3,261

Earnings per common share:

Basic $ 0.83 $ 0.72 $ 1.21 $ 1.29

Diluted $ 0.82 $ 0.71 $ 1.20 $ 1.27

Weighted-average number of common shares outstanding:

Basic 2,559,879 2,521,901 2,553,369 2,516,095

Diluted 2,579,869 2,572,190 2,584,796 2,572,704

See notes to condensed consolidated financial statements

3 unchanged sentences

(In thousands)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Net income $ 2,128 $ 1,817 $ 3,108 $ 3,261

Available for sale securities:

Unrealized holding (losses)/gains arising during the period

Income tax benefit/(expense) related to unrealized gains/losses

Other comprehensive (loss)/income, net of tax

Unrealized holding gains arising during the period 134 39 110 92

Income tax expense related to unrealized gains/losses

( 28 ) ( 8 ) ( 23 ) ( 19 )

Other comprehensive income, net of tax 106 31 87 73

Comprehensive income $ 2,234 $ 1,848 $ 3,195 $ 3,334

3 unchanged sentences

Condensed Consolidated Statements of Stockholders’ Equity

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

For the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

(In thousands, except share and per share amounts)

Additional Paid

Shares Common

Stock Additional Paid

-in Capital Unearned

ESOP Shares Retained

Earnings Accumulated

Comprehensive

Income, net of tax

Income, net of tax Total

Stockholders’

Balance, at December 31, 2018

Other comprehensive loss, net of tax

Balance, at March 31, 2020 2,591,494 $ 25 $ 26,776 $ ( 198 ) $ 51,488 $ 156 $ 78,247

Net income 2,128 2,128

Other comprehensive income, net of tax 106 106

Share-based compensation 46 46

Restricted stock awards issued

Cash dividends paid on common stock ($ 0.15 per share)

( 389 ) ( 389 )

Common stock surrendered ( 581 ) —

Restricted shares forfeited ( 1,510 ) —

Common stock options exercised 3,749 34 34

Allocation of ESOP shares 38 28 ( 3 ) 63

Balance, at March 31, 2019

Balance, at June 30, 2020 2,593,152 $ 25 $ 26,894 $ ( 170 ) $ 53,224 $ 262 $ 80,235

Balance, at December 31, 2019 2,567,389 $ 25 $ 26,343 $ ( 227 ) $ 51,410 $ 175 $ 77,726

Other comprehensive loss, net of tax

Net income 3,108 3,108

Other comprehensive income, net of tax 87 87

Share-based compensation 231 231

1 unchanged sentence

Cash dividends paid on common stock ($ 0.50 per share)

( 1,294 ) ( 1,294 )

Common stock surrendered ( 581 ) —

Restricted shares forfeited ( 1,690 ) —

1 unchanged sentence

Allocation of ESOP shares 104 57 — 161

Balance, at June 30, 2020 2,593,152 $ 25 $ 26,894 $ ( 170 ) $ 53,224 $ 262 $ 80,235

Shares Common

Stock Additional Paid

-in Capital Unearned

ESOP Shares Retained

Earnings Accumulated

Comprehensive

Income, net of tax Total

Stockholders’

Balance, at March 31, 2019 2,563,828 $ 25 $ 25,802 $ ( 312 ) $ 47,252 $ 156 $ 72,923

Net income 1,817 1,817

Other comprehensive income, net of tax 31 31

Share-based compensation 48 48

Cash dividends paid on common stock ($ 0.14 per share)

( 359 ) ( 359 )

Common stock surrendered ( 1,290 ) —

Restricted shares forfeited — —

Common stock options exercised 950 6 6

Allocation of ESOP shares 70 29 99

Balance, at June 30, 2019 2,563,488 $ 25 $ 25,926 $ ( 283 ) $ 48,710 $ 187 $ 74,565

Balance, at December 31, 2018 2,544,059 $ 25 $ 25,663 $ ( 340 ) $ 46,165 $ 114 $ 71,627

Net income 3,261 3,261

Other comprehensive income, net of tax 73 73

Share-based compensation 87 87

Cash dividends paid on common stock ($ 0.28 per share)

( 716 ) ( 716 )

Common stock surrendered ( 2,778 ) —

Restricted stock awards issued 15,925 —

Common stock options exercised 6,282 38 38

Allocation of ESOP shares 138 57 195

Balance, at June 30, 2019 2,563,488 $ 25 $ 25,926 $ ( 283 ) $ 48,710 $ 187 $ 74,565

See notes to condensed consolidated financial statements

3 unchanged sentences

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 3,108 $ 3,261

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

3 unchanged sentences

Compensation expense related to stock options and restricted stock 231 87

Change in fair value of mortgage servicing rights

Fair value adjustment on mortgage servicing rights 800 486

Change in right of use assets amortization 475 503

8 unchanged sentences

Accrued interest receivable ( 140 ) 179

Other assets 126 565

Accrued interest payable ( 22 ) 58

4 unchanged sentences

Proceeds from principal payments, maturities and sales of available-for-sale securities 1,649 120

Net decrease (increase) in loans

Net (increase) decrease in loans ( 70,557 ) 54,248

Reduction in (purchase of) BOLI 55 ( 229 )

14 unchanged sentences

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid for income taxes $ — $ 225

Interest paid on deposits and borrowings 3,730 3,604

21 unchanged sentences

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which provides relief from certain accounting and financial reporting requirements under U.S.

Section 4013 of the CARES Act provides temporary relief from the accounting and reporting requirements for troubled debt restructurings (TDRs) under ASC 310-40 for loan modifications related to the novel coronavirus of 2019 (COVID-19) pandemic.

In addition, on April 7, 2020, a group of banking agencies issued an interagency statement (Interagency Statement) for evaluating whether loan modifications that occur in response to the COVID-19 pandemic are troubled debt restructured loans (TDRs).

The interagency statement was originally issued on March 22, 2020, but the Agencies revised it to address the relationship between their TDR accounting and disclosure guidance and the TDR guidance in Section 4013 of the CARES Act.

(2) the modifications are related to arrangements that defer or delay the payment of principal or interest, or change the interest rate on the loan;

and (3) the modifications are executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the national emergency declared by the President or (B) December 31, 2020.

The interagency statement indicates that a lender can conclude that a borrower is not experiencing financial difficulty if either (1) short-term (e.g., six months) modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented, or (2) the modification or deferral program is mandated by the federal government or a state government.

The interagency statement was originally issued on March 22, 2020, but the banking agencies revised it to address the relationship between their TDR accounting and disclosure guidance and the TDR guidance in Section 4013 of the CARES Act.

Section 4013 of the CARES Act permits the suspension of ASC 310-40 for loan modifications that are made by financial institutions in response to the COVID-19 pandemic if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the modifications are related to arrangements that defer or delay the payment of principal or interest, or change the interest rate on the loan.

The interagency statement indicates that a lender can conclude that a borrower is not experiencing financial difficulty if either (1) short-term (e.g., six months) modifications are made in response to the COVID-19 pandemic, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented, or (2) the modification or deferral program is mandated by the federal government or a state government.

Accordingly, any loan modification made in response to the COVID-19 pandemic that meets either of these practical expedients would not be considered a TDR.

The Company adopted this guidance as discussed in the subsequent events footnote.

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2020-04, Reference Rate Reform (Topic 848).

Facilitation of the Effects of reference Rate Reform on Financial Reporting.

This ASU applies to contracts, hedging relationships and other transactions that reference LIBOR or other rate references expected to be discontinued because of reference rate reform.

The ASU permits an entity to make necessary modifications to eligible contracts or transactions without requiring contract remeasurement or reassessment of a previous accounting determination.

This ASU is effective for all entities as of March 12, 2020 through December 31, 2022.

This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The amendments in this update apply to contract modifications that replace a reference rate affected by reference rate reform (including rates referenced in fallback provisions) and contemporaneous modifications of other contract terms related to the replacement of the reference rate (including contract modifications to add or change fallback provisions).

The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance:

1) Modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate;

2) Modifications of contracts within the scope of Topics 840, Leases, and 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate (for example, the incremental borrowing rate) or remeasurements of lease payments that otherwise would be required under those Topics for modifications not accounted for as separate contracts;

and 3) Modifications of contracts do not require an entity to reassess its original

conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract under Subtopic 815-15, Derivatives and Hedging— Embedded Derivatives.

The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022.

The Company does not expect the adoption of ASU 2020-04 to have a material impact on its consolidated financial statements.

20 unchanged sentences

Amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The adoption of ASU 2018-13 on January 1, 2020 did not have a material impact on the Company's consolidated financial statements.

The adoption of ASU 2018-13 did not have a material impact on the Company's consolidated financial statements.

In June 2018, the FASB issued ASU No.

13 unchanged sentences

The amendments in this ASU permit hedge accounting for hedging relationships involving nonfinancial risk and interest rate risk by removing certain limitations in cash flow and fair value hedging relationships.

In addition, the ASU requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported.

The amendments in this ASU are effective for annual periods, and interim periods within those annual periods,

beginning after December 15, 2018 and early adoption is permitted.

The adoption of ASU No.

2017-12 on January 1, 2019, did not have a material impact on the Company's consolidated financial statements.

In March 2017, the FASB issued ASU No.

2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20) .

ASU 2017-08 is intended to amend the amortization period for certain purchased callable debt securities held at a premium.

Under ASU 2017-08, the FASB is shortening the amortization period for the premium to the earliest call date.

Under current GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument.

ASU 2017-08 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018.

In addition, the ASU requires an entity to present

the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported.

The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018 and early adoption is permitted.

The adoption of ASU No.

14 unchanged sentences

Adoption of ASU 2017-04 is required for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption permitted for annual or interim goodwill impairment tests performed on testing dates after January 1, 2017.

The Company’s adoption of ASU 2017-04 on January 1, 2020 did not have a material impact on its consolidated financial statements.

The Company’s adoption of ASU 2017-04 did not have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU No.

22 unchanged sentences

The amendments in this ASU include determining the fair value of the underlying asset by lessors that are not manufacturers or dealers, requiring cash received from lessors from sales-type and direct financing leases to be presented in the cash flow statement within investing activities, and clarifying interim disclosure requirements.

The effective date and transition requirements for the first and second items of this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019 and early

adoption is permitted.

We have adopted the third item of this ASU and provided the required interim disclosures in this report.

2 unchanged sentences

The amortized cost and fair value of our available-for-sale (“AFS”) securities and the corresponding amounts of gross unrealized gains and losses at the dates indicated were as follows (in thousands):

March 31, 2020

Losses Estimated

June 30, 2020

Municipal bonds $ 4,161 $ 202 $ — $ 4,363

Agency mortgage-backed securities 5,706 129 — 5,835

Total $ 9,867 $ 331 $ — $ 10,198

December 31, 2019

1 unchanged sentence

Agency mortgage-backed securities 5,888 56 ( 8 ) 5,936

The amortized cost and fair value of AFS securities at March 31, 2020 , by contractual maturity, are shown below (in thousands).

Total $ 9,085 $ 229 $ ( 8 ) $ 9,306

The amortized cost and fair value of AFS securities at June 30, 2020, by contractual maturity, are shown below (in thousands).

Expected maturities of AFS securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Investments not due at a single maturity date, primarily mortgage-backed investments, are shown separately.

March 31, 2020

June 30, 2020

Due within one year $ 1,043 $ 1,046

3 unchanged sentences

Mortgage-backed securities 5,706 5,835

There were no pledged securities at March 31, 2020 or December 31, 2019 .

There were no sales of AFS securities during the three months ended March 31, 2020 or 2019 .

The following tables summarize the aggregate fair value and gross unrealized loss by length of time of those investments that have been in a continuous unrealized loss position at the dates indicated (in thousands):

March 31, 2020

Less Than 12 Months

12 Months or Longer

Municipal bonds

Agency mortgage-backed securities

Total $ 9,867 $ 10,198

There were no pledged securities at June 30, 2020 or December 31, 2019.

There were no sales of AFS securities during the three and six months ended June 30, 2020 or 2019.

There were no securities in gross unrealized position at June 30, 2020.

The following table summarizes the aggregate fair value and gross unrealized loss by length of time of those investments that have been in a continuous unrealized loss position at December 31, 2019 (in thousands):

December 31, 2019

Less Than 12 Months

12 Months or Longer

Less Than 12 Months 12 Months or Longer Total

Value Unrealized

Municipal bonds $ 3,387 $ ( 8 ) $ — $ — $ 3,387 $ ( 8 )

There were no credit losses recognized in earnings during the three and three months ended March 31, 2020 or 2019 relating to the Company’s securities.

At March 31, 2020 , the securities portfolio consisted of 14 agency mortgage-backed securities and nine municipal securities with a total portfolio fair value of $11.2 million .

At December 31, 2019 , the securities portfolio consisted of 13 agency mortgage-backed securities and eight municipal securities with a fair value of $9.3 million .

At March 31, 2020 , there were ten securities in an unrealized loss position for less than 12 months, and no securities in an unrealized loss position for more than 12 months.

Total $ 3,387 $ ( 8 ) $ — $ — $ 3,387 $ ( 8 )

There were no credit losses recognized in earnings during the three and six months ended June 30, 2020 or 2019 relating to the Company’s securities.

At June 30, 2020, the securities portfolio consisted of 14 agency mortgage-backed securities and nine municipal securities with a total portfolio fair value of $ 10.2 million.

At December 31, 2019, the securities portfolio consisted of 13 agency mortgage-

backed securities and eight municipal securities with a fair value of $ 9.3 million.

At June 30, 2020, there were no securities in an unrealized loss position for less than 12 months or more than 12 months.

At December 31, 2019, there were five securities in an unrealized loss position for less than 12 months, and there were no securities in an unrealized loss position for more than 12 months.

1 unchanged sentence

It is expected that these securities will not be settled at a price less than the amortized cost of each investment.

The unrealized losses on these investments are not considered other-than-temporary impairment ("OTTI") as of March 31, 2020 , because the decline in fair value is not attributable to credit quality and because we do not intend, and it is not likely that we will be required, to sell these securities before recovery of their amortized cost basis .

Additional deterioration in market and economic conditions related to COVID-19 pandemic may, however, have an adverse impact on credit quality in the future and result in OTTI charges.

The unrealized losses on these investments are not considered other-than-temporary impairment ("OTTI") as of June 30, 2020, because the decline in fair value is not attributable to credit quality and because we do not intend, and it is not likely that we will be required, to sell these securities before recovery of their amortized cost basis .

Additional deterioration in market and economic conditions related to the COVID-19 pandemic may, however, have an adverse impact on credit quality in the future and result in OTTI charges.

Note 4 – Loans

During the second quarter of 2020, as a qualified U.S.

Small Business Administration’s (“SBA”) lender, the Company was automatically authorized to participate in the SBA Paycheck Protection Program (“PPP”).

As of June 30, 2020, the Bank had funded PPP loans totaling $ 73.1 million.

The composition of the loans-held-for portfolio at the dates indicated, excluding loans held-for-sale, was as follows (in thousands):

2020 December 31,

Real estate loans:

One-to-four family $ 137,988 $ 149,393

Home equity 19,286 23,845

Commercial and multifamily 273,084 261,268

12 unchanged sentences

Total loans held-for-portfolio, net $ 684,672 $ 614,247

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2020 (in thousands):

Individually evaluated for impairment

Collectively evaluated for impairment

Ending balance

Loans held for investment:

Individually evaluated for impairment

Loans held for investment:

Collectively evaluated for impairment

Loans held for investment:

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2020 (in thousands):

Individually evaluated for impairment Allowance:

Collectively evaluated for impairment Allowance:

Ending balance Loans held for investment:

Individually evaluated for impairment Loans held for investment:

Collectively evaluated for impairment Loans held for investment:

Ending balance

One-to-four family $ 199 $ 950 $ 1,149 $ 5,994 $ 131,994 $ 137,988

Home equity 19 135 154 378 18,908 19,286

Commercial and multifamily — 1,991 1,991 353 272,731 273,084

4 unchanged sentences

Commercial business 242 259 501 1,533 108,186 109,719

Unallocated — 800 800 — — —

$ 729 $ 5,302 $ 6,031 $ 9,079 $ 685,155 $ 694,234

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2019 (in thousands):

Individually evaluated for impairment

Collectively evaluated for impairment

Ending balance

Loans held for investment:

Individually evaluated for impairment

Loans held for investment:

Collectively evaluated for impairment

Loans held for investment:

Individually evaluated for impairment Allowance:

Collectively evaluated for impairment Allowance:

Ending balance Loans held for investment:

Individually evaluated for impairment Loans held for investment:

Collectively evaluated for impairment Loans held for investment:

Ending balance

One-to-four family $ 205 $ 915 $ 1,120 $ 8,620 $ 140,773 $ 149,393

Home equity 25 153 178 335 23,510 23,845

Commercial and multifamily — 1,696 1,696 353 260,915 261,268

4 unchanged sentences

Commercial business 84 247 331 997 37,934 38,931

The following table summarizes the activity in the allowance for loan losses for the three months ended March 31, 2020 (in thousands):

Provision (Recapture)

Unallocated — 948 948 — — —

Total $ 724 $ 4,916 $ 5,640 $ 12,393 $ 609,514 $ 621,907

The following tables summarize the activity in the allowance for loan losses for the three and six months ended June 30, 2020 (in thousands):

Allowance Charge-offs Recoveries Provision (Recapture) Ending

One-to-four family $ 1,129 $ — $ 4 $ 16 $ 1,149

Home equity 166 — 37 ( 49 ) 154

Commercial and multifamily 1,918 — — 73 1,991

4 unchanged sentences

Commercial business 395 ( 300 ) — 406 501

The following table summarizes the activity in the allowance for loan losses for the three months ended March 31, 2019 (in thousands):

Provision (Recapture)

Unallocated 865 — — ( 65 ) 800

Total $ 5,893 $ ( 311 ) $ 49 $ 400 $ 6,031

Allowance Charge-offs Recoveries Provision (Recapture) Ending

One-to-four family $ 1,120 $ — $ 8 $ 21 $ 1,149

Home equity 178 — 39 ( 63 ) 154

Commercial and multifamily 1,696 — — 295 1,991

4 unchanged sentences

Commercial business 331 ( 300 ) — 470 501

Unallocated 948 — — ( 148 ) 800

Total $ 5,640 $ ( 317 ) $ 58 $ 650 $ 6,031

The following tables summarize the activity in the allowance for loan losses for the three and six months ended June 30, 2019 (in thousands):

Allowance Charge-offs Recoveries (Recapture) Provision Ending

One-to-four family $ 1,189 $ — $ — $ ( 50 ) $ 1,139

Home equity 229 — 4 ( 68 ) 165

Commercial and multifamily 1,035 — — 432 1,467

Construction and land 996 — — ( 532 ) 464

Manufactured homes 511 — — ( 48 ) 463

Floating homes 254 — — 8 262

Other consumer 120 ( 12 ) — 12 120

Commercial business 424 — 1 84 509

Unallocated 819 — — ( 38 ) 781

Total $ 5,577 $ ( 12 ) $ 5 $ ( 200 ) $ 5,370

Allowance Charge-offs Recoveries Provision (Recapture) Ending

One-to-four family $ 1,314 $ — $ — $ ( 175 ) $ 1,139

Home equity 202 — 7 ( 44 ) 165

Commercial and multifamily 1,638 — — ( 171 ) 1,467

Construction and land 431 — — 33 464

Manufactured homes 427 — — 36 463

Floating homes 265 — — ( 3 ) 262

Other consumer 112 ( 32 ) 20 20 120

Commercial business 356 — 1 152 509

Unallocated 1,029 — — ( 248 ) 781

Total $ 5,774 $ ( 32 ) $ 28 $ ( 400 ) $ 5,370

Credit Quality Indicators.

8 unchanged sentences

Assets that do not currently expose us to sufficient risk to warrant classification as substandard, doubtful or loss, but possess identified weaknesses, are classified as either watch or special mention assets.

Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the Federal Deposit Insurance Corporation (“FDIC”), the Bank’s federal regulator, and the Washington Department of Financial Institutions (“WDFI”), the Bank’s state banking regulator, both of whom can order the establishment of additional loss allowances.

Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the Federal Deposit Insurance Corporation, the Bank’s federal regulator, and the Washington Department of Financial Institutions, the Bank’s state banking regulator, both of whom can order the establishment of additional loss allowances.

Pass rated loans are loans that are not otherwise classified or criticized.

The following table presents the internally assigned grades as of March 31, 2020 , by type of loan (in thousands):

and multifamily

The following table presents the internally assigned grades as of June 30, 2020, by type of loan (in thousands):

four family Home

equity Commercial

and multifamily Construction

and land Manufactured

homes Floating

consumer Commercial

business Total

Pass $ 118,686 $ 17,920 $ 231,980 $ 25,788 $ 19,966 $ 45,725 $ 10,542 $ 105,242 $ 575,849

Watch 14,470 735 31,262 42,989 1,030 — — 1,159 91,645

Special Mention — — 4,950 7,263 — — — 519 12,732

Substandard 4,832 631 4,892 49 231 531 43 2,799 14,008

Doubtful — — — — — — — — —

Loss — — — — — — — — —

Total $ 137,988 $ 19,286 $ 273,084 $ 76,089 $ 21,227 $ 46,256 $ 10,585 $ 109,719 $ 694,234

The following table presents the internally assigned grades as of December 31, 2019, by type of loan (in thousands):

and multifamily

four family Home

equity Commercial

and multifamily Construction

and land Manufactured

homes Floating

consumer Commercial

business Total

Pass $ 138,900 $ 23,206 $ 256,139 $ 68,268 $ 20,204 $ 43,509 $ 8,250 $ 35,347 $ 593,823

Watch — — 217 2,634 124 — — 378 3,353

Special Mention 2,484 — 2,178 3,677 — — — 1,649 9,988

Substandard 8,009 639 2,734 1,177 285 290 52 1,557 14,743

Doubtful — — — — — — — — —

Loss — — — — — — — — —

Total $ 149,393 $ 23,845 $ 261,268 $ 75,756 $ 20,613 $ 43,799 $ 8,302 $ 38,931 $ 621,907

Nonaccrual and Past Due Loans .

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.

Loans are automatically placed on nonaccrual once the loan is 90 days past due or sooner if, in management’s opinion, the borrower may be unable to meet payment of obligations as they become due, as well as when required by regulatory provisions.

The following table presents the recorded investment in nonaccrual loans as of March 31, 2020 , and December 31, 2019 , by type of loan (in thousands):

March 31, 2020

December 31, 2019

Loans are placed on nonaccrual once the loan is 90 days past due or sooner if, in management’s opinion, the borrower may be unable to meet payment of obligations as they become due, as well as when required by regulatory provisions.

Loans are not placed on nonaccrual for short-term loan modifications made in response to the COVID-19 pandemic.

The following table presents the recorded investment in nonaccrual loans as of June 30, 2020, and December 31, 2019, by type of loan (in thousands):

June 30, 2020 December 31, 2019

One-to-four family $ 1,670 $ 2,090

Home equity 222 261

Commercial and multifamily 352 353

3 unchanged sentences

Commercial business 837 260

The following table presents the aging of the recorded investment in past due loans as of March 31, 2020 , by type of loan (in thousands):

90 Days and Greater Past Due

> 90 Days and Accruing

Total $ 3,480 $ 4,657

The following table presents the aging of the recorded investment in past due loans as of June 30, 2020, by type of loan (in thousands):

Past Due 60-89 Days

Past Due 90 Days and Greater Past Due > 90 Days and Accruing Total Past

Due Current Total Loans

One-to-four family $ 161 $ 44 $ 1,669 $ — $ 1,874 $ 136,114 $ 137,988

Home equity 170 2 222 — 394 18,892 19,286

Commercial and multifamily — — 353 — 353 272,731 273,084

4 unchanged sentences

Commercial business — 675 162 — 837 108,882 109,719

Total $ 418 $ 1,025 $ 2,805 $ — $ 4,248 $ 689,986 $ 694,234

The following table presents the aging of the recorded investment in past due loans as of December 31, 2019, by type of loan (in thousands):

90 Days and Greater Past Due

> 90 Days and Accruing

Past Due 60-89 Days

Past Due 90 Days and Greater Past Due > 90 Days and Accruing Total Past

Due Current Total Loans

One-to-four family $ 789 $ 105 $ 1,810 $ — $ 2,704 $ 146,689 $ 149,393

Home equity 81 161 197 — 439 23,406 23,845

Commercial and multifamily 1,742 — 353 — 2,095 259,173 261,268

4 unchanged sentences

Commercial business 226 — 162 — 388 38,543 38,931

Total $ 6,818 $ 1,661 $ 2,987 $ — $ 11,466 $ 610,441 $ 621,907

Nonperforming Loans.

Loans are considered nonperforming when they are placed on nonaccrual.

The following table presents the credit risk profile of our loan portfolio based on payment activity as of March 31, 2020 , by type of loan (in thousands):

The following table presents the credit risk profile of our loan portfolio based on payment activity as of June 30, 2020, by type of loan (in thousands):

equity Commercial

multifamily Construction

and land Manufactured

homes Floating

consumer Commercial

business Total

Performing $ 136,318 $ 19,064 $ 272,732 $ 76,089 $ 21,110 $ 45,974 $ 10,585 $ 108,882 $ 690,754

Nonperforming 1,670 222 352 — 117 282 — 837 3,480

Total $ 137,988 $ 19,286 $ 273,084 $ 76,089 $ 21,227 $ 46,256 $ 10,585 $ 109,719 $ 694,234

The following table presents the credit risk profile of our loan portfolio based on payment activity as of December 31, 2019, by type of loan (in thousands):

equity Commercial

multifamily Construction

and land Manufactured

homes Floating

consumer Commercial

business Total

Performing $ 147,303 $ 23,584 $ 260,915 $ 74,579 $ 20,387 $ 43,509 $ 8,302 $ 38,671 $ 617,250

Nonperforming 2,090 261 353 1,177 226 290 — 260 4,657

Total $ 149,393 $ 23,845 $ 261,268 $ 75,756 $ 20,613 $ 43,799 $ 8,302 $ 38,931 $ 621,907

Impaired Loans.

5 unchanged sentences

All TDRs are also classified as impaired loans and are included in the loans individually evaluated for impairment in the calculation of the allowance for loan losses.

Impaired loans at March 31, 2020 and December 31, 2019 , by type of loan were as follows (in thousands):

March 31, 2020

Impaired loans at June 30, 2020 and December 31, 2019, by type of loan were as follows (in thousands):

June 30, 2020

Recorded Investment

Unpaid Principal

Balance Without

Allowance With

Allowance Total

Investment Related

One-to-four family $ 6,114 $ 4,463 $ 1,531 $ 5,994 $ 199

Home equity 378 233 145 378 19

Commercial and multifamily 353 353 — 353 —

4 unchanged sentences

Commercial business 1,834 714 819 1,533 242

Total $ 9,506 $ 6,148 $ 2,931 $ 9,079 $ 729

December 31, 2019

1 unchanged sentence

Unpaid Principal

Balance Without

Allowance With

Allowance Total

Investment Related

One-to-four family $ 8,748 $ 7,236 $ 1,384 $ 8,620 $ 205

Home equity 335 256 79 335 25

Commercial and multifamily 353 353 — 353 —

4 unchanged sentences

Commercial business 997 714 283 997 84

The average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2020 and 2019 , respectively, by loan types follows (in thousands):

Three Months Ended

March 31, 2020

Three Months Ended

March 31, 2019

Interest Income

Total $ 12,526 $ 10,072 $ 2,321 $ 12,393 $ 724

The following tables present the average recorded investment and interest income recognized on impaired loans for the three and six months ended June 30, 2020 and 2019, respectively, by loan types (in thousands):

Three Months Ended June 30, 2020 Three Months Ended June 30, 2019

Investment Interest Income

Recognized Average

Investment Interest Income

One-to-four family $ 5,961 $ 74 $ 2,536 $ 61

Home equity 368 4 549 9

Commercial and multifamily 353 5 585 8

4 unchanged sentences

Commercial business 1,542 18 933 19

Forgone interest on nonaccrual loans was $62,000 and $8,000 for the three months ended March 31, 2020 and 2019 , respectively.

There were no commitments to lend additional funds to borrowers whose loans were classified as nonaccrual or impaired at March 31, 2020 and December 31, 2019 .

Total $ 9,416 $ 96 $ 5,360 $ 122

Six Months Ended June 30, 2020 Six Months Ended June 30, 2019

Investment Interest Income

Recognized Average

Investment Interest Income

One-to-four family $ 6,847 $ 147 $ 3,590 $ 99

Home equity 357 9 682 15

Commercial and multifamily 353 10 1,607 15

Construction and land 575 1 424 4

Manufactured homes 411 15 431 28

Floating homes 366 8 — —

Other consumer 139 4 163 8

Commercial business 1,360 41 1,274 37

Total $ 10,408 $ 235 $ 8,171 $ 206

Forgone interest on nonaccrual loans was $ 109,000 and $ 91,000 for the six months ended June 30, 2020 and 2019, respectively.

There were no commitments to lend additional funds to borrowers whose loans were classified as nonaccrual or impaired at June 30, 2020 and December 31, 2019.

Troubled debt restructurings.

2 unchanged sentences

Once a TDR has performed according to its modified terms for six months and the collection of principal and interest under the revised terms is deemed probable, we remove the TDR from nonperforming status.

Loans classified as TDRs totaled $5.3 million and $7.9 million at March 31, 2020 and December 31, 2019 , respectively, and are included in impaired loans.

Loans classified as TDRs totaled $ 5.7 million and $ 7.9 million at June 30, 2020 and December 31, 2019, respectively, and are included in impaired loans.

The Company has granted, in its TDRs, a variety of concessions to borrowers in the form of loan modifications.

9 unchanged sentences

Any other type of modification, including the use of multiple categories above.

There were two loans totaling $218,000 modified as TDRs during the three months ended March 31, 2020 .

There was one TDR loan totaling $2.8 million paid-off during the three months ended March 31, 2020 .

There were no loans modified as TDRs and one TDR loan of $105,000 paid-off during the three months ended March 31, 2019 .

There were no post-modification changes for the unpaid principal balance in loans, net of partial charge-offs, that were recorded as a result of the TDRs for the three months ended March 31, 2020 and 2019 .

There was no loan modified as a TDR for which there was a payment default within the first 12 months of modification during the three months ended March 31, 2020 .

During the three months ended March 31, 2019 , there were three loans totaling $416,000 modified as TDRs for which there was a payment default within the first 12 months of modification.

There was one loan totaling $ 431,000 modified as a TDR during the three months ended June 30, 2020 and three loans totaling $ 649,000 modified as TDRs during the six months ended June 30, 2020.

There was one TDR loan totaling $ 2.8 million paid-off during the six months ended June 30, 2020.

There were no loans modified as TDRs during the three and six months ended June 30, 2019.

Two TDR loans totaling $ 40,000 were paid off during the three months ended June 30, 2019, and three TDR loans totaling $ 145,000 were paid-off during the six months ended June 30, 2019.

There were no post-modification changes for the unpaid principal balance in loans, net of partial charge-offs, that were recorded as a result of the TDRs for the three and six months ended June 30, 2020 and 2019.

There was one loan totaling $ 161,000 modified as a TDR for which there was a payment default within the first 12 months of modification during the six months ended June 30, 2020.

During the six months ended June 30, 2019, there were six loans totaling $ 297,000 modified as TDRs for which there was a payment default within the first 12 months of modification.

The Company had no commitments to extend additional credit to borrowers owing receivables whose terms have been modified into TDRs.

The CARES Act provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs.

This includes short-term (e.g.

six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.

Borrowers are

considered current under the CARES Act if they are less than 30 days past due on their contractual payments at the time a modification program is implemented.

At March 31, 2020, 17 loans totaling $6.7 million , substantially all of which were one- to four-family loans, were modified with payment deferrals due to COVID 19.

In March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic.

The CARES Act and related bank regulatory guidance provides that a short-term modification made in response to COVID-19 and which meets certain criteria does not need to be accounted for as a TDR.

As of June 30, 2020, the Company had approved 122 loan modifications related to the COVID-19 pandemic with an outstanding loan balance totaling $ 51.3 million in accordance with the CARES Act.

Accordingly, the Company does not account for such loan modifications as TDRs.

Loan modifications in accordance with the CARES Act and related regulatory guidance are still subject to an evaluation in regard to determining whether or not a loan is deemed to be impaired.

See “Note 2 – Accounting Pronouncements Recently Issued or Adopted”.

Note 5 – Fair Value Measurements

2 unchanged sentences

ASC 820 defines fair values for financial instruments as the exit price, the price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions.

The Company’s fair values for financial instruments at March 31, 2020 were determined based on these requirements.

The Company’s fair values for financial instruments at June 30, 2020 were determined based on these requirements.

The following methods and assumptions were used to estimate the fair value of other financial instruments:

6 unchanged sentences

The fair value of fixed-rate residential loans is based on whole loan forward prices obtained from government sponsored enterprises.

At March 31, 2020 and December 31, 2019 , loans held-for-sale were carried at cost, as no impairment was required.

At June 30, 2020 and December 31, 2019, loans held-for-sale were carried at cost, as no impairment was required.

Loans Held-for-Portfolio - The estimated fair value of loans-held-for portfolio consists of a credit adjustment to reflect the estimated adjustment to the carrying value of the loans due to credit-related factors and a yield adjustment, to reflect the estimated adjustment to the carrying value of the loans due to a differential in yield between the portfolio loan yields and estimated current market rate yields on loans with similar characteristics.

11 unchanged sentences

The estimated fair value of these commitments is not significant.

The following tables present information about the level in the fair value hierarchy for the Company’s financial assets and liabilities, whether or not recognized or recorded at fair value as of March 31, 2020 and December 31, 2019 (in thousands):

March 31, 2020

Fair Value Measurements Using:

The following tables present information about the level in the fair value hierarchy for the Company’s financial assets and liabilities, whether or not recognized or recorded at fair value as of June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020 Fair Value Measurements Using:

Value Estimated

Fair Value Level 1 Level 2 Level 3

FINANCIAL ASSETS:

4 unchanged sentences

Mortgage servicing rights 3,113 3,113 — — 3,113

FHLB stock 1,164 1,164 — 1,164 —

FINANCIAL LIABILITIES:

1 unchanged sentence

Time deposits

December 31, 2019

Fair Value Measurements Using:

238,842 243,721 — 243,721 —

FHLB and other Borrowings 79,841 79,841 — 79,841 —

December 31, 2019 Fair Value Measurements Using:

Value Estimated

Fair Value Level 1 Level 2 Level 3

FINANCIAL ASSETS:

3 unchanged sentences

Loans held-for-portfolio, net

614,247 622,147 — — 622,147

Mortgage servicing rights 3,239 3,239 — — 3,239

FHLB stock 1,160 1,160 — 1,160 —

FINANCIAL LIABILITIES:

1 unchanged sentence

Time deposits

The following tables present the balance of assets measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 (in thousands):

Fair Value at March 31, 2020

251,387 255,261 — 255,261 —

FHLB Borrowings 7,500 7,500 — 7,500 —

The following tables present the balance of assets measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 (in thousands):

Fair Value at June 30, 2020

Description Total Level 1 Level 2 Level 3

Municipal bonds $ 4,363 $ — $ 4,363 $ —

2 unchanged sentences

Fair Value at December 31, 2019

Description Total Level 1 Level 2 Level 3

Municipal bonds $ 3,370 $ — $ 3,370 $ —

1 unchanged sentence

Mortgage servicing rights 3,239 — — 3,239

The following tables provide a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring basis at March 31, 2020 and December 31, 2019 :

March 31, 2020

Financial Instrument

Valuation Technique

Unobservable Input(s)

June 30, 2020

Financial Instrument Valuation Technique Unobservable Input(s) Range

(Weighted-Average)

Mortgage Servicing Rights

Discounted cash flow

Prepayment speed assumption

151%-248% (209%)

Mortgage Servicing Rights Discounted cash flow Prepayment speed assumption 152 %- 238 % ( 216 %)

Discount rate 10 %- 12 % ( 10.1 %)

10%-12% (10.1%)

December 31, 2019

Financial Instrument

Valuation Technique

Unobservable Input(s)

Financial Instrument Valuation Technique Unobservable Input(s) Range

(Weighted-Average)

Mortgage Servicing Rights

Discounted cash flow

Prepayment speed assumption

132-485% (187%)

Mortgage Servicing Rights Discounted cash flow Prepayment speed assumption 132 %- 485 % ( 187 %)

Discount rate 12.5 %- 13.5 % ( 12.5 %)

12.5%-13.5% (12.5%)

Generally, any significant increases in the constant prepayment rate and discount rate utilized in the fair value measurement of the mortgage servicing rights will result in a negative fair value adjustment (and decrease in the fair value measurement).

1 unchanged sentence

An increase in the weighted average life assumptions will result in a decrease in the constant prepayment rate and conversely, a decrease in the weighted-average life will result in an increase of the constant prepayment rate.

There were no assets or liabilities (excluding mortgage servicing rights) measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three months ended March 31, 2020 and March 31, 2019 .

Mortgage servicing rights are measured at fair value using a significant unobservable input (Level 3) on a recurring basis - additional information is included in Note 6 – Mortgage Servicing Rights.

The following tables present the balance of assets measured at fair value on a nonrecurring basis at the dates indicated (in thousands):

Fair Value at March 31, 2020

Fair Value at June 30, 2020

Total Level 1 Level 2 Level 3

OREO and repossessed assets $ 575 $ — $ — $ 575

1 unchanged sentence

Fair Value at December 31, 2019

Total Level 1 Level 2 Level 3

OREO and repossessed assets $ 575 $ — $ — $ 575

Impaired loans 12,393 — — 12,393

There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis, at March 31, 2020 and December 31, 2019 .

The following tables provide a description of the valuation technique, observable input, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a nonrecurring basis at March 31, 2020 and December 31, 2019 :

March 31, 2020

Valuation Technique(s)

Unobservable Input(s)

Range (Weighted Average)

Market approach

Adjustment for differences

There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis, at June 30, 2020 and December 31, 2019.

June 30, 2020

Instrument Valuation Technique(s) Unobservable Input(s) Range (Weighted Average)

OREO Market approach Adjustment for differences

between comparable sales 0 - 0 % ( 0 %)

Impaired loans

Market approach

Adjustment for differences

Impaired loans Market approach Adjustment for differences

between comparable sales 0 - 100 % ( 8 %)

December 31, 2019

Valuation Technique(s)

Unobservable Input(s)

Instrument Valuation Technique(s) Unobservable Input(s) Range

(Weighted Average)

Market approach

Adjusted for difference

OREO Market approach Adjusted for difference

between comparable sales 0 - 0 % ( 0 %)

Impaired loans

Market approach

Adjusted for difference

Impaired loans Market approach Adjusted for difference

between comparable sales 0 - 100 % ( 6 %)

Note 6 – Mortgage Servicing Rights

The Company’s mortgage servicing rights portfolio totaled $372.0 million at March 31, 2020 compared to $377.3 million at December 31, 2019 .

Of this total balance, the unpaid principal balance of loans serviced for Federal National Mortgage Association (“Fannie Mae”) at March 31, 2020 and December 31, 2019 were $359.0 million and $363.3 million , respectively.

The unpaid principal balance of loans serviced for other financial institutions at March 31, 2020 and December 31, 2019 , totaled $13.0 million and $14.0 million , respectively.

The Company’s mortgage servicing rights portfolio totaled $ 397.2 million at June 30, 2020 compared to $ 377.3 million at December 31, 2019.

Of this total balance, the unpaid principal balance of loans serviced for Federal National Mortgage Association (“Fannie Mae”) at June 30, 2020 and December 31, 2019 were $ 385.9 million and $ 363.3 million, respectively.

The unpaid principal balance of loans serviced for other financial institutions at June 30, 2020 and December 31, 2019, totaled $ 11.3 million and $ 14.0 million, respectively.

Loans serviced for others are not included in the Company’s financial statements as they are not assets of the Company.

A summary of the change in the balance of mortgage servicing assets during the three months ended March 31, 2020 and 2019 were as follows (in thousands):

Three Months Ended March 31,

A summary of the change in the balance of mortgage servicing assets during the three and six months ended June 30, 2020 and 2019 were as follows (in thousands):

Three Months Ended March 31, Six Months Ended June 30,

2020 2019 2020 2019

Beginning balance, at fair value $ 2,996 $ 3,286 $ 3,239 $ 3,414

2 unchanged sentences

Due to changes in model inputs or assumptions and other (1)

( 437 ) ( 162 ) ( 800 ) ( 486 )

Ending balance, at fair value $ 3,113 $ 3,205 $ 3,113 $ 3,205

1 unchanged sentence

The key economic assumptions used in determining the fair value of mortgage servicing rights at the dates indicated are as follows:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Prepayment speed (Public Securities Association “PSA” model) 216 % 187 %

Weighted-average life

Weighted-average life 5.5 years 6.2 years

Discount rate 10.1 % 12.5 %

The amount of contractually specified servicing, late and ancillary fees earned on the mortgage servicing rights are included in

mortgage servicing income on the Consolidated Statements of Income and totaled $244,000 and $242,000 for the three months ended March 31, 2020 and 2019, respectively.

mortgage servicing income on the Condensed Consolidated Statements of Income and totaled $ 235,000 and $ 479,000 for the three and six months ended June 30, 2020, respectively, and $ 256,000 and $ 498,000 for the three and six months ended June 30, 2019, respectively.

Note 7 – Commitments and Contingencies

5 unchanged sentences

The terms of the agreement call for a blanket pledge of a portion of the Company’s mortgage and commercial and multifamily loan portfolio based on the outstanding balance.

At March 31, 2020 and December 31, 2019 , the amount available to borrow under this credit facility was $323.9 million and $321.9 million , respectively, subject to eligible pledged collateral.

At March 31, 2020 , the credit facility was collateralized as follows:

At June 30, 2020 and December 31, 2019, the amount available to borrow under this credit facility was $ 332.0 million and $ 321.9 million, respectively, subject to eligible pledged collateral.

At June 30, 2020, the credit facility was collateralized as follows:

one-to-four family mortgage loans with an advance equivalent of $ 109.9 million, commercial and multifamily mortgage loans with an advance equivalent of $ 130.0 million and home equity loans with an advance equivalent of $ 5.8 million.

1 unchanged sentence

one-to-four family mortgage loans with an advance equivalent of $ 111.4 million, commercial and multifamily mortgage loans with an advance equivalent of $ 126.1 million and home equity loans with an advance equivalent of $ 6.9 million.

The Company had outstanding borrowings under this arrangement of $7.5 million at both March 31, 2020 and December 31, 2019 .

The weighted-average interest rate of our borrowings was 3.05% at both March 31, 2020 and December 31, 2019 .

Additionally, the Company had outstanding letters of credit from the FHLB of Des Moines with a notional amount of $19.6 million and $19.1 million at March 31, 2020 and December 31, 2019 , respectively, to secure public deposits.

The remaining amount available to borrow as of March 31, 2020 and December 31, 2019 , was $216.3 million and $217.8 million , respectively.

The Company had outstanding borrowings under this arrangement of $ 7.5 million at both June 30, 2020 and December 31, 2019.

The weighted-average interest rate of our borrowings was 3.05 % at both June 30, 2020 and December 31, 2019.

Additionally, the Company had outstanding letters of credit from the FHLB of Des Moines with a notional amount of $ 19.6 million and $ 19.1 million at June 30, 2020 and December 31, 2019, respectively, to secure public deposits.

The remaining amount available to borrow as of June 30, 2020 and December 31, 2019, was $ 218.7 million and $ 217.8 million, respectively.

As a member of the FHLB, the Company is required to maintain a minimum level of investment in FHLB of Des Moines stock based on specific percentages of its outstanding FHLB advances.

At March 31, 2020 and December 31, 2019 both, the Company had an investment of $1.2 million in FHLB of Des Moines stock.

The Company participates in the Federal Reserve Bank Borrower-in-Custody program, which gives the Company access to the discount window.

The terms of the program call for a pledge of specific assets.

The Company pledges commercial and consumer loans as collateral for this line of credit.

The Company had unused borrowing capacity of $38.2 million and $41.7 million and no outstanding borrowings under this program at March 31, 2020 and December 31, 2019 , respectively.

At June 30, 2020 and December 31, 2019, the Company had an investment of $ 1.2 million in FHLB of Des Moines stock.

The Company participates in the Federal Reserve Bank Borrower-in-Custody program, which gives the Company access to the discount window and the PPP Liquidity Facility.

The terms of both programs call for a pledge of specific assets.

The Company pledges commercial and consumer loans as collateral for this borrower-in-custody line of credit.

The Company had unused borrowing capacity of $ 33.4 million and $ 41.7 million and no outstanding borrowings under this program at June 30, 2020 and December 31, 2019, respectively.

At June 30, 2020, the Company pledged $ 72.3 million PPP loans supporting the same amount of borrowings under the PPP Liquidity Facility.

The Company has access to an unsecured Fed Funds line of credit from Pacific Coast Banker’s Bank.

The line has a 1 year term maturing on June 30, 2021 and is renewable annually.

As of March 31, 2020 , the amount available under this line of credit was $10.0 million .

There was no balance on this line of credit as of March 31, 2020 and December 31, 2019 , respectively.

As of June 30, 2020, the amount available under this line of credit was $ 10.0 million.

There was no balance on this line of credit as of June 30, 2020 and December 31, 2019, respectively.

The Company has access to an unsecured Fed Funds line of credit from The Independent Bank.

As of March 31, 2020 , the amount available under this line of credit was $10.0 million .

As of June 30, 2020, the amount available under this line of credit was $ 10.0 million.

The agreement may be terminated by either party.

There was no balance on this line of credit as of March 31, 2020 and December 31, 2019 , respectively.

There was no balance on this line of credit as of June 30, 2020 and December 31, 2019, respectively.

Note 9 – Earnings Per Common Share

4 unchanged sentences

The dilutive effect of the unexercised stock options and unvested restricted stock awards is calculated under the treasury stock method utilizing the average market value of the Company's stock for the period.

The following table summarizes the calculation of earnings per share (in thousands, except per share data):

Three Months Ended March 31,

The following table summarizes the calculation of earnings per share for the periods indicated (in thousands, except per share data):

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Net income available to common shareholders $ 2,113 $ 1,817 $ 3,094 $ 3,261

Weighted-average number of shares outstanding, basic 2,560 2,522 2,553 2,516

3 unchanged sentences

Earnings per share, diluted $ 0.82 $ 0.71 $ 1.20 $ 1.27

There were 6,809 anti-dilutive securities at March 31, 2020 and no anti-dilutive securities at March 31, 2019 .

There were 6,809 anti-dilutive securities at June 30, 2020 and no anti-dilutive securities at June 30, 2019.

Note 10 – Stock-based Compensation

5 unchanged sentences

Under the 2013 Plan, 181,750 shares of common stock were approved for awards for stock options and stock appreciation rights and 116,700 shares of common stock were approved for awards for restricted stock and restricted stock units.

As of March 31, 2020 , on an adjusted basis, awards for stock options totaling 269,822 shares and awards for restricted stock totaling 135,658 shares of Company common stock have been granted, net of any forfeitures, to participants in the Plans.

Share-based compensation expense was $185,000 and $39,000 for the three months ended March 31, 2020 and 2019, respectively.

As of June 30, 2020, on an adjusted basis, awards for stock options totaling 267,752 shares and awards for restricted stock totaling 134,148 shares of Company common stock have been granted, net of any forfeitures, to participants in the Plans.

Share-based compensation expense was $ 46,000 and $ 231,000 for the three and six months ended June 30, 2020, respectively, and was $ 48,000 and $ 87,000 or the three and six months ended June 30, 2019, respectively.

Stock Option Awards

4 unchanged sentences

All of the options granted under the 2008 Plan and the 2013 Plan are exercisable for a period of 10 years from the date of grant, subject to vesting.

The following is a summary of the Company’s stock option award activity during the three months ended March 31, 2020 :

Exercise Price

Weighted-Average

The following is a summary of the Company’s stock option award activity during the six months ended June 30, 2020:

Shares Weighted-

Exercise Price Weighted-Average

Remaining Contractual

Term in Years

Term in Years Aggregate

Outstanding at January 1, 2020 121,260 $ 20.80 5.33 $ 1,842,687

Outstanding at March 31, 2020

Granted 8,225 36.26

Exercised ( 14,434 ) 15.99

Forfeited ( 2,205 ) 29.25

Outstanding at June 30, 2020 112,846 22.38 4.74 501,807

Exercisable 97,046 20.65 4.14 489,312

Expected to vest, assuming a 0 % forfeiture rate over the vesting term

As of March 31, 2020 , there was $78,000 of total unrecognized compensation cost related to non-vested stock options granted under the Plans.

The cost is expected to be recognized over the remaining weighted-average vesting period of less than 3.14 years .

16,169 $ 34.19 7.86 $ 1,662

As of June 30, 2020, there was $ 89,000 of total unrecognized compensation cost related to non-vested stock options granted under the Plans.

The cost is expected to be recognized over the remaining weighted-average vesting period of approximately 2.89 years.

The fair value of each option grant is estimated as of the grant date using the Black-Scholes option-pricing model.

The fair value of options granted for the three months ended March 31, 2020 and 2019 were determined using the following weighted-average assumptions as of the grant date.

March 31, 2020

March 31, 2019

The fair value of options granted for the six months ended June 30, 2020 and 2019 were determined using the following weighted-average assumptions as of the grant date.

June 30, 2020 June 30, 2019

Annual dividend yield 1.60 % 1.72 %

1 unchanged sentence

Risk-free interest rate 1.38 % 2.64 %

Expected term

Expected term 6.50 years 6.50 years

Weighted-average grant date fair value per option granted $ 7.14 $ 7.24

5 unchanged sentences

The restricted stock awards granted to date under the 2013 Plan provide for immediate vesting of a portion of the award with the balance of the award vesting on the anniversary date of each of the grant date in equal annual installments over periods of one -to- four years subject to the continued service of the participant with the Company.

The following is a summary of the Company’s non-vested restricted stock award activity during the three months ended March 31, 2020 :

Weighted-Average

The following is a summary of the Company’s non-vested restricted stock award activity during the six months ended June 30, 2020:

Shares Weighted-Average

Grant-Date Fair

Value Per Share

Aggregate Intrinsic Value Per Share

Value Per Share Aggregate Intrinsic Value Per Share

Non-vested at January 1, 2020 12,290 $ 33.32

Non-Vested at March 31, 2020

Granted 13,600 36.26

Vested ( 6,816 ) 34.60

Forfeited ( 1,690 ) 34.15

Non-Vested at June 30, 2020 17,384 $ 35.03 $ 24.15

Expected to vest assuming a 0 % forfeiture rate over the vesting term

As of March 31, 2020 , there was $627,000 of unrecognized compensation cost related to non-vested restricted stock granted under the Plans.

17,384 $ 35.03 $ 24.15

As of June 30, 2020, there was $ 535,000 of unrecognized compensation cost related to non-vested restricted stock granted under the Plans.

The cost is expected to be recognized over the weighted-average vesting period of 3.12 years.

The total fair value of shares vested for the three months ended March 31, 2020 and 2019 was $236,000 and $95,000 , respectively.

The total fair value of shares vested for the six months ended June 30, 2020 and 2019 was $ 236,000 and $ 95,000 , respectively.

Employee Stock Ownership Plan

3 unchanged sentences

The interest rate on the loan is fixed at 2.25 % per annum.

As of March 31, 2020 , the remaining balance of the ESOP loan was $126,000 .

As of June 30, 2020, the remaining balance of the ESOP loan was $ 126,000 .

Neither the loan balance nor the related interest expense is reflected on the condensed consolidated financial statements.

For the calendar year 2020, the ESOP was committed to release 11,340 shares of the Company’s common stock to participants and held 11,340 unallocated shares remaining to be released in 2021.

The fair value of the 165,056 restricted shares held by the ESOP trust was $3.5 million at March 31, 2020 .

ESOP compensation expense included in salaries and benefits was $174,000 and $168,000 for the three months ended March 31, 2020 and 2019, respectively.

The fair value of the 142,463 shares held by the ESOP trust was $ 3.4 million at June 30, 2020.

ESOP compensation expense included in salaries and benefits was $ 174,000 and $ 348,000 for the three and six months ended June 30, 2020, respectively, and was $ 168,000 and $ 336,000 for the three and six months ended June 30, 2019, respectively.

Note 11 – Revenue from Contracts with Customers

All of the Company's revenue from contracts with customers in the scope of ASC 606 - Revenue from Contracts with Customers ("ASC 606") is recognized in Noninterest Income with the exception of the net loss on OREO and repossessed assets, which is included in Noninterest Expense.

The following table presents the Company's sources of Noninterest Income for the three months ended March 31, 2020 and 2019 (in thousands).

The following table presents the Company's sources of Noninterest Income for the three and six months ended June 30, 2020 and 2019 (in thousands).

Items outside of the scope of ASC 606 are noted as such.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Noninterest income:

35 unchanged sentences

In determining the gain or loss on sale, we adjust the transaction price and related gain or loss on sale if a significant financing component is present.

The Company incurred expenses on OREO properties of zero and $3,000 for the three months ended March 31, 2020 and 2019, respectively, which are included in Noninterest Expense on the Company’s Condensed Consolidated Statements of Income.

Company incurred expenses on OREO properties of zero for the three and six months ended June 30, 2020, compared to $ 7,000 and $ 9,000 for the three and six months ended 2019, respectively, which are included in Noninterest Expense on the Company’s Condensed Consolidated Statements of Income.

Note 12 – Leases

4 unchanged sentences

The operating leases generally contain renewal options and require us to pay property taxes and operating expenses for the properties.

The following table represents the consolidated statements of condition classification of the Company’s right of use assets and lease liabilities (in thousands):

March 31, 2020

December 31, 2019

The following table represents the lease right-of-use assets and lease liabilities recorded on the condensed consolidated balance sheet at June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020 December 31, 2019

Operating lease right-of-use assets $ 7,166 $ 7,641

1 unchanged sentence

The following table represents the components of lease expense (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Operating lease expense

4 unchanged sentences

The following table represents the maturity of lease liabilities:

March 31, 2020

Office leases

Equipment leases

June 30, 2020

Office leases Equipment leases

Operating Lease Commitments

Remainder of 2020 $ 515 $ 10

2021 1,042 20

Thereafter 3,896 —

Total lease payments 8,427 39

2 unchanged sentences

Lease term and discount rate by lease type consist of the following:

March 31, 2020

June 30, 2020

Weighted-average remaining lease term (in years):

5 unchanged sentences

Supplemental cash flow information related to leases was as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Cash paid for amounts included in the measurement of lease liabilities for operating leases:

3 unchanged sentences

Note 13 – Subsequent Event

On April 27, 2020 , the Board of Directors of the Company declared a quarterly cash dividend of $0.15 per common share, payable on May 22, 2020 to stockholders of record at the close of business on May 8, 2020 .

As of April 30, 2020, we have funded over $48.5 million Paycheck Protection Program ("PPP") loans, with an average loan amount of $164,000 .

Another $19.4 million in PPP loans are approved and awaiting funding and 201 applications totaling $6.3 million were in process as of April 30, 2020.

On July 24, 2020, the Board of Directors of the Company declared a quarterly cash dividend of $ 0.15 per common share, payable on August 19, 2020 to stockholders of record at the close of business on August 5, 2020.

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