What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-15 compared with 2022-11-10 · 387 added, 393 removed, 596 unchanged (57% of the section changed)

4 unchanged sentences

(In thousands, except share and per share amounts)

September 30,

2023 December 31,

4 unchanged sentences

Loans held-for-portfolio 870,545 865,981

Allowance for loan losses ( 7,489 ) ( 6,306 )

Allowance for credit losses on loans ( 8,532 ) ( 7,599 )

Total loans held-for-portfolio, net 862,013 858,382

21 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, 2,581,949 and 2,613,768 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

Common stock, $ 0.01 par value, 40,000,000 shares authorized, 2,601,443 and 2,583,619 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 28,251 28,004

Retained earnings 71,362 70,792

Accumulated other comprehensive (loss) income, net of tax ( 1,265 ) 139

Accumulated other comprehensive loss, net of tax ( 1,034 ) ( 1,117 )

Total stockholders’ equity 98,605 97,705

5 unchanged sentences

(In thousands, except share and per share amounts)

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

INTEREST INCOME

8 unchanged sentences

Net interest income 9,371 7,618

PROVISION FOR LOAN LOSSES 375 175 1,101 425

Net interest income after provision for loan losses 9,222 8,142 24,506 21,781

PROVISION FOR CREDIT LOSSES 10 140

Net interest income after provision for credit losses 9,361 7,478

NONINTEREST INCOME

11 unchanged sentences

Data processing 993 821

Net gain on OREO and repossessed assets — — — ( 16 )

Net loss (gain) on OREO and repossessed assets 84 —

Total noninterest expense 7,615 6,820

13 unchanged sentences

(In thousands)

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Net income $ 2,168 $ 1,723

Available for sale securities:

Unrealized losses arising during the period ( 400 ) ( 34 ) ( 1,777 ) ( 91 )

Income tax benefit related to unrealized losses 84 7 373 19

Other comprehensive loss, net of tax ( 316 ) ( 27 ) ( 1,404 ) ( 72 )

Unrealized gains (losses) arising during the period 105 ( 770 )

Income tax (expense) benefit related to unrealized gains (losses) ( 22 ) 162

Other comprehensive income (loss), net of tax 83 ( 608 )

Comprehensive income $ 2,251 $ 1,115

3 unchanged sentences

Condensed Consolidated Statements of Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)

For the Three Months Ended March 31, 2023 and 2022 (unaudited)

(In thousands, except share and per share amounts)

Shares Common

Stock Additional Paid

-in Capital Retained

Earnings Accumulated

Comprehensive

Income/(Loss), net of tax Total

Stock Additional Paid-in Capital Retained

Earnings Accumulated Other

Comprehensive Income/(Loss), net of tax Total

Stockholders’

Balance, at June 30, 2022

2,578,595 $ 26 $ 27,777 $ 66,203 $ ( 949 ) $ 93,057

Net income — — — 2,546 — 2,546

Other comprehensive loss, net of tax — — — — ( 316 ) ( 316 )

Share-based compensation — — 90 — — 90

Cash dividends paid on common stock ($ 0.17 per share)

— — — ( 440 ) — ( 440 )

Common stock surrendered ( 2,431 ) — ( 91 ) — — ( 91 )

Restricted shares forfeited ( 95 ) — — — — —

Common stock options exercised 5,880 — 110 — — 110

Balance, at September 30, 2022

2,581,949 $ 26 $ 27,886 $ 68,309 $ ( 1,265 ) $ 94,956

Balance, at December 31, 2022

2,583,619 $ 26 $ 28,004 $ 70,792 $ ( 1,117 ) $ 97,705

Impact of adoption of Accounting Standards Update (“ASU”) 2016-13 — — — ( 1,149 ) — ( 1,149 )

Net income — — — 2,168 — 2,168

Other comprehensive loss, net of tax — — — — ( 1,404 ) ( 1,404 )

Other comprehensive income, net of tax — — — — 83 83

Share-based compensation — — 192 — — 192

4 unchanged sentences

Common stock surrendered ( 4,750 ) — ( 190 ) — — ( 190 )

Restricted shares forfeited ( 930 ) — — — — —

Restricted stock forfeited ( 425 ) — — — — —

Common stock options exercised 14,353 — 247 — — 247

Balance, at September 30, 2022

Balance, at March 31, 2023

2,601,443 $ 26 $ 28,251 $ 71,362 $ ( 1,034 ) $ 98,605

SOUND FINANCIAL BANCORP, INC.

AND SUBSIDIARY

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share and per share amounts)

Shares Common

Stock Additional Paid

-in Capital Unearned

ESOP Shares Retained

Earnings Accumulated

Comprehensive

Stock Additional Paid-in Capital Retained

Earnings Accumulated Other Comprehensive

Income/(Loss), net of tax Total

Stockholders’

Balance, at June 30, 2021

2,614,329 $ 26 $ 27,613 $ ( 57 ) $ 61,758 $ 195 $ 89,535

Net income — — — — 2,592 — 2,592

Other comprehensive gain, net of tax — — — — — ( 27 ) ( 27 )

Share-based compensation — — 65 — — — 65

Common stock surrendered ( 100 ) — — — — — —

Cash dividends paid on common stock ($ 0.17 per share)

— — — — ( 445 ) — ( 445 )

Restricted shares forfeited ( 420 ) — — — — — —

Common stock options exercised 3,616 — 59 — — — 59

Allocation of ESOP shares — — 98 29 — — 127

Balance, at September 30, 2021

2,617,425 $ 26 $ 27,835 $ ( 28 ) $ 63,905 $ 168 $ 91,906

Balance, at December 31, 2021

3 unchanged sentences

Share-based compensation — — 203 — — 203

Common stock surrendered ( 4,091 ) — ( 9 ) — ( 21 ) — ( 30 )

Restricted stock awards issued 9,700 — — — — —

Cash dividends paid on common stock ($ 0.27 per share)

— — — ( 709 ) — ( 709 )

Common stock repurchased ( 4,008 ) ( 48 ) ( 112 ) ( 160 )

Common stock surrendered ( 100 ) — — — — —

Restricted stock forfeited ( 250 ) — — — — —

Restricted stock awards issued 10,168 — — — — — —

Common stock options exercised 2,421 — 43 — — 43

Allocation of ESOP shares — — 262 85 — — 347

Balance, at September 30, 2021

Balance, at March 31, 2022

2,621,531 $ 26 $ 28,154 $ 66,139 $ ( 469 ) $ 93,850

4 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Amortization of net discounts on investments 17 24

Provision for loan losses 1,101 425

Provision for credit losses 10 140

Depreciation and amortization 178 173

8 unchanged sentences

Originations of loans held-for-sale ( 5,282 ) ( 12,118 )

Net gain on OREO and repossessed assets — ( 16 )

Net loss (gain) on OREO and repossessed assets 84 —

Change in operating assets and liabilities:

10 unchanged sentences

Net increase in loans ( 4,636 ) ( 21,382 )

Purchase of BOLI — ( 6,057 )

Purchases of premises and equipment, net ( 35 ) ( 84 )

Proceeds from sale of OREO and other repossessed assets — 35

Net cash used in investing activities ( 2,958 ) ( 26,277 )

1 unchanged sentence

Net increase in deposits 32,884 37,771

Proceeds from borrowings 44,500 —

FHLB stock purchased ( 1,851 ) ( 175 )

Repayment of borrowings ( 8,000 ) —

FHLB stock redeemed/(purchased) 249 ( 71 )

Common stock repurchases ( 9 ) ( 160 )

Purchase of stock surrendered to pay tax liability ( 190 ) —

Allocation of ESOP shares — 347

Dividends paid on common stock ( 442 ) ( 709 )

5 unchanged sentences

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid for income taxes $ 1,410 $ 2,290

Interest paid on deposits and borrowings 2,813 757

ROU assets obtained in exchange for new operating lease liabilities 334 —

Impact of adoption of ASU 2016-13 on retained earnings ( 1,149 ) —

See Notes to Condensed Consolidated Financial Statements

16 unchanged sentences

These classifications do not have an impact on previously reported consolidated net income, stockholders’ equity or earnings per share.

We have not made any changes in our significant accounting policies from those disclosed in the 2022 Form 10-K, except for the accounting for debt securities, the allowance for credit losses (“ACL”) on loans and unfunded commitments, and loan modifications as described below.

Allowance for Credit Losses on Investment Securities .

The ACL on investment securities is determined for both the held-to-maturity and available-for-sale classifications of the investment portfolio in accordance with Accounting Standards Codification (“ASC”) 326 - Financial Instruments - Credit Losses .

For available-for-sale investment securities, we perform a quarterly qualitative evaluation for securities in an unrealized loss position to determine if, for those investments in an unrealized loss position, the decline in fair value is credit related or non-credit related.

In determining whether a security’s decline in fair value is credit related, we consider a number of factors including, but not limited to:

(i) the extent to which the fair value of the investment is less than its amortized cost;

(ii) the financial condition and near-term prospects of the issuer;

(iii) downgrades in credit ratings;

(iv) payment structure of the security, (v) the ability of the issuer of the security to make scheduled principal and interest payments and (vi) general market conditions, which reflect prospects for the economy as a whole, including interest rates and sector credit spreads.

If it is determined that the unrealized loss can be attributed to credit loss, we record the amount of credit loss through a charge to provision for credit losses in current period earnings.

However, the amount of credit loss recorded in current period earnings is limited to the amount of the total unrealized loss on the security, which is measured as the amount by which the security’s fair value is below its amortized cost.

If it is likely we will be required to sell the security in an unrealized loss position, the total amount of the loss is recognized in current period earnings.

For unrealized losses deemed non-credit related, we record the loss, net of tax, through accumulated other comprehensive income.

We determine expected credit losses on available-for-sale and held-to-maturity securities through a discounted cash flow approach, using the security’s effective interest rate.

However, as previously mentioned, the measurement of credit losses on available-for-sale securities only occurs when, through our qualitative assessment, it is determined all or a portion of the unrealized loss is deemed to be credit related.

Our discounted cash flow approach incorporates assumptions about the collectability of future cash flows.

The amount of credit loss is measured as the amount by which the security’s amortized cost exceeds the present value of expected future cash flows.

Credit losses on available-for-sale securities are measured on an individual basis, while credit losses on held-to-maturity securities are measured on a collective basis according to shared risk characteristics.

Credit losses on held-to-maturity securities are only recognized at the individual security level when we determine a security no longer possesses risk characteristics similar to others in the portfolio.

We do not measure credit losses on an investment’s accrued interest receivable, but rather promptly reverse from current period earnings the amount of accrued interest that is no longer deemed collectable.

Accrued interest receivable for investment securities is included in accrued interest receivable balances in the Condensed Consolidated Balance Sheets.

Allowance for Credit Losses on Loans and Unfunded Loan Commitments.

We maintain an ACL on loans and unfunded loan commitments in accordance with ASC 326.

ASC 326 requires us to recognize estimates for lifetime credit losses on loans and unfunded loan commitments at the time of origination or acquisition.

The recognition of credit losses at origination or acquisition represents our best estimate of lifetime expected credit losses, given the facts and circumstances associated with a particular loan or group of loans with similar risk characteristics.

Determining the ACL involves the use of significant management judgement and estimates, which are subject to change based on management’s ongoing assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the model.

We use a historical loss rate model when determining estimates for the ACL for our loan portfolio.

We also utilize proxy loan data in our ACL model where our own historical data is not sufficiently available.

We do not measure credit losses on a loan’s accrued interest receivable, but rather promptly reverse from current period earnings the amount of accrued interest that is no longer deemed collectable.

Accrued interest receivable for loans is included in accrued interest receivable balances in the Condensed Consolidated Balance Sheets.

Our ACL model forecasts primarily over a two-year time horizon, which we believe is a reasonable and supportable period.

Beyond the two-year forecast time horizon, our ACL model reverts to historical long-term average loss rates.

The duration of the forecast horizon, the period over which forecasts revert to long-term averages, the economic forecasts that management utilizes, as well as additional internal and external indicators of economic forecasts that management considers, may change over time depending on the nature and composition of our loan portfolio.

We utilize a discounted cash flow ACL model for individually analyzed loans using internally derived estimates for prepayments in determining the amount and timing of future contractual cash flows we expect to collect, unless the loan is deemed collateral dependent, which requires measurement of the ACL based on the estimated expected fair value of the underlying collateral, less costs to sell.

The estimate of future cash flows also incorporates estimates for contractual amounts we believe may not be collected, which are based on assumptions for our estimated exposure at default.

Our estimated exposure at default is determined by the contractual payment schedule and expected payment profile of the loan, incorporating estimates for expected prepayments and future draws on revolving credit facilities.

Our ACL methodology for unfunded loan commitments also includes assumptions concerning the probability an unfunded commitment will be drawn upon by the borrower.

These assumptions are based on the historical experience of banks in an independent third party database.

Expectations of future cash flows are discounted at the loan’s effective interest rate for individually analyzed loans.

The effective interest rate represents the contractual rate on the loan, adjusted for any purchase premiums, or discounts, and deferred fees and costs associated with an originated loan.

We have made an accounting policy election to adjust the effective interest rate to take into consideration the effects of estimated prepayments.

The resulting ACL represents the amount by which the loan’s amortized cost exceeds the net present value of a loan’s discounted cash flows.

The ACL is recorded through a charge to provision for credit losses and is reduced by charge-offs, net of recoveries on loans previously charged-off.

It is our policy to charge-off loan balances at the time they are not expected to be collected.

The historical loss rate model is derived from our loan portfolio credit history, as well as the comparable credit history for peer banks in Washington state.

Key loan level attributes and economic drivers in determining the loss rate for loans include unemployment rates, changes to interest rates, changes in credit quality, changes to the consumer price index, and changes in real estate prices.

In order to develop reasonable and supportable forecasts of future conditions, we estimate how those forecasts are expected to impact a borrower’s ability to satisfy their obligations to us and the ultimate collectability of future cash flows over the life of a loan.

Management periodically evaluates appropriateness of economic scenarios and may decide that a particular economic scenario or a combination of probability-weighted economic scenarios should be used in our ACL model.

Our ACL model at March 31, 2023 includes assumptions concerning the rising interest rate environment, ongoing inflationary pressures throughout the U.S.

economy, higher energy prices, the potential impact of the ongoing war between Russia and Ukraine, general uncertainty concerning future economic conditions, and the potential for recessionary conditions.

It is important to note that our ACL model relies on multiple economic variables, which are used in several economic scenarios.

Although no one economic variable can fully demonstrate the sensitivity of the ACL calculation to changes in the economic variables used in the model, we have identified certain economic variables that have significant influence in our model for determining the ACL.

These key economic variables include changes in the Washington state unemployment rate, residential real estate prices in the Seattle Metropolitan Statistical Area, and interest rates.

Recognizing that forecasts of macroeconomic conditions are inherently uncertain, we believe that the process to consider the available information and associated risks and uncertainties is appropriately governed and that estimates of expected credit losses were reasonable and appropriate upon adoption and for the three months ended March 31, 2023.

Our ACL model also includes adjustments for qualitative factors, where appropriate.

We recognize that historical information used as the basis for determining future expected credit losses may not always, by itself, provide a sufficient basis for determining future expected credit losses.

We therefore consider the need for qualitative adjustments to the ACL on a quarterly

Qualitative adjustments may be related to and include, but are not limited to, factors such as:

(i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions, (ii) organization specific risks such as credit concentrations, collateral specific risks, regulatory risks, and external factors that may ultimately impact credit quality, (iii) potential model limitations such as limitations identified through back-testing, and other limitations associated with factors such as underwriting changes, acquisition of new portfolios, and changes in portfolio segmentation, and (iv) management’s overall assessment of the adequacy of the ACL, including an assessment of model data inputs used to determine the ACL.

Qualitative adjustments primarily relate to certain segments of the loan portfolio deemed by management to be of a higher-risk profile or other factors where management believes the quantitative component of our ACL model may not be fully reflective of levels deemed adequate in the judgement of management.

Certain qualitative adjustments also relate to heightened uncertainty as to future macroeconomic conditions and the related impact on certain loan segments.

Management reviews the need for an appropriate level of qualitative adjustments on a quarterly basis, and as such, the amount and allocation of qualitative adjustments may change in future periods.

Modified Loans to Borrowers Experiencing Financial Difficulty .

We occasionally modify loans to alleviate temporary difficulties in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize our potential losses.

We refer to these modifications as modified loans to troubled borrowers.

Modifications may include:

changes in the amortization terms of the loan, reductions in interest rates, acceptance of interest only payments, and, in very limited cases, reductions to the outstanding loan balance.

Such loans are typically placed on nonaccrual status when there is doubt concerning the full repayment of principal and interest or the loan has been in default for a period of 90 days or more.

Such loans may be returned to accrual status when all contractual amounts past due have been brought current, and the borrower’s performance under the modified terms of the loan agreement and the ultimate collectability of all contractual amounts due under the modified terms is no longer in doubt.

We typically measure the ACL on modified loans to troubled borrowers on an individual basis when the loans are deemed to no longer share risk characteristics that are similar with other loans in the portfolio.

The determination of the ACL for these loans is based on a discounted cash flow approach for loans measured individually, unless the loan is deemed collateral dependent, which requires measurement of the ACL based on the estimated fair value of the underlying collateral, less estimated costs to sell.

GAAP requires us to make certain disclosures related to these loans, including certain types of modifications, as well as how such loans have performed since their modifications.

Refer to Note 4 – Loans for additional information concerning modified loans to troubled borrowers.

Note 2 – Accounting Pronouncements Recently Issued or Adopted

9 unchanged sentences

The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification.

The amendments in this ASU have differing effective dates, beginning with interim period including and subsequent to March 12, 2020 through December 31, 2022.

The amendments in this ASU have differing effective dates, beginning with interim periods including and subsequent to 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.

5 unchanged sentences

The amendments in this ASU require a financial asset that is measured at amortized cost to be presented at the net amount expected to be collected.

income statement would then reflect the measurement of credit losses for newly recognized financial assets as well as changes to the expected credit losses that have taken place during the reporting period.

The change in allowance recognized as a result of adoption will occur through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the ASU is adopted.

The new guidance may result in an increase in the allowance for loan losses;

however, the Company is still in the process of determining the magnitude of the change and its impact on the Company's consolidated financial statements.

The FASB issued ASU No.

2019-10, Financial Instruments - Credit Losses (Topic 326) , delaying implementation of ASU No.

2016-13 for SEC smaller reporting company filers until fiscal years beginning after December 15, 2022.

The Bank meets the requirements of a smaller reporting company and will delay implementation of ASU No.

The income statement would then reflect the measurement of credit losses for newly recognized financial assets as well as changes to the expected credit losses that have taken place during the reporting period.

The Company adopted the provisions of ASC 326 through the application of the modified retrospective transition approach, and recorded a net decrease of approximately $ 1.1 million to the beginning balance of retained earnings as of January 1, 2023 for the cumulative effect adjustment, reflecting an initial adjustment to the ACL of $ 1.5 million, net of related deferred tax assets arising from temporary differences of $ 305 thousand, commonly referred to as the “Day 1” adjustment.

The Day 1 adjustment to the ACL is reflective of expected lifetime credit losses associated with the composition of financial assets within in the scope of ASC 326 as of January 1, 2023, which is comprised of loans held for investment and off-balance sheet credit exposures at January 1, 2023, as well as management’s current expectation of future economic conditions.

The following table presents the impact of adopting ASU 2016-13 on January 1, 2023:

(dollars in thousands) As Reported

ASC 326 Prior to Adopting

ASC 326 Impact of ASC 326

Allowance for credit losses - loans

Real estate loans:

One- to four- family $ 2,126 $ 1,771 $ 355

Home equity 201 132 69

Commercial and multifamily 2,181 2,501 ( 320 )

Construction and land 2,568 1,209 1,359

Total real estate loans 7,075 5,613 1,462

Consumer loans:

Manufactured homes 282 462 ( 180 )

Floating homes 622 456 166

Other consumer 161 324 ( 163 )

Total consumer loans 1,065 1,242 ( 177 )

Commercial business loans 221 256 ( 35 )

Unallocated ( 3 ) 488 ( 491 )

Total loans 8,359 7,599 760

Allowance for credit losses - unfunded commitments

Reserve for unfunded commitments 1,030 335 695

Total $ 9,389 $ 7,934 $ 1,455

In March 2022, the FASB issued ASU 2022-02, Financial Instruments — Credit Losses (Topic 326):

2 unchanged sentences

Additionally, the ASU requires public business entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases.

This ASU will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, upon the Company’s adoption of the amendments in ASU 2016-13, which is commonly referred to as the current expected credit loss methodology.

This ASU was effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, upon the Company’s adoption of the amendments in ASU 2016-13, which is commonly referred to as the current expected credit loss methodology.

The Company adopted ASU 2022-02 on January 1, 2023 using the prospective transition guidance which allows the entity to

continue estimating expected credit losses in accordance with legacy U.S.

GAAP for receivables modified in a TDR until the receivables are subsequently modified or settled.

Once a legacy TDR is modified after adoption of ASU 2022-02, the prospective transition guidance no longer applies and the impact to the ACL is recognized in earnings in the period of modification.

Note 3 – Investments

The Company classifies its debt investment securities in two categories:

held-to-maturity (“HTM”) or available-for-sale (“AFS”).

Unrealized holding gains or losses, net of the related tax effect, on AFS securities are excluded from income and are reported as a separate component of stockholders’ equity as accumulated other comprehensive income (loss) net of applicable taxes until realized.

Recognized gains and losses from the sale of AFS securities are determined on a specific-identification basis.

These securities are adjusted for the amortization or accretion of premiums or discounts.

Securities classified as HTM are those that the Company has the positive intent and ability to hold until maturity.

These securities are carried at amortized cost, adjusted for the amortization or accretion of premiums or discounts.

The Company does not own any debt securities classified as trading or equity securities.

At March 31, 2023, the Company did not own any debt securities classified as trading or any equity investment securities.

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

Losses Estimated

September 30, 2022

Treasury bills $ 1,584 $ — $ ( 4 ) $ 1,580

March 31, 2023

Municipal bonds $ 6,424 $ 23 $ ( 981 ) $ 5,466

2 unchanged sentences

December 31, 2022

Treasury bills $ 1,596 $ — $ ( 2 ) $ 1,594

Municipal bonds 6,434 16 ( 1,029 ) 5,421

3 unchanged sentences

Losses Estimated

September 30, 2022

March 31, 2023

Municipal bonds $ 705 $ — $ ( 171 ) $ 533

5 unchanged sentences

Total $ 2,199 $ — $ ( 388 ) $ 1,811

The amortized cost and fair value of AFS and HTM securities at September 30, 2022, by contractual maturity, are shown below (in thousands).

The amortized cost and fair value of AFS and HTM securities at March 31, 2023, 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.

September 30, 2022

Investments not due at a single maturity date,

primarily mortgage-backed investments, are shown separately.

March 31, 2023

Available-for-sale Held-to-maturity

6 unchanged sentences

Total $ 9,910 $ 8,601 $ 2,190 $ 1,819

There were no pledged securities at September 30, 2022 or December 31, 2021.

There were no sales of AFS securities during the three and nine months ended September 30, 2022 or 2021.

There were no sales of HTM securities during the three and nine months ended September 30, 2022.

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 the dates indicated (in thousands):

September 30, 2022

There were no pledged securities at March 31, 2023 or December 31, 2022.

There were no sales of AFS securities during the three months ended March 31, 2023 or 2022.

There were no sales of HTM securities during the three months ended March 31, 2023 or 2022.

Accrued interest receivable on securities totaled $ 78 thousand and $ 54 thousand at March 31, 2023 and December 31, 2022, respectively, in the accompanying Condensed Consolidated Balance Sheets.

Accrued interest receivable is excluded from the estimate of expected credit losses.

The following table summarizes the aggregate fair value and gross unrealized loss by length of time of those investments for which an allowance for credit losses has not been recorded that have been in a continuous unrealized loss position at the dates indicated (in thousands):

March 31, 2023

Less Than 12 Months 12 Months or Longer Total

3 unchanged sentences

Available-for-sale securities

Treasury bills $ 1,580 $ ( 4 ) $ — $ — $ 1,580 $ ( 4 )

Municipal bonds $ 597 $ ( 203 ) $ 3,193 $ ( 778 ) $ 3,790 $ ( 981 )

11 unchanged sentences

Available-for-sale securities

Treasury bills $ 1,594 $ ( 2 ) $ — $ — $ 1,594 $ ( 2 )

Municipal bonds 2,506 ( 641 ) 1,246 ( 388 ) 3,752 ( 1,029 )

1 unchanged sentence

Total $ 6,766 $ ( 957 ) $ 1,538 $ ( 474 ) $ 8,304 $ ( 1,431 )

There were no credit losses recognized in earnings related to other than temporary impairments during the three and nine months ended September 30, 2022 or 2021.

At September 30, 2022, the total securities portfolio consisted of one treasury bill security, 12 agency mortgage-backed securities and 12 municipal bonds with a total portfolio fair value of $ 12.2 million.

At December 31, 2021, the securities portfolio consisted of 10 agency mortgage-backed securities and 10 municipal bonds with a fair value of $ 8.4 million.

At September 30, 2022, there were 18 securities in an unrealized loss position for less than 12 months, and two securities in an unrealized loss position for more than 12 months.

Of the 18 securities in an unrealized loss position for less than 12 months, two securities were classified as HTM.

At December 31, 2021, there were two securities in an unrealized loss position for less than 12 months, and one security in an unrealized loss position for more than 12 months.

Held-to-maturity securities

Municipal bonds $ 536 $ ( 169 ) $ — $ — $ 536 $ ( 169 )

Agency mortgage-backed securities 1,274 ( 219 ) — — 1,274 ( 219 )

Total held-to-maturity securities $ 1,810 $ ( 388 ) $ — $ — $ 1,810 $ ( 388 )

There was no allowance for credit losses on securities at March 31, 2023 or December 31, 2022.

At March 31, 2023, the total securities portfolio consisted of 12 agency mortgage-backed securities and 11 municipal bonds with a total portfolio fair value of $ 10.4 million.

At December 31, 2022, the securities portfolio consisted of one treasury bill security, 11 agency mortgage-backed securities and 12 municipal bonds with a fair value of $ 10.2 million.

At March 31, 2023, there were five securities in an unrealized loss position for less than 12 months, and 13 securities in an unrealized loss position for more than 12 months.

Of the five securities in an unrealized loss position for less than 12 months, two securities were classified as HTM.

At December 31, 2022, there were 16 securities in an unrealized loss position for less than 12 months, and three securities in an unrealized loss position for more than 12 months.

The unrealized losses were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities, and not related to the underlying credit of the issuers or the underlying collateral.

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 September 30, 2022, 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 .

There was no provision for credit losses recognized for investment securities during the three months ended March 31, 2023, 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 .

Note 4 – Loans

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

September 30,

Loans-held-for portfolio at the dates indicated, excluding loans held-for-sale, were as follows (in thousands):

2023 December 31,

15 unchanged sentences

Total loans held-for-portfolio, gross 870,545 865,981

Allowance for loan losses ( 7,489 ) ( 6,306 )

Allowance for credit losses — loans ( 8,532 ) ( 7,599 )

Total loans held-for-portfolio, net $ 862,013 $ 858,382

(1) Includes premiums resulting from purchased loans of $ 514 thousand related to one-to-four family loans, $ 315 thousand related to commercial and multifamily loans, and $ 155 thousand related to commercial business loans as of September 30, 2022.

(1) Includes premiums resulting from purchased loans of $ 499 thousand related to one-to-four family loans, $ 310 thousand related to commercial and multifamily loans, and $ 137 thousand related to commercial business loans as of March 31, 2023.

Includes premiums resulting from purchased loans of $ 507 thousand related to one-to-four family loans, $ 320 thousand related to commercial and multifamily loans, and $ 146 thousand related to commercial business loans as of December 31, 2022.

The Company was automatically authorized to participate in the U.S.

Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), as a qualified lender since the inception of the program.

As of September 30, 2022, the Bank had funded PPP loans totaling $ 119.2 million, $ 18 thousand of which remained outstanding and are included in commercial business loans above.

PPP loans are 100% guaranteed by the SBA.

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of the dates indicated (in thousands):

September 30, 2022

Individually evaluated for impairment Allowance:

Collectively evaluated for impairment Allowance:

Ending balance Loans held for portfolio:

Individually evaluated for impairment Loans held for portfolio:

Collectively evaluated for impairment Loans held for portfolio:

Ending balance

One-to-four family $ 106 $ 1,653 $ 1,759 $ 3,575 $ 266,434 $ 270,009

Home equity 5 116 121 203 17,439 17,642

Commercial and multifamily — 2,349 2,349 — 315,677 315,677

Construction and land 3 1,127 1,130 63 112,917 112,980

Manufactured homes 101 388 489 193 25,182 25,375

Floating homes — 430 430 — 69,968 69,968

Other consumer 24 301 325 365 17,200 17,565

Commercial business — 233 233 — 23,986 23,986

Unallocated — 653 653 — — —

Total $ 239 $ 7,250 $ 7,489 $ 4,399 $ 848,803 $ 853,202

December 31, 2021

Individually evaluated for impairment Allowance:

Collectively evaluated for impairment Allowance:

Ending balance Loans held for portfolio:

Individually evaluated for impairment Loans held for portfolio:

Collectively evaluated for impairment Loans held for portfolio:

Ending balance

One-to-four family $ 112 $ 1,290 $ 1,402 $ 4,066 $ 203,594 $ 207,660

Home equity 7 86 93 215 13,035 13,250

Commercial and multifamily — 2,340 2,340 2,380 275,795 278,175

Construction and land 4 646 650 68 63,037 63,105

Manufactured homes 144 331 475 221 21,415 21,636

Floating homes — 372 372 493 58,775 59,268

Other consumer 26 284 310 106 16,642 16,748

Commercial business — 269 269 176 27,850 28,026

Unallocated — 395 395 — — —

Total $ 293 $ 6,013 $ 6,306 $ 7,725 $ 680,143 $ 687,868

The following tables summarize the activity in the allowance for loan losses for the periods indicated (in thousands):

Three Months Ended September 30, 2022

Allowance Charge-offs Recoveries Provision (Recapture) Ending

One-to-four family $ 1,638 $ — $ — $ 121 $ 1,759

Home equity 113 — — 8 121

Commercial and multifamily 2,312 — — 37 2,349

Construction and land 1,024 — — 106 1,130

Manufactured homes 444 — — 45 489

Floating homes 410 — — 20 430

Other consumer 331 ( 6 ) 3 ( 3 ) 325

Commercial business 240 — — ( 7 ) 233

Unallocated 605 — — 48 653

Total $ 7,117 $ ( 6 ) $ 3 $ 375 $ 7,489

Nine Months Ended September 30, 2022

Allowance Charge-offs Recoveries Provision (Recapture) Ending

As of March 31, 2023, there were three collateral dependent loans, totaling $ 147 thousand, that were in process of foreclosure.

The following table presents a summary of activity in the ACL on loans and unfunded commitments for the periods indicated (in thousands):

Three Months Ended March 31,

Allowance for Credit Losses - Loans Reserve for Unfunded Loan Commitments Allowance for Credit Losses Allowance for Credit Losses - Loans Reserve for Unfunded Loan Commitments Allowance for Credit Losses

Balance at beginning of period $ 7,599 $ 335 $ 7,934 $ 6,306 $ 404 $ 6,710

Adoption of ASU 2016-13(1) 760 695 1,455 — — —

Provision for credit losses during the period 245 ( 235 ) 10 125 15 140

Net (charge-offs)/recoveries during the period ( 72 ) — ( 72 ) ( 24 ) — ( 24 )

Balance at end of period $ 8,532 $ 795 $ 9,327 $ 6,407 $ 419 $ 6,826

Accrued interest receivable on loans receivable totaled $ 3.0 million at both March 31, 2023 and December 31, 2022 in the accompanying Condensed Consolidated Balance Sheets.

Accrued interest receivable is excluded from the estimate of expected credit losses.

The following tables summarize the activity in the allowance for loan losses, excluding accrued interest, for the periods indicated (in thousands):

Three Months Ended March 31, 2023

Allowance Impact of Adoption of ASU 2016-16 Charge-offs Recoveries Provision (Recapture) Ending

One-to-four family $ 1,771 $ 355 $ — $ — $ ( 67 ) $ 2,059

5 unchanged sentences

Other consumer (1)

324 ( 163 ) ( 79 ) 7 70 159

Commercial business 256 ( 35 ) — — ( 5 ) 216

1 unchanged sentence

Total $ 7,599 $ 760 $ ( 79 ) $ 7 $ 245 $ 8,532

Three Months Ended September 30, 2021

(1) During the three months ended March 31, 2023, the gross charge-offs related entirely to deposit overdrafts that were charged off.

Three Months Ended March 31, 2022

Allowance Charge-offs Recoveries Provision

10 unchanged sentences

Total $ 6,306 $ ( 32 ) $ 8 $ 125 $ 6,407

Nine Months Ended September 30, 2021

Allowance Charge-offs Recoveries Provision

(Recapture) Ending

Credit Quality Indicators.

Federal regulations provide for the classification of lower quality loans and other assets (such as OREO and repossessed assets), debt and equity securities considered as "substandard," "doubtful" or "loss." An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

"Substandard" assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected.

Assets classified as "doubtful" have all of the weaknesses in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

When we classify problem assets as either substandard or doubtful, we may determine that these assets should be individually analyzed if they no longer share common risk characteristics with the rest of the portfolio.

Therefore we may establish a specific allowance in an amount we deem prudent to address those risks.

General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities for pooled loans with common risk characteristics, but which, unlike specific allowances, have not been specifically allocated to particular problem assets.

When an insured institution classifies problem assets as a loss, it is required to charge off those assets in the period in which they are deemed uncollectible.

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, the Bank's state banking regulator, which can order the establishment of additional loss allowances.

Assets which do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated as special mention.

The following table presents the internally assigned grades as of March 31, 2023, by type of loan and origination year (in thousands):

Term Loans Amortized Cost Basis by Origination Year Revolving Loans Amortized Cost Basis Revolving Loans Amortized Cost Basis Converted to Term

2023 2022 2021 2020 2019 Prior Total

One-to-four family:

Home equity 147 ( 8 ) 4 ( 49 ) 94

Pass $ 4,665 $ 91,568 $ 115,210 $ 18,313 $ 13,457 $ 30,927 $ — $ — $ 274,140

Special mention — — — — — — — — —

Substandard — — — — 281 622 — — 903

Doubtful — — — — — — — — —

Loss — — — — — — — — —

Total one-to-four family 4,665 91,568 115,210 18,313 13,738 31,549 — — 275,043

Pass 437 3,642 1,212 310 104 1,976 10,368 1,563 19,612

Special mention — — — — — — — — —

Substandard — — — — — 67 14 219 300

Doubtful — — — — — — — — —

Loss — — — — — — — — —

Total home equity 437 3,642 1,212 310 104 2,043 10,382 1,782 19,912

Commercial and multifamily:

Pass 3,649 84,027 82,012 28,366 32,687 61,767 — — 292,508

Special mention — — — — — 355 — — 355

Substandard — — — — 5,150 8,596 — — 13,746

Doubtful — — — — — — — — —

Loss — — — — — — — — —

Total commercial and multifamily 3,649 84,027 82,012 28,366 37,837 70,718 — — 306,609

Construction and land:

Pass 914 65,368 48,423 5,068 782 1,393 — — 121,948

Special mention — — — — — — — — —

Substandard — — — 1,335 704 1,297 — — 3,336

Doubtful — — — — — — — — —

Loss — — — — — — — — —

Total construction and land 914 65,368 48,423 6,403 1,486 2,690 — — 125,284

Manufactured homes:

Pass 2,165 8,823 5,003 2,343 2,694 6,600 — — 27,628

Special mention — — — — — — — — —

Substandard — — — 88 — 115 — — 203

Doubtful — — — — — — — — —

Loss — — — — — — — — —

Total manufactured homes 2,165 8,823 5,003 2,431 2,694 6,715 — — 27,831

Floating homes:

Pass — 21,836 29,773 6,602 2,558 12,453 — — 73,222

Special mention — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Loss — — — — — — — — —

Total floating homes — 21,836 29,773 6,602 2,558 12,453 — — 73,222

Other consumer:

Pass 517 2,466 4,104 6,386 870 2,420 531 — 17,294

Special mention — — — — — — — — —

Substandard — — — 72 — — — — 72

Doubtful — — — — — — — — —

Loss — — — — — — — — —

Total other consumer 517 2,466 4,104 6,458 870 2,420 531 — 17,366

Commercial business:

Unallocated 406 — — 556 962

Total $ 6,000 $ ( 113 ) $ 15 $ 425 $ 6,327

Credit Quality Indicators.

"Substandard" assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected.

When we classify problem assets as either substandard or doubtful, we may establish a specific allowance in an amount we deem prudent to address specific impairments.

General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to particular problem assets.

When an insured institution classifies problem assets as a loss, it is required to charge off those assets in the period in which they are deemed uncollectible.

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, since our conversion to a Washington-chartered commercial bank, the Washington Department of Financial Institutions, the Bank's state banking regulator, which can order the establishment of additional loss allowances.

Assets which do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated as special mention.

The following tables present the internally assigned grades as of the dates indicated, by type of loan (in thousands):

September 30, 2022

four family Home

equity Commercial

and multifamily Construction

and land Manufactured

homes Floating

consumer Commercial

business Total

Pass 2,121 513 4,529 537 434 7,119 9,471 — 24,724

Watch 285 2 15,559 3,901 143 — 1 127 20,018

Special mention — — — — — — — — —

Substandard — 76 475 — — 3 — — 554

Total $ 270,009 $ 17,642 $ 315,677 $ 112,980 $ 25,375 $ 69,968 $ 17,565 $ 23,986 $ 853,202

Doubtful — — — — — — — — —

Loss — — — — — — — — —

Total commercial business 2,121 589 5,004 537 434 7,122 9,471 — 25,278

Pass $ 14,468 $ 278,243 $ 290,266 $ 67,925 $ 53,586 $ 124,655 $ 20,370 $ 1,563 $ 851,076

Special mention — — — — — 355 — — 355

Substandard — 76 475 1,495 6,135 10,700 14 219 19,114

Doubtful — — — — — — — — —

Loss — — — — — — — — —

Total loans $ 14,468 $ 278,319 $ 290,741 $ 69,420 $ 59,721 $ 135,710 $ 20,384 $ 1,782 $ 870,545

The following tables present the internally assigned grades as of December 31, 2022, by type of loan (in thousands):

December 31, 2022

13 unchanged sentences

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 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 the dates indicated, by type of loan (in thousands):

September 30, 2022 December 31, 2021

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.

The following table presents the amortized cost of nonaccrual loans as of the dates indicated, by type of loan (in thousands):

March 31, 2023 December 31, 2022

with no ACL Total

One-to-four family $ 697 $ 697 $ 2,135 $ 2,135

Home equity 138 138 142 142

Commercial and multifamily — 2,380

Construction and land 322 322 324 324

Manufactured homes 134 92 96 52

Floating homes — 493

Other consumer 1 — 262 262

Commercial business — 176

Total $ 1,293 $ 1,250 $ 2,959 $ 2,914

The following tables present the aging of the recorded investment in past due loans as of the dates indicated, by type of loan (in thousands):

September 30, 2022

The following tables present the aging of past due loans, based on amortized cost, as of the dates indicated, by type of loan (in thousands):

March 31, 2023

Past Due 60-89 Days

25 unchanged sentences

Loans are considered nonperforming when they are placed on nonaccrual.

The following tables present the credit risk profile of our loan portfolio based on payment activity as of the dates indicated, by type of loan (in thousands):

September 30, 2022

equity Commercial

multifamily Construction

and land Manufactured

homes Floating

consumer Commercial

business Total

Performing $ 268,049 $ 17,509 $ 315,677 $ 112,951 $ 25,276 $ 69,968 $ 17,300 $ 23,986 $ 850,716

Nonperforming 1,960 133 — 29 99 — 265 — 2,486

Total $ 270,009 $ 17,642 $ 315,677 $ 112,980 $ 25,375 $ 69,968 $ 17,565 $ 23,986 $ 853,202

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

December 31, 2022

8 unchanged sentences

Total $ 274,638 $ 19,548 $ 313,358 $ 116,878 $ 26,953 $ 74,443 $ 17,923 $ 23,815 $ 867,556

Impaired Loans.

A loan is considered impaired when we determine that we may be unable to collect payments of principal or interest when due under the terms of the loan.

In the process of identifying loans as impaired, we take into consideration factors which include payment history and status, collateral value, financial condition of the borrower, and the probability of collecting scheduled payments in the future.

Minor payment delays and insignificant payment shortfalls typically do not result in a loan being classified as impaired.

The significance of payment delays and shortfalls is considered on a case by case basis, after taking into consideration the totality of circumstances surrounding the loan and the borrower, including payment history.

Impairment is measured on a loan by loan basis for all loans in the portfolio.

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 the dates indicated, by type of loan were as follows (in thousands):

September 30, 2022

Recorded Investment

Unpaid Principal

Balance Without

Allowance With

Allowance Total

Investment Related

Loan Modifications to Borrowers Experiencing Financial Difficulty.

Loans modified to borrowers experiencing financial difficulty totaled $ 2.0 million at March 31, 2023.

The Company has granted modifications which can generally be described in the following categories:

Principal Forgiveness :

A modification in which the principal is reduced.

Rate Modification :

A modification in which the interest rate is changed.

Term Modification :

A modification in which the maturity date, timing of payments or frequency of payments is changed.

Payment Modification :

A modification in which the dollar amount of the payment is changed.

Interest only modifications in which a loan is converted to interest only payments for a period of time are included in this category.

Combination Modification :

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

The Company had no commitments to extend additional credit to borrowers owing loan receivables whose terms have been modified at March 31, 2023.

During the three months ended March 31, 2023, there was one one-to-four family loan modified to borrowers experiencing financial difficulty that was in current status as of March 31, 2023.

This loan received a term extension for 90 days, with an amortized cost basis of $ 90 thousand representing 0.03 % of the total class of loans.

We have no modified loan receivables that have subsequently defaulted at March 31, 2023.

Troubled debt restructurings.

Prior to the adoption of ASU 2022-02, Financial Instruments—Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures , the Company had granted a variety of concessions to borrowers in the form of loan modifications that were considered TDRs.

Loans classified as TDRs totaled $ 2.0 million at December 31, 2022, and were previously included in impaired loans.

Collateral Dependent Loans .

Loans that have been classified as collateral dependent are loans where substantially all repayment of the loan is expected to come from the operation of or eventual liquidation of the collateral.

Collateral dependent loans are evaluated individually for purposes of determining the ACL, which is determined based on the estimated fair value of the collateral.

Estimates for costs to sell are included in the determination of the ACL when liquidation of the collateral is anticipated.

In cases where the loan is well secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACL is recorded.

The following tables summarize collateral dependent loans by collateral type as of the dates indicated (in thousands):

March 31, 2023

Residential Real Estate Land Other Residential Total

Real estate loans:

One- to four- family $ 985 $ — $ 168 $ 1,153

Home equity 138 — — 138

Commercial and multifamily — — — — —

Construction and land — 322 — 322

Total real estate loans 1,123 322 168 1,614

Consumer loans:

Manufactured homes — — 134 134

Floating homes — — — — —

Other consumer 364 265 100 365 24

Commercial business — — — — —

Total $ 4,460 $ 3,208 $ 1,191 $ 4,399 $ 239

Total consumer loans — — 134 134

Total loans $ 1,123 $ 322 $ 302 $ 1,748

Impaired Loans.

Prior to the adoption of ASC 326 on January 1, 2023, we classified loans as impaired when we determined that we may be unable to collect payments of principal or interest when due under the terms of the loan.

In the process of identifying loans as impaired, we took into consideration factors which include payment history and status, collateral value, financial condition of the borrower, and the probability of collecting scheduled payments in the future.

Minor payment delays and insignificant payment shortfalls typically did not result in a loan being classified as impaired.

The significance of payment delays and shortfalls was considered on a case by case basis, after taking into consideration the totality of circumstances surrounding the loan and the borrower, including payment history.

Impairment was measured on a loan by loan basis for all loans in the portfolio.

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

Impaired loans at the dates indicated, by type of loan were as follows (in thousands):

December 31, 2022

15 unchanged sentences

The following tables present the average recorded investment and interest income recognized on impaired loans for the periods indicated, by loan types (in thousands):

Three Months Ended September 30,

Investment Interest Income

Recognized Average

Investment Interest Income

One-to-four family $ 3,436 $ 32 $ 3,069 $ 60

Home equity 213 1 321 3

Commercial and multifamily 1,154 135 — —

Construction and land 64 1 166 11

Manufactured homes 193 3 225 3

Floating homes — — 507 5

Other consumer 349 4 109 1

Commercial business — — 93 1

Total $ 5,409 $ 176 $ 4,490 $ 84

Nine Months Ended September 30,

Investment Interest Income

Recognized Average

Three Months Ended March 31,

Investment Interest Income

8 unchanged sentences

Total $ 7,273 $ 68

Forgone interest on nonaccrual loans was $ 32 thousand and $ 89 thousand for the three months ended September 30, 2022 and 2021, respectively.

Forgone interest on nonaccrual loans was $ 110 thousand and $ 138 thousand for the nine months ended September 30, 2022 and 2021, respectively.

There were no commitments to lend additional funds to borrowers whose loans were classified as nonaccrual or impaired at September 30, 2022.

Troubled debt restructurings.

Loans classified as TDRs totaled $ 2.0 million and $ 2.6 million at September 30, 2022 and December 31, 2021, 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.

The modifications granted can generally be described in the following categories:

Rate Modification :

A modification in which the interest rate is changed.

Term Modification :

A modification in which the maturity date, timing of payments or frequency of payments is changed.

Payment Modification :

A modification in which the dollar amount of the payment is changed.

Interest only modifications in which a loan is converted to interest only payments for a period of time are included in this category.

Combination Modification :

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

There was one manufactured home loan totaling $ 44 thousand modified as a TDR during the three months ended September 30, 2022 and two loans consisting of one manufactured home loan and one one-to-four family loan, totaling $ 153 thousand modified as TDRs during the nine months ended September 30, 2022.

There were no loans modified as a TDR during the three and nine months ended September 30, 2021.

There were four TDRs totaling $ 788 thousand and two TDRs totaling $ 484 thousand that were paid off during the nine months ended September 30, 2022 and September 30, 2021, respectively.

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 nine months ended September 30, 2022 and September 30, 2021.

There were no loans modified as a TDR for which there was a payment default within the first 12 months of modification during the nine months ended September 30, 2022 and September 30, 2021.

The Company had no commitments to extend additional credit to borrowers owing receivables whose terms have been modified into TDRs at September 30, 2022.

As of September 30, 2022, there were three one-to-four family loans totaling $ 1.5 million that was in process of foreclosure.

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 September 30, 2022 and December 31, 2021 were determined based on these requirements.

The Company’s fair values for financial instruments at March 31, 2023 and December 31, 2022 were determined based on these requirements.

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

11 unchanged sentences

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

At September 30, 2022 and December 31, 2021, loans held-for-sale were carried at cost, as no impairment was required.

At March 31, 2023 and December 31, 2022, 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.

8 unchanged sentences

A description of the valuation methodologies used for impaired loans and OREO is as follows:

Impaired loans - The fair value of collateral dependent loans is based on the current appraised value of the collateral less estimated costs to sell, or internally developed models utilizing a calculation of expected discounted cash flows which contain management’s assumptions.

Collateral dependent loans - The fair value of collateral dependent loans is based on the current appraised value of the collateral less estimated costs to sell.

Troubled debt restructurings (prior to adoption of ASU 2022-02) - The fair value of loan modifications that were considered TDRs prior to the adoption of ASU 2022-02 is based on the current appraised value of the collateral less estimated costs to sell, or internally developed models utilizing a calculation of expected discounted cash flows which contain management’s assumptions.

OREO and repossessed assets – The fair value of OREO and repossessed assets is based on the current appraised value of the collateral less estimated costs to sell.

4 unchanged sentences

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s quarterly valuation process.

There were no transfers between levels during the three and nine months ended September 30, 2022 and 2021.

There were no transfers between levels during the three months ended March 31, 2023 and 2022.

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 the dates indicated (in thousands):

September 30, 2022 Fair Value Measurements Using:

March 31, 2023 Fair Value Measurements Using:

Value Estimated

19 unchanged sentences

Available-for-sale securities 10,207 10,207 — 10,207 —

Loans held-for-sale 3,094 3,094 — 3,094 —

Held-to-maturity securities 2,199 1,811 — 1,811 —

Loans held-for-portfolio, net 858,382 801,153 — — 801,153

4 unchanged sentences

Time deposits 210,305 209,965 — 209,965 —

Borrowings 43,000 43,000 — — —

Subordinated notes 11,676 10,420 — 10,420 —

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

Fair Value at September 30, 2022

Fair Value at March 31, 2023

Description Total Level 1 Level 2 Level 3

Treasury bills $ 1,580 $ — $ 1,580 $ —

Municipal bonds $ 5,466 $ — $ 5,466 $ —

3 unchanged sentences

Description Total Level 1 Level 2 Level 3

Treasury bills $ 1,594 $ — $ 1,594 $ —

Municipal bonds 5,421 — 5,421 —

2 unchanged sentences

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 as of the dates indicated:

September 30, 2022

March 31, 2023

Financial Instrument Valuation Technique Unobservable Input(s) Range

10 unchanged sentences

An increase in the weighted-average life 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 and nine months ended September 30, 2022 and 2021.

As a result of the difficulty in observing certain significant valuation inputs affecting our “Level 3” fair value assets, we are required to make judgments regarding these items’ fair values.

Different persons in possession of the same facts may reasonably arrive at different conclusions as to the inputs to be applied in valuing these assets and their fair values.

Such differences may result in significantly different fair value measurements.

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 fair value of individually evaluated loans with specific allocations of the ACL based on collateral values and OREO is generally based on recent real estate appraisals and automated valuation models (“AVMs”).

These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

Adjustments are routinely made in the appraisal process by the appraisers for differences between the comparable sales and income data available.

Such adjustments are typically deemed significant unobservable inputs used for determining fair value and result in a Level 3 classification.

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 September 30, 2022

Fair Value at March 31, 2023

Total Level 1 Level 2 Level 3

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

Impaired loans 4,399 — — 4,399

Collateral dependent loans 1,748 — — 1,748

Fair Value at December 31, 2022

2 unchanged sentences

Impaired loans 4,844 — — 4,844

There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis, at both September 30, 2022 and December 31, 2021.

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 the dates indicated:

September 30, 2022

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

OREO Third Party Appraisals No discounts N/A

Impaired loans (1)

Discounted Cash Flow Discount Rate 0 - 12.75 % ( 5 %)

Impaired loans (2)

Third Party Appraisals No discounts N/A

(1) Represents TDRs included within impaired loans.

(2) Excludes TDRs.

December 31, 2021

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

(Weighted Average)

OREO Third Party Appraisals No discounts N/A

Impaired loans (1)

Discounted Cash Flow Discount Rate 0 - 10 % ( 4 %)

Impaired loans (2)

Third Party Appraisals No discounts N/A

(1) Represents TDRs included within impaired loans.

(2) Excludes TDRs.

There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis, at both March 31, 2023 and December 31, 2022.

Note 6 – Mortgage Servicing Rights

The Company’s unpaid principal balance of the mortgage servicing rights portfolio totaled $ 479.5 million at September 30, 2022 compared to $ 508.1 million at December 31, 2021.

Of this total balance, the unpaid principal balance of loans serviced for Federal National Mortgage Association (“Fannie Mae”) at September 30, 2022 and December 31, 2021 were $ 477.1 million and $ 504.1 million, respectively.

The unpaid principal balance of loans serviced for other financial institutions at September 30, 2022 and December 31, 2021, totaled $ 2.4 million and $ 4.0 million, respectively.

The unpaid principal balance of the Company’s mortgage servicing rights portfolio totaled $ 468.8 million at March 31, 2023 compared to $ 472.5 million at December 31, 2022.

Of this total balance, the unpaid principal balance of loans serviced for Federal National Mortgage Association (“Fannie Mae”) at March 31, 2023 and December 31, 2022 were $ 466.6 million and $ 470.3 million, respectively.

The unpaid principal balance of loans serviced for other financial institutions at March 31, 2023 and December 31, 2022, totaled $ 2.2 million and $ 2.2 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 periods indicated were as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Beginning balance, at fair value $ 4,687 $ 4,273

2 unchanged sentences

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

9 ( 125 ) 334 ( 694 )

Ending balance, at fair value $ 4,587 $ 4,668

1 unchanged sentence

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Prepayment speed (Public Securities Association “PSA” model) 139 % 132 %

2 unchanged sentences

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

mortgage servicing income on the Condensed Consolidated Statements of Income and totaled $ 306 thousand and $ 939 thousand for the three and nine months ended September 30, 2022 and $ 328 thousand and $ 961 thousand for the three and nine months ended September 30, 2021, respectively.

mortgage servicing income on the Condensed Consolidated Statements of Income and totaled $ 299 thousand and $ 320 thousand for the three months ended March 31, 2023 and March 31, 2022, respectively.

Note 7 – Commitments and Contingencies

3 unchanged sentences

Note 8 – Borrowings, FHLB Stock and Subordinated Notes

FHLB Advances

The following table presents advances from the FHLB as of the dates indicated:

March 31, 2023 December 31, 2022

Outstanding balance $ 25,000 $ —

Interest rates ranging from 4.06 % — %

Interest rates ranging to 4.27 % — %

Weighted average interest rate 4.19 % — %

Variable rate:

Outstanding balance $ 10,000 $ 43,000

Weighted average interest rate 4.92 % 2.14 %

The Company has a loan agreement with the FHLB of Des Moines.

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 September 30, 2022 and December 31, 2021, the amount available to borrow under this credit facility was $ 421.8 million and $ 417.7 million, respectively, subject to eligible pledged collateral.

At September 30, 2022, the credit facility was collateralized as follows:

At March 31, 2023 and December 31, 2022, the amount available to borrow under this credit facility was $ 439.4 million and $ 442.1 million, respectively, subject to eligible pledged collateral.

At March 31, 2023, the credit facility was collateralized as follows:

one-to-four family mortgage loans with an advance equivalent of $ 199.9 million, commercial and multifamily mortgage loans with an advance equivalent of $ 42.7 million and home equity loans with an advance equivalent of $ 497 thousand.

1 unchanged sentence

one-to-four family mortgage loans with an advance equivalent of $ 204.1 million, commercial and multifamily mortgage loans with an advance equivalent of $ 45.4 million and home equity loans with an advance equivalent of $ 505 thousand.

The Company had $ 44.5 million outstanding borrowings under this arrangement at September 30, 2022 and no borrowings as of December 31, 2021.

Additionally, the Company had outstanding letters of credit from the FHLB of Des Moines with a notional amount of $ 13.0 million and $ 11.5 million at September 30, 2022 and December 31, 2021, respectively, to secure public deposits.

The remaining amount available to borrow as of September 30, 2022 and December 31, 2021, was $ 180.9 million and $ 101.5 million, respectively.

Additionally, the Company had outstanding letters of credit from the FHLB of Des Moines with a notional amount of $ 11.0 million and $ 8.0 million at March 31, 2023 and December 31, 2022, respectively, to secure public deposits.

The remaining amount available to borrow as of March 31, 2023 and December 31, 2022, was $ 197.0 million and $ 199.0 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 September 30, 2022 and December 31, 2021, the Company had an investment of $ 2.9 million and $ 1.0 million, respectively in FHLB of Des Moines stock.

The Company has a borrowing agreement with the Federal Reserve Bank of San Francisco.

At March 31, 2023 and December 31, 2022, the Company had an investment of $ 2.6 million and $ 2.8 million, respectively in FHLB of Des Moines stock.

Federal Reserve Bank of San Francisco (“FRB SF”) Borrowings

The Company has a borrowing agreement with the FRB SF.

The terms of the agreement call for a blanket pledge of a portion of the Company’s consumer and commercial business loans based on the outstanding balance.

At September 30, 2022 and December 31, 2021, the amount available to borrow under this credit facility was $ 21.2 million and $ 22.4 million, respectively, subject to eligible pledged collateral.

The Company had no outstanding borrowings under this arrangement at September 30, 2022 and December 31, 2021.

At March 31, 2023 and December 31, 2022, the amount available to borrow under this credit facility was $ 22.0 million and $ 20.8 million, respectively, subject to eligible pledged collateral.

The Company had no outstanding borrowings under this arrangement at March 31, 2023 and December 31, 2022.

Other Borrowings

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

The line has a one year term maturing on June 30, 2023 and is renewable annually.

As of September 30, 2022, the amount available under this line of credit was $ 20.0 million.

There was no balance on this line of credit as of September 30, 2022 and December 31, 2021, respectively.

As of March 31, 2023, the amount available under this line of credit was $ 20.0 million.

There was no balance on this line of credit as of March 31, 2023 and December 31, 2022.

Subordinated Debt

In September 2020, the Company issued $ 12.0 million of fixed to floating rate subordinated notes that mature in 2030.

3 unchanged sentences

Prior to October 1, 2025, the Company may redeem these notes, in whole but not in part, only under certain limited circumstances set forth in the subordinated notes and are redeemable by the Company in whole or in part beginning with the interest payment date of October 1, 2025.

As of September 30, 2022 and December 31, 2021, the balance of the subordinated notes was $ 11.7 million and $ 11.6 million, respectively.

The balance of the subordinated notes was $ 11.7 million as of both March 31, 2023 and December 31, 2022.

Note 9 – Earnings Per Common Share

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period, reduced for average unallocated ESOP shares and average unvested restricted stock awards.

Unvested share-based awards containing non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share.

Diluted earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock (such as stock awards and options) were exercised or converted to common stock or resulted in the issuance of common stock that then shared in the Company’s earnings.

Diluted earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the period increased for the dilutive effect of unexercised stock options and unvested restricted stock awards.

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 for the periods indicated (in thousands, except per share data):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended

Net income $ 2,168 $ 1,723

Participating dividends - Unvested Restricted Stock Awards (“RSAs”) ( 3 ) ( 5 )

Income allocated to participating securities - Unvested RSAs ( 11 ) ( 7 )

Net income available to common stockholders - basic 2,154 1,711

Income allocated to participating securities - Unvested RSAs 11 7

Income reallocated to participating securities - Unvested RSAs ( 11 ) ( 7 )

Net income available to common stockholders - diluted $ 2,154 $ 1,711

Weighted average number of shares outstanding, basic 2,578,413 2,602,168

2 unchanged sentences

Earnings per share, basic $ 0.84 $ 0.66

$ 0.99 $ 1.00 $ 2.26 $ 2.81

Earnings per share, diluted $ 0.83 $ 0.65

$ 0.97 $ 0.98 $ 2.23 $ 2.76

(1) The basic and diluted earnings per share amounts include the impact of income allocated to participating securities of $ 17 thousand and $ 41 thousand for the three and nine months ended September 30, 2022, and $ 17 thousand and $ 50 thousand for the three and nine months ended September 30, 2021, respectively.

(2) The difference between the basic and diluted earnings per share amounts for the three and nine months ended September 30, 2022 and 2021 under the Treasury Stock Method and the Two-Class Method, as prescribed in FASB ASC 260-10, Earnings Per Share, is immaterial.

There were 2,612 anti-dilutive securities at September 30, 2022 and zero anti-dilutive securities at September 30, 2021.

There were 8,009 anti-dilutive securities at March 31, 2023 and 2,656 anti-dilutive securities at March 31, 2022.

Note 10 – Stock-based Compensation

Stock Options and Restricted Stock

The Company currently has one active shareholder approved stock-based compensation plan, the Amended and Restated 2013 Equity Incentive Plan (the "2013 Plan").

The Company currently has one active stockholder approved stock-based compensation plan, the Amended and Restated 2013 Equity Incentive Plan (the "2013 Plan").

The 2013 Plan permits the grant of restricted stock, restricted stock units, stock options, and stock appreciation rights.

2 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 September 30, 2022, on an adjusted basis, awards for stock options totaling 283,484 shares and awards for restricted stock totaling 150,971 shares of Company common stock have been granted, net of any forfeitures, to participants in the 2013 Plan and the 2008 Plan.

Share-based compensation expense was $ 90 thousand and $ 384 thousand for the three and nine months ended September 30, 2022, and $ 65 thousand and $ 295 thousand for the three and nine months ended September 30, 2021, respectively.

As of March 31, 2023, on an adjusted basis, awards for stock options totaling 295,581 shares and awards for restricted stock totaling 159,396 shares of Company common stock have been granted, net of any forfeitures, to participants in the 2013 Plan and the 2008 Plan.

Share-based compensation expense was $ 192 thousand and $ 203 thousand for the three months ended March 31, 2023 and March 31, 2022, respectively.

Stock Option Awards

All stock option awards granted under the 2008 Plan vest in 20 % annual increments commencing one year from the grant date in accordance with the requirements of the 2008 Plan.

The stock option 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 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 stock option 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 grant date in

equal annual installments over periods of one -to- four years subject to the continued service of the participant with the Company.

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 September 30, 2022 (dollars in thousands, except per share amounts):

Shares Weighted-

Exercise Price Weighted-Average

Remaining Contractual

Term in Years Aggregate

Outstanding at July 1, 2022 99,219 $ 26.94 5.21 $ 1,186

Exercised ( 5,880 ) 18.72

Forfeited ( 20 ) 33.50

Expired ( 124 ) 36.82

Outstanding at September 30, 2022 93,195 27.45 4.84 1,248

Exercisable 71,749 24.32 3.77 1,169

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

93,195 $ 27.45 4.84 $ 1,248

The following is a summary of the Company’s stock option award activity during the nine months ended September 30, 2022 (dollars in thousands, except per share amounts):

The following is a summary of the Company’s stock option award activity during the three months ended March 31, 2023 (dollars in thousands, except per share amounts):

Shares Weighted-

6 unchanged sentences

Forfeited ( 328 ) 42.02

Expired ( 252 ) 35.13

Outstanding at September 30, 2022 93,195 27.45 4.84 1,248

Outstanding at March 31, 2023 89,269 31.00 5.68 647

Exercisable 66,924 28.23 4.61 627

1 unchanged sentence

89,269 $ 31.00 5.68 $ 647

As of September 30, 2022, there was $ 128 thousand of total unrecognized compensation cost related to non-vested stock options granted under the Plans.

As of March 31, 2023, there was $ 199 thousand 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 2.9 years.

The total intrinsic value of the shares exercised during the three months ended March 31, 2023 and 2022 was $ 327 thousand and $ 54 thousand, respectively.

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 nine months ended September 30, 2022 and 2021 were determined using the following weighted-average assumptions as of the grant date.

Nine Months Ended September 30,

The fair value of options granted during the three months ended March 31, 2023 and 2022 were determined using the following weighted-average assumptions as of the grant date.

Three Months Ended March 31,

Annual dividend yield 1.69 % 1.59 %

3 unchanged sentences

Weighted-average grant date fair value per option granted $ 11.33 $ 9.95

There were zero and 12,800 options granted during the three and nine months ended September 30, 2022, and zero and 12,250 options granted during the three and nine months ended September 30, 2021, respectively.

There were 12,425 and 12,800 options granted during the three months ended March 31, 2023 and March 31, 2022, respectively.

Restricted Stock Awards

2 unchanged sentences

The restricted stock awards granted under the 2008 Plan vest in 20 % annual increments commencing one year from the grant date.

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 September 30, 2022:

Shares Weighted-Average

Grant-Date Fair

Value Per Share Aggregate Intrinsic Value Per Share

Non-Vested at July 1, 2022 17,944 $ 37.62

Forfeited ( 20 ) 33.50

Non-Vested at September 30, 2022 17,924 37.62 40.52

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

17,924 $ 37.62 $ 40.52

The following is a summary of the Company’s non-vested restricted stock award activity during the nine months ended September 30, 2022:

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 dates 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, 2023:

Shares Weighted-Average

5 unchanged sentences

Forfeited ( 425 ) 41.95

Non-Vested at September 30, 2022 17,924 37.62 40.52

Non-Vested at March 31, 2023 16,342 39.17 37.01

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

16,342 $ 39.17 $ 37.01

As of September 30, 2022, there was $ 477 thousand of unrecognized compensation cost related to non-vested restricted stock granted under the Plans.

As of March 31, 2023, there was $ 594 thousand 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 2.7 years.

The total fair value of shares vested for the nine months ended September 30, 2022 and 2021 was $ 306 thousand and $ 264 thousand, respectively.

The total fair value of shares vested for the three months ended March 31, 2023 and 2022 was $ 370 thousand and $ 306 thousand, respectively.

Employee Stock Ownership Plan

In January 2008, the ESOP borrowed $ 1.2 million from the Company to purchase common stock of the Company which was paid in full in 2017.

In August 2012, in conjunction with the Company’s conversion to a full stock company from the mutual holding company structure, the ESOP borrowed an additional $ 1.1 million from the Company to purchase common stock of the Company.

The loan was being repaid principally by the Bank through contributions to the ESOP over a period of ten years .

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

As of September 30, 2022, the ESOP loan was repaid in full.

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

The fair value of the 158,001 shares held by the ESOP trust was $ 6.4 million at September 30, 2022.

ESOP compensation expense included in salaries and benefits was $ 205 thousand and $ 580 thousand for the three and nine months ended September 30, 2022 and $ 180 thousand and $ 530 thousand for the three and nine months ended September 30, 2021, respectively.

The fair value of the 155,135 shares held by the Company’s Employee Stock Ownership Plan (the “ESOP”) trust was $ 6.1 million at March 31, 2023.

ESOP compensation expense included in salaries and benefits was $ 204 thousand and $ 205 thousand for the three months ended March 31, 2023 and March 31, 2022, respectively.

Note 11 – Leases

We have operating leases for branch locations, a loan production office, our corporate office and in the past, for certain equipment.

The lease term for our leases begins on the date we become legally obligated for the rent payments or we take possession of the building, whichever is earlier.

The term for our leases begins on the date we become legally obligated for the rent payments or take possession of the building, whichever is earlier.

Generally, our real estate leases have initial terms of three to ten years and typically include one renewal option.

Our leases have remaining lease terms of under one year to seven years .

Our leases have remaining lease terms of under two to six years .

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

The following table presents the lease right-of-use assets and lease liabilities recorded on the condensed consolidated balance sheet at the dates indicated (in thousands):

September 30,

The following table presents the lease right-of-use assets and lease liabilities recorded on the Condensed Consolidated Balance Sheets at the dates indicated (in thousands):

2023 December 31,

2 unchanged sentences

The following table presents the components of lease expense for the periods indicated (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Operating lease expense

2 unchanged sentences

Net lease expense $ 265 $ 270

The following table presents the maturity of lease liabilities at the date indicated (in thousands):

September 30, 2022

The following table presents the schedule of lease liabilities at the date indicated (in thousands):

March 31, 2023

Remainder of 2023

4 unchanged sentences

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

September 30,

2023 December 31,

4 unchanged sentences

Supplemental cash flow information related to leases was as follows for the periods indicated (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

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

2 unchanged sentences

Note 12 – Subsequent Events

On October 25, 2022, the Company announced that its Board of Directors declared a quarterly cash dividend of $ 0.17 per common share, payable on November 23, 2022 to stockholders of record at the close of business on November 09, 2022.

On April 24, 2023, the Company announced that its Board of Directors declared a quarterly cash dividend of $ 0.19 per common share, payable on May 24, 2023 to stockholders of record at the close of business on May 10, 2023.

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