What changed in this filing

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Item 1. Financial Statements

2023-08-14 compared with 2023-05-15 · 245 added, 131 removed, 852 unchanged (31% of the section changed)

34 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, 2,601,443 and 2,583,619 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Common stock, $ 0.01 par value, 40,000,000 shares authorized, 2,573,223 and 2,583,619 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 28,070 28,004

8 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,

2023 2022 2023 2022

INTEREST INCOME

8 unchanged sentences

Net interest income 8,744 8,392 18,116 16,010

PROVISION FOR CREDIT LOSSES 10 140

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

(RELEASE OF) PROVISION FOR CREDIT LOSSES ( 331 ) 592 ( 321 ) 748

Net interest income after (release of) provision for credit losses 9,075 7,800 18,437 15,262

NONINTEREST INCOME

Service charges and fee income 670 596 1,251 1,146

Earnings on cash surrender value of bank-owned life insurance 151 21

Earnings on bank-owned life insurance 718 ( 35 ) 868 ( 14 )

Mortgage servicing income 297 313 596 633

8 unchanged sentences

Data processing 788 849 1,780 1,670

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

Net (gain) loss on OREO and repossessed assets ( 71 ) — 13 —

Total noninterest expense 7,497 6,792 15,112 13,599

13 unchanged sentences

(In thousands)

Three Months Ended March 31,

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

2023 2022 2023 2022

Net income $ 2,892 $ 1,614 $ 5,059 $ 3,336

Available for sale securities:

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 )

Unrealized (losses) gains arising during the period ( 76 ) ( 607 ) 29 ( 1,377 )

Income tax benefit (expense) related to unrealized (losses) gains 16 127 ( 6 ) 289

Other comprehensive (loss) income, net of tax ( 60 ) ( 480 ) 23 ( 1,088 )

Comprehensive income $ 2,832 $ 1,134 $ 5,082 $ 2,248

3 unchanged sentences

Condensed Consolidated Statements of Stockholders’ Equity

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

For the Three and Six Months Ended June 30, 2023 and 2022 (unaudited)

(In thousands, except share and per share amounts)

4 unchanged sentences

Stockholders’

Balance, at December 31, 2022

Balance, at March 31, 2023

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

1 unchanged sentence

Net income — — — 2,892 — 2,892

Other comprehensive loss, net of tax — — — — ( 60 ) ( 60 )

Share-based compensation — — 87 — — 87

Cash dividends paid on common stock ($ 0.19 per share)

— — — ( 494 ) — ( 494 )

Common stock repurchased ( 31,477 ) ( 1 ) ( 324 ) ( 837 ) — ( 1,162 )

Common stock options exercised 3,257 — 56 — — 56

Balance, at June 30, 2023

2,573,223 $ 25 $ 28,070 $ 72,923 $ ( 1,094 ) $ 99,924

Balance, at December 31, 2022

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

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

Net income — — — 5,059 — 5,059

Other comprehensive income, net of tax — — — — 23 23

5 unchanged sentences

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

Restricted stock forfeited ( 425 ) — — — — —

Restricted shares forfeited ( 425 ) — — — — —

Common stock options exercised 17,610 — 303 — — 303

Balance, at March 31, 2023

Balance, at June 30, 2023

2,573,223 $ 25 $ 28,070 $ 72,923 $ ( 1,094 ) $ 99,924

4 unchanged sentences

Stockholders’

Balance, at March 31, 2022

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

Net income — — — 1,614 — 1,614

Other comprehensive loss, net of tax — — — — ( 480 ) ( 480 )

Share-based compensation — — 91 — — 91

Common stock surrendered ( 1,010 ) — ( 38 ) — — ( 38 )

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

— — — ( 444 ) — ( 444 )

Common stock repurchased ( 42,791 ) — ( 468 ) ( 1,106 ) — ( 1,574 )

Restricted shares forfeited ( 585 ) — — — — —

Common stock options exercised 1,450 — 38 — — 38

Balance, at June 30, 2022

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

Balance, at December 31, 2021

10 unchanged sentences

Common stock options exercised 3,871 — 81 — — 81

Balance, at March 31, 2022

Balance, at June 30, 2022

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

4 unchanged sentences

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Amortization of net discounts on investments 39 47

Provision for credit losses 10 140

(Release of) provision for credit losses ( 321 ) 748

Depreciation and amortization 354 354

4 unchanged sentences

Change in cash surrender value of BOLI ( 301 ) 14

Net gain on BOLI death benefit ( 567 ) —

Net change in advances from borrowers for taxes and insurance ( 314 ) ( 444 )

2 unchanged sentences

Originations of loans held-for-sale ( 11,974 ) ( 13,856 )

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

Net loss on OREO and repossessed assets 13 —

Change in operating assets and liabilities:

9 unchanged sentences

Proceeds from principal payments of held-to-maturity securities 17 10

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

Net decrease (increase) in loans 10,408 ( 117,862 )

Proceeds from death benefit on BOLI 632 —

Purchases of premises and equipment, net ( 162 ) ( 167 )

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

Proceeds from sale of OREO and other repossessed assets 71 —

Net cash provided by (used in) investing activities 12,786 ( 122,611 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Net increase in deposits 32,884 37,771

Net increase (decrease) in deposits 13,490 ( 12,334 )

Proceeds from borrowings 40,000 30,000

Repayment of borrowings ( 23,000 ) —

FHLB stock redeemed/(purchased) 249 ( 71 )

FHLB stock purchased ( 751 ) ( 1,271 )

Common stock repurchases ( 1,170 ) ( 1,734 )

7 unchanged sentences

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid for income taxes $ 1,580 $ 910

Interest paid on deposits and borrowings 6,246 1,195

33 unchanged sentences

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.

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

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

31 unchanged sentences

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.

Our ACL model at June 30, 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.

2 unchanged sentences

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.

22 unchanged sentences

The amendments in this update apply to modifications to eligible contracts (e.g., loans, debt securities, derivatives, borrowings) 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:

The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the related 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;

41 unchanged sentences

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.

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.

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.

This is not expected to be material.

Note 3 – Investments

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

At June 30, 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

March 31, 2023

June 30, 2023

Municipal bonds $ 6,414 $ 17 $ ( 1,000 ) $ 5,431

8 unchanged sentences

Losses Estimated

March 31, 2023

June 30, 2023

Municipal bonds $ 705 $ — $ ( 175 ) $ 530

5 unchanged sentences

Total $ 2,199 $ — $ ( 388 ) $ 1,811

The amortized cost and fair value of AFS and HTM securities at March 31, 2023, by contractual maturity, are shown below (in thousands).

The amortized cost and fair value of AFS and HTM securities at June 30, 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.

March 31, 2023

Investments not due at a single maturity date, consisting of agency mortgage-backed securities, are shown separately.

June 30, 2023

Available-for-sale Held-to-maturity

6 unchanged sentences

Total $ 9,783 $ 8,398 $ 2,182 $ 1,797

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.

There were no pledged securities at June 30, 2023 or December 31, 2022.

There were no sales of AFS or HTM securities during the three and six months ended June 30, 2023 or 2022.

Accrued interest receivable on securities totaled $ 49 thousand and $ 54 thousand at June 30, 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

June 30, 2023

Less Than 12 Months 12 Months or Longer Total

24 unchanged sentences

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.

There was no allowance for credit losses on securities at June 30, 2023 or December 31, 2022.

At June 30, 2023, the total securities portfolio consisted of 12 agency mortgage-backed securities and 11 municipal bonds, with a total portfolio fair value of $ 10.2 million.

At December 31, 2022, the total securities portfolio consisted of one treasury bill security, 11 agency mortgage-backed securities and 12 municipal bonds, with a fair value of $ 12.0 million.

At June 30, 2023, there were two securities in an unrealized loss position for less than 12 months, and 16 securities in an unrealized loss position for more than 12 months.

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

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.

1 unchanged sentence

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

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 .

There was no provision for credit losses recognized for investment securities during the three or six months ended June 30, 2023, because the declines in fair value were 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

19 unchanged sentences

Total loans held-for-portfolio, net $ 847,212 $ 858,382

(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.

(1) Includes premiums resulting from purchased loans of $ 492 thousand related to one-to-four family loans, $ 300 thousand related to commercial and multifamily loans, and $ 92 thousand related to commercial business loans as of June 30, 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.

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

As of June 30, 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,

Three Months Ended June 30,

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 $ 8,532 $ 795 $ 9,327 $ 6,407 $ 419 $ 6,826

(Release of) provision for credit losses during the period ( 242 ) ( 89 ) ( 331 ) 600 ( 8 ) 592

Net (charge-offs)/recoveries during the period ( 73 ) — ( 73 ) 110 — 110

Balance at end of period $ 8,217 $ 706 $ 8,923 $ 7,117 $ 411 $ 7,528

Six Months Ended June 30,

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

Adoption of ASU 2016-13 (1)

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

760 695 1,455 — — —

Provision for (release of) credit losses during the period 3 ( 324 ) ( 321 ) 725 7 732

Net (charge-offs)/recoveries during the period ( 145 ) — ( 145 ) 86 86

Balance at end of period $ 8,217 $ 706 $ 8,923 $ 7,117 $ 411 $ 7,528

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.

(1) Represents the impact of adopting ASU 2016-13, Financial Instruments — Credit Losses on January 1, 2023.

Since that date, as a result of adopting ASU 2016-13, our methodology to compute our allowance for credit losses has been based on a current expected credit loss methodology, rather than the previously applied incurred loss methodology.

Accrued interest receivable on loans receivable totaled $ 3.0 million at both June 30, 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

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

Three Months Ended June 30, 2023

Allowance Charge-offs Recoveries Provision (Recapture) Ending

One-to-four family $ 2,059 $ — $ — $ ( 62 ) $ 1,997

Home equity (1)

197 ( 25 ) — 22 194

Commercial and multifamily 2,225 — — 43 2,268

Construction and land 2,778 — — ( 280 ) 2,498

Manufactured homes 283 — — 26 309

Floating homes 611 — — ( 25 ) 586

Other consumer (2)

159 ( 53 ) 5 49 160

Commercial business 216 — — ( 11 ) 205

Unallocated 4 — — ( 4 ) —

Total $ 8,532 $ ( 78 ) $ 5 $ ( 242 ) $ 8,217

(1) During the three months ended June 30, 2023, there was one revolving home equity loan that was charged off.

(2) During the three months ended June 30, 2023, the gross charge-offs related entirely to deposit overdrafts that were charged off.

Six Months Ended June 30, 2023

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

1 unchanged sentence

Home equity (1)

132 69 ( 25 ) — 18 194

Commercial and multifamily 2,501 ( 320 ) — — 87 2,268

7 unchanged sentences

Total $ 7,599 $ 760 $ ( 157 ) $ 12 $ 3 $ 8,217

(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

(1) During the six months ended June 30, 2023, there was one revolving home equity loan that was charged off.

(2) During the six months ended June 30, 2023, the gross charge-offs related entirely to deposit overdrafts that were charged off.

Three Months Ended June 30, 2022

Allowance Charge-offs Recoveries Provision

10 unchanged sentences

Total $ 6,407 $ ( 11 ) $ 121 $ 600 $ 7,117

Six Months Ended June 30, 2022

Allowance Charge-offs Recoveries Provision

(Recapture) Ending

One-to-four family $ 1,402 $ — $ 45 $ 191 $ 1,638

Home equity 93 — 58 ( 38 ) 113

Commercial and multifamily 2,340 — — ( 28 ) 2,312

Construction and land 650 — — 374 1,024

Manufactured homes 475 — 12 ( 43 ) 444

Floating homes 372 — — 38 410

Other consumer 310 ( 35 ) 6 50 331

Commercial business 269 ( 6 ) 6 ( 29 ) 240

Unallocated 395 — — 210 605

Total $ 6,306 $ ( 41 ) $ 127 $ 725 $ 7,117

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.

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.

Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification and grading.

The grades for watch and special mention loans are used by the Company to identify and track potential problem loans which do not rise to the levels described for substandard, doubtful, or loss.

These are loans which have been criticized and deserve management's close attention based upon known characteristics such as periodic payment delinquency, failure to comply with contractual terms of the loan, or collateral concerns.

Loans identified as watch, special mention, substandard, doubtful, or loss are subject to additional problem loan reporting to management every three months.

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.

4 unchanged sentences

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):

The following table presents the internally assigned grades as of June 30, 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

77 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.

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

June 30, 2023 December 31, 2022

with no ACL Total

1 unchanged sentence

Home equity 88 88 142 142

Commercial and multifamily 323 323 — —

Construction and land 25 25 324 324

3 unchanged sentences

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

June 30, 2023

Past Due 60-89 Days

25 unchanged sentences

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

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

December 31, 2022

9 unchanged sentences

Loan Modifications to Borrowers Experiencing Financial Difficulty.

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

Loans modified to borrowers experiencing financial difficulty totaled $ 2.0 million at June 30, 2023.

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

10 unchanged sentences

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.

The Company had no commitments to extend additional credit to borrowers owing loan receivables whose terms have been modified at June 30, 2023.

During the six months ended June 30, 2023, there was one one-to-four family loan modified to borrowers experiencing financial difficulty that was in current status as of June 30, 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.

There were no loans modified within the three months ended June 30, 2023.

We have no modified loan receivables that have subsequently defaulted at June 30, 2023.

Troubled debt restructurings.

8 unchanged sentences

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

June 30, 2023

Commercial Real Estate Residential Real Estate Land Other Residential Total

Real estate loans:

1 unchanged sentence

Home equity — 88 — — 88

Commercial and multifamily 323 — — — 323

Construction and land — — 25 — 25

29 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 March 31,

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

Investment Interest Income

Recognized Average

Investment Interest Income

One-to-four family $ 3,377 $ 19 $ 3,607 $ 44

11 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, 2023 and December 31, 2022 were determined based on these requirements.

The Company’s fair values for financial instruments at June 30, 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:

6 unchanged sentences

The fair value is based on quoted market prices, if available.

If quoted market prices are not available, management utilizes third-party pricing services or broker quotations from dealers in the specific instruments.

If quoted market prices are not available,

management utilizes third-party pricing services or broker quotations from dealers in the specific instruments.

Level 2 securities include those traded on an active exchange, as well as U.S.

1 unchanged sentence

Loans held-for-sale - One-to-four family mortgage loans held-for-sale are recorded at the lower of cost or fair value.

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

At March 31, 2023 and December 31, 2022, loans held-for-sale were carried at cost, as no impairment was required.

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

At June 30, 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.

16 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 months ended March 31, 2023 and 2022.

There were no transfers between levels during the three and six months ended June 30, 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):

March 31, 2023 Fair Value Measurements Using:

June 30, 2023 Fair Value Measurements Using:

Value Estimated

29 unchanged sentences

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 March 31, 2023

Fair Value at June 30, 2023

Description Total Level 1 Level 2 Level 3

9 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:

March 31, 2023

June 30, 2023

Financial Instrument Valuation Technique Unobservable Input(s) Range

13 unchanged sentences

Such differences may result in significantly different fair value measurements.

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, 2023 and 2022.

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.”

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”).

3 unchanged sentences

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, 2023

Fair Value at June 30, 2023

Total Level 1 Level 2 Level 3

5 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 March 31, 2023 and December 31, 2022.

There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis, at both June 30, 2023 and December 31, 2022.

Note 6 – Mortgage Servicing Rights

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.

The unpaid principal balance of the Company’s mortgage servicing rights portfolio totaled $ 463.6 million at June 30, 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 June 30, 2023 and December 31, 2022 were $ 461.4 million and $ 470.3 million, respectively.

The unpaid principal balance of loans serviced for other financial institutions at June 30, 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 March 31,

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

2023 2022 2023 2022

Beginning balance, at fair value $ 4,587 $ 4,668 $ 4,687 $ 4,273

2 unchanged sentences

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

96 57 ( 44 ) 325

Ending balance, at fair value $ 4,726 $ 4,754 $ 4,726 $ 4,754

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, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Prepayment speed (Public Securities Association “PSA” model) 126 % 132 %

Weighted-average life 7.8 years 7.5 years

Discount rate 12.5 % 12.5 %

Weighted average discount rate 12.5 % 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 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.

mortgage servicing income on the Condensed Consolidated Statements of Income and totaled $ 297 thousand and $ 596 thousand for the three and six months ended June 30, 2023, and $ 313 thousand and $ 633 thousand for the three and six months ended June 30, 2022, respectively.

Note 7 – Commitments and Contingencies

5 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Outstanding balance $ 40,000 $ —

5 unchanged sentences

Weighted average interest rate 5.37 % 2.14 %

FHLB Des Moines Borrowing Capacity

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 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.

At December 31, 2022, the credit facility was collateralized as follows:

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.

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.

Additionally, the Company had outstanding letters of credit from the FHLB of Des Moines to secure public deposits.

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

June 30, 2023 December 31, 2022

Amount available to borrow under credit facility (1)

$ 451,949 $ 442,078

Advance equivalent of collateral:

One-to-four family mortgage loans 201,590 204,097

Commercial and multifamily mortgage loans 38,172 45,437

Home equity loans 489 505

Notional amount of letters of credit outstanding 11,000 8,000

Remaining FHLB borrowing capacity $ 169,251 $ 199,039

(1) Subject to eligible pledged collateral.

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, 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.

At June 30, 2023 and December 31, 2022, the Company had an investment of $ 3.6 million and $ 2.8 million, respectively in FHLB of Des Moines stock.

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

1 unchanged sentence

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 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.

At June 30, 2023 and December 31, 2022, the amount available to borrow under this credit facility was $ 18.4 million and $ 20.8 million, respectively, subject to eligible pledged collateral.

The Company had no outstanding borrowings under this arrangement at June 30, 2023 and December 31, 2022.

Other Borrowings

1 unchanged sentence

The line has a one year term maturing on June 30, 2024 and is renewable annually.

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.

As of June 30, 2023, the amount available under this line of credit was $ 20.0 million.

There was no balance on this line of credit as of June 30, 2023 and December 31, 2022.

Subordinated Debt

2 unchanged sentences

From, and including, October 1, 2025, the interest rate on the subordinated notes will reset quarterly to a floating rate per annum equal to a benchmark rate, which is expected to be the then-current three-month term Secured Overnight Financing Rate, or SOFR, plus 513 basis points, payable quarterly in arrears.

The subordinated notes mature on May 15, 2030.

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.

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

The subordinated notes mature on May 15, 2030, and may be redeemed by the Company, in whole or in part, on October 1, 2025, or on any subsequent interest payment due.

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 terms of the subordinated notes.

The balance of the subordinated notes was $ 11.7 million as of both June 30, 2023 and December 31, 2022.

Note 9 – Earnings Per Common Share

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

Three Months Ended

Three Months Ended Six Months Ended

2023 2022 2023 2022

Net income $ 2,892 $ 1,614 $ 5,059 $ 3,336

10 unchanged sentences

Earnings per share, diluted $ 1.11 $ 0.61 $ 1.94 $ 1.26

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

There were 13,080 anti-dilutive securities at June 30, 2023 and 2,656 anti-dilutive securities at June 30, 2022.

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, 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.

As of June 30, 2023, on an adjusted basis, awards for stock options totaling 295,464 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 $ 87 thousand and $ 279 thousand for the three and six months ended June 30, 2023, and $ 91 thousand and $ 294 thousand for the three and six months ended June 30, 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 March 31, 2023 (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 June 30, 2023 (dollars in thousands, except per share amounts):

Shares Weighted-

2 unchanged sentences

Term in Years Aggregate

Outstanding at April 1, 2023 89,269 $ 31.00 5.68 $ 647

Exercised ( 3,257 ) 17.21

Expired ( 117 ) 42.27

Outstanding at June 30, 2023 85,895 31.51 5.62 495

Exercisable 63,550 28.77 4.55 482

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

85,895 $ 31.51 5.62 $ 495

The following is a summary of the Company’s stock option award activity during the six months ended June 30, 2023 (dollars in thousands, except per share amounts):

Shares Weighted-

Exercise Price Weighted-Average

Remaining Contractual

Term in Years Aggregate

Outstanding at January 1, 2023 91,525 $ 27.64 4.65 $ 1,109

2 unchanged sentences

Forfeited ( 328 ) 42.02

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

Expired ( 117 ) 42.27

Outstanding at June 30, 2023 85,895 31.51 5.62 495

Exercisable 63,550 28.77 4.55 482

1 unchanged sentence

85,895 $ 31.51 5.62 $ 495

As of March 31, 2023, there was $ 199 thousand of total unrecognized compensation cost related to non-vested stock options granted under the Plans.

As of June 30, 2023, there was $ 179 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 2.7 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 total intrinsic value of the shares exercised during the three and six months ended June 30, 2023 was $ 61 thousand and $ 388 thousand, and for the three and six months ended 2022 was $ 0 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 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,

The fair value of options granted during the six months ended June 30, 2023 and 2022 were determined using the following weighted-average assumptions as of the grant date.

Six Months Ended June 30,

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

There were no options granted during the three months ended June 30, 2023 or 2022.

Restricted Stock Awards

The fair value of the restricted stock awards is equal to the fair value of the Company's stock at the date of grant.

Compensation expense is recognized over the vesting period that the awards are based.

The fair value of the restricted stock awards is equal to the fair value of the Company's common stock at the date of grant.

Compensation expense is recognized over the vesting periods of the awards.

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 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:

The following is a summary of the Company’s non-vested restricted stock award activity during the three months ended June 30, 2023:

Shares Weighted-Average

1 unchanged sentence

Value Per Share Aggregate Intrinsic Value Per Share

Non-Vested at April 1, 2023 16,342 $ 39.17

Forfeited — —

Non-Vested at June 30, 2023 16,342 39.17 35.50

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

16,342 $ 39.17 $ 35.50

The following is a summary of the Company’s non-vested restricted stock award activity during the six months ended June 30, 2023:

Shares Weighted-Average

Grant-Date Fair

Value Per Share Aggregate Intrinsic Value Per Share

Non-Vested at January 1, 2023 17,879 $ 37.63

2 unchanged sentences

Forfeited ( 425 ) 41.95

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

Non-Vested at June 30, 2023 16,342 $ 39.17 $ 35.50

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

16,342 $ 39.17 $ 35.50

As of March 31, 2023, there was $ 594 thousand of unrecognized compensation cost related to non-vested restricted stock granted under the Plans.

As of June 30, 2023, there was $ 527 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 2.6 years.

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

The total fair value of shares vested for the six months ended June 30, 2023 and 2022 was $ 370 thousand and $ 306 thousand, respectively.

Employee Stock Ownership Plan

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.

The fair value of the 162,901 shares held by the Company’s Employee Stock Ownership Plan (the “ESOP”) trust was $ 5.8 million at June 30, 2023.

ESOP compensation expense included in salaries and benefits was $ 204 thousand and $ 408 thousand for the three and six months ended June 30, 2023, and $ 170 thousand and $ 375 thousand for the three and six months ended June 30, 2022, respectively.

Note 11 – Leases

2 unchanged sentences

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 two to six years .

Our leases have remaining lease terms of one to six years .

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

4 unchanged sentences

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Operating lease expense

3 unchanged sentences

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

March 31, 2023

June 30, 2023

Remainder of 2023

10 unchanged sentences

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

Three Months Ended March 31,

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

2023 2022 2023 2022

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

2 unchanged sentences

Note 12 – Subsequent Events

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.

On July 25, 2023, the Company announced that its Board of Directors declared a quarterly cash dividend of $ 0.19 per common share, payable on August 23, 2023 to stockholders of record at the close of business on August 9, 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