What changed in this filing

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Item 1. Financial Statements

2024-08-13 compared with 2024-05-14 · 236 added, 124 removed, 735 unchanged (33% of the section changed)

6 unchanged sentences

Cash and cash equivalents $ 135,111 $ 49,690

Available-for-sale (“AFS”) securities, at fair value (amortized cost of $ 9,445 and $ 9,539 as of March 31, 2024 and December 31, 2023, respectively)

Held-to-maturity (“HTM”) securities, at amortized cost (fair value of $ 1,730 and $ 1,787 at March 31, 2024 and December 31, 2023, respectively)

Available-for-sale (“AFS”) securities, at fair value (amortized cost of $ 9,325 and $ 9,539 as of June 30, 2024 and December 31, 2023, respectively)

Held-to-maturity (“HTM”) securities, at amortized cost (fair value of $ 1,710 and $ 1,787 at June 30, 2024 and December 31, 2023, respectively)

Loans held-for-sale 257 603

26 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, 2,558,546 and 2,549,427 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

Common stock, $ 0.01 par value, 40,000,000 shares authorized, 2,557,284 and 2,549,427 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively

Additional paid-in capital 28,198 27,990

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,

2024 2023 2024 2023

INTEREST INCOME

8 unchanged sentences

Net interest income 7,448 8,744 14,908 18,116

PROVISION FOR (RELEASE OF) CREDIT LOSSES ( 33 ) 10

RELEASE OF PROVISION FOR CREDIT LOSSES ( 109 ) ( 331 ) ( 142 ) ( 321 )

Net interest income after release of provision for credit losses 7,557 9,075 15,050 18,437

5 unchanged sentences

Net gain on sale of loans 74 110 164 187

Other income 30 — 30 —

Total noninterest income 1,162 1,891 2,258 2,858

5 unchanged sentences

Data processing 910 788 1,928 1,780

Net loss on OREO and repossessed assets 6 84

Net (gain) loss on OREO and repossessed assets ( 17 ) ( 71 ) ( 11 ) 13

Total noninterest expense 7,737 7,497 15,394 15,112

13 unchanged sentences

(In thousands)

Three Months Ended March 31,

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

2024 2023 2024 2023

Net income $ 795 $ 2,892 $ 1,564 $ 5,059

Available for sale securities:

Unrealized (losses) gains arising during the period ( 78 ) 105

Income tax benefit (expense) related to unrealized (losses) gains 16 ( 22 )

Other comprehensive (loss) income, net of tax ( 62 ) 83

Unrealized gains (losses) arising during the period 1 ( 76 ) ( 77 ) 29

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

Other comprehensive income (loss), net of tax 1 ( 60 ) ( 61 ) 23

Comprehensive income $ 796 $ 2,832 $ 1,503 $ 5,082

3 unchanged sentences

Condensed Consolidated Statements of Stockholders’ Equity

For the Three Months Ended March 31, 2024 and 2023 (unaudited)

For the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)

(In thousands, except share and per share amounts)

4 unchanged sentences

Stockholders’

Balance, at March 31, 2024

2,558,546 $ 25 $ 28,110 $ 73,907 $ ( 1,050 ) $ 100,992

Net income — — — 795 — 795

Other comprehensive income, net of tax — — — — 1 1

Share-based compensation — — 97 — — 97

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

— — — ( 486 ) — ( 486 )

Common stock repurchased ( 1,462 ) — ( 16 ) ( 43 ) — ( 59 )

Common stock options exercised 200 — 7 — — 7

Balance, at June 30, 2024

2,557,284 $ 25 $ 28,198 $ 74,173 $ ( 1,049 ) $ 101,347

Balance, at December 31, 2023

8 unchanged sentences

Common stock options exercised 1,435 — 33 — — 33

Balance, at March 31, 2024

Balance, at June 30, 2024

2,557,284 $ 25 $ 28,198 $ 74,173 $ ( 1,049 ) $ 101,347

4 unchanged sentences

Stockholders’

Balance, at March 31, 2023

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

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

11 unchanged sentences

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

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

9 unchanged sentences

Change in cash surrender value of BOLI ( 312 ) ( 301 )

Net gain on BOLI death benefit — ( 567 )

Net change in advances from borrowers for taxes and insurance ( 298 ) ( 314 )

Net gain on disposal of premises and equipment, net ( 30 ) —

Net gain on sale of loans ( 164 ) ( 187 )

1 unchanged sentence

Originations of loans held-for-sale ( 8,718 ) ( 11,974 )

Net loss on OREO and repossessed assets — 84

Net (gain) loss on OREO and repossessed assets ( 17 ) 13

Change in operating assets and liabilities:

3 unchanged sentences

Other liabilities ( 458 ) 1,925

Net cash provided by operating activities 3,519 1,962

Net cash provided by (used in) operating activities ( 496 ) 1,801

CASH FLOWS FROM INVESTING ACTIVITIES:

1 unchanged sentence

Proceeds from principal payments of held-to-maturity securities 19 17

Net decrease (increase) in loans ( 3,570 ) ( 4,636 )

Net decrease in loans 5,875 10,408

Proceeds from death benefit on BOLI — 632

Purchases of premises and equipment, net ( 9 ) ( 162 )

Proceeds from disposal of premises and equipment, net 30 —

Proceeds from sale of OREO and other repossessed assets 592 71

Net cash used in investing activities 6,700 12,786

1 unchanged sentence

Net increase in deposits 80,230 13,490

Proceeds from borrowings — 40,000

Repayment of borrowings — ( 23,000 )

11 unchanged sentences

Interest paid on deposits and borrowings 12,948 6,246

Loans transferred from loans held-for-sale to loans held-for-portfolio 859 —

Loans transferred from loans held-for-portfolio to OREO and repossessed assets 115 —

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

11 unchanged sentences

GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”).

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included.

In the opinion of management, all adjustments (consisting of normal recurring accruals adjustments) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included.

Certain information and disclosures normally included in financial statements prepared in accordance with U.S.

2 unchanged sentences

The results for the interim periods are not necessarily indicative of results for a full year or any other future period.

Certain amounts in the prior period’s consolidated financial statements have been reclassified to conform to the current presentation.

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 2023 Form 10-K.

31 unchanged sentences

The guidance can be applied either prospectively or retrospectively.

We do expect the adoption of ASU 2023-09 to have a material impact on the footnotes to our consolidated financial statements.

We do not expect the adoption of ASU 2023-09 to have a material impact on the footnotes to our consolidated financial statements.

Note 3 – Investments

At March 31, 2024, the Company did not own any debt securities classified as trading or any equity investment securities, except for the FHLB securities described in “Note 8 — Borrowings, FHLB Stock and Subordinated Notes.”

At June 30, 2024, the Company did not own any debt securities classified as trading or any equity investment securities, except for the FHLB securities described in “Note 8 — Borrowings, FHLB Stock and Subordinated Notes.”

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, 2024

June 30, 2024

Municipal bonds $ 6,374 $ 11 $ ( 976 ) $ 5,409

7 unchanged sentences

Losses Estimated

March 31, 2024

June 30, 2024

Municipal bonds $ 704 $ — $ ( 191 ) $ 512

5 unchanged sentences

Total $ 2,166 $ — $ ( 379 ) $ 1,787

The amortized cost and fair value of AFS and HTM securities at March 31, 2024, by contractual maturity, are shown below (in thousands).

The amortized cost and fair value of AFS and HTM securities at June 30, 2024, 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 agency mortgage-backed securities, are shown separately.

March 31, 2024

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

June 30, 2024

Available-for-sale Held-to-maturity

5 unchanged sentences

Total $ 9,325 $ 7,996 $ 2,147 $ 1,710

There were no pledged securities at March 31, 2024 or December 31, 2023.

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

Accrued interest receivable on securities totaled $ 77 thousand and $ 49 thousand at March 31, 2024 and December 31, 2023, respectively, in the accompanying Condensed Consolidated Balance Sheets.

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

There were no pledged securities at June 30, 2024 or December 31, 2023.

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

Accrued interest receivable on securities totaled $ 49 thousand at both June 30, 2024 and December 31, 2023, in the accompanying Condensed Consolidated Balance Sheets.

Accrued interest receivable is excluded from the allowance for 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, 2024

June 30, 2024

Less Than 12 Months 12 Months or Longer Total

23 unchanged sentences

Total held-to-maturity securities $ — $ — $ 1,787 $ ( 379 ) $ 1,787 $ ( 379 )

There was no allowance for credit losses on securities at March 31, 2024 or December 31, 2023.

At March 31, 2024, the total securities portfolio consisted of 12 agency mortgage-backed securities and 11 municipal bonds, with a total portfolio fair value of $ 9.8 million.

At December 31, 2023, the total securities portfolio consisted of 11 municipal bonds and 12 agency mortgage-backed securities, with a total portfolio fair value of $ 10.1 million.

At March 31, 2024, there were three securities in an unrealized loss position for less than 12 months, and 16 securities in an unrealized loss position for more than 12 months.

All three securities in an unrealized loss position for less than 12 months were classified as AFS.

There was no allowance for credit losses on securities at June 30, 2024 or December 31, 2023.

At both June 30, 2024 and December 31, 2023, the total securities portfolio consisted of 12 agency mortgage-backed securities and 11 municipal bonds, with a total portfolio fair value of $ 9.7 million and $ 10.1 million, respectively.

At June 30, 2024, there were no securities in an unrealized loss position for less than 12 months and 17 securities in an unrealized loss position for more than 12 months.

At December 31, 2023, there was one security in an unrealized loss position for less than 12 months and 16 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, 2024, 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 .

There was no provision for credit losses recognized for investment securities during the six months ended June 30, 2024 and 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

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

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

2024 December 31,

17 unchanged sentences

Total loans held-for-portfolio, net $ 880,781 $ 885,718

(1) Includes premiums resulting from purchased loans of $ 458 thousand related to one-to-four family loans, $ 270 thousand related to commercial and multifamily loans, and $ 80 thousand related to commercial business loans as of March 31, 2024.

(1) Includes premiums resulting from purchased loans of $ 417 thousand related to one-to-four family loans, $ 261 thousand related to commercial and multifamily loans, and $ 76 thousand related to commercial business loans as of June 30, 2024.

Includes premiums resulting from purchased loans of $ 465 thousand related to one-to-four family loans, $ 280 thousand related to commercial and multifamily loans, and $ 84 thousand related to commercial business loans as of December 31, 2023.

As of March 31, 2024, there were three collateral dependent loans, totaling $ 457 thousand, that were in process of foreclosure.

As of June 30, 2024, there were three collateral dependent consumer mortgage loans, totaling $ 457 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

Three Months Ended June 30,

ACL - Loans Reserve for Unfunded Loan Commitments ACL ACL - Loans Reserve for Unfunded Loan Commitments ACL

Balance at beginning of period $ 8,598 $ 266 $ 8,864 $ 8,532 $ 795 $ 9,327

Release of credit losses during the period ( 88 ) ( 21 ) ( 109 ) ( 242 ) ( 89 ) ( 331 )

Net charge-offs during the period ( 17 ) — ( 17 ) ( 73 ) — ( 73 )

Balance at end of period $ 8,493 $ 245 $ 8,738 $ 8,217 $ 706 $ 8,923

Six months ended June 30, 2024

ACL - Loans Reserve for Unfunded Loan Commitments ACL ACL - Loans Reserve for Unfunded Loan Commitments ACL

Balance at beginning of period $ 8,760 $ 193 $ 8,953 $ 7,599 $ 335 $ 7,934

Adoption of ASU 2016-13 (1)

1 unchanged sentence

(Release of) provision for credit losses during the period ( 194 ) 52 ( 142 ) 3 ( 324 ) ( 321 )

Net (charge-offs)/recoveries during the period ( 56 ) — ( 56 ) ( 72 ) — ( 72 )

Net charge-offs during the period ( 73 ) — ( 73 ) ( 145 ) — ( 145 )

Balance at end of period $ 8,493 $ 245 $ 8,738 $ 8,217 $ 706 $ 8,923

(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 $ 3.4 million at both March 31, 2024 and December 31, 2023 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 credit losses - loans, excluding accrued interest, for the periods indicated (in thousands):

Three Months Ended March 31, 2024

Since that date, as a result of adopting ASU 2016-13, our methodology to compute our ACL 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 $ 3.3 million and $ 3.4 million at June 30, 2024 and December 31, 2023, respectively, in the accompanying Condensed Consolidated Balance Sheets.

Accrued interest receivable is excluded from the allowance for credit losses.

The ACL is measured using the current expected credit losses (“CECL”) approach for financial instruments measured at amortized cost and other commitments to extend credit.

CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset.

The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable forecasts.

We estimate the ACL using relevant and reliable information from internal and external sources, related to past events, current conditions, and a reasonable and supportable forecast.

The ACL is measured on a collective (segment) basis when similar risk characteristics exist.

Historical credit loss experience for both the Company and segment-specific peers provides the basis for the estimate of expected credit losses.

Segments are based upon federal call report segmentation.

The reserve was applied on a loan-by-loan basis and condensed into the applicable segments reported below.

The ACL allowance is determined using quantitative and qualitative analysis.

The quantitative analysis utilizes macroeconomic variables to establish a quantitative relationship between economic conditions and loan performance through an economic cycle.

Qualitative adjustments include but are not limited to changes in lending policies;

changes in nature and volume of the portfolio;

change in staff experience level;

changes in the volume or trends of classified loans, delinquencies, and nonaccrual;

concentration risk;

value of underlying collateral;

competitive, legal, and regulatory factors;

changes in the loan review system;

and economic conditions.

We evaluate our ACL policy and judgments on an ongoing basis and update them as necessary based on changing conditions.

During the six months ended June 30, 2024, we made qualitative adjustments for changes in concentration and market conditions.

See “Note 1—Organization and Significant Accounting Policies” in the Company’s 2023 Form 10-K for further information on the Company’s accounting policy over the ACL.

The following tables summarize the activity in the ACL - loans for the periods indicated (in thousands):

Three Months Ended June 30, 2024

Allowance Charge-offs Recoveries Provision (Release of) Ending

4 unchanged sentences

Manufactured homes 833 — — 105 938

971 ( 23 ) — ( 115 ) 833

Floating homes 1,799 — — 111 1,910

3 unchanged sentences

Total $ 8,598 $ ( 21 ) $ 4 $ ( 88 ) $ 8,493

(1) During the three months ended March 31, 2024, there was one manufactured home loan that was charged off and then subsequently foreclosed upon.

(2) During the three months ended March 31, 2024, the gross charge-offs related entirely to deposit overdrafts that were charged off.

Three Months Ended March 31, 2023

(1) During the three months ended June 30, 2024, the gross charge-offs related entirely to deposit overdrafts that were charged off.

Three Months Ended June 30, 2023

Allowance Charge-offs Recoveries Provision

2 unchanged sentences

Home equity (1)

197 ( 25 ) — 22 194

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

7 unchanged sentences

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

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

(1) During the three months ended June 30, 2023, there was one home equity line of credit 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, 2024

Allowance Charge-offs Recoveries Provision (Recapture) Ending

One-to-four family $ 2,630 $ — $ — $ 168 $ 2,798

Home equity 185 — — 14 199

Commercial and multifamily 1,070 — — 60 1,130

Construction and land 1,349 — — ( 277 ) 1,072

Manufactured homes (1)

971 ( 23 ) — ( 10 ) 938

Floating homes 2,022 — — ( 112 ) 1,910

Other consumer (2)

426 ( 60 ) 10 ( 28 ) 348

Commercial business 107 — — ( 9 ) 98

Total $ 8,760 $ ( 83 ) $ 10 $ ( 194 ) $ 8,493

(1) During the six months ended June 30, 2024, there was one manufactured home loan that was charged off and then subsequently foreclosed upon.

(2) During the six months ended June 30, 2024, 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 2016-13 Charge-offs Recoveries Provision

(Recapture) Ending

One-to-four family $ 1,771 $ 355 $ — $ — $ ( 129 ) $ 1,997

Home equity (1)

132 69 ( 25 ) — 18 194

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

Construction and land 1,209 1,359 — — ( 70 ) 2,498

Manufactured homes 462 ( 180 ) — — 27 309

Floating homes 456 166 — — ( 36 ) 586

Other consumer (2)

324 ( 163 ) ( 132 ) 12 119 160

Commercial business 256 ( 35 ) — — ( 16 ) 205

Unallocated 488 ( 491 ) — — 3 —

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

(1) During the six months ended June 30, 2023, there was one home equity line of credit 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.

Credit Quality Indicators.

8 unchanged sentences

When we classify problem assets as a loss, we are 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 FDIC (the Bank’s federal regulator) and the WDFI (the Bank’s state banking regulator), which can order the establishment of additional credit loss allowances.

Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the 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 credit loss allowances.

Assets which do not currently expose us to sufficient risk to warrant classification as substandard or doubtful but possess weaknesses are required to be designated as special mention.

There were no loans classified as doubtful or loss as of March 31, 2024 and December 31, 2023.

The following tables present the internally assigned grades as of March 31, 2024 and December 31, 2023, by type of loan and origination year (in thousands):

At March 31, 2024

There were no loans classified as doubtful or loss as of June 30, 2024 and December 31, 2023.

The following tables present the internally assigned grades as of June 30, 2024 and December 31, 2023, by type of loan and origination year (in thousands):

At June 30, 2024

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

22 unchanged sentences

Pass $ 12,914 $ 8,372 $ 16,386 $ 24,277 $ 6,139 $ 10,721 $ — $ — $ 78,809

Substandard — — 2,403 — — — — — 2,403

Total floating homes $ 12,914 $ 8,372 $ 18,789 $ 24,277 $ 6,139 $ 10,721 $ — $ — $ 81,212

1 unchanged sentence

Pass $ 1,951 $ 3,843 $ 701 $ 3,710 $ 5,541 $ 2,165 $ 523 $ — $ 18,434

Substandard — — — 2 — — — — 2

Total other consumer $ 1,951 $ 3,843 $ 701 $ 3,712 $ 5,541 $ 2,165 $ 523 $ — $ 18,436

48 unchanged sentences

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

with no ACL Total

9 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, 2024

June 30, 2024

Past Due 60-89 Days

36 unchanged sentences

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

At March 31, 2024, the Company had no commitments to extend additional credit to borrowers owing loan receivables with modified terms.

There were no loans modified within the three months ended March 31, 2024.

We have no modified loan receivables that have subsequently defaulted at March 31, 2024.

At June 30, 2024, the Company had no commitments to extend additional credit to borrowers owing loan receivables with modified terms.

There were no loans modified within the three and six months ended June 30, 2024 and 2023.

We have no modified loan receivables that have subsequently defaulted at June 30, 2024 and December 31, 2023.

Troubled debt restructurings (“TDRs”).

1 unchanged sentence

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 legacy TDRs totaled $ 1.7 million at both March 31, 2024 and December 31, 2023.

Loans classified as legacy TDRs totaled $ 1.6 million and $ 1.7 million at June 30, 2024 and December 31, 2023, respectively.

Collateral Dependent Loans .

4 unchanged sentences

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

March 31, 2024

June 30, 2024

Commercial Real Estate Residential Real Estate Land Other Residential RVs/Automobiles Business Assets Total

8 unchanged sentences

Floating homes — — — 2,417 — — 2,417

Other consumer — — — — 2 — 2

Total consumer loans — — — 2,553 2 — 2,555

15 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, 2024 and December 31, 2023 were determined based on these requirements.

The Company’s fair values for financial instruments at June 30, 2024 and December 31, 2023 were determined based on these requirements.

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

9 unchanged sentences

Loans held-for-sale - 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, 2024 and 2023, 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.

3 unchanged sentences

Time deposits - The estimated fair value of time deposits is based on the difference between interest costs paid on the Company’s time deposits and current market rates for time deposits with comparable characteristics.

Borrowings - The fair value of borrowings are estimated using the contractual cash flows of each debt instrument discounted using the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Subordinated notes - The fair value of subordinated notes is estimated using discounted cash flows based on current lending rates for similar long-term debt instruments with similar terms and remaining time to maturity.

Borrowings - The fair value of borrowings is estimated using the contractual cash flows of each debt instrument discounted using the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Subordinated notes - The fair value of subordinated notes is estimated using discounted cash flows based on current borrowing rates for similar long-term debt instruments with similar terms and remaining time to maturity.

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

1 unchanged sentence

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.

Off-balance sheet financial instruments - The fair value for the off-balance sheet loan commitments is estimated based on fees charged to others to enter into similar agreements taking into account the remaining terms of the agreements and credit standing of the Company’s clients.

Off-balance sheet financial instruments - The fair value for the off-balance sheet loan commitments is estimated based on fees charged to others to enter into similar agreements, considering taking into account the remaining terms of the agreements and credit standing of the Company’s clients.

The estimated fair value of these commitments is not significant.

2 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, 2024 and 2023.

There were no transfers between levels during the three and six months ended June 30, 2024 and 2023.

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

March 31, 2024 Fair Value Measurements Using:

June 30, 2024 Fair Value Measurements Using:

Value Estimated

26 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, 2024

Fair Value at June 30, 2024

Description Total Level 1 Level 2 Level 3

8 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, 2024

June 30, 2024

Financial Instrument Valuation Technique Unobservable Input(s) Range

7 unchanged sentences

Discount rate 10.5 %- 14.5 % ( 12.5 %)

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

Conversely, a decrease in the constant prepayment rate and discount rate will result in a positive fair value adjustment (and increase in the fair value measurement).

Generally, any significant increases in the prepayment speed assumption and discount rate utilized in the fair value measurement of the MSRs will result in a negative fair value adjustment (and decrease in the fair value measurement).

Conversely, a significant decrease in the constant prepayment rate and discount rate will result in a positive fair value adjustment (and increase in the fair value measurement).

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

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.

There were no assets or liabilities (excluding MSRs) measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three months ended March 31, 2024 and 2023.

There were no assets or liabilities (excluding MSRs) measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and six months ended June 30, 2024 and 2023.

MSRs are measured at fair value using significant unobservable inputs (Level 3) on a recurring basis and a reconciliation of this asset can be found in “Note 6—Mortgage Servicing Rights.

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

Fair Value at March 31, 2024

Fair Value at June 30, 2024

Total Level 1 Level 2 Level 3

5 unchanged sentences

Collateral dependent loans 3,656 — — 3,656

There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis, at both March 31, 2024 and December 31, 2023.

There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis, at both June 30, 2024 and December 31, 2023.

Note 6 – Mortgage Servicing Rights

The unpaid principal balance of the Company’s mortgage servicing rights portfolio totaled $ 443.6 million at March 31, 2024 compared to $ 448.9 million at December 31, 2023.

Of these total balances, the unpaid principal balance of loans serviced for Federal National Mortgage Association (“Fannie Mae”) at March 31, 2024 and December 31, 2023 were $ 441.5 million and $ 446.8 million, respectively.

The unpaid principal balance of loans serviced for other financial institutions totaled $ 2.1 million at March 31, 2024 and $ 2.2 million at December 31, 2023.

The unpaid principal balance of the Company’s mortgage servicing rights portfolio totaled $ 437.4 million at June 30, 2024 compared to $ 448.9 million at December 31, 2023.

Of these total balances, the unpaid principal balance of loans serviced for Federal National Mortgage Association (“Fannie Mae”) at June 30, 2024 and December 31, 2023 were $ 435.2 million and $ 446.8 million, respectively.

The unpaid principal balance of loans serviced for other financial institutions totaled $ 2.1 million at June 30, 2024 and $ 2.2 million at December 31, 2023.

Loans serviced for Fannie Mae and 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,

2024 2023 2024 2023

Beginning balance, at fair value $ 4,612 $ 4,587 $ 4,632 $ 4,687

6 unchanged sentences

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Prepayment speed (Public Securities Association “PSA” model) 111 % 129 %

1 unchanged sentence

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 $ 282 thousand and $ 299 thousand for the three months ended March 31, 2024 and March 31, 2023, respectively.

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

mortgage servicing income on the Condensed Consolidated Statements of Income and totaled $ 279 thousand and $ 561 thousand for the three and six months ended June 30, 2024, and $ 297 thousand and $ 596 thousand for the three and six months ended June 30, 2023, respectively.

Note 7 – Commitments and Contingencies

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The following tables present advances from the FHLB as of the dates indicated (dollars in thousands):

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

FHLB advances:

Overnight advances

Short-term advances

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$ 40,000 $ 40,000

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Outstanding balance $ 40,000 $ 40,000

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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.

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 company’s outstanding borrowing balance.

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:

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Amount available to borrow under credit facility (1)

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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 both March 31, 2024 and December 31, 2023, the Company had an investment of $ 2.4 million in FHLB of Des Moines stock.

At both June 30, 2024 and December 31, 2023, the Company had an investment of $ 2.4 million 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 March 31, 2024 and December 31, 2023, the amount available to borrow under this credit facility was $ 19.5 million and $ 18.3 million, respectively, subject to eligible pledged collateral.

The Company had no outstanding borrowings under this arrangement at March 31, 2024 and December 31, 2023.

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 company’s outstanding borrowing balance.

At June 30, 2024 and December 31, 2023, the amount available to borrow under this credit facility was $ 22.5 million and $ 18.3 million, respectively, subject to eligible pledged collateral.

The Company had no outstanding borrowings under this arrangement at June 30, 2024 and December 31, 2023.

Other Borrowings

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The line has a one year term maturing on June 30, 2025 and is renewable annually.

As of March 31, 2024, 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, 2024 and December 31, 2023.

As of June 30, 2024, 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, 2024 and December 31, 2023.

Subordinated Debt

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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 March 31, 2024 and December 31, 2023.

The balance of the subordinated notes was $ 11.7 million as of both June 30, 2024 and December 31, 2023.

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

2024 2023 2024 2023

Net income $ 795 $ 2,892 $ 1,564 $ 5,059

10 unchanged sentences

Earnings per share, diluted $ 0.31 $ 1.11 $ 0.61 $ 1.94

There were 7,596 anti-dilutive securities at March 31, 2024 and 8,009 anti-dilutive securities at March 31, 2023.

There were no anti-dilutive securities at June 30, 2024 and 13,080 anti-dilutive securities at June 30, 2023.

Note 10 – Stock-based Compensation

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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, 2024, on an adjusted basis, awards for stock options totaling 301,453 shares and awards for restricted stock totaling 167,114 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 $ 95 thousand and $ 192 thousand for the three months ended March 31, 2024 and March 31, 2023, respectively.

As of June 30, 2024, on an adjusted basis, awards for stock options totaling 301,453 shares and awards for restricted stock totaling 167,114 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 $ 97 thousand and $ 193 thousand for the three and six months ended June 30, 2024, and $ 87 thousand and $ 279 thousand for the three and six months ended June 30, 2023, respectively.

Stock Option Awards

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

All stock option awards granted under the 2008 Plan vested in 20 percent 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.

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, 2024 (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, 2024 (dollars in thousands, except per share amounts):

Shares Weighted-

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Term in Years Aggregate

Outstanding at April 1, 2024 85,712 $ 33.00 5.36 $ 685

Exercised ( 200 ) 33.50

Outstanding at June 30, 2024 85,512 33.00 5.29 855

Exercisable 66,031 30.94 4.35 796

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

85,512 $ 33.00 5.29 $ 855

The following is a summary of the Company’s stock option award activity during the six months ended June 30, 2024 (dollars in thousands, except per share amounts):

Shares Weighted-

Exercise Price Weighted-Average

Remaining Contractual

Term in Years Aggregate

Outstanding at January 1, 2024 80,735 $ 32.28 5.36 $ 603

2 unchanged sentences

Expired ( 257 ) 36.57

Outstanding at March 31, 2024 85,712 33.00 5.53 685

Outstanding at June 30, 2024 85,512 33.00 5.29 855

Exercisable 66,031 30.94 4.35 796

1 unchanged sentence

85,512 $ 33.00 5.29 $ 855

As of March 31, 2024, there was $ 190 thousand of total unrecognized compensation cost related to non-vested stock options granted under the Plans.

As of June 30, 2024, there was $ 167 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 2.2 years.

The total intrinsic value of the shares exercised during the three months ended March 31, 2024 was $ 22 thousand and for the three months ended March 31, 2023 was $ 327 thousand.

The total intrinsic value of the shares exercised during the three and six months ended June 30, 2024 was $ 1 thousand and $ 23 thousand, and for the three and six months ended June 30, 2023 was $ 61 thousand and $ 388 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 values of options granted during the three months ended March 31, 2024 and 2023 were determined using the following weighted-average assumptions as of the grant date.

Three Months Ended March 31,

The fair values of options granted during the six months ended June 30, 2024 and 2023 were determined using the following weighted-average assumptions as of the grant date.

Six Months Ended June 30,

Annual dividend yield 1.69 % 1.69 %

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Weighted-average grant date fair value per option granted $ 11.64 $ 11.33

There were 6,469 and 12,425 options granted during the three months ended March 31, 2024 and March 31, 2023, respectively .

There were no options granted during the three months ended June 30, 2024 and June 30, 2023, respectively .

Restricted Stock Awards

1 unchanged sentence

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 under the 2008 Plan vested 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, 2024:

The following is a summary of the Company’s non-vested restricted stock award activity during the three months ended June 30, 2024:

Shares Weighted-Average

1 unchanged sentence

Value Per Share Aggregate Intrinsic Value Per Share

Non-Vested at April 1, 2024 17,143 $ 39.93

Forfeited — —

Non-Vested at June 30, 2024 17,143 $ 39.93 $ 43.00

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

17,143 $ 39.93 $ 43.00

Shares Weighted-Average

Grant-Date Fair

Value Per Share Aggregate Intrinsic Value Per Share

Non-Vested at January 1, 2024 15,967 $ 39.20

2 unchanged sentences

Forfeited — —

Non-Vested at March 31, 2024 17,143 39.93 40.17

Non-Vested at June 30, 2024 17,143 $ 39.93 $ 43.00

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

17,143 $ 39.93 $ 43.00

As of March 31, 2024, there was $ 632 thousand of unrecognized compensation cost related to non-vested restricted stock granted under the Plans.

As of June 30, 2024, there was $ 557 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 2.2 years.

The total fair value of shares vested for the three months ended March 31, 2024 and 2023 was $ 262 thousand and $ 370 thousand, respectively.

The weighted average grant date fair value per share for the three months ended March 31, 2024 and 2023 was $ 39.89 and $ 40.13 , respectively.

The total fair value of shares vested for the six months ended June 30, 2024 and 2023 was $ 262 thousand and $ 370 thousand, respectively.

The weighted average grant date fair value per share for restricted stock awards granted during the six months ended June 30, 2024 and 2023 was $ 39.89 and $ 40.13 , respectively.

Employee Stock Ownership Plan

The fair value of the 169,647 shares held by the Company’s Employee Stock Ownership Plan (the “ESOP”) trust was $ 6.8 million at March 31, 2024.

ESOP compensation expense included in salaries and benefits was $ 189 thousand for the three months ended March 31, 2024, and $ 204 thousand for the three months ended March 31, 2023.

The fair value of the 170,273 shares held by the Company’s Employee Stock Ownership Plan (the “ESOP”) trust was $ 7.3 million at June 30, 2024.

ESOP compensation expense included in salaries and benefits was $ 189 thousand and $ 378 thousand for the three and six months ended June 30, 2024, and $ 204 thousand and $ 408 thousand for the three and six months ended June 30, 2023.

Note 11 – Leases

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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 five months to 5.3 years.

As of June 30, 2024, our leases had remaining lease terms ranging from three months to 5.0 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,

2024 2023 2024 2023

Operating lease expense

3 unchanged sentences

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

March 31, 2024

June 30, 2024

Remainder of 2024

Thereafter 136

Total lease payments 4,622

8 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,

2024 2023 2024 2023

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

2 unchanged sentences

Note 12 – Subsequent Events

On April 29, 2024, the Company announced that its Board of Directors declared a quarterly cash dividend of $ 0.19 per common share, payable on May 22, 2024 to stockholders of record at the close of business on May 8, 2024.

On July 29, 2024, the Company announced that its Board of Directors declared a quarterly cash dividend of $ 0.19 per common share, payable on August 23, 2024 to stockholders of record at the close of business on August 9, 2024.

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