What changed in this filing

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Item 1. Financial Statements

2024-11-13 compared with 2024-08-13 · 168 added, 166 removed, 805 unchanged (29% of the section changed)

4 unchanged sentences

(In thousands, except share and per share amounts)

September 30,

2024 December 31,

Cash and cash equivalents $ 148,930 $ 49,690

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)

Available-for-sale (“AFS”) securities, at fair value (amortized cost of $ 9,200 and $ 9,539 as of September 30, 2024 and December 31, 2023, respectively)

Held-to-maturity (“HTM”) securities, at amortized cost (fair value of $ 1,779 and $ 1,787 at September 30, 2024 and December 31, 2023, respectively)

Loans held-for-sale 65 603

1 unchanged sentence

Allowance for credit losses (“ACL”) on loans ( 8,585 ) ( 8,760 )

( 8,493 ) ( 8,760 )

Total loans held-for-portfolio, net 893,148 885,718

1 unchanged sentence

Bank-owned life insurance (“BOLI”), net 22,363 21,860

22,172 21,860

Other real estate owned (“OREO”) and repossessed assets, net 115 575

18 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, 2,557,284 and 2,549,427 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively

Common stock, $ 0.01 par value, 40,000,000 shares authorized, 2,564,095 and 2,549,427 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively

Additional paid-in capital 28,296 27,990

8 unchanged sentences

(In thousands, except share and per share amounts)

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

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

2024 2023 2024 2023

9 unchanged sentences

Net interest income 7,873 8,168 22,782 26,283

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

PROVISION FOR (RELEASE OF) CREDIT LOSSES 8 75 ( 134 ) ( 246 )

Net interest income after provision for (release of) credit losses 7,865 8,093 22,916 26,529

NONINTEREST INCOME

28 unchanged sentences

(In thousands)

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

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

2024 2023 2024 2023

2 unchanged sentences

Unrealized gains (losses) arising during the period 161 ( 307 ) 84 ( 278 )

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

Income tax (expense) benefit related to unrealized gains (losses) ( 34 ) 64 ( 18 ) 58

Other comprehensive income (loss), net of tax 127 ( 243 ) 66 ( 220 )

4 unchanged sentences

Condensed Consolidated Statements of Stockholders’ Equity

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

For the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)

(In thousands, except share and per share amounts)

4 unchanged sentences

Stockholders’

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

— — — ( 487 ) — ( 487 )

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

Common stock surrendered ( 5,053 ) — — — — —

Common stock options exercised 11,864 — — — — —

Balance, at June 30, 2024

Balance, at September 30, 2024

2,564,095 $ 25 $ 28,296 $ 74,840 $ ( 922 ) $ 102,239

2 unchanged sentences

Net income — — — 2,719 — 2,719

Other comprehensive loss, net of tax — — — — ( 61 ) ( 61 )

Other comprehensive income, net of tax — — — — 66 66

Share-based compensation — — 291 — — 291

Restricted stock awards issued 8,048 — — — — —

Restricted common stock awards issued 8,048 — — — — —

Cash dividends paid on common stock ($ 0.57 per share)

1 unchanged sentence

Common stock repurchased ( 1,626 ) — ( 18 ) ( 47 ) — ( 65 )

Common stock surrendered ( 5,053 ) — ( 218 ) — — ( 218 )

Common stock options exercised 13,299 — 251 — — 251

Balance, at June 30, 2024

Balance, at September 30, 2024

2,564,095 $ 25 $ 28,296 $ 74,840 $ ( 922 ) $ 102,239

4 unchanged sentences

Stockholders’

Balance, at March 31, 2023

Balance, at June 30, 2023

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

6 unchanged sentences

Common stock options exercised 1,000 — 17 — — 17

Balance, at June 30, 2023

Balance, at September 30, 2023

2,568,054 $ 25 $ 28,112 $ 73,438 $ ( 1,337 ) $ 100,238

3 unchanged sentences

Net income — — — 6,228 — 6,228

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

Other comprehensive loss, net of tax — — — — ( 220 ) ( 220 )

Share-based compensation — — 368 — — 368

Restricted stock awards issued 8,850 — — — — —

Restricted common stock awards issued 8,850 — — — — —

Cash dividends paid on common stock ($ 0.55 per share)

2 unchanged sentences

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

Restricted stock forfeited ( 425 ) — — — — —

Restricted common stock forfeited ( 425 ) — — — — —

Common stock options exercised 18,610 — 320 — — 320

Balance, at June 30, 2023

Balance, at September 30, 2023

2,568,054 $ 25 $ 28,112 $ 73,438 $ ( 1,337 ) $ 100,238

4 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

21 unchanged sentences

Other liabilities 148 1,476

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

Net cash provided by operating activities 2,779 4,764

CASH FLOWS FROM INVESTING ACTIVITIES:

1 unchanged sentence

Proceeds from principal payments of held-to-maturity securities 27 25

Net decrease in loans 5,875 10,408

Proceeds from death benefit on BOLI — 632

Net increase in loans ( 6,598 ) ( 9,601 )

(Purchase of) proceeds from BOLI ( 5 ) 633

Purchases of premises and equipment, net ( 50 ) ( 225 )

8 unchanged sentences

Common stock repurchases ( 65 ) ( 1,399 )

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

Purchase of common stock surrendered to pay tax liability ( 218 ) ( 190 )

Dividends paid on common stock ( 1,459 ) ( 1,425 )

19 unchanged sentences

and references to the “Bank” refer to Sound Community Bank.

References to “we,” “us,” and “our” or the “Company” refers to Sound Financial Bancorp and its wholly-owned subsidiaries, Sound Community Bank and Sound Community Insurance Agency, Inc., unless the context otherwise requires.

References to “we,” “us,” and “our” or the “Company” refer to Sound Financial Bancorp, the Bank and Sound Community Insurance Agency, Inc., collectively, unless the context otherwise requires.

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.

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 adjustments) 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 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.

4 unchanged sentences

Note 2 – Accounting Pronouncements Recently Issued or Adopted

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

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

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

16 unchanged sentences

ASU 2022-06 has not had, and is not expected to have, a material impact on the Company’s consolidated financial statements.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280):

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .” The amended guidance requires incremental reportable segment disclosures, primarily about significant segment expenses.

11 unchanged sentences

Note 3 – Investments

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):

At September 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 estimated 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

June 30, 2024

September 30, 2024

Municipal bonds $ 6,364 $ 11 $ ( 890 ) $ 5,485

5 unchanged sentences

Total $ 9,539 $ 19 $ ( 1,271 ) $ 8,287

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

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

Losses Estimated

June 30, 2024

September 30, 2024

Municipal bonds $ 704 $ — $ ( 178 ) $ 526

5 unchanged sentences

Total $ 2,166 $ — $ ( 379 ) $ 1,787

The amortized cost and fair value of AFS and HTM securities at June 30, 2024, by contractual maturity, are shown below (in thousands).

The amortized cost and estimated fair value of AFS and HTM securities at September 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, consisting of agency mortgage-backed securities, are shown separately.

June 30, 2024

September 30, 2024

Available-for-sale Held-to-maturity

Value Amortized

Cost Estimated Fair Value Amortized

Cost Estimated Fair Value

Due after one year through five years $ 455 $ 455 $ — $ —

3 unchanged sentences

Total $ 9,200 $ 8,032 $ 2,139 $ 1,779

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.

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

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

Accrued interest receivable on securities totaled $ 77 thousand at September 30, 2024 and $ 49 thousand at 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):

June 30, 2024

September 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 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.

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

At both September 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 $ 9.8 million and $ 10.1 million, respectively.

At both September 30, 2024 and 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.

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

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

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.

There was no provision for credit losses recognized for investment securities during the nine months ended September 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 (which excludes loans held-for-sale) at the dates indicated were as follows (in thousands):

September 30,

2024 December 31,

17 unchanged sentences

Total loans held-for-portfolio, net $ 893,148 $ 885,718

(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.

(1) Includes premiums resulting from purchased loans of $ 410 thousand related to one-to-four family loans, $ 252 thousand related to commercial and multifamily loans, and $ 73 thousand related to commercial business loans as of September 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 June 30, 2024, there were three collateral dependent consumer mortgage loans, totaling $ 457 thousand that were in process of foreclosure.

As of September 30, 2024, there were three collateral dependent mortgage loans to consumers, totaling $ 355 thousand, that were in process of foreclosure.

These loans in process of foreclosure all relate to judicial foreclosures for deceased borrowers.

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 June 30,

Three Months Ended September 30,

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

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

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

Provision for (release of) credit losses during the period 106 ( 98 ) 8 224 ( 149 ) 75

Net charge-offs during the period ( 14 ) — ( 14 ) ( 3 ) — ( 3 )

Balance at end of period $ 8,585 $ 147 $ 8,732 $ 8,438 $ 557 $ 8,995

Six months ended June 30, 2024

Nine months ended September 30, 2024

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

7 unchanged sentences

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.

Accrued interest receivable on loans receivable totaled $ 3.4 million at both September 30, 2024 and December 31, 2023, in the accompanying Condensed Consolidated Balance Sheets.

Accrued interest receivable is excluded from the ACL.

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

We estimate the ACL using relevant 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.

2 unchanged sentences

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 ACL 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.

2 unchanged sentences

change in staff experience level;

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

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

concentration risk;

4 unchanged sentences

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.

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

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

Three Months Ended September 30, 2024

Allowance Charge-offs Recoveries Provision for (Release of) Credit Losses Ending

One-to-four family $ 2,798 $ — $ — $ 14 $ 2,812

8 unchanged sentences

Total $ 8,493 $ ( 20 ) $ 6 $ 106 $ 8,585

(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

(Recapture) Ending

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

Three Months Ended September 30, 2023

Allowance Charge-offs Recoveries Provision for (Release of) Credit Losses Ending

One-to-four family $ 1,997 $ — $ — $ 8 $ 2,005

Home equity 194 — — 12 206

197 ( 25 ) — 22 194

Commercial and multifamily 2,268 — — 77 2,345

5 unchanged sentences

Commercial business 205 — — ( 26 ) 179

Unallocated 4 — — ( 4 ) —

Total $ 8,217 $ ( 27 ) $ 24 $ 224 $ 8,438

(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

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

Nine Months Ended September 30, 2024

Allowance Charge-offs Recoveries Provision for (Release of) Credit Losses Ending

One-to-four family $ 2,630 $ — $ — $ 182 $ 2,812

9 unchanged sentences

Total $ 8,760 $ ( 103 ) $ 16 $ ( 88 ) $ 8,585

(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

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

(2) During the nine months ended September 30, 2024, the gross charge-offs related entirely to deposit overdrafts that were charged off.

Nine Months Ended September 30, 2023

Allowance Impact of Adoption of ASU 2016-13 Charge-offs Recoveries Provision for (Release of) Credit Losses Ending

One-to-four family $ 1,771 $ 355 $ — $ — $ ( 121 ) $ 2,005

10 unchanged sentences

Total $ 7,599 $ 760 $ ( 184 ) $ 36 $ 227 $ 8,438

(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.

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

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

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.

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

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

8 unchanged sentences

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 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

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

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

At September 30, 2024

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

14 unchanged sentences

Pass $ 18,267 $ 23,946 $ 2,439 $ 20,814 $ 599 $ 1,912 $ — $ — $ 67,977

Special mention — — 16,554 — — — — — 16,554

Substandard — — 70 — — 701 — — 771

59 unchanged sentences

Nonaccrual and Past Due Loans .

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

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

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

June 30, 2024 December 31, 2023

September 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):

June 30, 2024

September 30, 2024

Past Due 60-89 Days

36 unchanged sentences

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

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.

At September 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 nine months ended September 30, 2024 and 2023.

We have no modified loan receivables that have subsequently defaulted at September 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 $ 1.6 million and $ 1.7 million at June 30, 2024 and December 31, 2023, respectively.

Loans classified as legacy TDRs totaled $ 1.5 million and $ 1.7 million at September 30, 2024 and December 31, 2023, respectively.

Collateral Dependent Loans .

2 unchanged sentences

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

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

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

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

June 30, 2024

September 30, 2024

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

10 unchanged sentences

Total consumer loans — — — 2,607 26 — 2,633

Commercial business loans — — — — — 23 23

Total loans $ 4,719 $ 813 $ 25 $ 2,975 $ 26 $ 23 $ 8,581

14 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 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:

The Company’s fair values for financial instruments at September 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 the Company’s financial instruments:

Cash and cash equivalents - The estimated fair value is equal to the carrying amount.

Available-for-sale securities – AFS securities are recorded at fair value based on quoted market prices, if available (Level 1).

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).

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

9 unchanged sentences

Mortgage servicing rights –The fair value of MSRs is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds, discount rates, and delinquency rate assumptions as inputs.

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.

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

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:

A description of the valuation methodologies used for collateral dependent loans, OREO and repossessed assets and off-balance sheet loan commitments is as follows:

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

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, 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.

In certain cases, the inputs used to measure fair value may fall into different levels of the hierarchy.

Off-balance sheet financial instruments - The fair value of off-balance sheet financial instruments, which consisted entirely of loan commitments at September 30, 2024 and December 31, 2023, 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.

The estimated fair value of these commitments was not significant at September 30, 2024 and December 31, 2023.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.

In such cases, the lowest level of inputs that is significant to the measurement is used to determine the hierarchy for the entire asset or liability.

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

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

There were no transfers between levels during the three and nine months ended September 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):

June 30, 2024 Fair Value Measurements Using:

September 30, 2024 Fair Value Measurements Using:

Value Estimated

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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 June 30, 2024

Fair Value at September 30, 2024

Description Total Level 1 Level 2 Level 3

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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:

June 30, 2024

September 30, 2024

Financial Instrument Valuation Technique Unobservable Input(s) Range

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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.

Conversely, a significant decrease in the prepayment speed assumption 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 prepayment speed assumption and conversely, a decrease in the weighted average life assumptions will result in an increase in the prepayment speed assumption.

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 and six months ended June 30, 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 nine months ended September 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 June 30, 2024

Fair Value at September 30, 2024

Total Level 1 Level 2 Level 3

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Collateral dependent loans 3,656 — — 3,656

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

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

Note 6 – Mortgage Servicing Rights

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.

The unpaid principal balance of the Company’s mortgage servicing rights portfolio totaled $ 432.0 million at September 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 September 30, 2024 and December 31, 2023 were $ 429.9 million and $ 446.8 million, respectively.

The unpaid principal balance of loans serviced for other financial institutions totaled $ 2.1 million at September 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 June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

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

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Prepayment speed (Public Securities Association “PSA” model) 120 % 129 %

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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.

mortgage servicing income on the Condensed Consolidated Statements of Income and totaled $ 280 thousand and $ 841 thousand for the three and nine months ended September 30, 2024, and $ 295 thousand and $ 891 thousand for the three and nine months ended September 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):

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

FHLB advances:

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$ 40,000 $ 40,000

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Outstanding balance $ 40,000 $ 40,000

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The following table presents the maturity of our FHLB advances (dollars in thousands):

September 30,

Remainder of 2024 $ 15,000

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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, 2024 December 31, 2023

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

September 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 June 30, 2024 and December 31, 2023, the Company had an investment of $ 2.4 million in FHLB of Des Moines stock.

At both September 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

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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.

At September 30, 2024 and December 31, 2023, the amount available to borrow under this credit facility was $ 21.9 million and $ 18.3 million, respectively, subject to eligible pledged collateral.

The Company had no outstanding borrowings under this arrangement at September 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 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.

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

The balance of the subordinated notes was $ 11.7 million as of both September 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 Six Months Ended

Three Months Ended Nine Months Ended

2024 2023 2024 2023

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Earnings per share, diluted $ 0.45 $ 0.45 $ 1.05 $ 2.39

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

There were no anti-dilutive securities at September 30, 2024 and 7,892 anti-dilutive securities at September 30, 2023.

Note 10 – Stock-based Compensation

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

The equity incentive plan approved by stockholders in 2008 (the"2008 Plan") expired in November 2018 and no further awards may be made under the 2008 Plan;

The equity incentive plan approved by stockholders in 2008 (the"2008 Plan" and together with the 2013 plan, the "Plans") expired in November 2018 and no further awards may be made under the 2008 Plan;

provided, however, all awards outstanding under the 2008 Plan remain outstanding in accordance with their terms.

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 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.

As of September 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 $ 98 thousand and $ 291 thousand for the three and nine months ended September 30, 2024, and $ 88 thousand and $ 368 thousand for the three and nine months ended September 30, 2023, respectively.

Stock Option Awards

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 June 30, 2024 (dollars in thousands, except per share amounts):

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 dates of the grant date in equal annual installments over a period 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 generally exercisable for a period of 10 years from the date of grant, subject to vesting.

The following is a summary of the Company’s stock option award activity during the three months ended September 30, 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

Outstanding at July 1, 2024 85,512 $ 33.00 5.29 $ 855

Exercised ( 11,864 ) 18.36

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

Outstanding at September 30, 2024 73,648 35.36 5.80 1,336

Exercisable 54,167 33.70 4.92 1,073

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73,648 $ 35.36 5.80 $ 1,336

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):

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

Shares Weighted-

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Expired ( 257 ) 36.57

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

Outstanding at September 30, 2024 73,648 35.36 5.80 1,336

Exercisable 54,167 33.70 4.92 1,073

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73,648 $ 35.36 5.80 $ 1,336

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 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 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,

As of September 30, 2024, there was $ 144 thousand of total unrecognized compensation cost related to non-vested stock options granted under the Plans.

This cost is expected to be recognized over the remaining weighted-average vesting period of approximately 2.0 years.

The total intrinsic value of the shares exercised during the three and nine months ended September 30, 2024 was $ 294 thousand and $ 317 thousand, and for the three and nine months ended September 30, 2023 was $ 20 thousand and $ 408 thousand, respectively.

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

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

Nine Months Ended September 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 no options granted during the three months ended June 30, 2024 and June 30, 2023, respectively .

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

Restricted Stock Awards

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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 June 30, 2024:

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 a period of one -to- four years , subject to the continued service of the participant with the Company.

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

Shares Weighted-Average

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Value Per Share Aggregate Intrinsic Value Per Share

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

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

Forfeited — —

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

Non-Vested at September 30, 2024 17,143 $ 39.93 $ 52.51

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

17,143 $ 39.93 $ 52.51

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

Shares Weighted-Average

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Vested ( 6,872 ) $ 38.19

Forfeited — —

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

Non-Vested at September 30, 2024 17,143 $ 39.93 $ 52.51

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

17,143 $ 39.93 $ 52.51

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 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.

As of September 30, 2024, there was $ 482 thousand of unrecognized compensation cost related to non-vested restricted stock granted under the Plans.

This cost is expected to be recognized over the remaining weighted-average vesting period of approximately 2.0 years.

The total fair value of shares that vested during the nine months ended September 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 nine months ended September 30, 2024 and 2023 was $ 39.89 and $ 40.13 , respectively.

Employee Stock Ownership Plan

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.

The fair value of the 169,778 shares held by the Company’s Employee Stock Ownership Plan (the “ESOP”) trust was $ 9.1 million at September 30, 2024.

ESOP compensation expense included in salaries and benefits was $ 189 thousand and $ 567 thousand for the three and nine months ended September 30, 2024, and $ 204 thousand and $ 612 thousand for the three and nine months ended September 30, 2023.

Note 11 – Leases

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

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

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.

Generally, our real estate leases have initial terms of three to ten years and

typically include one renewal option.

As of September 30, 2024, our leases had remaining terms ranging from five months to 4.8 years.

The operating leases require us to pay property taxes and operating expenses for the properties.

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

September 30,

2024 December 31,

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

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

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

2024 2023 2024 2023

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

June 30, 2024

September 30, 2024

Remainder of 2024

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Present value of lease liabilities $ 4,079

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

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

September 30,

2024 December 31,

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

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

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

2024 2023 2024 2023

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Note 12 – Subsequent Events

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.

On October 30, 2024, the Company announced that its Board of Directors declared a quarterly cash dividend of $ 0.19 per common share, payable on November 26, 2024 to stockholders of record at the close of business on November 12, 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