Item 1. Financial Statements
Item 1. Financial Statements
SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets (unaudited)
(In thousands, except share and per share amounts)
June 30,
2025 December 31,
2024
ASSETS
Cash and cash equivalents $ 102,542 $ 43,641
Available-for-sale (“AFS”) securities, at fair value (amortized cost of $ 8,949 and $ 9,112 as of June 30, 2025 and December 31, 2024, respectively)
7,521 7,790
Held-to-maturity (“HTM”) securities, at amortized cost (fair value of $ 1,687 and $ 1,712 at June 30, 2025 and December 31, 2024, respectively)
2,113 2,130
Loans held-for-sale 2,025 487
Loans held-for-portfolio 904,286 900,171
Allowance for credit losses (“ACL”) on loans ( 8,536 ) ( 8,499 )
Total loans held-for-portfolio, net 895,750 891,672
Accrued interest receivable 3,658 3,471
Bank-owned life insurance (“BOLI”), net 22,913 22,490
Other real estate owned (“OREO”) and repossessed assets, net 300 —
Mortgage servicing rights (“MSRs”), at fair value 4,638 4,769
Federal Home Loan Bank ("FHLB") stock, at cost 1,734 1,730
Premises and equipment, net 4,498 4,697
Right of use assets 3,933 3,725
Other assets 6,617 7,031
Total assets $ 1,058,242 $ 993,633
LIABILITIES
Deposits
Interest-bearing $ 775,262 $ 705,267
Noninterest-bearing demand 124,197 132,532
Total deposits 899,459 837,799
Borrowings 25,000 25,000
Accrued interest payable 634 765
Lease liabilities 4,213 4,013
Other liabilities 10,238 9,371
Advance payments from borrowers for taxes and insurance 914 1,260
Subordinated notes, net 11,780 11,759
Total liabilities 952,238 889,967
COMMITMENTS AND CONTINGENCIES (NOTE 7) — —
STOCKHOLDERS’ EQUITY
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, 2,566,069 and 2,564,907 shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively
25 25
Additional paid-in capital 28,590 28,413
Retained earnings 78,517 76,272
Accumulated other comprehensive loss, net of tax ( 1,128 ) ( 1,044 )
Total stockholders’ equity 106,004 103,666
Total liabilities and stockholders’ equity $ 1,058,242 $ 993,633
See Notes to Condensed Consolidated Financial Statements
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SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income (unaudited)
(In thousands, except share and per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
2025 2024 2025 2024
INTEREST INCOME
Loans, including fees $ 13,695 $ 12,320 $ 26,283 $ 24,553
Interest and dividends on investments, cash and cash equivalents 1,220 1,719 2,339 3,246
Total interest income 14,915 14,039 28,622 27,799
INTEREST EXPENSE
Deposits 5,225 5,994 10,430 11,696
Borrowings 267 429 529 859
Subordinated notes 168 168 336 336
Total interest expense 5,660 6,591 11,295 12,891
Net interest income 9,255 7,448 17,327 14,908
PROVISION FOR (RELEASE OF) CREDIT LOSSES 170 ( 109 ) ( 33 ) ( 142 )
Net interest income after provision (release of) for credit losses 9,085 7,557 17,360 15,050
NONINTEREST INCOME
Service charges and fee income 664 761 1,348 1,373
Earnings on BOLI 229 134 423 311
Mortgage servicing income 263 279 531 561
Fair value adjustment on MSRs ( 80 ) ( 116 ) ( 179 ) ( 181 )
Net gain on sale of loans 44 74 93 164
Other income — 30 — 30
Total noninterest income 1,120 1,162 2,216 2,258
NONINTEREST EXPENSE
Salaries and benefits 4,321 4,658 8,916 9,201
Operations 1,443 1,569 2,808 3,026
Regulatory assessments 222 220 442 409
Occupancy 416 397 853 841
Data processing 1,254 910 2,547 1,928
Net loss (gain) on OREO and repossessed assets 9 ( 17 ) 12 ( 11 )
Total noninterest expense 7,665 7,737 15,578 15,394
Income before provision for income taxes 2,540 982 3,998 1,914
Provision for income taxes 488 187 779 350
Net income $ 2,052 $ 795 $ 3,219 $ 1,564
Earnings per common share:
Basic $ 0.80 $ 0.31 $ 1.25 $ 0.61
Diluted $ 0.79 $ 0.31 $ 1.24 $ 0.61
Weighted-average number of common shares outstanding:
Basic 2,556,562 2,540,538 2,555,413 2,539,872
Diluted 2,577,990 2,559,015 2,578,287 2,557,993
See Notes to Condensed Consolidated Financial Statements
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SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(In thousands)
Three Months Ended June 30, Six Months Ended June 30,
2025 2024 2025 2024
Net income $ 2,052 $ 795 $ 3,219 $ 1,564
Available for sale securities:
Unrealized (losses) gains arising during the period ( 85 ) 1 ( 106 ) ( 77 )
Income tax expense related to unrealized losses 18 — 22 16
Other comprehensive (loss) gain, net of tax ( 67 ) 1 ( 84 ) ( 61 )
Comprehensive income $ 1,985 $ 796 $ 3,135 $ 1,503
See Notes to Condensed Consolidated Financial Statements
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SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders’ Equity
For the Three and Six Months Ended June 30, 2025 and 2024 (unaudited)
(In thousands, except share and per share amounts)
Shares Common
Stock Additional Paid-in Capital Retained
Earnings Accumulated Other
Comprehensive Loss, net of tax Total
Stockholders’
Equity
Balance, at March 31, 2025
2,566,069 $ 25 $ 28,515 $ 76,952 $ ( 1,061 ) $ 104,431
Net income — — — 2,052 — 2,052
Other comprehensive loss, net of tax — — — — ( 67 ) ( 67 )
Share-based compensation — — 75 — — 75
Cash dividends paid on common stock ($ 0.19 per share)
— — — ( 487 ) — ( 487 )
Balance, at June 30, 2025
2,566,069 $ 25 $ 28,590 $ 78,517 $ ( 1,128 ) $ 106,004
Balance, at December 31, 2024
2,564,907 $ 25 $ 28,413 $ 76,272 $ ( 1,044 ) $ 103,666
Net income — — — 3,219 — 3,219
Other comprehensive loss, net of tax — — — — ( 84 ) ( 84 )
Share-based compensation — — 156 — — 156
Cash dividends paid on common stock ($ 0.38 per share)
— — — ( 974 ) — ( 974 )
Common stock options exercised 1,162 — 21 — — 21
Balance, at June 30, 2025
2,566,069 $ 25 $ 28,590 $ 78,517 $ ( 1,128 ) $ 106,004
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Shares Common
Stock Additional Paid-in Capital Retained
Earnings Accumulated Other Comprehensive
Loss, net of tax Total
Stockholders’
Equity
Balance, at March 31, 2024
2,558,546 $ 25 $ 28,110 $ 73,907 $ ( 1,050 ) $ 100,992
Net income — — — 795 — 795
Other comprehensive gain, 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
2,549,427 $ 25 $ 27,990 $ 73,627 $ ( 988 ) $ 100,654
Net income — — — 1,564 — 1,564
Other comprehensive loss, net of tax — — — — ( 61 ) ( 61 )
Share-based compensation — — 193 — — 193
Restricted common stock awards issued 8,048 — — — — —
Cash dividends paid on common stock ($ 0.38 per share)
— — — ( 972 ) — ( 972 )
Common stock repurchased ( 1,626 ) — ( 18 ) ( 46 ) — ( 64 )
Common stock options exercised 1,435 — 33 — — 33
Balance, at June 30, 2024
2,557,284 $ 25 $ 28,198 $ 74,173 $ ( 1,049 ) $ 101,347
See Notes to Condensed Consolidated Financial Statements
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SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Six Months Ended June 30,
2025 2024
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,219 $ 1,564
Adjustments to reconcile net income to net cash from operating activities:
Amortization of net premiums on investments 42 42
Release of credit losses ( 33 ) ( 142 )
Depreciation and amortization 261 343
Share-based compensation 156 193
Fair value adjustment on mortgage servicing rights 179 181
Right of use assets amortization 505 476
Change in lease liabilities ( 513 ) ( 493 )
Change in cash surrender value of BOLI ( 423 ) ( 312 )
Net change in advances from borrowers for taxes and insurance ( 346 ) ( 298 )
Net gain on disposal of premises and equipment, net — ( 30 )
Net gain on sale of loans ( 93 ) ( 164 )
Proceeds from sale of loans held-for-sale 5,621 8,280
Originations of loans held-for-sale ( 8,314 ) ( 8,718 )
Net gain on OREO and repossessed assets — ( 17 )
Change in operating assets and liabilities:
Accrued interest receivable ( 187 ) 39
Other assets 436 ( 925 )
Accrued interest payable ( 131 ) ( 57 )
Other liabilities 979 ( 458 )
Net cash provided by (used in) operating activities 1,358 ( 496 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal payments, maturities and sales of available-for-sale securities 142 193
Proceeds from principal payments of held-to-maturity securities 17 19
Net (increase) decrease in loans ( 3,257 ) 5,875
Purchases of premises and equipment, net ( 62 ) ( 9 )
Proceeds from disposal of premises and equipment, net — 30
Proceeds from sale of OREO and other repossessed assets — 592
Net cash (used in) provided by investing activities ( 3,160 ) 6,700
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 61,660 80,230
FHLB stock purchased ( 4 ) ( 10 )
Common stock repurchases — ( 64 )
Dividends paid on common stock ( 974 ) ( 972 )
Proceeds from common stock option exercises 21 33
Net cash provided by financing activities 60,703 79,217
Net change in cash and cash equivalents 58,901 85,421
Cash and cash equivalents, beginning of period 43,641 49,690
Cash and cash equivalents, end of period $ 102,542 $ 135,111
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes $ 762 $ 237
Interest paid on deposits and borrowings 11,426 12,948
Loans transferred from loans held-for-sale to loans held-for-portfolio 1,200 859
Loans transferred from loans held-for-portfolio to OREO and repossessed assets 300 115
Cash paid for principal portion from finance leases 12 —
ROU assets obtained in exchange for new operating lease liabilities 583 —
ROU assets obtained in exchange for new finance lease liabilities 130 —
See Notes to Condensed Consolidated Financial Statements
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SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1 – Basis of Presentation
The accompanying financial information is unaudited and has been prepared from the consolidated financial statements of Sound Financial Bancorp, Inc, and its wholly owned subsidiaries, Sound Community Bank and Sound Community Insurance Agency, Inc. References in this document to “Sound Financial Bancorp” refer to Sound Financial Bancorp, Inc. and references to the “Bank” refer to Sound Community Bank. 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 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. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These unaudited financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on March 18, 2025 (“2024 Form 10-K”). The results for the interim periods are not necessarily indicative of results for a full year or any other future period.
We have not made any changes in our significant accounting policies from those disclosed in the 2024 Form 10-K.
Note 2 – Accounting Pronouncements Recently Issued or Adopted
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures . This ASU requires public business entities to annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. This ASU was released in response to stakeholder feedback indicating that the existing income tax disclosures should be enhanced to provide information to better assess how an entity’s operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. The Company adopted this ASU on January 1, 2025 for disclosure in the Company’s Annual Report on Form 10-K for the year ending December 31, 2025, with no material impact expected on the Company’s consolidated results of operations, financial position or cash flows.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) , which will change the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (for example, employee compensation, depreciation and amortization) in expense captions. This ASU’s amendments are effective for public business entities for annual reporting periods beginning after December 15, 2026, and for interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company will evaluate the impact of this guidance through the date of adoption.
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Note 3 – Investments
At June 30, 2025, 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):
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair Value
June 30, 2025
Municipal bonds $ 6,333 $ 10 $ ( 1,129 ) $ 5,214
Agency mortgage-backed securities 2,616 11 ( 320 ) 2,307
Total $ 8,949 $ 21 $ ( 1,449 ) $ 7,521
December 31, 2024
Municipal bonds $ 6,354 $ 11 $ ( 991 ) $ 5,374
Agency mortgage-backed securities 2,758 7 ( 349 ) 2,416
Total $ 9,112 $ 18 $ ( 1,340 ) $ 7,790
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):
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair Value
June 30, 2025
Municipal bonds $ 704 $ — $ ( 191 ) $ 513
Agency mortgage-backed securities 1,409 — ( 235 ) 1,174
Total $ 2,113 $ — $ ( 426 ) $ 1,687
December 31, 2024
Municipal bonds $ 704 $ — $ ( 163 ) $ 541
Agency mortgage-backed securities 1,426 — ( 255 ) 1,171
Total $ 2,130 $ — $ ( 418 ) $ 1,712
The amortized cost and estimated fair value of AFS and HTM securities at June 30, 2025, 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, 2025
Available-for-sale Held-to-maturity
Amortized
Cost Estimated Fair Value Amortized
Cost Estimated Fair Value
Due after one year through five years $ 454 $ 455 $ — $ —
Due after five years through ten years 1,717 1,623 — —
Due after ten years 4,162 3,136 704 512
Agency mortgage-backed securities 2,616 2,307 1,409 1,175
Total $ 8,949 $ 7,521 $ 2,113 $ 1,687
There were no pledged securities at June 30, 2025 or December 31, 2024.
There were no sales of AFS or HTM securities during the three and six months ended June 30, 2025 and 2024.
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Accrued interest receivable on securities totaled $ 48 thousand at both June 30, 2025 and December 31, 2024, 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, 2025
Less Than 12 Months 12 Months or Longer Total
Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss
Available-for-sale securities
Municipal bonds $ — $ — $ 3,549 $ ( 1,130 ) $ 3,549 $ ( 1,130 )
Agency mortgage-backed securities 44 — 1,931 ( 319 ) 1,975 ( 319 )
Total available-for-sale securities $ 44 $ — $ 5,480 $ ( 1,449 ) $ 5,524 $ ( 1,449 )
Held-to-maturity securities
Municipal bonds $ — $ — $ 512 $ ( 191 ) $ 512 $ ( 191 )
Agency mortgage-backed securities — — 1,175 ( 235 ) 1,175 ( 235 )
Total held-to-maturity securities $ — $ — $ 1,687 $ ( 426 ) $ 1,687 $ ( 426 )
December 31, 2024
Less Than 12 Months 12 Months or Longer Total
Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss
Available-for-sale securities
Municipal bonds $ — $ — $ 3,708 $ ( 991 ) $ 3,708 $ ( 991 )
Agency mortgage-backed securities 44 ( 2 ) 2,020 ( 347 ) 2,064 ( 349 )
Total $ 44 $ ( 2 ) $ 5,728 $ ( 1,338 ) $ 5,772 $ ( 1,340 )
Held-to-maturity securities
Municipal bonds $ — $ — $ 540 $ ( 163 ) $ 540 $ ( 163 )
Agency mortgage-backed securities — — 1,172 ( 255 ) 1,172 ( 255 )
Total held-to-maturity securities $ — $ — $ 1,712 $ ( 418 ) $ 1,712 $ ( 418 )
There was no allowance for credit losses on securities at June 30, 2025 or December 31, 2024. At both June 30, 2025 and December 31, 2024, the total securities portfolio consisted of 11 agency mortgage-backed securities and 11 municipal bonds. At both June 30, 2025 and December 31, 2024, there was one security in an unrealized loss position for less than 12 months and 15 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 three and six months ended June 30, 2025 and 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.
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Note 4 – Loans
Loans-held-for portfolio (which excludes loans held-for-sale) at the dates indicated were as follows (in thousands):
June 30,
2025 December 31,
2024
Real estate loans:
One-to-four family $ 262,672 $ 269,684
Home equity 28,582 26,686
Commercial and multifamily 398,429 371,516
Construction and land 49,926 73,077
Total real estate loans 739,609 740,963
Consumer loans:
Manufactured homes 43,112 41,128
Floating homes 91,448 86,411
Other consumer 17,259 17,720
Total consumer loans 151,819 145,259
Commercial business loans 14,779 15,605
Total loans held-for-portfolio 906,207 901,827
Premiums for purchased loans (1)
662 718
Deferred fees, net ( 2,583 ) ( 2,374 )
Total loans held-for-portfolio, gross 904,286 900,171
Allowance for credit losses — loans ( 8,536 ) ( 8,499 )
Total loans held-for-portfolio, net $ 895,750 $ 891,672
(1) Includes premiums resulting from purchased loans of $ 379 thousand related to one-to-four family loans, $ 228 thousand related to commercial and multifamily loans, and $ 54 thousand related to commercial business loans as of June 30, 2025. Includes premiums resulting from purchased loans of $ 404 thousand related to one-to-four family loans, $ 244 thousand related to commercial and multifamily loans, and $ 70 thousand related to commercial business loans as of December 31, 2024.
As of June 30, 2025, there were two collateral dependent consumer mortgage loans, totaling $ 166 thousand, that were in process of foreclosure .
The following table presents a summary of activity in the ACL on loans and the reserve for unfunded loan commitments for the periods indicated (in thousands):
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Three Months Ended June 30,
2025 2024
ACL - Loans Reserve for Unfunded Loan Commitments ACL ACL - Loans Reserve for Unfunded Loan Commitments ACL
Balance at beginning of period $ 8,393 $ 116 $ 8,509 $ 8,598 $ 266 $ 8,864
Provision for (release of) credit losses during the period 164 6 170 ( 88 ) ( 21 ) ( 109 )
Net charge-offs during the period ( 21 ) — ( 21 ) ( 17 ) — ( 17 )
Balance at end of period $ 8,536 $ 122 $ 8,658 $ 8,493 $ 245 $ 8,738
Six Months Ended June 30,
2025 2024
ACL - Loans Reserve for Unfunded Loan Commitments ACL ACL - Loans Reserve for Unfunded Loan Commitments ACL
Balance at beginning of period $ 8,499 $ 234 $ 8,733 $ 8,760 $ 193 $ 8,953
Provision for (release of) credit losses during the period 79 ( 112 ) ( 33 ) ( 194 ) 52 ( 142 )
Net charge-offs during the period ( 42 ) — ( 42 ) ( 73 ) — ( 73 )
Balance at end of period $ 8,536 $ 122 $ 8,658 $ 8,493 $ 245 $ 8,738
Accrued interest receivable on loans receivable totaled $ 3.6 million at June 30, 2025 and $ 3.4 million at December 31, 2024, 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 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 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 loans; 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. See “Note 1—Organization and Significant Accounting Policies” in the Company’s 2024 Form 10-K for further information on the Company’s ACL accounting policy.
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The following tables summarize the activity in the ACL - loans for the periods indicated (in thousands):
Three Months Ended June 30, 2025
Beginning
Allowance Charge-offs Recoveries Provision for (Release of) Credit Losses Ending
Allowance
One-to-four family $ 3,328 $ — $ — $ ( 1 ) $ 3,327
Home equity 362 — — ( 2 ) 360
Commercial and multifamily 1,181 — — 55 1,236
Construction and land 279 — — ( 10 ) 269
Manufactured homes 1,303 — — 92 1,395
Floating homes 1,409 — — 1 1,410
Other consumer (1)
448 ( 23 ) 2 24 451
Commercial business 83 — — 5 88
Total $ 8,393 $ ( 23 ) $ 2 $ 164 $ 8,536
(1) During the three months ended June 30,2025, there was one other consumer loan for $ 16 thousand originated in 2024 related to a consumer line of credit that was charged off with the remainder of the gross charge-offs of other consumer loans related entirely to deposit overdrafts.
Three Months Ended June 30, 2024
Beginning
Allowance Charge-offs Recoveries Provision for (Release of) Credit Losses Ending
Allowance
One-to-four family $ 2,910 $ — $ — $ ( 112 ) $ 2,798
Home equity 179 — — 20 199
Commercial and multifamily 1,106 — — 24 1,130
Construction and land 1,329 — — ( 257 ) 1,072
Manufactured homes 833 — 105 938
Floating homes 1,799 — — 111 1,910
Other consumer (1)
333 ( 21 ) 4 32 348
Commercial business 109 — — ( 11 ) 98
Total $ 8,598 $ ( 21 ) $ 4 $ ( 88 ) $ 8,493
(1) During the three months ended June 30, 2024, the gross charge-offs of other consumer loans related entirely to deposit overdrafts that were charged off.
Six Months Ended June 30, 2025
Beginning
Allowance Charge-offs Recoveries Provision for (Release of) Credit Losses Ending
Allowance
One-to-four family $ 3,025 $ — $ — $ 302 $ 3,327
Home equity 307 — — 53 360
Commercial and multifamily 1,218 — — 18 1,236
Construction and land 992 — — ( 723 ) 269
Manufactured homes (1)
1,172 ( 19 ) — 242 1,395
Floating homes 1,282 — — 128 1,410
Other consumer (2)
401 ( 31 ) 8 73 451
Commercial business 102 — — ( 14 ) 88
Total $ 8,499 $ ( 50 ) $ 8 $ 79 $ 8,536
(1) During the six months ended June 30, 2025, there was one manufactured home loan originated in 2022 that was charged off and then subsequently foreclosed upon.
(2) During the six months ended June 30, 2025, there was one other consumer loan for $ 23 thousand originated in 2024 related to a consumer line of credit that was charged off, with the remainder of the gross charge-offs of other consumer loans related entirely to deposit overdrafts.
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Six Months Ended June 30, 2024
Beginning
Allowance Charge-offs Recoveries Provision for (Release of) Credit Losses Ending
Allowance
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
Unallocated — — — — —
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.
Credit Quality Indicators. 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. Assets classified as "doubtful" have all of the weaknesses in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.
Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification and grading. The grades for watch and special mention loans are used by the Company to identify and track potential problem loans which do not rise to the levels described for substandard, doubtful, or loss. These are loans which have been criticized and deserve management's close attention based upon known characteristics such as periodic payment delinquency, failure to comply with contractual terms of the loan, or collateral concerns. Loans identified as watch, special mention, substandard, doubtful, or loss are subject to additional problem loan reporting to management every three months.
When we classify problem assets as either substandard or doubtful, we may determine that these assets should be individually analyzed if they no longer share common risk characteristics with the rest of the portfolio. 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 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 June 30, 2025 and December 31, 2024.
The following tables present the internally assigned grades as of June 30, 2025 and December 31, 2024, by type of loan and origination year (in thousands):
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At June 30, 2025
Term Loans Amortized Cost Basis by Origination Year Revolving Loans Amortized Cost Basis Revolving Loans Amortized Cost Basis Converted to Term
2025 2024 2023 2022 2021 Prior Total
One-to-four family:
Pass $ 15,187 $ 19,747 $ 17,857 $ 71,508 $ 95,097 $ 40,767 $ — $ — $ 260,163
Substandard — — 1,118 229 901 331 — — 2,579
Total one-to-four family $ 15,187 $ 19,747 $ 18,975 $ 71,737 $ 95,998 $ 41,098 $ — $ — $ 262,742
Home equity:
Pass $ 430 $ 2,419 $ 2,804 $ 2,336 $ 846 $ 1,417 $ 17,177 $ 956 $ 28,385
Substandard — — — — — 53 228 134 415
Total home equity $ 430 $ 2,419 $ 2,804 $ 2,336 $ 846 $ 1,470 $ 17,405 $ 1,090 $ 28,800
Commercial and multifamily:
Pass $ 47,364 $ 34,685 $ 24,873 $ 82,905 $ 106,476 $ 79,870 $ — $ — $ 376,173
Substandard — — — — 6,453 14,493 — — 20,946
Total commercial and multifamily $ 47,364 $ 34,685 $ 24,873 $ 82,905 $ 112,929 $ 94,363 $ — $ — $ 397,119
Construction and land:
Pass $ 10,994 $ 15,450 $ 19,077 $ 1,498 $ 841 $ 1,609 $ — $ — $ 49,469
Substandard — — — 69 — 22 — — 91
Total construction and land $ 10,994 $ 15,450 $ 19,077 $ 1,567 $ 841 $ 1,631 $ — $ — $ 49,560
Manufactured homes:
Pass $ 5,090 $ 9,024 $ 11,480 $ 5,948 $ 3,559 $ 7,186 $ — $ — $ 42,287
Substandard — — 193 277 — 214 — — 684
Total manufactured homes $ 5,090 $ 9,024 $ 11,673 $ 6,225 $ 3,559 $ 7,400 $ — $ — $ 42,971
Floating homes:
Pass $ 10,433 $ 20,142 $ 6,342 $ 14,794 $ 23,572 $ 15,725 $ — $ — $ 91,008
Total floating homes $ 10,433 $ 20,142 $ 6,342 $ 14,794 $ 23,572 $ 15,725 $ — $ — $ 91,008
Other consumer:
Pass $ 1,378 $ 1,962 $ 2,671 $ 366 $ 3,448 $ 6,772 $ 603 $ — $ 17,200
Substandard — — 72 — 8 — — — 80
Total other consumer $ 1,378 $ 1,962 $ 2,743 $ 366 $ 3,456 $ 6,772 $ 603 $ — $ 17,280
Commercial business:
Pass $ 340 $ 269 $ 1,059 $ 1,597 $ 1,530 $ 3,529 $ 6,262 $ — $ 14,586
Substandard — 35 — — — — 185 — 220
Total commercial business $ 340 $ 304 $ 1,059 $ 1,597 $ 1,530 $ 3,529 $ 6,447 $ — $ 14,806
Total loans
Pass $ 91,216 $ 103,698 $ 86,163 $ 180,952 $ 235,369 $ 156,875 $ 24,042 $ 956 $ 879,271
Substandard — 35 1,383 575 7,362 15,113 413 134 25,015
Total loans $ 91,216 $ 103,733 $ 87,546 $ 181,527 $ 242,731 $ 171,988 $ 24,455 $ 1,090 $ 904,286
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At December 31, 2024
Term Loans Amortized Cost Basis by Origination Year Revolving Loans Amortized Cost Basis Revolving Loans Amortized Cost Basis
Converted to Term
2024 2023 2022 2021 2020 Prior Total
One-to-four family:
Pass $ 26,327 $ 22,470 $ 78,427 $ 98,379 $ 14,095 $ 29,534 $ — $ — $ 269,232
Substandard — — 259 104 — 214 — — 577
Total one-to-four family $ 26,327 $ 22,470 $ 78,686 $ 98,483 $ 14,095 $ 29,748 $ — $ — $ 269,809
Home equity:
Pass $ 3,084 $ 2,951 $ 2,420 $ 908 $ 210 $ 1,320 $ 14,578 $ 1,069 $ 26,540
Substandard — — — — — 56 234 66 356
Total home equity $ 3,084 $ 2,951 $ 2,420 $ 908 $ 210 $ 1,376 $ 14,812 $ 1,135 $ 26,896
Commercial and multifamily:
Pass $ 34,844 $ 20,736 $ 90,067 $ 111,601 $ 21,240 $ 67,336 $ — $ — $ 345,824
Special mention — — — — — 1,375 — — 1,375
Substandard — — — 5,775 2,165 15,143 — — 23,083
Total commercial and multifamily $ 34,844 $ 20,736 $ 90,067 $ 117,376 $ 23,405 $ 83,854 $ — $ — $ 370,282
Construction and land:
Pass $ 26,458 $ 22,846 $ 2,166 $ 968 $ 593 $ 2,338 $ — $ — $ 55,369
Special mention — — 17,349 — — — — — 17,349
Substandard — — 70 — — 24 — — 94
Total construction and land $ 26,458 $ 22,846 $ 19,585 $ 968 $ 593 $ 2,362 $ — $ — $ 72,812
Manufactured homes:
Pass $ 9,396 $ 12,095 $ 7,039 $ 3,822 $ 1,816 $ 6,180 $ — $ — $ 40,348
Substandard — 427 — — — 205 — — 632
Total manufactured homes $ 9,396 $ 12,522 $ 7,039 $ 3,822 $ 1,816 $ 6,385 $ — $ — $ 40,980
Floating homes:
Pass $ 20,587 $ 6,395 $ 16,225 $ 23,902 $ 6,059 $ 10,472 $ — $ — $ 83,640
Substandard — — 2,350 — — — — — 2,350
Total floating homes $ 20,587 $ 6,395 $ 18,575 $ 23,902 $ 6,059 $ 10,472 $ — $ — $ 85,990
Other consumer:
Pass $ 2,273 $ 3,297 $ 622 $ 3,615 $ 5,387 $ 1,925 $ 618 $ — $ 17,737
Substandard — — — 1 — — — — 1
Total other consumer $ 2,273 $ 3,297 $ 622 $ 3,616 $ 5,387 $ 1,925 $ 618 — $ 17,738
Commercial business:
Pass $ 314 $ 1,256 $ 1,811 $ 3,032 $ 257 $ 3,895 $ 4,862 $ — $ 15,427
Substandard 38 — — — — 11 188 — 237
Total commercial business $ 352 $ 1,256 $ 1,811 $ 3,032 $ 257 $ 3,906 $ 5,050 $ — $ 15,664
Total loans
Pass $ 123,283 $ 92,046 $ 198,777 $ 246,227 $ 49,657 $ 123,000 $ 20,058 $ 1,069 $ 854,117
Special mention — — 17,349 — — 1,375 — — 18,724
Substandard 38 427 2,679 5,880 2,165 15,653 422 66 27,330
Total loans $ 123,321 $ 92,473 $ 218,805 $ 252,107 $ 51,822 $ 140,028 $ 20,480 $ 1,135 $ 900,171
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Nonaccrual and Past Due Loans . 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, 2025 December 31, 2024
Total
Nonaccrual
Loans Total
Nonaccrual
Loans
with no ACL Total
Nonaccrual
Loans Total
Nonaccrual
Loans
with no ACL
One-to-four family $ 1,423 $ 1,423 $ 537 $ 537
Home equity 359 359 298 298
Commercial and multifamily 1,065 1,065 3,734 3,734
Construction and land 21 21 24 24
Manufactured homes 489 489 521 521
Floating homes — — 2,363 2,363
Other consumer 9 8 3 1
Commercial business — — 11 11
Total $ 3,366 $ 3,365 $ 7,491 $ 7,489
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, 2025
30-59 Days
Past Due 60-89 Days
Past Due 90 Days and Greater Past Due 90 Days and Greater Past Due and Accruing Total Past
Due Current Total Loans
One-to-four family $ — $ 327 $ 1,070 $ — $ 1,397 $ 261,345 $ 262,742
Home equity 103 — 75 — 178 28,622 28,800
Commercial and multifamily — — 1,061 — 1,061 396,058 397,119
Construction and land — — — — — 49,560 49,560
Manufactured homes — 200 302 — 502 42,469 42,971
Floating homes — — — — — 91,008 91,008
Other consumer 5 3 7 — 15 17,265 17,280
Commercial business — — — — — 14,806 14,806
Total $ 108 $ 530 $ 2,515 $ — $ 3,153 $ 901,133 $ 904,286
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December 31, 2024
30-59 Days
Past Due 60-89 Days
Past Due 90 Days and Greater Past Due 90 Days and Greater Past Due and Accruing Total Past
Due Current Total Loans
One-to-four family $ 34 $ 339 $ 352 $ — $ 725 $ 269,084 $ 269,809
Home equity 249 — 66 — 315 26,581 26,896
Commercial and multifamily — — 3,733 — 3,731 366,551 370,282
Construction and land 24 — — — 24 72,788 72,812
Manufactured homes 402 287 394 — 1,083 39,897 40,980
Floating homes — — 2,350 — 2,350 83,640 85,990
Other consumer 6 12 — — 18 17,720 17,738
Commercial business — — — — — 15,664 15,664
Total $ 715 $ 638 $ 6,895 $ — $ 8,246 $ 891,925 $ 900,171
Loan Modifications to Borrowers Experiencing Financial Difficulty. The Company has granted modifications which can generally be described in the following categories:
Principal Forgiveness : A modification in which the principal is reduced.
Rate Modification : A modification in which the interest rate is changed.
Term Modification : A modification in which the maturity date, timing of payments or frequency of payments is changed.
Payment Modification : A modification in which the dollar amount of the payment is changed. Interest-only modifications in which a loan is converted to interest-only payments for a period of time are included in this category.
Combination Modification : Any other type of modification, including the use of multiple categories above.
At June 30, 2025, 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, 2025 and 2024.
At June 30, 2025 and December 31, 2024, we had no loan receivables that defaulted subsequent to their modification.
Troubled debt restructurings (“TDRs”). Prior to the adoption of ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures , the Company had granted a variety of concessions to borrowers in the form of loan modifications that were considered TDRs. Loans classified as legacy TDRs totaled $ 1.3 million at both June 30, 2025 and December 31, 2024.
Collateral Dependent Loans . Loans that have been classified as collateral dependent are loans where substantially all repayment of the loan is expected to come from the operation of or eventual liquidation of the collateral. Collateral dependent loans are evaluated individually for purposes of determining the ACL, which is determined based on the estimated fair value of the collateral. Estimates for costs to sell are included in the determination of the ACL when liquidation of the collateral is anticipated. In cases where the loan is well secured and the estimated fair value of the collateral exceeds the amortized cost of the loan, no ACL is recorded.
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The following tables summarize collateral dependent loans by collateral type as of the dates indicated (in thousands):
June 30, 2025
Commercial Real Estate Residential Real Estate Land Other Residential RVs/Automobiles Business Assets Total
Real estate loans:
One- to four- family $ — $ 1,230 $ — $ 329 $ — $ — $ 1,559
Home equity — 359 — — — — 359
Commercial and multifamily — — — — — 1,065 1,065
Construction and land — — 21 — — — 21
Total real estate loans — 1,589 21 329 — 1,065 3,004
Consumer loans:
Manufactured homes — — — 489 — — 489
Other consumer — — — — 8 — 8
Total consumer loans — — — 489 8 — 497
Commercial business loans — — — — — — —
Total loans $ — $ 1,589 $ 21 $ 818 $ 8 $ 1,065 $ 3,501
December 31, 2024
Commercial Real Estate Residential Real Estate Land Other Residential RVs/Automobiles Business Assets Total
Real estate loans:
One- to four- family $ — $ 311 $ — $ 364 $ — $ — $ 675
Home equity — 298 — — — — 298
Commercial and multifamily 3,734 — — — — — 3,734
Construction and land — — 24 — — — 24
Total real estate loans 3,734 609 24 364 — — 4,731
Consumer loans:
Manufactured homes — — — 521 — — 521
Floating homes — — — 2,363 — — 2,363
Other consumer — — — — 1 — 1
Total consumer loans — — — 2,884 1 — 2,885
Commercial business loans — — — — — 11 11
Total loans $ 3,734 $ 609 $ 24 $ 3,248 $ 1 $ 11 $ 7,627
Note 5 – Fair Value Measurements
The Company determines the fair values of its financial instruments based on the requirements established in ASC 820 , Fair Value Measurements (“ASC 820”), which provides a framework for measuring fair value in accordance with U.S. GAAP and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. 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, 2025 and December 31, 2024 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
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in the specific instruments (Level 2). Level 2 securities include those traded on an active exchange, as well as U.S. government securities.
Held-to-maturity securities – The fair value is based on quoted market prices, if available. If quoted market prices are not available, management utilizes third-party pricing services or broker quotations from dealers in the specific instruments. Level 2 securities include those traded on an active exchange, as well as U.S. government securities.
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.
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. The estimated fair values of loans held-for-portfolio reflect exit price assumptions. The liquidity premiums/discounts are part of the valuation for exit pricing.
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 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, 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 of off-balance sheet financial instruments, which consisted entirely of loan commitments at June 30, 2025 and December 31, 2024, 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 June 30, 2025 and December 31, 2024.
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, 2025 and 2024.
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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, 2025 Fair Value Measurements Using:
Carrying
Value Estimated
Fair Value Level 1 Level 2 Level 3
FINANCIAL ASSETS:
Cash and cash equivalents $ 102,542 $ 102,542 $ 102,542 $ — $ —
Available-for-sale securities 7,521 7,521 — 7,521 —
Held-to-maturity securities 2,113 1,687 — 1,687 —
Loans held-for-sale 2,025 2,025 — 2,025 —
Loans held-for-portfolio, net 895,750 860,566 — — 860,566
Mortgage servicing rights 4,638 4,638 — — 4,638
FINANCIAL LIABILITIES:
Time deposits 293,881 294,173 — 294,173 —
Borrowings 25,000 25,000 — 25,000 —
Subordinated notes 11,780 12,567 — 12,567 —
December 31, 2024 Fair Value Measurements Using:
Carrying
Value Estimated
Fair Value Level 1 Level 2 Level 3
FINANCIAL ASSETS:
Cash and cash equivalents $ 43,641 $ 43,641 $ 43,641 $ — $ —
Available-for-sale securities 7,790 7,790 — 7,790 —
Held-to-maturity securities 2,130 1,712 — 1,712 —
Loans held-for-sale 487 487 — 487 —
Loans held-for-portfolio, net 891,672 850,813 — — 850,813
Mortgage servicing rights 4,769 4,769 — — 4,769
FINANCIAL LIABILITIES:
Time deposits 295,822 296,575 — 296,575 —
Borrowings 25,000 25,000 — 25,000 —
Subordinated notes 11,759 12,653 — 12,653 —
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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, 2025
Description Total Level 1 Level 2 Level 3
Municipal bonds $ 5,214 $ — $ 5,214 $ —
Agency mortgage-backed securities 2,307 — 2,307 —
Mortgage servicing rights 4,638 — — 4,638
Fair Value at December 31, 2024
Description Total Level 1 Level 2 Level 3
Municipal bonds $ 5,374 $ — $ 5,374 $ —
Agency mortgage-backed securities 2,416 — 2,416 —
Mortgage servicing rights 4,769 — — 4,769
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, 2025
Financial Instrument Valuation Technique Unobservable Input(s) Range
(Weighted-Average)
Mortgage Servicing Rights Discounted cash flow Prepayment speed assumption 125 %- 438 % ( 125 %)
Discount rate 9.0 %- 13.5 % ( 10 %)
December 31, 2024
Financial Instrument Valuation Technique Unobservable Input(s) Range
(Weighted-Average)
Mortgage Servicing Rights Discounted cash flow Prepayment speed assumption 125 %- 556 % ( 125 %)
Discount rate ( 10 %)
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 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, 2025 and 2024.
MSRs are measured at fair value using significant unobservable inputs (Level 3) on a recurring basis, and a reconciliation of these assets can be found in “Note 6—Mortgage Servicing Rights.
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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, 2025
Total Level 1 Level 2 Level 3
OREO and repossessed assets $ 300 $ — $ — $ 300
Collateral dependent loans 3,501 — — 3,501
Fair Value at December 31, 2024
Total Level 1 Level 2 Level 3
Collateral dependent loans $ 7,627 $ — $ — $ 7,627
There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis, at both June 30, 2025 and December 31, 2024.
Note 6 – Mortgage Servicing Rights
The unpaid principal balance of the Company’s mortgage servicing rights portfolio totaled $ 414.1 million at June 30, 2025 compared to $ 425.8 million at December 31, 2024. Of these total balances, the unpaid principal balances of loans serviced for Federal National Mortgage Association (“Fannie Mae”) at June 30, 2025 and December 31, 2024 were $ 412.1 million and $ 423.7 million, respectively. The unpaid principal balance of loans serviced for other financial institutions totaled $ 2.1 million at both June 30, 2025 and December 31, 2024. 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,
2025 2024 2025 2024
Beginning balance, at fair value $ 4,688 $ 4,612 $ 4,769 $ 4,632
Servicing rights that result from transfers and sale of financial assets 30 44 48 89
Changes in fair value:
Due to changes in model inputs or assumptions and other (1)
( 80 ) ( 116 ) ( 179 ) ( 181 )
Ending balance, at fair value $ 4,638 $ 4,540 $ 4,638 $ 4,540
(1) Represents changes due to collection/realization of expected cash flows and curtailments.
The key economic assumptions used in determining the fair value of mortgage servicing rights at the dates indicated are as follows:
June 30, 2025 December 31, 2024
Prepayment speed (Public Securities Association “PSA” model) 125 % 125 %
Weighted-average life 10.4 years 10.6 years
Weighted average discount rate 10.0 % 10.0 %
The amount of contractually specified servicing, late and ancillary fees earned on mortgage servicing rights, which are included in mortgage servicing income on the Condensed Consolidated Statements of Income, totaled $ 263 thousand and $ 531 thousand for three and six months ended June 30, 2025, and $ 279 thousand and $ 561 thousand for the three and six months ended June 30, 2024, respectively.
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Note 7 – Commitments and Contingencies
In the normal course of operations, the Company engages in a variety of financial transactions that are not recorded in our financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage clients’ requests for funding and take the form of loan commitments and lines of credit.
Note 8 – Borrowings, FHLB Stock and Subordinated Notes
FHLB Advances
The following tables present advances from the FHLB as of the dates indicated (dollars in thousands):
June 30, 2025 December 31, 2024
FHLB advances:
Short-term advances (one year or less) $ 15,000 $ —
Long-term advances (over one year) 10,000 25,000
Total
$ 25,000 $ 25,000
June 30, 2025 December 31, 2024
Fixed Rate:
Outstanding balance $ 25,000 $ 25,000
Interest rates ranging from 4.06 % 4.06 %
Interest rates ranging to 4.27 % 4.27 %
Weighted average interest rate 4.16 % 4.16 %
The following table presents the maturity of our FHLB advances (dollars in thousands):
June 30,
2025
Remainder of 2025 $ —
2026 15,000
2027 —
2028 10,000
2029 —
Thereafter —
$ 25,000
FHLB Des Moines Borrowing Capacity
The Company has a loan agreement with the FHLB of Des Moines. The terms of the agreement call for a blanket pledge of a portion of the Company’s mortgage and commercial and multifamily loan portfolio based on the 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 Company’s borrowing capacity from the FHLB as of the dates indicated:
June 30, 2025 December 31, 2024
Amount available to borrow under credit facility (1)
$ 374,270 $ 385,366
Advance equivalent of collateral:
One-to-four family loans 172,385 175,907
Commercial and multifamily loans 26,537 29,180
Home equity loans 232 241
Notional amount of letters of credit outstanding 13,000 8,000
Remaining FHLB borrowing capacity (2)
$ 161,155 $ 172,327
(1) Subject to eligible pledged collateral.
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(2) Amount remaining from the advance equivalent of collateral less letters of credit outstanding and FHLB advances.
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, 2025 and December 31, 2024, the Company had an investment of $ 1.7 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 Company’s outstanding borrowing balance. At June 30, 2025 and December 31, 2024, the amount available to borrow under this credit facility was $ 19.4 million and $ 20.8 million, respectively, subject to eligible pledged collateral. The Company had no outstanding borrowings under this arrangement at June 30, 2025 and December 31, 2024.
Other Borrowings
The Company has access to an unsecured Fed Funds line of credit from Pacific Coast Banker’s Bank (“PCBB”). The line has a one year term maturing on June 30, 2026 and is renewable annually. As of June 30, 2025, 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, 2025 and December 31, 2024.
Subordinated Debt
In September 2020, the Company issued $ 12.0 million of fixed to floating rate subordinated notes that mature in 2030. The subordinated notes have an initial fixed interest rate of 5.25 % to, but excluding, October 1, 2025, payable semi-annually in arrears. From, and including, October 1, 2025, the interest rate on the subordinated notes will reset quarterly to a floating rate per annum equal to a benchmark rate, which is expected to be the then-current three-month term Secured Overnight Financing Rate, or SOFR, plus 513 basis points, payable quarterly in arrears. The subordinated notes mature on May 15, 2030, and may be redeemed by the Company, in whole or in part, on October 1, 2025, or on any subsequent interest payment date. 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 $ 11.8 million as of both June 30, 2025 and December 31, 2024.
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
2025 2024 2025 2024
Net income $ 2,052 $ 795 $ 3,219 $ 1,564
LESS: Participating dividends - Unvested Restricted Stock Awards (“RSAs”) ( 2 ) ( 3 ) ( 4 ) ( 7 )
LESS: Income allocated to participating securities - Unvested RSAs ( 6 ) ( 2 ) ( 9 ) ( 4 )
Net income available to common stockholders - basic 2,044 790 3,206 1,554
ADD BACK: Income allocated to participating securities - Unvested RSAs 6 2 9 4
LESS: Income reallocated to participating securities - Unvested RSAs ( 6 ) ( 2 ) ( 9 ) ( 4 )
Net income available to common stockholders - diluted $ 2,044 $ 790 $ 3,206 $ 1,554
Weighted average number of shares outstanding, basic 2,556,562 2,540,538 2,555,413 2,539,872
Effect of potentially dilutive common shares 21,428 18,477 22,874 18,121
Weighted average number of shares outstanding, diluted 2,577,990 2,559,015 2,578,287 2,557,993
Earnings per share, basic $ 0.80 $ 0.31 $ 1.25 $ 0.61
Earnings per share, diluted $ 0.79 $ 0.31 $ 1.24 $ 0.61
There were no anti-dilutive securities during the three and six months ended June 30, 2025 and June 30, 2024.
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Note 10 – Leases
We currently have operating leases for branch locations, a loan production office and our corporate office. The term for our leases generally begins on the date we become legally obligated for the rent payments or we take possession of the building premises, whichever is earlier. Our real estate leases have initial terms ranging from one to 10.5 years and typically include one renewal option. As of June 30, 2025, our leases had remaining terms ranging from 8 months to 4.9 years. The operating leases require us to pay property taxes and operating expenses for the properties. We have finance leases for certain equipment, including copier machines. The lease initial term was for 5 years and has a remaining term 4.5 years.
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):
June 30,
2025 December 31,
2024
Operating lease right-of-use assets $ 3,816 $ 3,725
Finance lease right-of-use assets 117 —
Operating lease liabilities 4,095 4,013
Finance lease liabilities 118 —
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,
2025 2024 2025 2024
Lease expense
Operating leases $ 275 $ 270 $ 548 $ 540
Finance leases
Amortization of right-of-use assets 13 — 13 —
Interest on lease liabilities 3 — 3 —
Sublease income — ( 1 ) — ( 4 )
Net lease expense $ 291 $ 269 $ 564 $ 536
The following table presents the schedule of lease liability payments at the date indicated (in thousands):
June 30, Finance Leases Operating Leases Total Lease Payments
2026 $ 29 $ 1,158 $ 1,187
2027 29 1,132 1,161
2028 29 1,086 1,115
2029 29 865 894
2030 14 106 120
Total lease payments 130 4,347 4,477
Less: Present value discount 12 252 264
Present value of lease liabilities $ 118 $ 4,095 $ 4,213
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Lease term and discount rate by lease type consisted of the following at the dates indicated:
June 30,
2025 December 31,
2024
Weighted-average remaining lease term:
Operating leases 3.9 years 4.3 years
Finance leases 4.5 years 0.0 years
Weighted-average discount rate (annualized):
Operating leases 3.09 % 2.88 %
Finance leases 4.41 % — %
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,
2025 2024 2025 2024
Cash paid for amounts included in the measurement of lease liabilities for operating leases:
Operating cash flows:
Operating leases $ 280 $ 280 $ 559 $ 558
Finance leases 3 — 3 —
Financing cash flows:
Finance leases 12 — 12 —
Note 11 – Subsequent Events
On July 29, 2025, the Company announced that its Board of Directors declared a quarterly cash dividend of $ 0.19 per common share, payable on August 25, 2025 to stockholders of record at the close of business on August 11, 2025.
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Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.