UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2023

ORor

☐
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

~~COMMISSION FILE NUMBER~~Commission File Number: 001-35633


Sound Financial Bancorp, Inc.
(Exact ~~Name~~name of ~~Registrant~~registrant as ~~Specified~~specified in its ~~Charter)~~charter)

~~Maryland~~	~~45-5188530~~
Maryland		45-5188530
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2400 3rd3rd Avenue, Suite 150, Seattle, Washington		98121
(Address of principal executive offices)		(Zip Code)

~~Registrant's~~Registrant’s telephone number, including area code: (206) 448-0884

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Common Stock, $0.01 par value	SFBC	The NASDAQ Stock Market LLC

Indicate by ~~checkmark~~check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~YES~~ Yes ☒ NO No ☐

Indicate by ~~checkmark~~check mark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ~~YES~~ Yes ☒ NO No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ~~"large~~“large accelerated filer,"” accelerated filer,~~" "smaller~~” “smaller reporting ~~company"~~company” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer☐	☐	Accelerated filer	☐

Non-accelerated filer☐	☒	Smaller reporting company	☒
~~(Do not check if a smaller reporting company)~~
		Emerging growth company☒	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

☐

Indicate by ~~checkmark~~check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~YES~~ Yes ☐ NO No ☒

Indicate the number of shares outstanding of each of the ~~registrant's~~registrant’s classes of common stock as of the latest practicable date.

As of ~~November 8, 2017,~~May 10, 2023, there were ~~2,510,045~~2,601,137 shares of the ~~registrant's~~registrant’s common stock outstanding.

Table of Contents

SOUND FINANCIAL BANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS

	~~Page Number~~
		Page Number
PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016~~2022 (unaudited)		3

Condensed Consolidated Statements of Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 (unaudited)		4

Condensed Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 (unaudited)		5

Condensed Consolidated Statements of ~~Stockholders'~~Stockholders’ Equity for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 (unaudited)		6

Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 (unaudited)		7

~~Selected~~ Notes to Condensed Consolidated Financial Statements (unaudited)		8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		25 32

Item 3. Quantitative and Qualitative Disclosures About Market Risk		33 46

Item 4. Controls and Procedures		33 46

PART II OTHER INFORMATION

Item 1. Legal Proceedings		34 47

Item 1A. Risk Factors		34 47

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		34 47

Item 3. Defaults Upon Senior Securities		34 47

Item 4. Mine Safety Disclosures		35 47

Item 5. Other Information		34 47

Item 6. Exhibits		34 48

SIGNATURES		36

~~EXHIBITS~~	38 49

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets (unaudited)

(In thousands, except share and per share amounts)


	September 30, 2017			December 31, 2016				March 31, 2023		December 31, 2022
ASSETS							ASSETS
Cash and cash equivalents	$	60,651		$	54,582		Cash and cash equivalents	$	81,580	$	57,836
Available-for-sale securities, at fair value		5,688			6,604		Available-for-sale securities, at fair value	8,601		10,207
Loans held for sale		296			871
Loans		528,208			500,001
Allowance for loan losses		(4,991	)		(4,822	)
Total loans, net		523,217			495,179
Held-to-maturity securities, at amortized cost							Held-to-maturity securities, at amortized cost	2,190		2,199
Loans held-for-sale							Loans held-for-sale	1,414		—
Loans held-for-portfolio							Loans held-for-portfolio	870,545		865,981
Allowance for credit losses on loans							Allowance for credit losses on loans	(8,532)		(7,599)
Total loans held-for-portfolio, net							Total loans held-for-portfolio, net	862,013		858,382
Accrued interest receivable		1,943			1,816		Accrued interest receivable	3,152		3,083
Bank-owned life insurance ("BOLI"), net		12,602			12,082
Other real estate owned ("OREO") and repossessed assets, net		1,032			1,172
Bank-owned life insurance (“BOLI”), net							Bank-owned life insurance (“BOLI”), net	21,465		21,314
Other real estate owned (“OREO”) and repossessed assets, net							Other real estate owned (“OREO”) and repossessed assets, net	575		659
Mortgage servicing rights, at fair value		3,370			3,561		Mortgage servicing rights, at fair value	4,587		4,687
Federal Home Loan Bank ("FHLB") stock, at cost		1,825			2,840
Federal Home Loan Bank (“FHLB”) stock, at cost							Federal Home Loan Bank (“FHLB”) stock, at cost	2,583		2,832
Premises and equipment, net		7,338			5,549		Premises and equipment, net	5,370		5,513
Right of use assets							Right of use assets	5,200		5,102
Other assets		4,574			4,127		Other assets	5,633		4,537
Total assets	$	622,536		$	588,383		Total assets	$	1,004,363	$	976,351
LIABILITIES							LIABILITIES
Deposits							Deposits
Interest-bearing	$	448,291		$	403,990		Interest-bearing	$	668,568	$	635,567
Noninterest-bearing demand		76,526			63,741		Noninterest-bearing demand	173,079		173,196
Total deposits		524,817			467,731		Total deposits	841,647		808,763
Borrowings		28,000			54,792		Borrowings	35,000		43,000
Accrued interest payable		68			73		Accrued interest payable	385		395
Lease liabilities							Lease liabilities	5,543		5,448
Other liabilities		5,241			4,874		Other liabilities	9,398		8,318
Advance payments from borrowers for taxes and insurance		1,066			638		Advance payments from borrowers for taxes and insurance	2,099		1,046
Subordinated notes, net							Subordinated notes, net	11,686		11,676
Total liabilities		559,192			528,108		Total liabilities	905,758		878,646
COMMITMENTS AND CONTINGENCIES (NOTE 7)							COMMITMENTS AND CONTINGENCIES (NOTE 7)	—		—
STOCKHOLDERS' EQUITY
STOCKHOLDERS’ EQUITY							STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued or outstanding		-			-		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, 2,510,045 and 2,498,804 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively		25			25
Common stock, $0.01 par value, 40,000,000 shares authorized, 2,601,443 and 2,583,619 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively							Common stock, $0.01 par value, 40,000,000 shares authorized, 2,601,443 and 2,583,619 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	26		26
Additional paid-in capital		24,297			23,979		Additional paid-in capital	28,251		28,004
Unearned shares - Employee Stock Ownership Plan ("ESOP")		(683	)		(683	)

Retained earnings		39,558			36,873		Retained earnings	71,362		70,792
Accumulated other comprehensive income, net of tax		147			81
Total stockholders' equity		63,344			60,275
Total liabilities and stockholders' equity	$	622,536		$	588,383
Accumulated other comprehensive loss, net of tax							Accumulated other comprehensive loss, net of tax	(1,034)		(1,117)
Total stockholders’ equity							Total stockholders’ equity	98,605		97,705
Total liabilities and stockholders’ equity							Total liabilities and stockholders’ equity	$	1,004,363	$	976,351

See ~~notes~~Notes to ~~condensed consolidated financial statements~~

Condensed Consolidated Financial Statements

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Income (unaudited)

(In thousands, except share and per share amounts)


	Three Months Ended March 31,
	2023		2022
INTEREST INCOME
Loans, including fees	$	11,381	$	8,075
Interest and dividends on investments, cash and cash equivalents	793		138
Total interest income	12,174		8,213
INTEREST EXPENSE
Deposits	2,136		427
Borrowings	499		—
Subordinated notes	168		168
Total interest expense	2,803		595
Net interest income	9,371		7,618
PROVISION FOR CREDIT LOSSES	10		140
Net interest income after provision for credit losses	9,361		7,478
NONINTEREST INCOME
Service charges and fee income	581		549
Earnings on cash surrender value of bank-owned life insurance	151		21
Mortgage servicing income	299		320
Fair value adjustment on mortgage servicing rights	(140)		268
Net gain on sale of loans	78		365

Total noninterest income	969		1,523
NONINTEREST EXPENSE
Salaries and benefits	4,485		4,167
Operations	1,441		1,299
Regulatory assessments	153		101
Occupancy	459		432
Data processing	993		821
Net loss (gain) on OREO and repossessed assets	84		—
Total noninterest expense	7,615		6,820
Income before provision for income taxes	2,715		2,181
Provision for income taxes	547		458
Net income	$	2,168	$	1,723

Earnings per common share:
Basic	$	0.84	$	0.66
Diluted	$	0.83	$	0.65
Weighted-average number of common shares outstanding:
Basic	2,578,413		2,602,168
Diluted	2,604,043		2,640,359

See Notes to Condensed Consolidated Financial Statements

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(In thousands)


	Three Months Ended March 31,
	2023		2022
Net income	$	2,168	$	1,723
Available for sale securities:
Unrealized gains (losses) arising during the period	105		(770)
Income tax (expense) benefit related to unrealized gains (losses)	(22)		162
Other comprehensive income (loss), net of tax	83		(608)
Comprehensive income	$	2,251	$	1,115

See Notes to Condensed Consolidated Financial Statements

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY

Condensed Consolidated Statements of ~~Income~~Stockholders’ Equity

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

(In thousands, except share and per share amounts)


	Shares	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income/(Loss), net of tax		Total Stockholders’ Equity
Balance, at December 31, 2022	2,583,619	$	26	$	28,004	$	70,792	$	(1,117)	$	97,705
Impact of adoption of Accounting Standards Update (“ASU”) 2016-13	—	—		—		(1,149)		—		(1,149)
Net income	—	—		—		2,168		—		2,168
Other comprehensive income, net of tax	—	—		—		—		83		83
Share-based compensation	—	—		192		—		—		192
Restricted stock awards issued	8,850	—		—		—		—		—
Cash dividends paid on common stock ($0.17 per share)	—	—		—		(442)		—		(442)
Common stock repurchased	(204)	—		(2)		(7)		—		(9)
Common stock surrendered	(4,750)	—		(190)		—		—		(190)
Restricted stock forfeited	(425)	—		—		—		—		—
Common stock options exercised	14,353	—		247		—		—		247

Balance, at March 31, 2023	2,601,443	$	26	$	28,251	$	71,362	$	(1,034)	$	98,605

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
INTEREST INCOME
Loans, including fees $ 6,832 $ 6,050 $ 19,630 $ 18,053
Interest and dividends on investments, cash and cash equivalents 234 98 544 279
Total interest income 7,066 6,148 20,174 18,332
INTEREST EXPENSE
Deposits 808 678 2,199 2,020
Borrowings 72 52 238 136
Total interest expense 880 730 2,437 2,156
Net interest income 6,186 5,418 17,737 16,176
PROVISION FOR LOAN LOSSES 250 - 250 250
Net interest income after provision for loan losses 5,936 5,418 17,487 15,926
NONINTEREST INCOME
Service charges and fee income 439 743 1,442 1,988
Earnings on cash surrender value of bank-owned life insurance 82 84 245 252
Mortgage servicing income 18 239 399 462
Net gain on sale of loans 287 477 720 1,028
Total noninterest income 826 1,543 2,806 3,730
NONINTEREST EXPENSE
Salaries and benefits 2,777 2,632 8,130 7,813
Operations 1,002 1,181 3,052 3,237
Regulatory assessments 80 124 340 404
Occupancy 520 376 1,415 1,141
Data processing 448 434 1,293 1,264
Net loss on OREO and repossessed assets 109 3 123 9
Total noninterest expense 4,936 4,750 14,353 13,868
Income before provision for income taxes 1,826 2,211 5,940 5,788
Provision for income taxes 604 757 2,001 1,974
Net income $ 1,222 $ 1,454 $ 3,939 $ 3,814

Earnings per common share:
Basic $ 0.49 $ 0.58 $ 1.57 $ 1.54
Diluted $ 0.48 $ 0.57 $ 1.54 $ 1.48
Weighted-average number of common shares outstanding:
Basic 2,506,863 2,490,089 2,502,399 2,483,004
Diluted 2,562,373 2,568,457 2,562,606 2,556,949


	Shares	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income/(Loss), net of tax		Total Stockholders’ Equity












Balance, at December 31, 2021	2,613,768	$	26	$	27,956	$	65,237	$	139	$	93,358
Net income	—	—		—		1,723		—		1,723
Other comprehensive loss, net of tax	—	—		—		—		(608)		(608)
Share-based compensation	—	—		203		—		—		203
Restricted stock awards issued	9,700	—		—		—		—		—
Cash dividends paid on common stock ($0.27 per share)	—	—		—		(709)		—		(709)
Common stock repurchased	(4,008)			(48)		(112)				(160)
Common stock surrendered	(100)	—		—		—		—		—
Restricted stock forfeited	(250)	—		—		—		—		—
Common stock options exercised	2,421	—		43		—		—		43

Balance, at March 31, 2022	2,621,531	$	26	$	28,154	$	66,139	$	(469)	$	93,850

See ~~notes~~Notes to ~~condensed consolidated financial statements~~

Condensed Consolidated Financial Statements

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY

Condensed Consolidated Statements of ~~Comprehensive Income~~ Cash Flows (unaudited)

(In thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income $ 1,222 $ 1,454 $ 3,939 $ 3,814
Available for sale securities:
Unrealized gains/(losses) arising during the period, net of tax provision/(benefit) of $4, $(19), $34 and $13, respectively 8 (35 ) 66 23
Other comprehensive income, net of tax 8 (35 ) 66 23
Comprehensive income $ 1,230 $ 1,419 $ 4,005 $ 3,837


	Three Months Ended March 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,168	$	1,723
Adjustments to reconcile net income to net cash from operating activities:
Amortization of net discounts on investments	17		24
Provision for credit losses	10		140
Depreciation and amortization	178		173
Compensation expense related to stock options and restricted stock	192		203
Fair value adjustment on mortgage servicing rights	140		(268)
Right of use assets amortization	236		34
Change in lease liabilities	(239)		(31)
Change in cash surrender value of BOLI	(151)		(21)
Net change in advances from borrowers for taxes and insurance	1,053		485

Net gain on sale of loans	(78)		(365)
Proceeds from sale of loans held-for-sale	3,906		12,424
Originations of loans held-for-sale	(5,282)		(12,118)
Net loss (gain) on OREO and repossessed assets	84		—
Change in operating assets and liabilities:
Accrued interest receivable	(69)		100
Other assets	(1,273)		(35)
Accrued interest payable	(10)		(162)
Other liabilities	1,080		598
Net cash provided by operating activities	1,962		2,904
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities	—		(2,803)
Proceeds from principal payments, maturities and sales of available-for-sale securities	1,704		215
Purchase of held-to-maturity securities	—		(2,226)
Proceeds from principal payments of held-to-maturity securities	9		3
Net increase in loans	(4,636)		(21,382)

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

Net cash used in investing activities	(2,958)		(26,277)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	32,884		37,771

Repayment of borrowings	(8,000)		—

FHLB stock redeemed/(purchased)	249		(71)
Common stock repurchases	(9)		(160)
Purchase of stock surrendered to pay tax liability	(190)		—

Dividends paid on common stock	(442)		(709)
Proceeds from common stock option exercises	247		43
Net cash provided by financing activities	24,739		36,874
Net change in cash and cash equivalents	23,743		13,501
Cash and cash equivalents, beginning of period	57,836		183,590
Cash and cash equivalents, end of period	$	81,579	$	197,091
SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid on deposits and borrowings	2,813		757

ROU assets obtained in exchange for new operating lease liabilities	334		—
Impact of adoption of ASU 2016-13 on retained earnings	(1,149)		—

See ~~notes~~Notes to ~~condensed consolidated financial statements~~

Condensed Consolidated Financial Statements

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY

~~Condensed Consolidated Statements of Stockholders' Equity~~

~~For the Nine Months Ended September 30, 2017 and 2016~~ ~~(unaudited)~~

~~(In thousands, except share and per share amounts)~~

Shares
Common
Stock

Additional Paid
-in Capital

Unearned
ESOP Shares

Retained
Earnings

Accumulated
Other
Comprehensive
Income, net of
tax

Total
Stockholders'
Equity

Balances at December 31, 2015 2,469,206 $ 25 $ 23,002 $ (911 ) $ 32,240 $ 164 $ 54,520
Net income 3,814 3,814
Other comprehensive income, net of tax 23 23
Share-based compensation 354 354
Cash dividends paid on common stock ($0.23 per share) (558 ) (558 )
Common Stock repurchase in conjunction with stock option exercise (2,805 ) -
Restricted stock awards issued 11,606 -
Restricted stock forfeited and retired (1,059 ) -
Exercise of options 21,656 164 164
Balances at September 30, 2016 2,498,604 $ 25 $ 23,520 $ (911 ) $ 35,496 $ 187 $ 58,317

Shares
Common
Stock

Additional Paid-
in Capital

Unearned
ESOP Shares

Retained
Earnings

Accumulated
Other
Comprehensive
Income, net of
tax

Total
Stockholders'
Equity

Balances at December 31, 2016 2,498,804 $ 25 $ 23,979 $ (683 ) $ 36,873 $ 81 $ 60,275
Net income 3,939 3,939
Other comprehensive income, net of tax 66 66
Share-based compensation 285 285
Cash dividends paid on common stock ($0.50 per share) (1,254 ) (1,254 )
Common stock surrendered (3,353 ) -
Restricted stock awards issued 576 -
Exercise of options 14,018 33 33
Balances at September 30, 2017 2,510,045 $ 25 $ 24,297 $ (683 ) $ 39,558 $ 147 $ 63,344

~~See notes to condensed consolidated financial statements~~

~~SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY~~

~~Condensed Consolidated Statements of Cash Flows~~ ~~(unaudited)~~

~~(In thousands)~~

Nine Months Ended September 30,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,939 $ 3,814
Adjustments to reconcile net income to net cash from operating activities:
Accretion of net discounts on investments (16 ) 32
Provision for loan losses 250 250
Depreciation and amortization 706 593
Compensation expense related to stock options and restricted stock 285 354
Net change in mortgage servicing rights 191 210
Increase in cash surrender value of BOLI (245 ) (252 )
Net gain on sale of loans (720 ) (1,028 )
Proceeds from sale of loans 35,818 58,464
Originations of loans held-for-sale (34,522 ) (57,769 )
Net loss on sale and write-downs of OREO and repossessed assets 109 3
Change in operating assets and liabilities:
Accrued interest receivable (127 ) (22 )
Other assets (482 ) (330 )
Accrued interest payable (5 ) (10 )
Other liabilities 367 719
Net cash provided by operating activities 5,548 5,028
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal payments, maturities and sales of available-for-sale securities 1,032 1,008
Purchases of available-for-sale securities - (1,363 )
FHLB stock redeemed 1,015 66
Net increase in loans (28,505 ) (17,873 )
Purchase of BOLI (275 ) -
Proceeds from sale of OREO and other repossessed assets 248 131
Purchases of premises and equipment, net (2,495 ) (532 )
Net cash received from branch acquisition 13,671 -
Net cash used by investing activities (15,309 ) (18,563 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 43,415 23,459
Proceeds from borrowings 137,000 106,000
Repayment of borrowings (163,792 ) (108,982 )
Dividends paid on common stock (1,254 ) (558 )
Net change in advances from borrowers for taxes and insurance 428 463
Proceeds from stock option exercises 33 164
Net cash used by financing activities 15,830 20,546
Net change in cash and cash equivalents 6,069 7,011
Cash and cash equivalents, beginning of period 54,582 48,264
Cash and cash equivalents, end of period $ 60,651 $ 55,275

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes $ 1,910 $ 2,290
Interest paid on deposits and borrowings 2,442 2,166
Noncash net transfer from loans to OREO and repossessed assets - 249
Assets acquired in acquisition of branch 14,474 -

~~See notes to condensed consolidated financial statements~~

~~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 ~~subsidiary,~~subsidiaries, Sound Community ~~Bank.~~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"~~“Bank” refer to Sound Community Bank. References to ~~"we," "us,"~~“we,” “us,” and ~~"our"~~“our” or the ~~"Company"~~“Company” refers to Sound Financial Bancorp and its wholly-owned ~~subsidiary,~~subsidiaries, Sound Community Bank and Sound Community Insurance Agency, Inc., 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 ~~("GAAP"~~(“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"~~(“SEC”). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. 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~~Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2022, as filed with the SEC on March ~~27, 2017 ("2016~~14, 2023 (“2022 Form ~~10-K"~~10-K”). The results for the interim periods are not necessarily indicative of results for a full ~~year. For further information, refer to the consolidated financial statements and footnotes for the~~ year ~~ended December 31, 2016, included in the 2016 Form 10-K.~~ or any other future period.

Certain amounts in the prior ~~quarters'~~period’s consolidated financial statements have been reclassified to conform to the current presentation. These classifications do not have an impact on previously reported consolidated net income, ~~retained earnings, stockholders'~~stockholders’ equity or earnings per share.

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

Allowance for Credit Losses on Investment Securities. The ACL on investment securities is determined for both the held-to-maturity and available-for-sale classifications of the investment portfolio in accordance with Accounting Standards Codification (“ASC”) 326 - Financial Instruments - Credit Losses. For available-for-sale investment securities, we perform a quarterly qualitative evaluation for securities in an unrealized loss position to determine if, for those investments in an unrealized loss position, the decline in fair value is credit related or non-credit related. In determining whether a security’s decline in fair value is credit related, we consider a number of factors including, but not limited to: (i) the extent to which the fair value of the investment is less than its amortized cost; (ii) the financial condition and near-term prospects of the issuer; (iii) downgrades in credit ratings; (iv) payment structure of the security, (v) the ability of the issuer of the security to make scheduled principal and interest payments and (vi) general market conditions, which reflect prospects for the economy as a whole, including interest rates and sector credit spreads. If it is determined that the unrealized loss can be attributed to credit loss, we record the amount of credit loss through a charge to provision for credit losses in current period earnings. However, the amount of credit loss recorded in current period earnings is limited to the amount of the total unrealized loss on the security, which is measured as the amount by which the security’s fair value is below its amortized cost. If it is likely we will be required to sell the security in an unrealized loss position, the total amount of the loss is recognized in current period earnings. For unrealized losses deemed non-credit related, we record the loss, net of tax, through accumulated other comprehensive income.

We determine expected credit losses on available-for-sale and held-to-maturity securities through a discounted cash flow approach, using the security’s effective interest rate. However, as previously mentioned, the measurement of credit losses on available-for-sale securities only occurs when, through our qualitative assessment, it is determined all or a portion of the unrealized loss is deemed to be credit related. Our discounted cash flow approach incorporates assumptions about the collectability of future cash flows. The amount of credit loss is measured as the amount by which the security’s amortized cost exceeds the present value of expected future cash flows. Credit losses on available-for-sale securities are measured on an individual basis, while credit losses on held-to-maturity securities are measured on a collective basis according to shared risk characteristics. Credit losses on held-to-maturity securities are only recognized at the individual security level when we determine a security no longer possesses risk characteristics similar to others in the portfolio. We do not measure credit losses on an investment’s accrued interest receivable, but rather promptly reverse from current period earnings the amount of accrued interest that is no longer deemed collectable. Accrued interest receivable for investment securities is included in accrued interest receivable balances in the Condensed Consolidated Balance Sheets.

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Allowance for Credit Losses on Loans and Unfunded Loan Commitments. We maintain an ACL on loans and unfunded loan commitments in accordance with ASC 326. ASC 326 requires us to recognize estimates for lifetime credit losses on loans and unfunded loan commitments at the time of origination or acquisition. The recognition of credit losses at origination or acquisition represents our best estimate of lifetime expected credit losses, given the facts and circumstances associated with a particular loan or group of loans with similar risk characteristics. Determining the ACL involves the use of significant management judgement and estimates, which are subject to change based on management’s ongoing assessment of the credit quality of the loan portfolio and changes in economic forecasts used in the model. We use a historical loss rate model when determining estimates for the ACL for our loan portfolio. We also utilize proxy loan data in our ACL model where our own historical data is not sufficiently available. We do not measure credit losses on a loan’s accrued interest receivable, but rather promptly reverse from current period earnings the amount of accrued interest that is no longer deemed collectable. Accrued interest receivable for loans is included in accrued interest receivable balances in the Condensed Consolidated Balance Sheets.

Our ACL model forecasts primarily over a two-year time horizon, which we believe is a reasonable and supportable period. Beyond the two-year forecast time horizon, our ACL model reverts to historical long-term average loss rates. The duration of the forecast horizon, the period over which forecasts revert to long-term averages, the economic forecasts that management utilizes, as well as additional internal and external indicators of economic forecasts that management considers, may change over time depending on the nature and composition of our loan portfolio.

We utilize a discounted cash flow ACL model for individually analyzed loans using internally derived estimates for prepayments in determining the amount and timing of future contractual cash flows we expect to collect, unless the loan is deemed collateral dependent, which requires measurement of the ACL based on the estimated expected fair value of the underlying collateral, less costs to sell. The estimate of future cash flows also incorporates estimates for contractual amounts we believe may not be collected, which are based on assumptions for our estimated exposure at default. Our estimated exposure at default is determined by the contractual payment schedule and expected payment profile of the loan, incorporating estimates for expected prepayments and future draws on revolving credit facilities. Our ACL methodology for unfunded loan commitments also includes assumptions concerning the probability an unfunded commitment will be drawn upon by the borrower. These assumptions are based on the historical experience of banks in an independent third party database.

Expectations of future cash flows are discounted at the loan’s effective interest rate for individually analyzed loans. The effective interest rate represents the contractual rate on the loan, adjusted for any purchase premiums, or discounts, and deferred fees and costs associated with an originated loan. We have made an accounting policy election to adjust the effective interest rate to take into consideration the effects of estimated prepayments. The resulting ACL represents the amount by which the loan’s amortized cost exceeds the net present value of a loan’s discounted cash flows. The ACL is recorded through a charge to provision for credit losses and is reduced by charge-offs, net of recoveries on loans previously charged-off. It is our policy to charge-off loan balances at the time they are not expected to be collected.

The historical loss rate model is derived from our loan portfolio credit history, as well as the comparable credit history for peer banks in Washington state. Key loan level attributes and economic drivers in determining the loss rate for loans include unemployment rates, changes to interest rates, changes in credit quality, changes to the consumer price index, and changes in real estate prices.

In order to develop reasonable and supportable forecasts of future conditions, we estimate how those forecasts are expected to impact a borrower’s ability to satisfy their obligations to us and the ultimate collectability of future cash flows over the life of a loan. Management periodically evaluates appropriateness of economic scenarios and may decide that a particular economic scenario or a combination of probability-weighted economic scenarios should be used in our ACL model. Our ACL model at March 31, 2023 includes assumptions concerning the rising interest rate environment, ongoing inflationary pressures throughout the U.S. economy, higher energy prices, the potential impact of the ongoing war between Russia and Ukraine, general uncertainty concerning future economic conditions, and the potential for recessionary conditions.

It is important to note that our ACL model relies on multiple economic variables, which are used in several economic scenarios. Although no one economic variable can fully demonstrate the sensitivity of the ACL calculation to changes in the economic variables used in the model, we have identified certain economic variables that have significant influence in our model for determining the ACL. These key economic variables include changes in the Washington state unemployment rate, residential real estate prices in the Seattle Metropolitan Statistical Area, and interest rates. Recognizing that forecasts of macroeconomic conditions are inherently uncertain, we believe that the process to consider the available information and associated risks and uncertainties is appropriately governed and that estimates of expected credit losses were reasonable and appropriate upon adoption and for the three months ended March 31, 2023.

Our ACL model also includes adjustments for qualitative factors, where appropriate. We recognize that historical information used as the basis for determining future expected credit losses may not always, by itself, provide a sufficient basis for determining future expected credit losses. We therefore consider the need for qualitative adjustments to the ACL on a quarterly

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basis. Qualitative adjustments may be related to and include, but are not limited to, factors such as: (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions, (ii) organization specific risks such as credit concentrations, collateral specific risks, regulatory risks, and external factors that may ultimately impact credit quality, (iii) potential model limitations such as limitations identified through back-testing, and other limitations associated with factors such as underwriting changes, acquisition of new portfolios, and changes in portfolio segmentation, and (iv) management’s overall assessment of the adequacy of the ACL, including an assessment of model data inputs used to determine the ACL.

Qualitative adjustments primarily relate to certain segments of the loan portfolio deemed by management to be of a higher-risk profile or other factors where management believes the quantitative component of our ACL model may not be fully reflective of levels deemed adequate in the judgement of management. Certain qualitative adjustments also relate to heightened uncertainty as to future macroeconomic conditions and the related impact on certain loan segments. Management reviews the need for an appropriate level of qualitative adjustments on a quarterly basis, and as such, the amount and allocation of qualitative adjustments may change in future periods.

Modified Loans to Borrowers Experiencing Financial Difficulty. We occasionally modify loans to alleviate temporary difficulties in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize our potential losses. We refer to these modifications as modified loans to troubled borrowers. Modifications may include: changes in the amortization terms of the loan, reductions in interest rates, acceptance of interest only payments, and, in very limited cases, reductions to the outstanding loan balance. Such loans are typically placed on nonaccrual status when there is doubt concerning the full repayment of principal and interest or the loan has been in default for a period of 90 days or more. Such loans may be returned to accrual status when all contractual amounts past due have been brought current, and the borrower’s performance under the modified terms of the loan agreement and the ultimate collectability of all contractual amounts due under the modified terms is no longer in doubt. We typically measure the ACL on modified loans to troubled borrowers on an individual basis when the loans are deemed to no longer share risk characteristics that are similar with other loans in the portfolio. The determination of the ACL for these loans is based on a discounted cash flow approach for loans measured individually, unless the loan is deemed collateral dependent, which requires measurement of the ACL based on the estimated fair value of the underlying collateral, less estimated costs to sell. GAAP requires us to make certain disclosures related to these loans, including certain types of modifications, as well as how such loans have performed since their modifications. Refer to Note 4 – Loans for additional information concerning modified loans to troubled borrowers.

Note 2 – Accounting Pronouncements Recently Issued or Adopted

~~In May 2014,~~On March 2020, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) ~~issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), which creates Topic 606 and supersedes Topic 605, Revenue Recognition. In August 2015, FASB~~ issued ASU No. ~~2015-14, Revenue from Contracts with Customers (Topic 606)~~2020-04, "Reference Rate Reform" ("Topic 848"). This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this update apply to modifications to eligible contracts (e.g., ~~which postponed~~loans, debt securities, derivatives, borrowings) that replace a reference rate affected by reference rate reform (including rates referenced in fallback provisions) and contemporaneous modifications of other contract terms related to the replacement of the reference rate (including contract modifications to add or change fallback provisions). The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance: 1) Modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective ~~date~~interest rate; 2) Modifications of ~~2014-09. In March 2016,~~contracts within the ~~FASB issued ASU 2016-08, Revenue from Contracts~~scope of Topics 840, Leases, and 842, Leases, should be accounted for as a continuation of the existing contracts with ~~Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net, which amended~~no reassessments of the ~~principal versus agent implementation guidance set~~lease classification and the discount rate (for example, the incremental borrowing rate) or remeasurements of lease payments that otherwise would be required under those Topics for ~~in ASU 2014-09. Among other things, ASU 2016-08 clarifies that~~modifications not accounted for as separate contracts; and 3) Modifications of contracts do not require an entity ~~should evaluate~~to reassess its original conclusion about whether itthat contract contains an embedded derivative that is clearly and closely related to the principal or the agent for each specified good or service promised in a contract with a customer. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligationseconomic characteristics and ~~Licensing. The ASU amends certain aspects~~risks of the ~~guidance set forth~~host contract under Subtopic 815-15, Derivatives and Hedging— Embedded Derivatives.

In January 2021, ASU 2021-01 updated amendments in the FASB's new revenue standard related to identifying performance obligations and licensing implementation. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In general, the new ASU ~~requires companies~~ to ~~use more judgment~~clarify that certain optional expedients and ~~make more estimates than under current guidance,~~exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification. The amendments in this ASU have differing effective dates, beginning with interim periods including ~~identifying performance obligations in the contract, estimating the amount of variable consideration~~and subsequent to include in the transaction price and allocating the transaction price to each separate performance obligation. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides clarifying guidance in certain narrow areas and adds some practical expedients, butMarch 12, 2020 through December 31, 2022. The Company does not change the core revenue recognition principle in Topic 606. This ASU is effective for interim and annual periods beginning after December 15, 2017; early adoption is not permitted. For financial reporting purposes, the ASU allows for either full retrospective adoption, meaning this ASU is applied to all of the periods presented, or modified retrospective adoption, meaning the ASU is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the ASU recognized at the date of initial application. As a financial institution, the Company's largest component of revenue, interest income, is excluded from the scope of this ASU. Accordingly,expect the adoption of ASU ~~No. 2014-09 is not expected~~2020-04 to have a material impact on ~~the Company's~~its consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance is intended to improve the recognition and measurement of financial instruments. This ASU requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. In addition, the ASU requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes and requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. This ASU also eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The ASU also requires a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument specific credit risk (also referred to as "own credit") when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted for certain provisions. The adoption of ASU No. 2016-01is not expected to have a material impact on the Company's consolidated financial statements. Management is in the planning stages of developing processes and procedures to comply with the disclosure requirements of this ASU, which could impact the disclosures the Company makes related to the fair value of its financial instruments.

In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-02 requires lessees to recognize, on the balance sheet, the assets and liabilities arising from operating leases. A lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. A lessee should include payments to be made in an optional period only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. For a finance lease, interest payments should be recognized separately from amortization of the right-of-use asset in the statement of comprehensive income. For operating leases, the lease cost should be allocated over the lease term on a generally straight-line basis. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments in the ASU is permitted. Although an estimate of the impact of the new leasing standard has not yet been determined, once adopted, we expect to report higher assets and liabilities as a result of including right-of-use assets and lease liabilities related to certain banking offices and certain equipment under noncancelable operating lease agreements, however, based on current leases the adoption is not expected to have a material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial ~~Instruments-~~Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Instruments.~~Instruments and subsequent amendments to the initial guidance in November 2018, ASU No. 2018-19,

April 2019, ASU 2019-04, May 2019, ASU 2019-05, November 2019, ASU 2019-11, February 2020, ASU 2020-02, and March 2020, ASU 2020-03, all of which clarifies codification and corrects unintended application of the guidance. This ASU replaces the existing incurred loss impairment methodology that recognizes credit losses when a probable loss has been incurred with new methodology where loss estimates are based upon lifetime expected credit losses. The amendments in this ASU require a financial asset that is measured at amortized cost to be presented at the net amount expected to be collected. The income statement would then reflect the measurement of credit losses for newly recognized financial assets as well as changes to the expected credit losses that have taken place during the reporting period.

The ~~measurement~~Company adopted the provisions of ~~expected credit losses will be based on historical information, current conditions, and reasonable and supportable forecasts that impact~~ASC 326 through the ~~collectability~~application of the ~~reported amount. Available-for-sale securities will bifurcate~~modified retrospective transition approach, and recorded a net decrease of approximately $1.1 million to the ~~fair value mark and establish an allowance for credit losses through the income statement for the credit portion~~beginning balance of that mark. The interest portion will continue to be recognized through accumulated other comprehensive income or loss. The change in allowance recognized as a result of adoption will occur through a cumulative-effect adjustment to retained earnings as of January 1, 2023 for the ~~beginning~~cumulative effect adjustment, reflecting an initial adjustment to the ACL of $1.5 million, net of related deferred tax assets arising from temporary differences of $305 thousand, commonly referred to as the ~~first reporting period~~“Day 1” adjustment. The Day 1 adjustment to the ACL is reflective of expected lifetime credit losses associated with the composition of financial assets within in the scope of ASC 326 as of January 1, 2023, which is comprised of loans held for investment and off-balance sheet credit exposures at January 1, 2023, as well as management’s current expectation of future economic conditions.

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


(dollars in thousands)	As Reported Under ASC 326		Prior to Adopting ASC 326		Impact of ASC 326 Adoption
Allowance for credit losses - loans
Real estate loans:
One- to four- family	$	2,126	$	1,771	$	355
Home equity	201		132		69
Commercial and multifamily	2,181		2,501		(320)
Construction and land	2,568		1,209		1,359
Total real estate loans	7,075		5,613		1,462
Consumer loans:
Manufactured homes	282		462		(180)
Floating homes	622		456		166
Other consumer	161		324		(163)
Total consumer loans	1,065		1,242		(177)
Commercial business loans	221		256		(35)
Unallocated	(3)		488		(491)
Total loans	8,359		7,599		760

Allowance for credit losses - unfunded commitments
Reserve for unfunded commitments	1,030		335		695

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

In March 2022, the FASB issued ASU 2022-02, Financial Instruments — Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The ASU eliminates the accounting guidance for troubled debt restructured loans (“TDRs”) by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, the ASU ~~is adopted. The amendments~~requires public business entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in ~~this~~leases. This ASU ~~are~~was effective for fiscal years beginning after December 15, 2019 with early adoption permitted after December 15, 2018. The Company has begun the process to implement this new standard by working with a vendor that specializes in this area. While the Company has not quantified the impact of this ASU, it does expect changing from the current incurred loss model to an expected loss model will result in an earlier recognition of losses. The Company also expects that once adopted the allowance for loan losses will increase, however, until its evaluation is complete the magnitude of the increase will be unknown.

In August 2016, FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the appropriate classification of eight specific cash flow issues on the cash flow statement. Debt prepayment costs should be classified as an outflow for financing activities. Settlement of zero-coupon debt instruments divides the interest portion as an outflow for operating activities and the principal portion as an outflow for financing activities. Contingent consideration payments made after a business combination should be classified as outflows for financing and operating activities. Proceeds from the settlement of bank-owned life insurance policies should be classified as inflows from investing activities. Other specific areas are identified in the ASU as to the appropriate classification of the cash inflows or outflows. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017,2022, including interim periods within those fiscal ~~years. Early~~years, upon the Company’s adoption of the amendments in ASU 2016-13, which is ~~permitted and must be applied using a retrospective transition method~~commonly referred to ~~each period presented.~~as the current expected credit loss methodology. The Company ~~does not expect this~~adopted ASU 2022-02 on January 1, 2023 using the prospective transition guidance which allows the entity to ~~have~~

continue estimating expected credit losses in accordance with legacy U.S. GAAP for receivables modified in a ~~material impact on~~TDR until the ~~Company's consolidated financial statements.~~

~~In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20). ASU 2017-08~~receivables are subsequently modified or settled. Once a legacy TDR is intended to amend the amortization period for certain purchased callable debt securities held at a premium. Under ASU 2017-08, the FASB is shortening the amortization period for the premium to the earliest call date. Under current GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. ASU 2017-08 is effective for annual periods, and interim periods within those annual periods, beginningmodified after December 15, 2018. The Company is reviewing its securities portfolio to assess the impact the adoption of this ASU will have on the Company's consolidated financial statements but does not expect this ASU to have a material impact on the Company's consolidated financial statements.

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Compensation--Stock Compensation (Topic 718): Scope of Modification Accounting~~. The ASU was issued to provide clarity as to when to apply modification accounting when there is a change in the terms or conditions of a share-based payment award. According to this ASU, an entity should account for the effects of a modification unless the fair value, vesting conditions, and balance sheet classification of the award is the same after the modification as compared to the original award prior to the modification. The standard is effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The adoption of ASU ~~No. 2017-09~~2022-02, the prospective transition guidance no longer applies and the impact to the ACL is ~~not expected to have a material impact on the Company's consolidated financial statements.~~

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.~~ ~~This ASU amends the hedge accounting recognition and presentation requirements~~recognized in ASC 815 to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity's risk management activities by better aligning the entity's financial reporting for hedging relationships with those risk management activities and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. The amendments in this ASU permit hedge accounting for hedging relationships involving nonfinancial risk and interest rate risk by removing certain limitations in cash flow and fair value hedging relationships. In addition, the ASU requires an entity to present the earnings ~~effect of the hedging instrument~~ in the ~~same income statement line item in which the earnings effect~~period of the hedged item is reported. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018 and early adoption is permitted. The adoption of ASU No. 2017-12 is not expected to have a material impact on the Company's consolidated financial statements.modification.

Note 3 – Investments

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

The amortized cost and fair value of our ~~available-for-sale ("AFS")~~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
September 30, 2017
											Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2023										March 31, 2023

Municipal bonds	$	3,245	$	175	$	(3	)	$	3,417	Municipal bonds	$	6,424	$	23	$	(981)	$	5,466
Agency mortgage-backed securities		2,221		50		-			2,271	Agency mortgage-backed securities	3,486		1		(352)		3,135

Total	$	5,466	$	225	$	(3	)	$	5,688	Total	$	9,910	$	24	$	(1,333)	$	8,601

December 31, 2016
December 31, 2022										December 31, 2022
Treasury bills										Treasury bills	$	1,596	$	—	$	(2)	$	1,594
Municipal bonds	$	3,262	$	127	$	(36	)	$	3,353	Municipal bonds	6,434		16		(1,029)		5,421
Agency mortgage-backed securities		2,858		49		(3	)		2,904	Agency mortgage-backed securities	3,591		1		(400)		3,192
Non-agency mortgage-backed securities		362		-		(15	)		347

Total	$	6,482	$	176	$	(54	)	$	6,604	Total	$	11,621	$	17	$	(1,431)	$	10,207

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):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2023

Municipal bonds	$	705	$	—	$	(171)	$	533
Agency mortgage-backed securities	1,486		—		(200)		1,286

Total	$	2,190	$	—	$	(371)	$	1,819

December 31, 2022

Municipal bonds	$	705	$	—	$	(169)	$	536
Agency mortgage-backed securities	1,494		—		(219)		1,275

Total	$	2,199	$	—	$	(388)	$	1,811

The amortized cost and fair value of AFS and HTM securities at ~~September 30, 2017,~~March 31, 2023, by contractual maturity, are shown below (in thousands). Expected maturities of AFS securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Investments not due at a single maturity date,

primarily mortgage-backed investments, are shown separately.

September 30, 2017

Amortized
Cost

Fair
Value

Due after one year through five years $ 1,333 $ 1,329
Due after five years through ten years 413 443
Due after ten years 1,499 1,645
Mortgage-backed securities 2,221 2,271
Total $ 5,466 $ 5,688


	March 31, 2023
	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	—	$	—	$	—	$	—
Due after one year through five years	150		151		—		—
Due after five years through ten years	1,227		1,243		—		—
Due after ten years	5,047		4,072		705		533
Agency mortgage-backed securities	3,486		3,135		1,486		1,286
Total	$	9,910	$	8,601	$	2,190	$	1,819

There were no pledged securities at ~~September 30, 2017 and~~March 31, 2023 or December 31, ~~2016.~~2022.

There were no sales of AFS securities during the three ~~or nine~~ months ended ~~September 30, 2017~~March 31, 2023 or 2022. There were no sales of HTM securities during the three months ended March 31, 2023 or 2022.

Accrued interest receivable on securities totaled $78 thousand and ~~2016.~~

$54 thousand at March 31, 2023 and December 31, 2022, respectively, in the accompanying Condensed Consolidated Balance Sheets. Accrued interest receivable is excluded from the estimate of expected credit losses.

The following ~~tables summarize~~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):

September 30, 2017
Less Than 12 Months 12 Months or Longer Total

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Municipal bonds $ 456 $ (1 ) $ 874 $ (2 ) $ 1,330 $ (3 )
Agency mortgage-backed securities - - - - - -
Total $ 456 $ (1 ) $ 874 $ (2 ) $ 1,330 $ (3 )

December 31, 2016
Less Than 12 Months 12 Months or Longer Total

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Municipal bonds $ 1,313 $ (36 ) $ - $ - $ 1,313 $ (36 )
Agency mortgage-backed securities - - 1,125 (3 ) 1,125 (3 )
Non-agency mortgage-backed securities - - 347 (15 ) 347 (15 )
Total $ 1,313 $ (36 ) $ 1,472 $ (18 ) $ 2,785 $ (54 )


	March 31, 2023
	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	$	597	$	(203)	$	3,193	$	(778)	$	3,790	$	(981)
Agency mortgage-backed securities	456		(14)		2,451		(338)		2,907		(352)

Total available-for-sale securities	$	1,053	$	(217)	$	5,644	$	(1,116)	$	6,697	$	(1,333)
Held-to-maturity securities

Municipal bonds	$	—	$	—	$	533	$	(171)	$	533	$	(171)
Agency mortgage-backed securities	—		—		1,286		(200)		1,286		(200)

Total held-to-maturity securities	$	—	$	—	$	1,819	$	(371)	$	1,819	$	(371)


	December 31, 2022
	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
Treasury bills	$	1,594	$	(2)	$	—	$	—	$	1,594	$	(2)
Municipal bonds	2,506		(641)		1,246		(388)		3,752		(1,029)
Agency mortgage-backed securities	2,666		(314)		292		(86)		2,958		(400)

Total	$	6,766	$	(957)	$	1,538	$	(474)	$	8,304	$	(1,431)
Held-to-maturity securities

Municipal bonds	$	536	$	(169)	$	—	$	—	$	536	$	(169)
Agency mortgage-backed securities	1,274		(219)		—		—		1,274		(219)

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

There ~~were~~was no allowance for credit losses ~~recognized in earnings during~~on securities at March 31, 2023 or December 31, 2022. At March 31, 2023, the ~~three~~total securities portfolio consisted of 12 agency mortgage-backed securities and ~~nine months ended September 30, 2017 or 2016 relating to~~11 municipal bonds with a total portfolio fair value of $10.4 million. At December 31, 2022, the ~~Company's securities.~~

securities portfolio consisted of one treasury bill security, 11 agency mortgage-backed securities and 12 municipal bonds with a fair value of $10.2 million. At ~~September 30, 2017, two municipal~~March 31, 2023, there were five securities ~~were~~ in an unrealized loss position for less than 12 months, and ~~one municipal security was~~13 securities in an unrealized loss position for ~~over~~more than 12 months. Of the five securities in an unrealized loss position for less than 12 months, two securities were classified as HTM. At December 31, ~~2016, three municipal~~2022, there were 16 securities ~~were~~ in an unrealized loss position for less than 12 months, and ~~one agency security and one non-agency mortgage-backed security were in a loss position for over 12 months. The agency mortgage-backed security~~three securities in an unrealized loss position ~~at December 31, 2016 was guaranteed by a U.S. governmental agency. The non-agency mortgage-backed security was fully redeemed during the third quarter of 2017.~~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. ~~Because~~There was no provision for credit losses recognized for investment securities during the three months ended March 31, 2023, because the decline in fair value is not attributable to ~~changes in interest rates or widening market spreads and not~~ credit quality and because we do not intend, ~~to sell the securities in this class~~ and it is not likely that we will be required, to sell these securities before recovery of their amortized cost basis which may include holding each security until contractual maturity. The unrealized losses on these investments are not considered an other-than-temporary impairment ("OTTI") during the three and nine months ended September 30, 2017 or the year ended December 31, 2016..

Note 4 – Loans

~~The composition of the loan~~

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


	March 31, 2023		December 31, 2022
Real estate loans:
One-to-four family	$	274,687	$	274,638
Home equity	19,631		19,548
Commercial and multifamily	307,558		313,358
Construction and land	125,983		116,878
Total real estate loans	727,859		724,422
Consumer loans:
Manufactured homes	27,904		26,953
Floating homes	73,579		74,443
Other consumer	17,378		17,923
Total consumer loans	118,861		119,319
Commercial business loans	25,192		23,815
Total loans held-for-portfolio	871,912		867,556
Premiums for purchased loans(1)	946		973
Deferred fees, net	(2,313)		(2,548)
Total loans held-for-portfolio, gross	870,545		865,981
Allowance for credit losses — loans	(8,532)		(7,599)
Total loans held-for-portfolio, net	$	862,013	$	858,382

September 30,
2017

December 31,
2016

Real estate loans:
One- to four- family $ 156,871 $ 152,386
Home equity 29,129 27,771
Commercial and multifamily 201,411 181,004
Construction and land 54,921 70,915
Total real estate loans $ 442,332 $ 432,076
Consumer loans:
Manufactured homes 16,864 15,494
Floating homes 26,699 23,996
Other consumer 5,032 3,932
Total consumer loans 48,595 43,422
Commercial business loans 39,158 26,331
Total loans 530,085 501,829
Deferred fees (1,877 ) (1,828 )
Total loans, gross 528,208 500,001
Allowance for loan losses (4,991 ) (4,822 )
Total loans, net $ 523,217 $ 495,179

(1)Includes premiums resulting from purchased loans of $499 thousand related to one-to-four family loans, $310 thousand related to commercial and multifamily loans, and $137 thousand related to commercial business loans as of March 31, 2023. Includes premiums resulting from purchased loans of $507 thousand related to one-to-four family loans, $320 thousand related to commercial and multifamily loans, and $146 thousand related to commercial business loans as of December 31, 2022.

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

The following table presents ~~the balance~~a summary of activity in the ~~allowance~~ACL on loans and unfunded commitments for ~~loan losses and~~ the ~~recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2017~~periods indicated (in thousands):

One- to
four-
family

Home
equity

Commercial
and
multifamily

Construction
and land

Manufactured
homes

Floating
homes

Other
consumer

Commercial
business
Unallocated Total
Allowance for loan losses:
Individually evaluated for impairment $ 377 $ 168 $ - $ 32 $ 70 $ - $ 57 $ 276 $ - $ 980
Collectively evaluated for impairment 874 183 1,185 327 110 154 41 231 906 4,011
Ending balance $ 1,251 $ 351 $ 1,185 $ 359 $ 180 $ 154 $ 98 $ 507 $ 906 $ 4,991
Loans receivable:
Individually evaluated for impairment $ 6,664 $ 1,007 $ 1,717 $ 99 $ 309 $ - $ 57 $ 357 $ - $ 10,210
Collectively evaluated for impairment 150,207 28,122 199,694 54,822 16,555 26,699 4,975 38,801 - 519,875
Ending balance $ 156,871 $ 29,129 $ 201,411 $ 54,921 $ 16,864 $ 26,699 $ 5,032 $ 39,158 $ - $ 530,085


	Three Months Ended March 31,
	2023						2022
	Allowance for Credit Losses - Loans		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses		Allowance for Credit Losses - Loans		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses
Balance at beginning of period	$	7,599	$	335	$	7,934	$	6,306	$	404	$	6,710
Adoption of ASU 2016-13(1)	760		695		1,455		—		—		—
Provision for credit losses during the period	245		(235)		10		125		15		140
Net (charge-offs)/recoveries during the period	(72)		—		(72)		(24)		—		(24)
Balance at end of period	$	8,532	$	795	$	9,327	$	6,407	$	419	$	6,826

Accrued interest receivable on loans receivable totaled $3.0 million at both March 31, 2023 and December 31, 2022 in the accompanying Condensed Consolidated Balance Sheets. Accrued interest receivable is excluded from the estimate of expected credit losses.

The following ~~table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2016 (in thousands):~~

One- to
four-
family

Home
equity

Commercial
and
multifamily

Construction
and land

Manufactured
homes

Floating
homes

Other
consumer

Commercial
business
Unallocated Total
Allowance for loan losses:
Individually evaluated for impairment $ 536 $ 121 $ 24 $ 35 $ 59 $ - $ 65 $ 23 $ - $ 863
Collectively evaluated for impairment 1,006 257 1,120 424 109 132 47 152 712 3,959
Ending balance $ 1,542 $ 378 $ 1,144 $ 459 $ 168 $ 132 $ 112 $ 175 $ 712 $ 4,822
Loans receivable:
Individually evaluated for impairment $ 4,749 $ 832 $ 1,582 $ 83 $ 312 $ - $ 62 $ 616 $ - $ 8,236
Collectively evaluated for impairment 147,637 26,939 179,422 70,832 15,182 23,996 3,870 25,715 - 493,593
Ending balance $ 152,386 $ 27,771 $ 181,004 $ 70,915 $ 15,494 $ 23,996 $ 3,932 $ 26,331 $ - $ 501,829

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


	Three Months Ended March 31, 2023
	Beginning Allowance		Impact of Adoption of ASU 2016-16		Charge-offs		Recoveries		Provision (Recapture)		Ending Allowance
One-to-four family	$	1,771	$	355	$	—	$	—	$	(67)	$	2,059
Home equity	132		69		—		—		(4)		197
Commercial and multifamily	2,501		(320)		—		—		44		2,225
Construction and land	1,209		1,359		—		—		210		2,778
Manufactured homes	462		(180)		—		—		1		283
Floating homes	456		166		—		—		(11)		611
Other consumer(1)	324		(163)		(79)		7		70		159
Commercial business	256		(35)		—		—		(5)		216
Unallocated	488		(491)		—		—		7		4
Total	$	7,599	$	760	$	(79)	$	7	$	245	$	8,532

(1)During the three months ended ~~September 30, 2017 (in thousands):~~March 31, 2023, the gross charge-offs related entirely to deposit overdrafts that were charged off.

	Beginning Allowance		Charge-offs			Recoveries		Provision			Ending Allowance
One- to four- family	$	1,302	$	-		$	-	$	(51	)	$	1,251

														Three Months Ended March 31, 2022
														Beginning Allowance		Charge-offs		Recoveries		Provision (Recapture)		Ending Allowance
One-to-four family													One-to-four family	$	1,402	$	—	$	—	$	72	$	1,474
Home equity		431		(89	)		1		8			351	Home equity	93		—		2		1		96
Commercial and multifamily		1,153		-			-		32			1,185	Commercial and multifamily	2,340		—		—		(113)		2,227
Construction and land		352		-			-		7			359	Construction and land	650		—		—		48		698
Manufactured homes		178		(7	)		-		9			180	Manufactured homes	475		—		—		(27)		448
Floating homes		146		-			-		8			154	Floating homes	372		—		—		4		376
Other consumer		98		(1	)		2		(1	)		98	Other consumer	310		(26)		5		44		333
Commercial business		364		-			-		143			507	Commercial business	269		(6)		1		(26)		238
Unallocated		811		-			-		95			906	Unallocated	395		—		—		122		517
Total	$	4,835	$	(97	)	$	3	$	250		$	4,991	Total	$	6,306	$	(32)	$	8	$	125	$	6,407

~~The following table summarizes the activity in the allowance for loan losses for the nine months ended September 30, 2017 (in thousands):~~

Beginning
Allowance
Charge-offs Recoveries Provision
Ending
Allowance

One- to four- family $ 1,542 $ - $ - $ (291 ) $ 1,251
Home equity 378 (89 ) 30 32 351
Commercial and multifamily 1,144 (24 ) 1 64 1,185
Construction and land 459 - - (100 ) 359
Manufactured homes 168 (13 ) 3 22 180
Floating homes 132 - - 22 154
Other consumer 112 (8 ) 19 (25 ) 98
Commercial business 175 - - 332 507
Unallocated 712 - - 194 906
Total $ 4,822 $ (134 ) $ 53 $ 250 $ 4,991

~~The following table summarizes the activity in the allowance for loan losses for the three months ended September 30, 2016 (in thousands):~~

Beginning
Allowance
Charge-offs Recoveries Provision
Ending
Allowance

One- to four- family $ 1,713 $ - $ - $ (55 ) $ 1,658
Home equity 501 (14 ) 10 (73 ) 424
Commercial and multifamily 1,377 - - (17 ) 1,360
Construction and land 388 - 18 (33 ) 373
Manufactured homes 189 - 2 (14 ) 177
Floating homes 132 - - - 132
Other consumer 89 (10 ) 15 (28 ) 66
Commercial business 171 - - 10 181
Unallocated 278 - - 210 488
Total $ 4,838 $ (24 ) $ 45 $ - $ 4,859

~~The following table summarizes the activity in the allowance for loan losses for the nine months ended September 30, 2016 (in thousands):~~

Beginning
Allowance
Charge-offs Recoveries Provision
Ending
Allowance

One- to four- family $ 1,839 $ (72 ) $ - $ (109 ) $ 1,658
Home equity 607 (14 ) - (169 ) 424
Commercial and multifamily 921 - - 439 1,360
Construction and land 382 - 18 (27 ) 373
Manufactured homes 301 - 75 (199 ) 177
Floating homes 111 - - 21 132
Other consumer 77 (31 ) 7 13 66
Commercial business 157 (29 ) 19 34 181
Unallocated 241 - - 247 488
Total $ 4,636 $ (146 ) $ 119 $ 250 $ 4,859

Credit Quality Indicators. Federal regulations provide for the classification of lower quality loans and other assets (such as ~~substandard, doubtful~~OREO and repossessed assets), debt and equity securities considered as "substandard," "doubtful" or ~~loss.~~"loss." An asset is considered ~~substandard~~"substandard" if it is inadequately protected by the current net worth and ~~payment~~paying capacity of the ~~borrower~~obligor or of ~~any~~the collateral ~~pledged. Substandard~~pledged, if any. "Substandard" assets include those characterized by the ~~distinct possibility~~"distinct possibility" that wethe insured institution will sustain ~~some loss~~"some loss" if the deficiencies are not corrected. Assets classified as ~~doubtful~~"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.~~values, "highly questionable and improbable." Assets classified as ~~loss~~"loss" are those considered ~~uncollectible~~"uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

When we classify problem ~~loans~~assets as either substandard or doubtful, we may determine that these assets should be individually analyzed if they no longer share common risk characteristics with the rest of the portfolio. Therefore we may establish a specific allowance in an amount we deem prudent to address ~~the risk specifically (if the loan is impaired) or we may allow the loss to be addressed in the general allowance (if the loan is not impaired).~~those risks. General allowances represent loss ~~reserves~~allowances which have been established to recognize the inherent risk associated with lending activities for pooled loans with common risk characteristics, but which, unlike specific allowances, have not been specifically allocated to particular problem ~~loans.~~assets. When ~~the Company~~an insured institution classifies problem ~~loans~~assets as a loss, ~~we charge-off such~~it is required to charge off those assets in the period in which they are deemed uncollectible. Assets that do not currently expose us to sufficient risk to warrant classification as substandard, doubtful or loss, but possess identified weaknesses, are classified as either watch or special mention assets. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the Federal Deposit Insurance Corporation ~~("FDIC"~~(“FDIC”), the Bank's federal regulator, and, the Washington Department of Financial Institutions, ~~("WDFI"),~~ the Bank's state banking regulator, which can order the establishment of additional loss allowances. ~~Pass rated loans~~Assets which do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are ~~loans that are not otherwise classified or criticized.~~required to be designated as special mention.

The following table ~~represents~~presents the internally assigned grades as of ~~September 30, 2017,~~March 31, 2023, by type of loan and origination year (in thousands):

One- to
four- family

Home
equity

Commercial
and multifamily

Construction
and land

Manufactured
homes

Floating
homes

Other
consumer

Commercial
business
Total
Grade:
Pass $ 151,786 $ 28,321 $ 192,817 $ 54,872 $ 16,711 $ 26,699 $ 4,975 $ 38,396 $ 514,577
Watch 246 - 6,876 - - - - 494 7,616
Special Mention 138 - 360 - - - - 134 632
Substandard 4,701 808 1,358 49 153 - 57 134 7,260
Doubtful - - - - - - - - -
Loss - - - - - - - - -
Total $ 156,871 $ 29,129 $ 201,411 $ 54,921 $ 16,864 $ 26,699 $ 5,032 $ 39,158 $ 530,085


	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving Loans Amortized Cost Basis Converted to Term
	2023		2022		2021		2020		2019		Prior						Total

One-to-four family:
Pass	$	4,665	$	91,568	$	115,210	$	18,313	$	13,457	$	30,927	$	—	$	—	$	274,140
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		281		622		—		—		903
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total one-to-four family	4,665		91,568		115,210		18,313		13,738		31,549		—		—		275,043
Home equity:
Pass	437		3,642		1,212		310		104		1,976		10,368		1,563		19,612
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		67		14		219		300
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total home equity	437		3,642		1,212		310		104		2,043		10,382		1,782		19,912
Commercial and multifamily:
Pass	3,649		84,027		82,012		28,366		32,687		61,767		—		—		292,508
Special mention	—		—		—		—		—		355		—		—		355
Substandard	—		—		—		—		5,150		8,596		—		—		13,746
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total commercial and multifamily	3,649		84,027		82,012		28,366		37,837		70,718		—		—		306,609
Construction and land:
Pass	914		65,368		48,423		5,068		782		1,393		—		—		121,948
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		1,335		704		1,297		—		—		3,336
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total construction and land	914		65,368		48,423		6,403		1,486		2,690		—		—		125,284
Manufactured homes:
Pass	2,165		8,823		5,003		2,343		2,694		6,600		—		—		27,628
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		88		—		115		—		—		203
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total manufactured homes	2,165		8,823		5,003		2,431		2,694		6,715		—		—		27,831
Floating homes:
Pass	—		21,836		29,773		6,602		2,558		12,453		—		—		73,222
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total floating homes	—		21,836		29,773		6,602		2,558		12,453		—		—		73,222


Other consumer:
Pass	517		2,466		4,104		6,386		870		2,420		531		—		17,294
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		72		—		—		—		—		72
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total other consumer	517		2,466		4,104		6,458		870		2,420		531		—		17,366
Commercial business:
Pass	2,121		513		4,529		537		434		7,119		9,471		—		24,724
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		76		475		—		—		3		—		—		554
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total commercial business	2,121		589		5,004		537		434		7,122		9,471		—		25,278

Total loans
Pass	$	14,468	$	278,243	$	290,266	$	67,925	$	53,586	$	124,655	$	20,370	$	1,563	$	851,076
Special mention	—		—		—		—		—		355		—		—		355
Substandard	—		76		475		1,495		6,135		10,700		14		219		19,114
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total loans	$	14,468	$	278,319	$	290,741	$	69,420	$	59,721	$	135,710	$	20,384	$	1,782	$	870,545

The following ~~table represents~~tables present the internally assigned grades as of December 31, ~~2016,~~2022, by type of loan (in thousands):

One- to
four- family

Home
equity

Commercial
and multifamily

Construction
and land

Manufactured
homes

Floating
homes

Other
consumer

Commercial
business
Total
Grade:
Pass $ 148,617 $ 26,547 $ 171,678 $ 67,539 $ 15,288 $ 23,996 $ 3,821 $ 25,625 $ 483,111
Watch 998 536 8,105 3,376 78 - 49 326 13,468
Special Mention 139 - - - 30 - - - 169
Substandard 2,632 688 1,221 - 98 - 62 380 5,081
Doubtful - - - - - - - - -
Loss - - - - - - - - -
Total $ 152,386 $ 27,771 $ 181,004 $ 70,915 $ 15,494 $ 23,996 $ 3,932 $ 26,331 $ 501,829


	December 31, 2022
	One-to- four family		Home equity		Commercial and multifamily		Construction and land		Manufactured homes		Floating homes		Other consumer		Commercial business		Total
Grade:
Pass	$	271,295	$	19,230	$	291,677	$	109,484	$	26,583	$	74,443	$	17,661	$	22,853	$	833,226
Watch	279		2		7,538		4,037		134		—		—		161		12,151
Special Mention	—		—		4,096		—		—		—		—		—		4,096
Substandard	3,064		316		10,047		3,357		236		—		262		801		18,083


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

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 ~~automatically~~ placed on nonaccrual once the loan is 90 days past due or sooner if,

in ~~management's~~management’s opinion, the borrower may be unable to meet payment of obligations as they become due, as well as when required by regulatory ~~authorities.~~

provisions.

The following table presents the ~~recorded investment in~~amortized cost of nonaccrual loans as of ~~September 30, 2017, and December 31, 2016,~~the dates indicated, by type of loan (in thousands):

September 30,
2017

December 31,
2016

One- to four- family $ 878 $ 2,169
Home equity 700 536
Commercial and multifamily 206 218
Construction and land 49 -
Manufactured homes 133 72
Commercial business 134 149
Total $ 2,100 $ 3,144


	March 31, 2023				December 31, 2022
	Total Nonaccrual Loans		Total Nonaccrual Loans with no ACL		Total Nonaccrual Loans		Total Nonaccrual Loans with no ACL
One-to-four family	$	697	$	697	$	2,135	$	2,135
Home equity	138		138		142		142

Construction and land	322		322		324		324
Manufactured homes	134		92		96		52

Other consumer	1		—		262		262

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

The following ~~table represents~~tables present the aging of ~~the recorded investment in~~ past due loans, based on amortized cost, as of ~~September 30, 2017,~~the dates indicated, by type of loan (in thousands):

	30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater Past Due		90 Days and Greater Past Due and Still Accruing		Total Past Due		Current		Total Loans
One- to four- family	$	64	$	1,723	$	705	$	-	$	2,492	$	154,379	$	156,871
																March 31, 2023
																30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater Past Due		> 90 Days and Accruing		Total Past Due		Current		Total Loans
One-to-four family															One-to-four family	$	1,341	$	—	$	131	$	—	$	1,472	$	273,571	$	275,043
Home equity		346		28		607		-		981		28,148		29,129	Home equity	—		—		116		—		116		19,796		19,912
Commercial and multifamily		206		-		-		-		206		201,205		201,411	Commercial and multifamily	324		—		—		—		324		306,285		306,609
Construction and land		43		49		49		-		141		54,780		54,921	Construction and land	—		—		295		—		295		124,989		125,284
Manufactured homes		23		103		107		-		233		16,631		16,864	Manufactured homes	289		—		93		—		382		27,449		27,831
Floating homes		-		-		-		-		-		26,699		26,699	Floating homes	—		—		—		—		—		73,222		73,222
Other consumer		49		6		-		-		55		4,977		5,032	Other consumer	5		2		—		—		7		17,359		17,366
Commercial business		409		47		-		-		456		38,702		39,158	Commercial business	669		—		—		—		669		24,609		25,278
Total	$	1,140	$	1,956	$	1,468	$	-	$	4,564	$	525,521	$	530,085	Total	$	2,628	$	2	$	635	$	—	$	3,265	$	867,280	$	870,545

~~The following table represents the aging of the recorded investment in past due loans as of December 31, 2016, by type of loan (in thousands):~~


	December 31, 2022
	30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater Past Due		> 90 Days and Accruing		Total Past Due		Current		Total Loans
One-to-four family	$	393	$	289	$	1,934	$	—	$	2,616	$	272,022	$	274,638
Home equity	115		—		116		—		231		19,317		19,548
Commercial and multifamily	7,198		—		—		—		7,198		306,160		313,358
Construction and land	1,210		—		296		—		1,506		115,372		116,878
Manufactured homes	261		155		52		—		468		26,485		26,953
Floating homes	—		—		—		—		—		74,443		74,443
Other consumer	360		5		—		—		365		17,558		17,923
Commercial business	4		—		—		—		4		23,811		23,815
Total	$	9,541	$	449	$	2,398	$	—	$	12,388	$	855,168	$	867,556

30-59 Days
Past Due

60-89 Days
Past Due

90 Days
and Greater
Past Due

90 Days and
Greater Past
Due and Still
Accruing

Total Past
Due
Current Total Loans
One- to four- family $ 2,476 $ 161 $ 1,787 $ - $ 4,424 $ 147,962 $ 152,386
Home equity 460 - 494 - 954 26,817 27,771
Commercial and multifamily - - - - - 181,004 181,004
Construction and land 440 - - - 440 70,475 70,915
Manufactured homes 321 28 62 - 411 15,083 15,494
Floating homes - - - - - 23,996 23,996
Other consumer 26 1 - - 27 3,905 3,932
Commercial business 149 - - - 149 26,182 26,331
Total $ 3,872 $ 190 $ 2,343 $ - $ 6,405 $ 495,424 $ 501,829

Nonperforming Loans. Loans are considered nonperforming when they are placed on nonaccrual and/or when they are considered to be nonperforming troubled debt restructurings ("TDRs") and/or when they are 90 days or greater past due and still accruing interest. A TDR is a loan to a borrower that is experiencing financial difficulty that has been modified from its original terms and conditions in such a way that the Company has granted the borrower a concession of some kind. Nonperforming TDRs include TDRs that do not have sufficient payment history (typically greater than six months) to be considered performing or TDRs that have become 30 or more days past due.

nonaccrual. The following table ~~represents~~presents the credit risk profile of our loan portfolio based on payment activity as of ~~September 30, 2017,~~the dates indicated, by type of loan (in thousands):

One- to
four-
family

Home
equity

Commercial
and
multifamily

Construction
and land

Manufactured
homes

Floating
homes

Other
consumer

Commercial
business
Total
Performing $ 154,679 $ 28,429 $ 201,205 $ 54,872 $ 16,731 $ 26,699 $ 5,032 $ 38,935 $ 526,582
Nonperforming 2,192 700 206 49 133 - - 223 3,503
Total $ 156,871 $ 29,129 $ 201,411 $ 54,921 $ 16,864 $ 26,699 $ 5,032 $ 39,158 $ 530,085

~~The following table represents the credit risk profile of our loan portfolio based on payment activity as of December 31, 2016, by type of loan (in thousands):~~

One- to
four-
family

Home
equity

Commercial
and
multifamily

Construction
and land

Manufactured
homes

Floating
homes

Other
consumer

Commercial
business
Total
Performing $ 150,170 $ 27,218 $ 180,786 $ 70,915 $ 15,374 $ 23,996 $ 3,932 $ 26,089 $ 498,480
Nonperforming 2,216 553 218 - 120 - - 242 3,349
Total $ 152,386 $ 27,771 $ 181,004 $ 70,915 $ 15,494 $ 23,996 $ 3,932 $ 26,331 $ 501,829

~~Impaired Loans.~~ ~~A loan is considered impaired when we determine that we may be unable~~


	December 31, 2022
	One-to-four family		Home equity		Commercial and multifamily		Construction and land		Manufactured homes		Floating homes		Other consumer		Commercial business		Total
Performing	$	272,503	$	19,406	$	313,358	$	116,554	$	26,857	$	74,443	$	17,661	$	23,815	$	864,597
Nonperforming	2,135		142		—		324		96		—		262		—		2,959
Total	$	274,638	$	19,548	$	313,358	$	116,878	$	26,953	$	74,443	$	17,923	$	23,815	$	867,556

Loan Modifications to collect payments of principal or interest when due under the terms of the loan. In the process of identifying loans as impaired, we take into consideration factors which include payment history and status, collateral value, financial condition of the borrower, and the probability of collecting scheduled payments in the future. Minor payment delays and insignificant payment shortfalls typically do not result in a loan being classified as impaired. The significance of payment delays and shortfalls is considered on a case by case basis, after taking into consideration the totality of circumstances surrounding the loan and the borrower, including payment history. Impairment is measured on a loan by loan basis for all loans in the portfolio. All TDRs are also classified as impaired loans and are included in the loans individually evaluated for impairment in the calculation of the allowance for loan losses.

~~Impaired loans at September 30, 2017 and December 31, 2016, by type of loan were as follows (in thousands):~~

September 30, 2017
Recorded Investment

Unpaid Principal
Balance

Without
Allowance

With
Allowance

Total
Recorded
Investment

Related
Allowance

One- to four- family $ 6,971 $ 3,403 $ 3,261 $ 6,664 $ 377
Home equity 1,125 487 520 �� 1,007 168
Commercial and multifamily 1,737 1,717 - 1,717 -
Construction and land 99 58 41 99 32
Manufactured homes 331 133 176 309 70
Other consumer 57 - 57 57 57
Commercial business 371 - 357 357 276
Total $ 10,691 $ 5,798 $ 4,412 $ 10,210 $ 980

December 31, 2016
Recorded Investment

Unpaid Principal
Balance

Without
Allowance

With
Allowance

Total
Recorded
Investment

Related
Allowance

One- to four- family $ 5,010 $ 2,454 $ 2,295 $ 4,749 $ 536
Home equity 913 446 386 832 121
Commercial and multifamily 1,582 1,221 361 1,582 24
Construction and land 83 - 83 83 35
Manufactured homes 326 91 221 312 59
Other consumer 62 - 62 62 65
Commercial business 616 143 473 616 23
Total $ 8,592 $ 4,355 $ 3,881 $ 8,236 $ 863

~~Income on impaired loans for the three and nine months ended September 30, 2017 and December 31, 2016, by type of loan were as follows (in thousands):~~

Three Months Ended September 30, 2017 Three Months Ended September 30, 2016

Average
Recorded
Investment

Interest Income
Recognized

Average
Recorded
Investment

Interest Income
Recognized

One- to four- family $ 6,603 $ 117 $ 5,445 $ 58
Home equity 1,008 10 968 4
Commercial and multifamily 1,732 24 4,365 19
Construction and land 114 (1 ) 86 1
Manufactured homes 306 9 383 6
Other consumer 58 1 24 -
Commercial business 348 5 640 9
Total $ 10,169 $ 165 $ 11,911 $ 97

Nine Months Ended
September 30, 2017

Nine Months Ended
September 30, 2016

Average
Recorded
Investment

Interest Income
Recognized

Average
Recorded
Investment

Interest Income
Recognized

One- to four- family $ 5,718 $ 269 $ 5,533 $ 197
Home equity 921 30 944 31
Commercial and multifamily 1,652 72 3,902 152
Construction and land 91 2 88 3
Manufactured homes 311 19 377 23
Other consumer 60 3 20 2
Commercial business 487 16 474 27
Total $ 9,240 $ 411 $ 11,338 $ 435

~~Forgone interest on nonaccrual loans was $12,000 and $95,000 for the nine months ended September 30, 2017 and 2016, respectively. There were no commitments to lend additional funds~~Borrowers Experiencing Financial Difficulty. Loans modified to borrowers ~~whose loans were classified as nonaccrual or impaired at September 30, 2017 or December 31, 2016.~~

~~Troubled debt restructurings.~~ ~~Loans classified as TDRs~~experiencing financial difficulty totaled ~~$4.0 million and $3.4~~$2.0 million at ~~September 30, 2017 and December~~March 31, ~~2016, respectively, and are included in impaired loans.~~2023. The Company has granted ~~in its TDRs, a variety of concessions to borrowers in the form of loan modifications. The~~ modifications ~~granted~~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.

There was one $1.3 million one- to four- family residential combination loan modified as a TDR during the nine months ended September 30, 2017. The following TDR loans paid off during the first nine months of 2017: a $125,000 one- to four- family residential loan, a $14,000 manufactured home loan, one $86,000 home equity loan, a $27,000 land loan, and a $359,000 commercial/multifamily loan. There were no new TDRs during the nine months ended September 30, 2016.

There were no post-modification changes for the unpaid principal balance in loans, net of partial charge-offs, that were recorded as a result of the TDRs for the nine months ended September 30, 2017 and 2016. There were no TDRs for which there was a payment default within the first 12 months of modification during the nine months ended September 30, 2017 or 2016.

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

During the three months ended March 31, 2023, there was one one-to-four family loan modified to borrowers experiencing financial difficulty that was in current status as of March 31, 2023. This loan received a term extension for 90 days, with an amortized cost basis of $90 thousand representing 0.03% of the total class of loans.

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

Troubled debt restructurings. Prior to the adoption of ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, the Company had granted a variety of concessions to borrowers in the form of loan modifications that were considered TDRs. Loans classified as TDRs totaled $2.0 million at December 31, 2022, and were previously included in impaired loans.

Collateral Dependent Loans. Loans that have been classified as collateral dependent are loans where substantially all repayment of the loan is expected to come from the operation of or eventual liquidation of the collateral. Collateral dependent loans are evaluated individually for purposes of determining the ACL, which is determined based on the estimated fair value of the collateral. Estimates for costs to sell are included in the determination of the ACL when liquidation of the collateral is anticipated. In cases where the loan is well secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACL is recorded.

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


	March 31, 2023
		Residential Real Estate		Land		Other Residential		Total
Real estate loans:
One- to four- family		$	985	$	—	$	168	$	1,153
Home equity		138		—		—		138

Construction and land		—		322		—		322
Total real estate loans		1,123		322		168		1,614
Consumer loans:
Manufactured homes		—		—		134		134


Total consumer loans		—		—		134		134

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

Impaired Loans. Prior to the adoption of ASC 326 on January 1, 2023, we classified loans as impaired when we determined that we may be unable to collect payments of principal or interest when due under the terms of the loan. In the process of identifying loans as impaired, we took into consideration factors which include payment history and status, collateral value, financial condition of the borrower, and the probability of collecting scheduled payments in the future. Minor payment delays and insignificant payment shortfalls typically did not result in a loan being classified as impaired. The significance of payment delays and shortfalls was considered on a case by case basis, after taking into consideration the totality of circumstances surrounding the loan and the borrower, including payment history. Impairment was measured on a loan by loan basis for all loans in the portfolio. All TDRs ~~are~~were also classified as impaired loans and ~~are~~were included in the loans individually evaluated for impairment in the calculation of the allowance for loan losses.

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


	December 31, 2022
			Recorded Investment
	Unpaid Principal Balance		Without Allowance		With Allowance		Total Recorded Investment		Related Allowance
One-to-four family	$	3,758	$	3,038	$	708	$	3,746	$	102
Home equity	210		142		68		210		5
Commercial and multifamily	—		—		—		—		—
Construction and land	358		324		34		358		3
Manufactured homes	187		93		94		187		52
Floating homes	—		—		—		—		—
Other consumer	343		261		82		343		22
Commercial business	—		—		—		—		—
Total	$	4,856	$	3,858	$	986	$	4,844	$	184

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


		Three Months Ended March 31,
	2022
		Average Recorded Investment		Interest Income Recognized
One-to-four family		$	3,762	$	25
Home equity		221		4
Commercial and multifamily		2,358		29
Construction and land		67		1
Manufactured homes		218		4
Floating homes		247		—
Other consumer		227		4
Commercial business		173		1
Total		$	7,273	$	68

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

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

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. 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.

Held-to-maturity securities – HTM securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. 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 - One-to-four family mortgage loans held-for-sale are recorded at the lower of cost or fair value. The fair value of fixed-rate one-to-four family loans is based on whole loan forward prices obtained from government sponsored enterprises. At March 31, 2023 and December 31, 2022, loans held-for-sale were carried at cost, as no impairment was required.

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 premium/discounts are part of the valuation for exit pricing.

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

FHLB stock - The estimated fair value is equal to the par value of the stock.

Non-maturity deposits - The estimated fair value is equal to the carrying amount.

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

Borrowings - The fair value of borrowings are estimated using the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

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

A description of the valuation methodologies used for impaired loans and OREO 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.

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

OREOand 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 Company’s off-balance sheet loan commitments is estimated based on fees charged to others to enter into similar agreements taking into account the remaining terms of the agreements and credit standing of the Company’s clients. 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. 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 months ended March 31, 2023 and 2022.

The following tables present information about the level in the fair value hierarchy for the ~~Company's~~Company’s financial assets and liabilities, whether or not recognized or recorded at fair value as of ~~September 30, 2017 and December 31, 2016~~the dates indicated (in thousands):


	March 31, 2023				Fair Value Measurements Using:
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
FINANCIAL ASSETS:
Cash and cash equivalents	$	81,580	$	81,580	$	81,580	$	—	$	—
Available-for-sale securities	8,601		8,601		—		8,601		—
Held-to-maturity securities	2,190		1,819		—		1,819		—
Loans held-for-sale	1,414		1,414		—		1,414		—
Loans held-for-portfolio, net	862,013		802,836		—		—		802,836

Mortgage servicing rights	4,587		4,587		—		—		4,587
FHLB stock	2,583		2,583		—		2,583		—
FINANCIAL LIABILITIES:
Non-maturity deposits	570,530		570,530		—		570,530		—
Time deposits	271,117		271,958		—		271,958		—

Borrowings	35,000		35,000		—		35,000		—
Subordinated notes	11,686		9,979		—		9,979		—


	September 30, 2017				Fair Value Measurements Using:							December 31, 2022				Fair Value Measurements Using:
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3			Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
FINANCIAL ASSETS:											FINANCIAL ASSETS:
Cash and cash equivalents	$	60,651	$	60,651	$	60,651	$	-	$	-	Cash and cash equivalents	$	57,836	$	57,836	$	57,836	$	—	$	—
Available-for-sale securities		5,688		5,688		-		5,688		-	Available-for-sale securities	10,207		10,207		—		10,207		—
Loans held-for-sale		296		296		-		296		-
Loans receivable, net		523,217		522,167		-		-		522,167
Accrued interest receivable		1,943		1,943		1,943		-		-
Held-to-maturity securities											Held-to-maturity securities	2,199		1,811		—		1,811		—

Loans held-for-portfolio, net											Loans held-for-portfolio, net	858,382		801,153		—		—		801,153
Mortgage servicing rights		3,370		3,370		-		-		3,370	Mortgage servicing rights	4,687		4,687		—		—		4,687
FHLB stock		1,825		1,825		-		-		1,825	FHLB stock	2,832		2,832		—		2,832		—
FINANCIAL LIABILITIES:											FINANCIAL LIABILITIES:
Non-maturity deposits		361,201		361,201		-		361,201		-	Non-maturity deposits	598,458		598,458		—		598,458		—
Time deposits		163,616		161,434		-		161,434		-	Time deposits	210,305		209,965		—		209,965		—
Borrowings		28,000		28,000		-		28,000		-	Borrowings	43,000		43,000		—		—		—
Accrued interest payable		68		68		-		68		-
Subordinated notes											Subordinated notes	11,676		10,420		—		10,420		—

December 31, 2016 Fair Value Measurements Using:

Carrying
Value

Estimated
Fair Value
Level 1 Level 2 Level 3
FINANCIAL ASSETS:
Cash and cash equivalents $ 54,582 $ 54,582 $ 54,582 $ - $ -
Available-for-sale securities 6,604 6,604 - 6,257 347
Loans held for sale 871 871 - 871 -
Loans receivable, net 495,179 494,289 - - 494,289
Accrued interest receivable 1,816 1,816 1,816 - -
Mortgage servicing rights 3,561 3,561 - - 3,561
FHLB Stock 2,840 2,840 - - 2,840
FINANCIAL LIABILITIES:
Non-maturity deposits 307,989 307,989 - 307,989 -
Time deposits 159,742 159,333 - 159,333 -
Borrowings 54,792 54,805 - 54,805 -
Accrued interest payable 73 73 - 73 -

The following tables present the balance of assets measured at fair value on a recurring basis as of ~~September 30, 2017 and December 31, 2016~~the dates indicated (in thousands):

Fair Value at September 30, 2017
Description
Total Level 1 Level 2 Level 3
Municipal bonds $ 3,417 $ - $ 3,417 $ -
Agency mortgage-backed securities 2,271 - 2,271 -
Mortgage servicing rights 3,370 - - 3,370

Fair Value at December 31, 2016
Description
Total Level 1 Level 2 Level 3
Municipal bonds $ 3,353 $ - $ 3,353 $ -
Agency mortgage-backed securities 2,904 - 2,904 -
Non-agency mortgage-backed securities 347 - - 347
Mortgage servicing rights 3,561 - - 3,561


	Fair Value at March 31, 2023
Description	Total		Level 1		Level 2		Level 3

Municipal bonds	$	5,466	$	—	$	5,466	$	—
Agency mortgage-backed securities	3,135		—		3,135		—

Mortgage servicing rights	4,587		—		—		4,587

~~For the three and nine months ended September 30, 2017 and 2016 there were no transfers between Level 1 and Level 2 nor between Level 2 and Level 3.~~


	Fair Value at December 31, 2022
Description	Total		Level 1		Level 2		Level 3
Treasury bills	$	1,594	$	—	$	1,594	$	—
Municipal bonds	5,421		—		5,421		—
Agency mortgage-backed securities	3,192		—		3,192		—

Mortgage servicing rights	4,687		—		—		4,687

The following tables provide a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the ~~Company's~~Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring basis ~~at September 30, 2017 and December 31, 2016:~~as of the dates indicated:

~~September 30, 2017~~

~~Financial Instrument~~

~~Valuation Technique~~

~~Unobservable Input(s)~~

~~Range~~

~~(Weighted-Average)~~

March 31, 2023

Financial Instrument

Valuation Technique

Unobservable Input(s)

Range
(Weighted-Average)

Mortgage Servicing Rights

Discounted cash flow

Prepayment speed assumption

~~109-412% (164%~~123%-477% (139%)

Discount rate

~~13-15% (13%~~10.5%-14.5% (12.5%)

December 31, ~~2016~~2022

Financial Instrument

Valuation Technique

Unobservable Input(s)

Range

(Weighted-Average)

Mortgage Servicing Rights

Discounted cash flow

Prepayment speed assumption

~~104-396% (152%~~119%-461% (132%)

Discount rate

~~13%-15% (13%)~~

~~Non-agency mortgage-backed securities~~

~~Discounted cash flow~~

~~Discount rate~~

~~7%-9% (8%~~10.5%-14.5% (12.5%)

Generally, any significant increases in the constant prepayment rate and discount rate utilized in the fair value measurement of the mortgage servicing rights will result in a negative fair value adjustment (and decrease in the fair value measurement). Conversely, a decrease in the constant prepayment rate and discount rate will result in a positive fair value adjustment (and increase in the fair value measurement). An increase in the ~~weighted average~~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.

~~The following table provides~~ As a ~~reconciliation~~result of the difficulty in observing certain significant valuation inputs affecting our “Level 3” fair value assets, we are required to make judgments regarding these items’ fair values. Different persons in possession of the same facts may reasonably arrive at different conclusions as to the inputs to be applied in valuing these assets and their fair values. Such differences may result in significantly different fair value measurements.

There were no assets or liabilities (excluding mortgage servicing rights) measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016 (in thousands):~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017 2016 2017 2016
Beginning balance, at fair value $ 318 $ 379 $ 347 $ 428
OTTI impairment losses - - - -
Sales, redemptions and principal payments (318 ) (29 ) (347 ) (90 )
Change in unrealized loss - 5 - 17
Ending balance, at fair value $ - $ 355 $ - $ 355

2022.

Mortgage servicing rights are measured at fair value using a significant unobservable input (Level 3) on a recurring basis - additional information is included in ~~Note 6 –~~ “Note 6—Mortgage Servicing Rights.

”

The fair value of individually evaluated loans with specific allocations of the ACL based on collateral values and OREO is generally based on recent real estate appraisals and automated valuation models (“AVMs”). These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers for differences between the comparable sales and income data available. Such adjustments are typically deemed significant unobservable inputs used for determining fair value and result in a Level 3 classification.

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


	Fair Value at March 31, 2023
	Total		Level 1		Level 2		Level 3
OREO and repossessed assets	$	575	$	—	$	—	$	575
Collateral dependent loans	1,748		—		—		1,748

Fair Value at September 30, 2017
Total Level 1 Level 2 Level 3
OREO and repossessed assets $ 1,032 $ - $ - $ 1,032
Impaired loans 10,210 - - 10,210

Fair Value at December 31, 2016
Total Level 1 Level 2 Level 3
OREO and repossessed assets $ 1,172 $ - $ - $ 1,172
Impaired loans 8,236 - - 8,236


	Fair Value at December 31, 2022
	Total		Level 1		Level 2		Level 3
OREO and repossessed assets	$	659	$	—	$	—	$	659
Impaired loans	4,844		—		—		4,844

There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis, at ~~September 30, 2017 or December~~both March 31, ~~2016.~~

The following tables provide a description of the valuation technique, observable input, and qualitative information about the unobservable inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a nonrecurring basis at September 30, 20172023 and December 31, ~~2016:~~2022.

~~September 30, 2017~~
~~Financial~~ ~~Instrument~~	~~Valuation Technique(s)~~	~~Unobservable Input(s)~~	~~Range (Weighted Average)~~
~~OREO~~	~~Market approach~~	~~Adjustment for differences~~ ~~between comparable sales~~		~~0-0% (0%)~~
~~Impaired loans~~	~~Market approach~~	~~Adjustment for differences~~ ~~between comparable sales~~		~~0-100% (10%)~~

~~December 31, 2016~~
~~Financial~~ ~~Instrument~~	~~Valuation~~ ~~Technique(s)~~	~~Unobservable Input(s)~~	~~Range~~ ~~(Weighted Average)~~
~~OREO~~	~~Market approach~~	~~Adjusted for difference~~ ~~between comparable sales~~		~~0-0% (0%)~~
~~Impaired loans~~	~~Market approach~~	~~Adjusted for difference~~ ~~between comparable sales~~		~~0-100% (11%)~~

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

~~Impaired Loans~~ - The fair value of collateral dependent loans is based on the current appraised value of the collateral or internally developed models utilizing a calculation of expected discounted cash flows which contain management's assumptions.

~~OREO and Repossessed Assets~~ ~~– The fair value of OREO and repossessed assets is based on the current appraised value of the collateral.~~

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

~~Cash and cash equivalents, and accrued interest receivable and payable~~ ~~- The estimated fair value is equal to the carrying amount.~~

~~AFS Securities~~ – AFS securities are recorded at fair value 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 and its agencies securities. Level 3 securities include private label mortgage-backed securities.

~~Loans Held-for-Sale~~ - Loans held-for-sale are recorded at the lower of cost or fair value. The fair value of fixed-rate residential loans is based on whole loan forward prices obtained from government sponsored enterprises. At September 30, 2017 and December 31, 2016, loans held-for-sale were carried at cost, as no impairment was required.

~~Loans~~ - The estimated fair value for all fixed-rate loans is determined by discounting the estimated cash flows using the current rate at which similar loans would be made to borrowers with similar credit ratings and maturities. The estimated fair value for variable rate loans is the carrying amount. The fair value for all loans also takes into account projected loan losses as a part of the estimate.

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

~~FHLB stock~~ ~~- The estimated fair value is equal to the par value of the stock, which approximates fair value.~~

~~Deposits~~ - The estimated fair value of deposit accounts (savings, demand deposit, and money market accounts) is the carrying amount. The fair values of fixed-maturity time deposits are estimated by discounting the estimated cash flows using the current rate at which similar time deposits would be issued.

~~Borrowings~~ ~~- The fair value of borrowings are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.~~

~~Off-balance sheet financial instruments~~ - The fair value of the off-balance sheet loan commitments are 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 customers. The estimated fair value of these commitments is not significant.

We assume interest rate risk (the risk that general interest rate levels will change) as a result of our normal operations. As a result, the fair values of our financial instruments will change when interest rate levels change, which may be favorable or unfavorable to us. Management attempts to match maturities of assets and liabilities to the extent necessary or possible to minimize interest rate risk. However, borrowers with fixed-rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed-rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by establishing early withdrawal penalties for time deposits, creating interest rate floors for certain variable rate loans, adjusting terms of new loans and deposits, by borrowing at fixed-rates for fixed-terms and investing in securities with terms that mitigate our overall interest rate risk.

Note 6 – Mortgage Servicing Rights

The unpaid principal ~~balances~~balance of the Company’s mortgage servicing rights portfolio totaled $468.8 million at March 31, 2023 compared to $472.5 million at December 31, 2022. Of this total balance, the unpaid principal balance of loans serviced for Federal National Mortgage Association ("(“Fannie ~~Mae"~~Mae”) at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016, totaled $391.5~~2022 were $466.6 million and ~~$410.1~~$470.3 million, ~~respectively, and are not included in the Company's financial statements. We also service loans for other financial institutions for which a servicing fee is received.~~respectively. The unpaid principal ~~balances~~balance of loans serviced for other financial institutions at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, totaled ~~$19.4~~$2.2 million and ~~$13.8~~$2.2 million, ~~respectively, and~~respectively. Loans serviced for others are not included in the ~~Company's~~Company’s financial ~~statements.~~statements as they are not assets of the Company.

A summary of the change in the balance of mortgage servicing assets during the periods indicated were as follows (in thousands):


	Three Months Ended March 31,
	2023		2022
Beginning balance, at fair value	$	4,687	$	4,273
Servicing rights that result from transfers and sale of financial assets	40		127
Changes in fair value:
Due to changes in model inputs or assumptions and other(1)	(140)		268

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

(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:


	March 31, 2023		December 31, 2022
Prepayment speed (Public Securities Association “PSA” model)	139	%	132	%
Weighted-average life	7.3 years		7.5 years
Discount rate	12.5	%	12.5	%

September 30,
2017

December 31,
2016

Prepayment speed (Public Securities Association "PSA" model) 164 % 152 %
Weighted-average life 7.0 years 7.2 years
Yield to maturity discount rate 13 % 13 %

The ~~amounts~~amount of contractually specified servicing, late and ancillary fees earned ~~and recorded, net of fair value market adjustments to~~on the mortgage servicing rights are included in

mortgage servicing income on the Condensed Consolidated Statements of Income ~~which were $18,000~~ and ~~$399,000~~totaled $299 thousand and $320 thousand for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2023 and ~~$239,000 and $462,000 for the three and nine months ended September 30, 2016,~~March 31, 2022, respectively.

The gross amount of contractually specified servicing, late and ancillary fees earned and recorded in mortgage servicing income were $230,000 and $868,000 for the three and nine months ended September 30, 2017, respectively, and $223,000 and $636,000 for the three and nine months ended September 30, 2016, respectively.

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 ~~customers'~~clients’ requests for funding and take the form of loan commitments and lines of credit.

Note 8 – Borrowings, ~~and~~ FHLB Stock and Subordinated Notes

FHLB Advances

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


	March 31, 2023			December 31, 2022
Fixed Rate:
Outstanding balance	$	25,000		$	—
Interest rates ranging from	4.06		%	—		%
Interest rates ranging to	4.27		%	—		%
Weighted average interest rate	4.19		%	—		%
Variable rate:
Outstanding balance	$	10,000		$	43,000
Weighted average interest rate	4.92		%	2.14		%

The Company ~~utilizes~~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~~Company’s mortgage and commercial and multifamily loan portfolio based on the outstanding balance. At ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, the amount available to borrow under this credit facility was ~~$205.6~~$439.4 million and ~~$197.9~~$442.1 million, ~~respectively.~~respectively, subject to eligible pledged collateral. At ~~September 30, 2017,~~March 31, 2023, the credit facility was collateralized as follows: ~~one- to four-~~one-to-four family mortgage loans with an advance equivalent of ~~$104.3~~$199.9 million, commercial and multifamily mortgage loans with an advance equivalent of ~~$108.8~~$42.7 million and home equity loans with an advance equivalent of ~~$15.7 million.~~$497 thousand. At December 31, ~~2016,~~2022, the credit facility was collateralized as follows: ~~one- to four-~~one-to-four family mortgage loans with an advance equivalent of ~~$107.2~~$204.1 million, commercial and multifamily mortgage loans with an advance equivalent of ~~$94.4~~$45.4 million and home equity loans with an advance equivalent of ~~$15.9 million. The Company had outstanding borrowings under this arrangement of $28.0 million and $54.8 million at September 30, 2017 and December 31, 2016, respectively.~~ $505 thousand.

Additionally, the Company had outstanding letters of credit from the FHLB of Des Moines with a notional amount of ~~$16.0~~$11.0 million and ~~$21.0~~$8.0 million at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, respectively, to secure public deposits. The remaining amount available to borrow as of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, was ~~$161.6~~$197.0 million and ~~$122.2~~$199.0 million, respectively.

As a member of the FHLB, ~~system,~~ the ~~Bank~~Company is required to maintain a minimum level of investment in FHLB of Des Moines stock based on specific percentages of its outstanding FHLB advances. At ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, the Company had an investment of ~~$1.8~~$2.6 million and $2.8 million, respectively in FHLB of Des Moines stock.

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

The Company ~~participates in~~has a borrowing agreement with the ~~Federal Reserve Bank Borrower-in-Custody program, which gives the Company access to the discount window.~~FRB SF. The terms of the ~~program~~agreement call for a blanket pledge of ~~specific assets. The Company pledges~~a portion of the Company’s consumer and commercial business loans based on the outstanding balance. At March 31, 2023 and ~~consumer loans as collateral for~~December 31, 2022, the amount available to borrow under this ~~line of credit.~~credit facility was $22.0 million and $20.8 million, respectively, subject to eligible pledged collateral. The Company had ~~unused borrowing capacity of $34.8 million and $42.0 million and~~ no outstanding borrowings under this ~~program~~arrangement at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016, respectively.~~2022.

Other Borrowings

The Company has access to an unsecured Fed Funds line of credit from Pacific Coast ~~Banker's Bank.~~Banker’s Bank (“PCBB”). The line has a ~~one-year~~one year term maturing on June 30, ~~2018~~2023 and is renewable annually. As of ~~September 30, 2017,~~March 31, 2023, the amount available under this line of credit was ~~$2.0~~$20.0 million. There was no balance on this line of credit as of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016, respectively.~~2022.

Subordinated Debt

In September 2020, the Company issued $12.0 million of fixed to floating rate subordinated notes that mature in 2030. The ~~Company has access~~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 ~~Fed Funds line of credit from Zions Bank under a Fed Funds Sweep and Line Agreement. The agreement allows access~~floating rate per annum equal to a ~~Fed Funds line of up~~benchmark rate, which is expected to ~~$9.0 million and requires~~be the then-current three-month term Secured Overnight Financing Rate, or SOFR, plus 513 basis points, payable quarterly in arrears. The subordinated notes mature on May 15, 2030. Prior to October 1, 2025, the Company ~~to maintain cash balances~~may redeem these notes, in whole but not in part, only under certain limited circumstances set forth in the subordinated notes and are redeemable by the Company in whole or in part beginning with ~~Zions Bank~~the interest payment date of ~~$250,000.~~October 1, 2025. The ~~agreement may be terminated by either party. There~~balance of the subordinated notes was ~~no balance on this line of credit~~$11.7 million as of ~~September 30, 2017~~both March 31, 2023 and December 31, ~~2016, respectively.~~2022.

The Company has access to an unsecured Fed Funds line of credit from The Independent Bank. As of September 30, 2017, the amount available under this line of credit was $10.0 million. The agreement may be terminated by either party. There was no balance on this line of credit as of September 30, 2017 and December 31, 2016, respectively.

Note 9 – Earnings Per Common Share

~~Basic earnings per common share is computed by dividing net income by~~The following table summarizes the weighted-average number of common shares outstanding for the period, reduced for average unallocated ESOP shares and average unvested restricted stock awards. Unvested share-based awards contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computationcalculation of earnings per share pursuant to the two-class method described in ASC 260-10-45-60B. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock awards and options) were exercised or converted to common stock, or resulted in the issuance of common stock that then shared in the Company's earnings. Diluted earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the period increased for the dilutive effect of unexercised stock options and unvested restricted stock awards. The dilutive effect of the unexercised stock options and unvested restricted stock awards is calculated under the treasury stock method utilizing the average market value of the Company's stock for the period.

~~Earnings per share are summarized~~ for the periods ~~presented in the following table~~indicated (in thousands, except per share data):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income $ 1,222 $ 1,454 $ 3,939 $ 3,814
Weighted-average number of shares outstanding, basic 2,507 2,490 2,502 2,483
Effect of potentially dilutive common shares(1)
55 78 61 74
Weighted-average number of shares outstanding, diluted 2,562 2,568 2,563 2,557
Earnings per share, basic $ 0.49 $ 0.58 $ 1.57 $ 1.54
Earnings per share, diluted $ 0.48 $ 0.57 $ 1.54 $ 1.48

~~(1)~~ ~~Represents the effect of the assumed exercise of stock options and vesting of non-participating restricted shares, based on the treasury stock method.~~


	Three Months Ended
	2023		2022
Net income	$	2,168	$	1,723
LESS: Participating dividends - Unvested Restricted Stock Awards (“RSAs”)	(3)		(5)
LESS: Income allocated to participating securities - Unvested RSAs	(11)		(7)
Net income available to common stockholders - basic	2,154		1,711
ADD BACK: Income allocated to participating securities - Unvested RSAs	11		7
LESS: Income reallocated to participating securities - Unvested RSAs	(11)		(7)
Net income available to common stockholders - diluted	$	2,154	$	1,711

Weighted average number of shares outstanding, basic	2,578,413		2,602,168
Effect of potentially dilutive common shares	25,630		38,191
Weighted average number of shares outstanding, diluted	2,604,043		2,640,359

Earnings per share, basic	$	0.84	$	0.66
Earnings per share, diluted	$	0.83	$	0.65

There were no8,009 anti-dilutive securities at ~~either September 30, 2017 or September 30, 2016.~~March 31, 2023 and 2,656 anti-dilutive securities at March 31, 2022.

Note 10 – Stock-based Compensation

Stock Options and Restricted Stock

The Company currently has ~~two existing Equity Incentive Plans, a 2008 Equity Inventive Plan (the "2008 Plan")~~one active stockholder approved stock-based compensation plan, the Amended and aRestated 2013 Equity Incentive Plan (the "2013 Plan"~~, and together with the 2008~~). The 2013 Plan ~~(the "Plans")), both of which were approved by shareholders. The Plans permit~~permits the grant of restricted stock, restricted stock units, stock options, and stock appreciation rights. ~~Under~~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; provided, however, all awards outstanding under the 2008 Plan ~~126,287~~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 50,514 shares of common stock were approved for awards for restricted stock and restricted stock units. Under the 2013 Plan, 141,750 shares of common stock were approved for awards for stock options and stock appreciation rights and 56,700116,700 shares of common stock were approved for awards for restricted stock and restricted stock units.

As of ~~September 30, 2017,~~March 31, 2023, on an adjusted basis, awards for stock options totaling ~~265,801~~295,581 shares and awards for restricted stock totaling ~~107,214~~159,396 shares of Company common stock have been granted, net of any forfeitures, to participants in the ~~Plans. During~~2013 Plan and the 2008 Plan. Share-based compensation expense was $192 thousand and $203 thousand for the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016, share-based compensation expense totaled $144,000 and $126,000,~~March 31, 2022, respectively. ~~During the nine months ended September 30, 2017 and 2016, share-based compensation expense totaled $432,000 and $354,000, respectively.~~

Stock Option Awards

~~The~~All stock option awards granted ~~to date~~ under the 2008 Plan vest in ~~20 percent~~20% annual increments commencing one year from the grant date in accordance with the requirements of the 2008 Plan. The stock option awards granted to date under the 2013 Plan ~~vest~~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 ~~either two or four years.~~one-to-four years subject to the continued service of the participant with the Company. All of the options granted under the ~~Plans~~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~~Company’s stock option award activity during the ~~nine~~three months ended ~~September 30, 2017:~~

Shares
Weighted-
Average
Exercise Price

Weighted-Average
Remaining Contractual
Term In Years

Aggregate
Intrinsic
Value

Outstanding at January 1, 2017 170,057 $ 15.41 6.44 $ 2,141,018
Granted 32,010 28.34
Exercised (14,018 ) 9.88
Forfeited (604 ) 28.21
Expired - -
Outstanding at September 30, 2017 187,445 17.99 6.48 3,000,547
Exercisable 119,885 16.27 5.87 $ 2,125,564
Expected to vest, assuming a 0% forfeiture rate over the vesting term 67,560 $ 21.05 7.56 $ 874,983

March 31, 2023 (dollars in thousands, except per share amounts):


	Shares	Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term in Years	Aggregate Intrinsic Value
Outstanding at January 1, 2023	91,525	$	27.64	4.65	$	1,109
Granted	12,425	40.13
Exercised	(14,353)	17.23
Forfeited	(328)	42.02
Expired	—	—

Outstanding at March 31, 2023	89,269	31.00		5.68	647
Exercisable	66,924	28.23		4.61	627
Expected to vest, assuming a 0% forfeiture rate over the vesting term	89,269	$	31.00	5.68	$	647

As of ~~September 30, 2017,~~March 31, 2023, there was ~~$331,000~~$199 thousand of total unrecognized compensation cost related to non-vested stock options granted under the Plans. The cost is expected to be recognized over the remaining weighted-average vesting period of ~~1.6~~approximately 2.9 years. The total intrinsic value of the shares exercised during the three months ended March 31, 2023 and 2022 was $327 thousand and $54 thousand, respectively.

The fair value of each option grant is estimated as of the grant date using the Black-Scholes option-pricing model. The fair value of options granted ~~for~~during the ~~nine~~three months ended ~~September 30, 2017 was~~March 31, 2023 and 2022 were determined using the following weighted-average assumptions as of the grant date.


	Three Months Ended March 31,
		2023			2022
Annual dividend yield		1.69		%	1.59		%
Expected volatility		28.15		%	26.48		%
Risk-free interest rate		3.60		%	1.64		%
Expected term		6.00 years			6.00 years
Weighted-average grant date fair value per option granted		$	11.33		$	9.95

Annual dividend yield 1.28 %
Expected volatility 22.99 %
Risk-free interest rate 2.20 %
Expected term 6.50 years
Weighted-average grant date fair value per option granted $ 6.62

~~The fair value of~~There were 12,425 and 12,800 options granted ~~for~~during the ~~nine~~three months ended ~~September 30, 2016 was determined using the following weighted-average assumptions as of the grant date.~~

Annual dividend yield 1.03 %
Expected volatility 25.48 %
Risk-free interest rate 1.64 %
Expected term 6.92 years
Weighted-average grant date fair value per option granted $ 5.78

March 31, 2023 and March 31, 2022, respectively.

Restricted Stock Awards

The fair value of the restricted stock awards is equal to the fair value of the Company's stock at the date of grant. Compensation expense is recognized over the vesting period that the awards are based. The restricted stock awards granted ~~to date~~ under the 2008 Plan ~~provide for vesting~~vest in 20% annual increments commencing one year from the grant date. The restricted stock awards granted to date under the 2013 Plan provide for immediate vesting of ~~33.33%~~a portion of ~~a recipient's~~the award with the balance of ~~an individual's~~the award ~~under~~vesting on the ~~2013 Plan vesting~~anniversary dates of the grant date in ~~two~~ equal annual installments ~~commencing~~ over periods of one ~~year from~~-to-four years subject to the ~~grant date.~~continued service of the participant with the Company.

The following is a summary of the ~~Company's~~Company’s non-vested restricted stock award activity during the ~~nine~~three months ended ~~September 30, 2017:~~

Shares
Weighted-Average
Grant-Date Fair
Value Per Share

Non-vested at January 1, 2017 26,138 $ 18.08
Granted 576 28.34
Vested (14,929 ) 17.61
Forfeited - -
Expired - -
Non-vested at September 30, 2017 11,785 19.05
Expected to vest assuming a 0% forfeiture rate over the vesting term 11,785 $ 19.05

March 31, 2023:


	Shares	Weighted-Average Grant-Date Fair Value Per Share		Aggregate Intrinsic Value Per Share
Non-Vested at January 1, 2023	17,879	$	37.63
Granted	8,850	40.13
Vested	(9,962)	37.14
Forfeited	(425)	41.95
Non-Vested at March 31, 2023	16,342	39.17		37.01
Expected to vest assuming a 0% forfeiture rate over the vesting term	16,342	$	39.17	$	37.01

As of ~~September 30, 2017,~~March 31, 2023, there was ~~$107,000~~$594 thousand of unrecognized compensation cost related to non-vested restricted stock granted under the Plans. The cost is expected to be recognized over the weighted-average vesting period of ~~0.53~~2.7 years. The total fair value of shares vested for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 was ~~$430,000~~$370 thousand and ~~$272,000,~~$306 thousand, respectively.

Employee Stock Ownership Plan

In January 2008, the ESOP borrowed $1.2 million from the Company to purchase common stock of the Company. In August 2012, in conjunction with the Company's conversion to a full stock company from the mutual holding company structure, the ESOP borrowed an additional $1.1 million from the Company to purchase common stock of the Company. Both loans are being repaid by the Bank through contributions to the ESOP over a period of ten years. The interest rate on the loans is fixed at 4.00% and 2.25%, per annum, respectively. As of September 30, 2017, the remaining balances of the ESOP loans were $136,000 and $590,000, respectively.

~~Neither the loan balances nor the related interest expense are reflected on the condensed consolidated financial statements.~~

~~At September 30, 2017, the ESOP was committed to release 21,443 shares of the Company's common stock to participants and held 66,800 unallocated shares remaining to be released in future years.~~ The fair value of the ~~178,124 restricted~~155,135 shares held by the ~~ESOP~~Company’s Employee Stock Ownership Plan (the “ESOP”) trust was $6.1 million at ~~September 30, 2017.~~March 31, 2023. ESOP compensation expense included in salaries and benefits was ~~$172,000~~$204 thousand and ~~$510,000~~$205 thousand for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~$155,000~~March 31, 2022, respectively.

Note 11 – Leases

We have operating leases for branch locations, a loan production office, our corporate office and ~~$426,000~~in the past, for certain equipment. The term for our leases begins on the date we become legally obligated for the rent payments or take possession of the building, whichever is earlier. Generally, our real estate leases have initial terms of three to ten years and ~~nine months ended September 30, 2016, respectively.~~typically include one renewal option. Our leases have remaining lease terms of under two to six years. The operating leases generally contain renewal options and require us to pay property taxes and operating expenses for the properties.

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


	March 31, 2023		December 31, 2022
Operating lease right-of-use assets	$	5,200	$	5,102
Operating lease liabilities	$	5,543	$	5,448

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


	Three Months Ended March 31,
	2023		2022
Operating lease expense
Office leases	$	268	$	273

Sublease income	(3)		(3)
Net lease expense	$	265	$	270

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


	March 31, 2023
Remainder of 2023	$	1,106
2024	1,083
2025	933
2026	944
2027	963
Thereafter	979
Total lease payments	6,008
Less: Present value discount	465
Present value of lease liabilities	$	5,543

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

March 31,
2023

December 31,
2022

Weighted-average remaining lease term:

Office leases

6.1 years

Weighted-average discount rate (annualized):

Office leases

2.66

2.63

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


	Three Months Ended March 31,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities for operating leases:
Operating cash flows
Office leases	$	271	$	265

Note 12 – Subsequent ~~Event~~

Events

On ~~October 26, 2017,~~April 24, 2023, the Company announced that its Board of Directors declared a quarterly cash dividend of ~~$0.10~~$0.19 per common share, payable ~~November~~on May 24, ~~2017~~2023 to ~~shareholders~~stockholders of record at the close of business ~~November~~on May 10, ~~2017.~~2023.

Table of Contents

~~Item 2.~~

~~Management's~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note Regarding Forward-Looking Statements

Certain matters discussed in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words ~~"believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook"~~“believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as ~~"may," "will," "should," "would"~~“may,” “will,” “should,” “would” and ~~"could."~~“could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors including, but not limited to:



~~changes in economic conditions, either nationally or in our market area;~~

•potential adverse impacts to economic conditions in the Company’s local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession, the failure of the U.S. Congress to increase the debt ceiling, or slowed economic growth caused by increasing political instability from acts of war including Russia’s invasion of Ukraine, as well as increasing oil prices and supply chain disruptions, and any governmental or societal responses to recent bank failures or new COVID-19 variants;



~~fluctuations in interest rates;~~

•changes in consumer spending, borrowing and savings habits;



the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of our allowance for loan losses;

•the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of our allowance for credit losses;



~~the possibility of other-than-temporary impairments of securities held in our securities portfolio;~~

•monetary and fiscal policies of the Board of Governors of the Federal Reserve System ("Federal Reserve") and the U.S. Government and other governmental initiatives affecting the financial services industry;



~~our ability to access cost-effective funding;~~

•fluctuations in the demand for loans, the number of unsold homes, land and other properties;



fluctuations in the demand for loans, the number of unsold homes, land and other properties, and fluctuations in real estate values and both residential and commercial and multifamily real estate market conditions in our market area;

•fluctuations in real estate values and both residential and commercial and multifamily real estate market conditions in our market area;



~~secondary market conditions for loans and our ability to sell loans in the secondary market;~~

•our ability to access cost-effective funding, including maintaining the confidence of depositors;



~~our ability to attract and retain deposits;~~

•the possibility that unexpected outflows of uninsured deposits may require us to sell investment securities at a loss;



our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may acquire into our operations and our ability to realize related revenue synergies and expected cost savings and other benefits within the anticipated time frames or at all, including the recent University Place branch acquisition;

•the transition away from the London Interbank Offered Rate (“LIBOR”) toward new interest-rate benchmarks;



legislative or regulatory changes such as the Dodd-Frank Wall Street Reform and Consumer Protection Act and its implementing regulations that adversely affect our business, as well as changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules including changes related to Basel III;

•our ability to control operating costs and expenses;



monetary and fiscal policies of the Board of Governors of the Federal Reserve System ("Federal Reserve") and the U.S. Government and other governmental initiatives affecting the financial services industry;

•secondary market conditions for loans and our ability to sell loans in the secondary market;



results of examinations of Sound Financial Bancorp and Sound Community Bank by their regulators, including the possibility that the regulators may, among other things, require us to increase our allowance for loan losses or to write-down assets, change Sound Community Bank's regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings;

•fluctuations in interest rates;



~~increases in premiums for deposit insurance;~~

•results of examinations of Sound Financial Bancorp and Sound Community Bank by their regulators, including the possibility that the regulators may, among other things, require us to increase our allowance for credit losses or to write-down assets, change Sound Community Bank's regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings;



~~our ability to control operating costs and expenses;~~

•inability of key third-party providers to perform their obligations to us;



~~the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;~~

•our ability to attract and retain deposits;



~~difficulties in reducing risks associated with the loans on our balance sheet;~~

•competitive pressures among financial services companies;



~~staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges;~~

•our ability to successfully integrate any assets, liabilities, clients, systems, and management personnel we may acquire into our operations and our ability to realize related revenue synergies and expected cost savings and other benefits within the anticipated time frames or at all;



our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, "denial of service" attacks, "hacking" and identity theft;

•the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;



~~our ability to retain key members of our senior management team;~~

•our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, "denial of service" attacks, "hacking" and identity theft, and other attacks on our information technology systems or on the third-party vendors who perform several of our critical processing functions;



~~costs and effects of litigation, including settlements and judgments;~~

•changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board;



~~our ability to implement our business strategies;~~

•legislative or regulatory changes that adversely affect our business, including changes in banking, securities and tax law, in regulatory policies and principles, or the interpretation of regulatory capital or other rules, and other



~~increased competitive pressures among financial services companies;~~



~~changes in consumer spending, borrowing and savings habits;~~



~~the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;~~

governmental initiatives affecting the financial services industry and the availability of resources to address such changes;



~~our ability to pay dividends on our common stock;~~

•our ability to retain or attract key employees or members of our senior management team;



~~adverse changes in the securities markets;~~

•costs and effects of litigation, including settlements and judgments;



~~the inability of key third-party providers to perform their obligations to us;~~

•our ability to implement our business strategies;



changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; and

•staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges;



other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described from time to time in our filings with the SEC, including this Form 10-Q and our 2016 Form 10-K.

•our ability to pay dividends on our common stock;

•the quality and composition of our securities portfolio and the impact of any adverse changes in the securities markets;

•the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business;

•other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and

•the other risks described from time to time in our reports filed with or furnished to the U.S. Securities and Exchange Commission (the "SEC"), including this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”).

We ~~wish to advise~~caution readers not to place undue reliance on any forward-looking statements and that the factors listed above could materially affect our financial performance and could cause our actual results for future periods to differ materially from any such forward-looking statements expressed with respect to future periods and could negatively affect our stock price performance.

We do not undertake and specifically decline any obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

General

Sound Financial Bancorp, a Maryland corporation, is a bank holding company for its wholly owned subsidiary, Sound Community Bank. Substantially all of Sound Financial ~~Bancorp's~~Bancorp’s business is conducted through Sound Community Bank, a Washington state-chartered commercial bank. As a Washington commercial bank, that is not a member of the ~~Bank's~~Federal Reserve System, the Bank’s regulators are the ~~WDFI~~Washington Department of Financial Institutions and the ~~FDIC. The~~ Federal ~~Reserve is the primary federal regulator for~~Deposit Insurance Corporation (the “FDIC”). As a bank holding company, Sound Financial ~~Bancorp.~~

Bancorp is regulated by the Federal Reserve. We also sell insurance products and services for clients through Sound Community Insurance Agency, Inc., a wholly owned subsidiary of the Bank.

Sound Community ~~Bank's~~Bank’s deposits are insured up to applicable limits by the FDIC. At ~~September 30, 2017,~~March 31, 2023, Sound Financial Bancorp, on a consolidated basis, had ~~total consolidated~~ assets of ~~$622.5 million,~~$1.00 billion, net loans held-for-portfolio of ~~$523.2~~$862.0 million, deposits of ~~$524.8~~$841.6 million and ~~stockholders'~~stockholders’ equity of ~~$63.3~~$98.6 million. The ~~shares~~common stock of Sound Financial Bancorp ~~are traded~~is listed on ~~The~~the NASDAQ Capital Market under the symbol ~~"SFBC."~~“SFBC.” Our executive offices are located at 2400 3rd3rd Avenue, Suite 150, Seattle, Washington, 98121.

Our principal business consists of attracting retail and commercial deposits from the general public and investing those funds ~~along with borrowed funds,~~ in loans secured by first and second mortgages on ~~one- to four-~~one-to-four family residences (including home equity loans and lines of credit), loans secured by commercial and multifamily real estate, construction and land loans, consumer loans and commercial business loans. Our commercial business loans include unsecured lines of credit and secured term loans and lines of credit secured by inventory, equipment and accounts receivable. We also offer a variety of secured and unsecured consumer loan products, including manufactured home loans, floating home loans, automobile loans, boat loans and recreational vehicle loans. As part of our business, we focus on the origination of residential mortgage ~~loan originations, the majority~~loans, a significant portion of which we sell to Fannie Mae and ~~a portion~~other correspondents and the remainder of which we retain for our loan portfolio consistent with our asset/liability objectives. We sell loans ~~which~~that conform to the underwriting standards of Fannie Mae ~~("conforming"~~(“conforming”) in which we retain the servicing of the loan in order to maintain the direct customer relationship and to generate noninterest income. Residential loans ~~which~~that do not conform to the underwriting standards of Fannie Mae ~~("non-conforming"~~(“non-conforming”), are ~~either~~ held in our loan ~~portfolio or sold with servicing released.~~portfolio. We originate and retain a significant amount of commercial real estate loans, including those secured by owner-occupied and nonowner-occupied commercial real estate, multifamily ~~property,~~properties and mobile home parks, ~~and~~as well as construction and land development loans.

Critical Accounting ~~Policies~~

Estimates

Certain of our accounting policies ~~are important to an understanding of our financial condition, since they~~ require management to make difficult, complex or subjective judgments, which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances that could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of

borrowers. Management believes that its critical accounting ~~policies~~estimates include determining the allowance for ~~loan~~credit losses, accounting for other-than-temporary impairment of securities, accounting for mortgage servicing rights, accounting for other real estate owned and accounting for deferred income taxes. Our methodologies for analyzing the allowance for loan losses, other-than-temporary impairment, mortgage servicing rights, other real estate owned and deferred tax asset accounts are described in our 2016 Form 10-K. There have been no ~~significant~~material changes in the ~~Company's application of~~Company’s critical accounting policies ~~since December 31, 2016.~~and estimates as previously disclosed in the Company’s 2022 Form 10-K, except as disclosed in “Note 1 —Basis of Presentation” in the Notes to Condensed Consolidated Financial Statements in this report.

Comparison of Financial Condition at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016~~2022

~~General~~.General. Total assets increased ~~$34.2~~$28.0 million, or ~~5.8%~~2.9%, to ~~$622.5 million~~$1.00 billion at ~~September 30, 2017~~March 31, 2023 from ~~$588.4~~$976.4 million at December 31, ~~2016. This~~2022. The increase primarily was ~~primarily the~~a result of ~~a $28.0 million, or 5.7%, increase in net loans~~loan growth and ~~a $6.1 million, or 11.2%,~~an increase in cash and cash equivalents. The increase in cash and cash equivalents was due to a $57.1 million, or 12.2%, increase in deposits, which also funded the loan growth and a $26.8 million, or 48.9%, decrease in borrowings to $28.0 million at September 30, 2017 from $54.8 million at December 31, 2016.

Cash and ~~Securities~~. Securities. Cash and cash equivalents increased ~~$6.1~~$23.7 million, or ~~11.2%~~41.1%, to ~~$60.7~~$81.6 million at ~~September 30, 2017~~March 31, 2023 from ~~$54.6~~$57.8 million at December 31, ~~2016. Available-for-sale securities, which consist~~2022, primarily due to due to an increase in deposits, primarily certificate and money market accounts, partially offset by the repayment of ~~agency mortgage-backed~~FHLB overnight advances. Investment securities decreased ~~$916,000,~~$1.6 million, or ~~13.9%~~13.0%, to ~~$5.7~~$10.8 million at ~~September 30, 2017 from $6.6~~March 31, 2023, compared to $12.4 million at December 31, ~~2016.~~2022. Held-to-maturity securities totaled $2.2 million at March 31, 2023 and December 31, 2022. Available-for-sale securities totaled $8.6 million at March 31, 2023, compared to $10.2 million at December 31, 2022. The decrease in available-for-sale securities was primarily due the ~~result~~maturity of ~~normal principal repayments on securities during the first nine months of 2017~~$1.6 million in ~~addition to the full redemption of a $318,000 non-agency mortgage-backed security in July 2017.~~treasury bills and regularly scheduled payments and maturities.

Loans.Loans. ~~Our gross loan portfolio~~ held-for-portfolio, net, increased ~~$28.2~~$3.6 million, or ~~5.6%~~0.4%, to ~~$528.2~~$862.0 million at ~~September 30, 2017~~March 31, 2023 from ~~$500.0~~$858.4 million at December 31, ~~2016.~~

2022, driven by increases in construction and land, commercial business and manufactured home loans, partially offset by declines in commercial real estate, multifamily, floating homes and other consumer loans. The increase from December 31, 2022 in total loans held-for-portfolio primarily resulted from the funding of commercial construction projects and a new commercial and industrial relationship.

The following table reflects the changes in the loan mix of our loan portfolio at ~~September 30, 2017,~~March 31, 2023, as compared to December 31, ~~2016~~2022 (dollars in thousands):

	September 30, 2017			December 31, 2016			Amount Change			Percent Change
One- to four- family	$	156,871		$	152,386		$	4,485			2.9	%
														March 31, 2023		December 31, 2022		Amount Change		Percent Change
One-to-four family													One-to-four family	$	274,687	$	274,638	$	49	—	%
Home equity		29,129			27,771			1,358			4.9		Home equity	19,631		19,548		83		0.4
Commercial and multifamily		201,411			181,004			20,407			11.3		Commercial and multifamily	307,558		313,358		(5,800)		(1.9)
Construction and land		54,921			70,915			(15,994	)		(22.6	)	Construction and land	125,983		116,878		9,105		7.8
Manufactured homes		16,864			15,494			1,370			8.8		Manufactured homes	27,904		26,953		951		3.5
Floating homes		26,699			23,996			2,703			11.3		Floating homes	73,579		74,443		(864)		(1.2)
Other consumer		5,032			3,932			1,100			28.0		Other consumer	17,378		17,923		(545)		(3.0)
Commercial business		39,158			26,331			12,827			48.7		Commercial business	25,192		23,815		1,377		5.8
Premiums for purchased loans													Premiums for purchased loans	946		973		(26)		(2.7)
Deferred loan fees		(1,877	)		(1,828	)		(49	)		2.7		Deferred loan fees	(2,313)		(2,548)		234		(9.2)
Total loans, gross	$	528,208		$	500,001		$	28,207			5.6	%
Total loans held-for-portfolio, gross													Total loans held-for-portfolio, gross	870,545		865,981		4,564		0.5
Allowance for credit losses — loans													Allowance for credit losses — loans	(8,532)		(7,599)		(933)		12.3
Total loans held-for-portfolio, net													Total loans held-for-portfolio, net	$	862,013	$	858,382	$	3,631	0.4	%

The increase in our loan portfolio was primarily a result of positive economic conditions which contributed to strong demand for credit. The largest dollar increases in the loan portfolio were in the commercial and multifamily loans which increased $20.4 million, or 11.3%, to $201.4 million and commercial business loans which increased $12.8 million, or 48.7%, to $39.2 million. Partially offsetting these increases was a decrease in construction and land loans ~~which decreased $16.0~~during the period was primarily due to advances of commercial construction loans. The increase in commercial business loans was primarily the result of a new commercial business relationship. These increases were partially offset by payoffs and paydowns during the period, including the payoff of $2.7 million ~~or 22.6%,~~related to ~~$54.9 million.~~two multifamily loans. At ~~September 30, 2017,~~March 31, 2023, our loan portfolio, net of deferred loan fees, remained well-diversified. Commercial and multifamily real estate loans accounted for ~~38.1%~~35.3% of ~~the portfolio, one- to four-~~total loans, one-to-four family loans, including home equity loans, accounted for ~~35.1%~~33.7% of ~~the portfolio~~total loans, commercial business loans accounted for 2.9% of total loans, and ~~home equity,~~consumer loans, consisting of manufactured ~~and~~homes, floating homes, and other consumer loans, accounted for ~~9.1%~~13.6% of ~~the portfolio~~total loans at ~~September 30, 2017.~~March 31, 2023. Construction and land loans accounted for ~~10.3% of the portfolio and commercial business loans accounted for the remaining 7.4%~~14.4% of total loans at ~~September 30, 2017.~~

March 31, 2023.

Loans held-for-sale ~~decreased $575,000, or 66.0%,~~totaled $1.4 million at March 31, 2023, compared to ~~$296,000 at September 30, 2017 from $871,000~~none at December 31, ~~2016.~~2022. The ~~decrease~~increase was primarily due to timing of mortgage originations and sales.

Allowance for Credit Losses.

The following table reflects the adjustments in our allowance for credit losses (“ACL”) during the periods indicated (dollars in thousands):


	Three Months Ended March 31,
	2023			2022
Allowance for Credit Losses — Loans:
Balance at beginning of period	$	7,599		$	6,306
Impact of Adoption of ASU 2016-16	760			—
Charge-offs	(79)			(32)
Recoveries	7			8
Net charge-offs	(72)			(24)
Provision for credit losses during the period	245			125
Balance at end of period	8,532			$	6,407
Reserve for Unfunded Commitments:
Balance at beginning of period	335			404
Adoption of ASU 2016-13	695			—
(Reversal of) provision for credit losses	(235)			15
Balance at end of period	795			419
Allowance for credit losses	$	9,327		$	6,826
Ratio of net charge-offs during the period to average loans outstanding during the period	(0.03)		%	(0.01)		%

Our ACL — loans ~~held-for-sale~~increased $933 thousand, or 12.3%, to $8.5 million at March 31, 2023, from $7.6 million at December 31, 2022.

The change in the ACL - loans from December 31, 2022 to March 31, 2023 was primarily a result of the robust local economy putting pressure on housing prices and home loans available for sale, which when combined with increasing interest rates, reduced refinancing activity. Originations of loans held-for-sale decreased to $34.5 millionadjustment for the ~~nine~~adoption of ASU 2016-16. The provision for credit losses had a minimal impact on the change in the ACL as a result of the growth in the loan portfolio primarily related to construction advances that were outstanding at December 31, 2022 funding during the three months ended ~~September 30, 2017~~March 31, 2023, thus reducing the reserve for unfunded commitments and increasing the ACL - loans. Net charge-offs for the three months ended March 31, 2023 totaled $72 thousand, compared to net charge-offs of $24 thousand for the three months ended March 31, 2022. At March 31, 2023, the ACL - loans as a percentage of total loans and nonperforming loans was 0.98% and 659.97%, compared to 0.88% and 256.81%, at December 31, 2022, respectively. See “Comparison of Results of Operations for the Three Months Ended March 31, 2023 and 2022 — Provision for Credit Losses.”

The following tables show certain credit ratios at and for the periods indicated and each component of the ratio's calculations (dollars in thousands).


	March 31, 2023			December 31, 2022
Allowance for credit losses - loans as a percentage of total loans outstanding at period end	0.98		%	0.88		%
Allowance for credit losses — loans	$	8,532		$	7,599
Total loans outstanding	$	871,912		$	867,556

Nonaccrual loans as a percentage of total loans outstanding at period end	0.15		%	0.34		%
Total nonaccrual loans	$	1,293		$	2,959
Total loans outstanding	$	871,912		$	867,556

Allowance for credit losses - loans as a percentage of nonaccrual loans at period end	659.94		%	256.81		%
Allowance for credit losses — loans	$	8,532		$	7,599
Total nonaccrual loans	$	1,293		$	2,959

Allowance for credit losses as a percentage of total loans outstanding at period end	1.07		%	0.91		%
Allowance for credit losses	$	9,327		$	7,934
Total loans outstanding	$	871,912		$	867,556

Allowance for credit losses as a percentage of nonaccrual loans at period end	721.46		%	268.13		%
Allowance for credit losses	$	9,327		$	7,934
Total nonaccrual loans	$	1,293		$	2,959


	Three Months Ended March 31,
	2023			2022
	($ in thousands)
Net recoveries (charge-offs) during period to average loans outstanding:
One-to-four family:	—		%	—		%
Net recoveries (charge-offs)	$	—		$	—
Average loans outstanding	$	274,261		$	211,315

Home equity:	—		%	0.06		%
Net recoveries (charge-offs)	$	—		$	2
Average loans outstanding	$	19,580		$	13,449

Commercial and multifamily real estate:	—		%	—		%
Net (charge-offs) recoveries	$	—		$	—
Average loans outstanding	$	310,960		$	279,237

Construction and land:	—		%	—		%
Net (charge-offs) recoveries	$	—		$	—
Average loans outstanding	$	120,704		$	65,314

Manufactured homes:	—		%	—		%
Net recoveries	$	—		$	—
Average loans outstanding	$	27,279		$	21,896

Floating homes:	—		%	—		%
Net (charge-offs) recoveries	$	—		$	—
Average loans outstanding	$	74,043		$	59,797

Other consumer:	(1.68)		%	(0.50)		%
Net (charge-offs)	$	(72)		$	(21)
Average loans outstanding	$	17,333		$	16,892

Commercial business:	—		%	(0.08)		%
Net (charge-offs)	$	—		$	(5)
Average loans outstanding	$	24,107		$	25,657

Total loans:	(0.03)		%	(0.01)		%
Net recoveries (charge-offs)	$	(72)		$	(24)
Average loans outstanding	$	868,266		$	693,556

Nonperforming Assets.At March 31, 2023, nonperforming assets, which are comprised of nonaccrual loans and other real estate owned (“OREO”), totaled $1.9 million, or 0.19% of total assets, compared to $3.6 million, or 0.37% of total assets at December 31, 2022.

The table below sets forth the amounts and categories of nonperforming assets at the dates indicated (dollars in thousands):


	Nonperforming Assets
	March 31, 2023		December 31, 2022		Amount Change		Percent Change


Total nonperforming loans	$	1,293	$	2,958	$	(1,665)	(56.3)
OREO and repossessed assets	575		659		(84)		(12.7)
Total nonperforming assets	$	1,868	$	3,617	$	(1,749)	(48.4)	%

Nonperforming assets, which are comprised of nonaccrual loans, nonperforming modified loans and OREO, decreased $1.7 million, or 48.4%, to $1.9 million at March 31, 2023 from ~~$57.8~~$3.6 million at December 31, 2022. The decrease in nonperforming

assets primarily was due to the payoff of $1.5 million in nonperforming one-to-four family loans related to a single borrower and the write-off of one residential property for $84 thousand during the ~~same period last year.~~three months ended March 31, 2023. The percentage of nonperforming loans to total loans was 0.15% at March 31, 2023, compared to 0.34% of total loans at December 31, 2022.

Mortgage Servicing ~~Rights~~. ~~At September 30, 2017 and December 31, 2016, we had $3.4 million and $3.6 million, respectively, in~~Rights. The fair value of mortgage servicing rights ~~recorded~~was $4.6 million at ~~fair value.~~March 31, 2023, a decrease of $100 thousand, or 2.1%, from $4.7 million at December 31, 2022. We record mortgage servicing rights on loans sold ~~to Fannie Mae and other financial institutions~~ with servicing retained and upon acquisition of a servicing portfolio. ~~We stratify our capitalized mortgage servicing rights based on the type, term and interest rates of the underlying loans.~~ Mortgage servicing rights are carried at fair value. If the fair value of our mortgage servicing rights fluctuates significantly, our financial results could be materially impacted.

~~Nonperforming Assets.~~ ~~At September 30, 2017, nonperforming assets totaled $4.5~~Deposits and Borrowings. Total deposits increased $32.9 million, or ~~0.73% of total assets, which was relatively unchanged from December 31, 2016.~~

~~The table below sets forth the amounts and categories of nonperforming assets at the dates indicated (dollars in thousands):~~

Nonperforming Assets

September 30,
2017

December 31,
2016

Amount
Change

Percent
Change

Nonaccrual loans $ 2,100 $ 3,144 $ (1,044 ) (33.2 )%
Nonperforming TDRs 1,403 205 1,198 584.4
Total nonperforming loans 3,503 3,349 154 4.6
OREO and repossessed assets 1,032 1,172 (140 ) (11.9 )
Total nonperforming assets $ 4,535 $ 4,521 $ 14 0.3 %

Nonperforming loans, consisting of nonaccrual loans and nonperforming TDRs, increased to $3.5 million, or 0.66% of total loans, at September 30, 2017 compared to $3.3 million or 0.67% of total loans at December 31, 2016. Nonaccrual loans decreased and nonperforming TDRs increased during the nine months ended September 30, 2017, primarily due to a $1.3 million nonaccrual one- to four- family, residential loan which was modified as a TDR during the period.

~~OREO and repossessed assets decreased $140,000, or 11.9%~~4.1%, to ~~$1.0~~$841.6 million at ~~September 30, 2017~~March 31, 2023 from ~~$1.2~~$808.8 million at December 31, ~~2016. This decrease~~2022. The increase was due to the sale of three one- to four- family residential properties totaling $238,000. During the third quarter of 2017, we entered into an agreement to sell one of our one- to four-family OREO properties for $117,000 less than the carrying amount of the property on our books. Asprimarily a result ~~we recorded a loss on OREO~~ of ~~$117,000 during the quarter. In addition, we acquired a $215,000, one-to four- family OREO property located~~higher balances in ~~Stanton, MI. At September 30, 2017, our largest OREO property was a commercial building with a recorded value of $600,000 located~~certificate and money market accounts, partially offset by lower balances in ~~Clallam County, Washington, which was acquired in 2015 as a part of three branches purchased~~all other deposit products, largely driven by consumer behavior to move funds from another financial institution. It is currently leased to a not-for-profit organization headquartered in our market area at a below market rate. Our remaining three OREO properties at September 30, 2017, consisted of the $207,000 one- to four- family property that is under contract to sell, a $215,000, one- to four- family property located in Stanton, MI, and a $10,000 manufactured home located in King County, Washington.

~~Allowance for Loan Losses~~. The allowance for loan losses is maintained to cover losses that are probable and can be estimated on the date of evaluation in accordance with generally accepted accounting principles in the United States. It is our best estimate of probable credit losses inherent in our loan portfolio. The following table reflects the adjustments in our allowance during the periods indicated (dollars in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Balance at beginning of period $ 4,835 $ 4,838 $ 4,822 $ 4,636
Charge-offs (97 ) (24 ) (134 ) (146 )
Recoveries 3 45 53 119
Net (charge-offs)/recoveries (94 ) 21 (81 ) (27 )
Provisions charged to operations 250 - 250 250
Balance at end of period $ 4,991 $ 4,859 $ 4,991 $ 4,859

Ratio of net charge-offs/(recoveries) during the period to average loans outstanding during the period 0.02 % 0.00 % 0.02 % 0.01 %

September 30,
2017

December 31,
2016
Allowance as a percentage of nonperforming loans (end of period) 142.48% 143.98%
Allowance as a percentage of total loans (end of period) 0.94% 0.96%

~~Our allowance for loan losses increased $169,000,~~lower rate deposit products into higher rate deposit products. Noninterest-bearing deposits decreased $117 thousand, or ~~3.5%~~0.1%, to ~~$5.0~~$173.1 million at ~~September 30, 2017, from $4.8~~March 31, 2023, compared to $173.2 million at December 31, ~~2016. The provision for loan losses totaled $250,000 for the first nine months ended September 30, 2017 primarily as a result~~2022. Noninterest-bearing deposits represented 20.6% of ~~the increase in the loan portfolio balances and higher net loan charge-offs as~~total deposits at March 31, 2023, compared to ~~December 31, 2016.~~

~~Specific loan loss reserves increased to $980,000 at September 30, 2017 compared to $863,000~~21.4% at December 31, 2016, while general loan loss reserves decreased to $3.1 million at September 30, 2017, compared to $3.2 million at December 31, 2016 and the unallocated reserve increased to $906,000 at September 30, 2017 compared to $712,000 at December 31, 2016. The increase in specific loan loss reserves was primarily due to the $2.0 million increase in impaired loans since December 31, 2016. There were 22 loans totaling $3.2 million (of which $2.1 million were one- to four- family residential loans) reported as impaired at September 30, 2017 which were not impaired at December 31, 2016, partially offset by nine loans totaling $1.0 million reported as impaired at December 31, 2016 which were not impaired at September 30, 2017. The nine previously impaired loans at December 31, 2016, that were no longer impaired at September 30, 2017, consisted of one, one- to four- family residential loan, one home equity loan, four manufactured home loans, one commercial business loan, one commercial real estate loan, and one construction/land loan. Three of these loans were charged-off during the first nine months of 2017 totaling $111,000, while six loans were paid in full totaling $909,000. The three largest impaired loans at September 30, 2017 were two one- to four- family residential loans totaling $2.6 million, including one for $1.3 million which became impaired due to its modification as a TDR in 2017, and one $755,000 loan secured by a commercial building, all located in King County, Washington. The decrease in the general reserve was a result of the changes in loan balances and historical loss rates. The overall increase in the allowance for loan losses was due to the increase in the gross loan portfolio from $500.0 million at December 31, 2016 to $528.2 million at September 30, 2017. Net charge-offs for the three and nine months ended September 30, 2017 were $94,000 and $81,000, respectively, compared to recoveries of $21,000 and charge-offs of $27,000 for the three and nine months ended September 30, 2016, respectively. As of September 30, 2017, the allowance for loan losses as a percentage of gross loans receivable and as a percentage of nonperforming loans were 0.94% and 142.48%, respectively, compared to 0.96% and 143.98%, respectively, at December 31, 2016.

~~Deposits~~. Total deposits increased $57.1 million, or 12.2%, to $524.8 million at September 30, 2017 from $467.7 million at December 31, 2016, primarily as a result of an $41.4 million, or 17.0%, increase in interest-bearing demand accounts, a $12.3 million, or 13.1% increase in savings and money market accounts, and an $11.8 million, or 18.5%, increase in noninterest-bearing demand accounts. Deposits increased $14.5 million due to the purchase of the University Place branch and the acquisition of deposits, during the second quarter of 2017, with the remainder of the increase due to organic growth from our ongoing deposit gathering efforts to obtain low cost deposit accounts from retail and small business customers.

2022.

A summary of deposit accounts with the corresponding weighted-average cost of funds at the dates indicated is presented below (dollars in thousands):

September 30, 2017 December 31, 2016
Amount Wtd. Avg. Rate Amount Wtd. Avg. Rate
Noninterest-bearing demand(1)
$ 71,529 0.00 % $ 60,566 0.00 %
Interest-bearing demand 179,459 0.39 150,327 0.34
Savings 47,117 0.21 44,879 0.22
Money market 59,090 0.20 49,042 0.17
Time deposits 163,616 1.29 159,742 1.12
Escrow(1)
4,006 0.00 3,175 0.00
Total deposits $ 524,817 0.59 % $ 467,731 0.53 %


	March 31, 2023				December 31, 2022
	Amount		Wtd. Avg. Rate		Amount		Wtd. Avg. Rate
Noninterest-bearing demand	$	168,522	—	%	$	170,549	—	%
Interest-bearing demand	235,836		0.43		254,982		0.21
Savings	83,991		0.05		95,641		0.05
Money market	77,624		0.55		74,639		0.28
Time deposits	271,117		2.66		210,305		0.97
Escrow (1)	4,557		—		2,647		—
Total deposits	$	841,647	1.05	%	$	808,763	0.37	%

(1)Escrow balances shown in noninterest-bearing deposits on the ~~consolidated balance sheets.~~Condensed Consolidated Balance Sheets.

Scheduled maturities of time deposits at March 31, 2023, are as follows (in thousands):


Year Ending December 31,	Amount
2023	$	180,202
2024	52,826
2025	31,541
2026	1,734
2027	4,686
Thereafter	128
	$	271,117

Savings, demand, and money market accounts have no contractual maturity. Certificates of deposit have maturities of six years or less.

The aggregate amount of time deposits in denominations of more than $250,000 at March 31, 2023 and December 31, 2022, totaled $82.1 million and $56.1 million, respectively. Deposit amounts in excess of $250,000 are not federally insured. As of March 31, 2023, uninsured deposits totaled $174.1 million, which represented 20.7% of total deposits, as compared to uninsured deposits of $161.9 million, or 20.0% of total deposits as of December 31, 2022. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements. The increase in uninsured deposits primarily related to the increase in certificates of deposit.

Borrowings,. comprised of FHLB advances, decreased ~~$26.8~~$8.0 million ~~or 48.9%,~~ to ~~$28.0~~$35.0 million at ~~September 30, 2017, with a weighted-average cost of 1.08%,~~March 31, 2023 from ~~$54.8~~$43.0 million at December 31, 2016, with a weighted-average cost of 0.55%. FHLB borrowings declined utilizing the cash received from the University Place branch acquisition and organic deposit growth. The increase in the cost of the borrowings was2022, primarily as a result of paydowns of our FHLB advances due to the ~~general~~ increase in ~~rates over the last year. We rely on FHLB advances from time to time to supplement deposits to fund interest-earning asset growth.~~deposits.

Subordinated notes, net totaled $11.7 million at both March 31, 2023 and December 31, 2022.

~~Stockholders' Equity~~.

Stockholders’ Equity. Total ~~stockholders'~~stockholders’ equity increased ~~$3.1 million,~~$900 thousand, or ~~5.1%~~0.9%, to ~~$63.3~~$98.6 million at ~~September 30, 2017~~March 31, 2023, from ~~$60.3~~$97.7 million at December 31, ~~2016.~~2022. This increase primarily reflects ~~$3.9~~$2.2 million inof net income ~~for~~earned during the ~~nine months ended September 30, 2017,~~current quarter, a $83 thousand decrease in accumulated other comprehensive loss, net of tax, and $247 thousand in proceeds from exercises of stock options, partially offset by the payment of ~~cash~~$442 thousand in dividends to the Company’s stockholders. In addition, stockholders' equity was impacted by the adoption of ~~$1.3 million~~CECL in the first quarter of 2023, which as of January 1, 2023, resulted in an after-tax decrease to ~~common stockholders.~~opening retained earnings of $1.1 million.

Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following tables present, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. Income and yields on tax-exempt obligations have not been computed on a tax equivalent basis. All average balances are daily average balances. Nonaccrual loans have been included in the table as loans carrying a zero yield for the period they have been on nonaccrual (dollars in thousands).


	Three Months Ended March 31,
	2023							2022
	Average Outstanding Balance		Interest Earned/ Paid			Yield/ Rate Annualized		Average Outstanding Balance		Interest Earned/ Paid			Yield/ Rate Annualized
Interest-earning assets:
Loans receivable	$	867,724	$	11,381		5.32	%	$	694,920	$	8,075		4.71	%
Investments, cash and cash equivalents	80,244		793			4.01		190,385		138			0.29
Total interest-earning assets (1)	947,968		12,174			5.21		885,305		8,213			3.76
Interest-bearing liabilities:
Savings and money market accounts	164,270		93			0.23		196,128		30			0.06
Demand and NOW accounts	241,088		267			0.45		315,181		122			0.16
Certificate accounts	246,578		1,776			2.92		102,315		275			1.09
Subordinated notes	11,683		168			5.83		11,637		168			5.85
Borrowings	44,911		499			4.51		—		—			—
Total interest-bearing liabilities	708,530		2,803			1.60	%	625,261		595			0.39	%
Net interest income			$	9,371						$	7,618
Net interest rate spread						3.60	%						3.38	%
Net earning assets	$	239,438						$	260,044
Net interest margin						4.01	%						3.49	%
Average interest-earning assets to average interest-bearing liabilities			133.79		%					141.59		%
Noninterest-bearing deposits	$	172,805						$	194,556
Total deposits	824,741		2,136			1.05	%	808,180		427			0.21	%
Total funding(2)	881,335		2,803			1.29	%	819,817		595			0.29	%

(1)Calculated net of deferred loan fees, loan discounts and loans in process.

(2)Total funding is the sum of average interest-bearing liabilities and average noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.

Rate/Volume Analysis

The following table presents, for the periods indicated, the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between changes related to outstanding balances and changes due to interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate (dollars in thousands).


	Three Months Ended March 31, 2023 vs. 2022
	Increase (Decrease) due to				Total Increase (Decrease)
	Volume		Rate
Interest-earning assets:
Loans receivable	$	2,266	$	1,040	$	3,306
Investments, cash and cash equivalents	(1,088)		1,743		655
Total interest-earning assets	1,178		2,783		3,961
Interest-bearing liabilities:
Savings and Money Market accounts	(18)		81		63
Demand and NOW accounts	(82)		227		145
Certificate accounts	1,039		462		1,501
Subordinated notes	1		(1)		—
Borrowings	499		—		499
Total interest-bearing liabilities	$	1,439	$	769	$	2,208
Change in net interest income					$	1,753

Comparison of Results of Operation for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022

~~General~~General.

Q1 2023 vs Q1 2022. Net income ~~decreased $232,000~~increased $445 thousand, or 25.8%, to ~~$1.2~~$2.2 million, or ~~$0.48~~$0.83 per diluted common share, for the three months ended ~~September 30, 2017,~~March 31, 2023, compared to ~~$1.5~~$1.7 million, or ~~$0.57~~$0.65 per diluted common share, for the three months ended ~~September 30, 2016.~~March 31, 2022. The ~~primary reason for~~increase was primarily the result of a $1.8 million increase in net interest income and a $130 thousand decrease in ~~net~~the provision for credit losses, partially offset by a $554 thousand decrease in noninterest income and a $795 thousand increase in noninterest expense.

Interest Income

Q1 2023 vs Q1 2022. Interest income increased $4.0 million, or 48.2%, to $12.2 million for the three months ended ~~September 30, 2017, was~~March 31, 2023, from $8.2 million for the three months ended March 31, 2022, primarily due to higher average loan balances, a ~~decline~~61 basis point increase in ~~noninterest income~~the average loan yield and ~~increases~~a 371 basis point increase in ~~noninterest expense~~the average yield on investments and ~~the provision for loan losses, which was~~interest-bearing cash, partially offset by ~~an increase in net interest income. Net~~a lower average balance of investments and interest-bearing cash.

Interest income on loans increased ~~$125,000 to $3.9~~$3.3 million, or ~~$1.54 per diluted common share,~~40.9%, to $11.4 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023, compared to ~~$3.8~~$8.1 million ~~or $1.48 per diluted common share,~~ for the ~~same period in 2016.~~three months ended March 31, 2022. The ~~primary reason~~average balance of total loans was $867.7 million for the ~~increase in net income~~three months ended March 31, 2023, compared to $694.9 million for the ~~nine~~three months ended ~~September 30, 2017 was an increase in net interest income, which was~~March 31, 2022 primarily resulting from increased balances related to construction advances, partially offset by a decrease in ~~noninterest~~commercial and multifamily loans resulting from the payoff of a few large multifamily loans during the past year. The average yield on total loans was 5.32% for three months ended March 31, 2023, compared to 4.71% for the three months ended March 31, 2022. The average yield on total loans increased primarily due to variable rate loans adjusting to higher market interest rates and new loan originations at higher interest rates.

Interest income on the investment portfolio and ancash and cash equivalents increased $655 thousand, or 474.6%, to $793 thousand for the three months ended March 31, 2023, compared to $138 thousand for the three months ended March 31, 2022. The increase in ~~noninterest expense.~~

~~Interest Income~~. ~~Interest~~the interest income ~~increased $918,000, or 14.9%,~~on investment securities and cash and cash equivalents was due to ~~$7.1~~higher average yields, partially offset by lower average balances. The average balance on investments and cash and cash equivalents was $80.2 million for the three months ended ~~September 30, 2017, from $6.1~~March 31, 2023, compared to $190.4 million for the three months ended ~~September 30, 2016.~~ March 31, 2022. The decrease in average balances was due to lower average cash balances as we redeployed funds into higher interest-earning assets, specifically loans and, to a lesser extent, investment securities. The average yield on investments and cash and cash equivalents increased to 4.01% for the three months ended March 31, 2023, compared to 0.29% for the three months ended March 31, 2022, as a result of the rising interest rate environment.

Interest ~~income~~Expense

Q1 2023 vs Q1 2022. Interest expense increased ~~$1.8~~$2.2 million, or ~~10.0%~~371.1%, to ~~$20.2~~$2.8 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023, from ~~$18.3~~$595 thousand for the three months ended March 31, 2022. Interest expense on deposits increased $1.7 million, or

400.2%, to $2.1 million for the ~~nine~~three months ended ~~September 30, 2016. The increases in interest income~~March 31, 2023, compared to $427 thousand for the ~~three and nine months ended September 30, 2017,~~same period a year ago. The increase was primarily ~~reflect~~ the result of a $44.9 million increase in the average balance of ~~interest-earning assets, in particular loans receivable,~~borrowings and a ~~higher weighted-average yield on interest-earning assets in the current three and nine month periods. The average balance of gross loans receivable increased $28.6~~$144.3 million ~~or 5.8%, and $32.7 million, or 7.0%, for the three and nine months ended September 30, 2017, as compared to the same periods in 2016.~~

Our weighted-average yield on interest-earning assets was 4.99% and 4.93% for the three and nine months ended September 30, 2017, respectively, compared to 4.71% and 4.80% for the three and nine months ended September 30, 2016, respectively. The weighted-average yield on loans increased to 5.29% and 5.23% for the three and nine months ended September 30, 2017, respectively, from 5.10% and 5.15% for the three and nine months ended September 30, 2016, respectively. The weighted-average yield on investments was 1.88% and 1.48% for the three and nine months ended September 30, 2017, respectively, compared to 0.85% and 0.83% for the three and nine months ended September 30, 2016, respectively. The increase in the average yields for both the three and nine months ended September 30, 2017 for all of the interest-earning assets was due to the increase in market interest rates over the past year and the increase in the average balance of ~~loans receivable~~certificate accounts, as well as higher average rates paid on all interest-bearing deposits, partially offset by a ~~percentage~~$106.0 million decrease in the average balance of interest-bearing deposits other than certificate accounts. The increase in the rate paid on certificate accounts contributed to a 84 basis point increase in the average cost of total ~~average interest-earning assets.~~deposits to 1.05% for the quarter ended March 31, 2023, from 0.21% for the quarter ended March 31, 2022.

~~Interest Expense~~. Interest expense ~~increased $150,000, or 20.5%, to $880,000~~on borrowings, comprised solely of FHLB advances, was $499 thousand for the three months ended ~~September 30, 2017, from $730,000~~March 31, 2023, compared to none for the three months ended ~~September 30, 2016.~~March 31, 2022, reflecting the increased use of FHLB advances to supplement our liquidity needs. Interest expense on ~~deposits increased $130,000~~subordinated notes was $168 thousand for ~~the quarter~~both three month periods ended September 30, 2017, compared to the same period in 2016, primarily due to the increase in the average balance of deposits during the three months ended September 30, 2017 to $510.7 million as compared to $452.3 million for the same quarter in 2016. Our weighted-average cost of deposits was 0.63%March 31, 2023 and 0.60% for the three and nine months ended September 30, 2017, compared to 0.59% and 0.60% for the three and nine months ended September 30, 2016, respectively. The total cost of borrowings increased $20,000, or 38.5%, to $72,000, during the quarter ended September 30, 2017 from $52,000 for the quarter ended September 30, 2016 despite a $17.2 million decline in average outstanding borrowings during the period. The increase in interest expense on borrowings was the result of an increase in the overnight borrowing rates reflecting recent increases in the federal funds rate. Average borrowings, consisting of FHLB advances, decreased to $21.6 million for the quarter ended September 30, 2017, compared to $36.8 million during the quarter ended September 30, 2016 due to the repayment of FHLB advances, discussed above. Interest expense increased $281,000, or 13.0%, to $2.4 million for the nine months ended September 30, 2017, from $2.2 million for the nine months ended September 30, 2016. The increase in interest expense for the first nine months of 2017 compared to the same period in 2016, was primarily a result of an increase in the cost of borrowings during the period. Average borrowings outstanding during the nine months ended September 30, 2017 were $29.5 million compared to $32.8 million outstanding during the nine months ended September 30, 2016. The cost of those borrowings was 1.08% during the nine months of 2017 compared to 0.55% for the first nine months of 2016. Our overall weighted-average cost of interest-bearing liabilities was 0.77% and 0.73% for the three and nine months ended September 30, 2017, respectively, compared to 0.69% and 0.68% for the three and nine months ended September 30, 2016, respectively.2022.

Net Interest Income.

Q1 2023 vs Q1 2022. Net interest income increased ~~$768,000,~~$1.8 million, or ~~14.2%~~23.0%, to ~~$6.2~~$9.4 million for the three months ended ~~September 30, 2017,~~March 31, 2023, from ~~$5.4~~$7.6 million for the three months ended September 30, 2016. Net interest income increased $1.6 million, or 9.7%, to $17.7 million for the nine months ended September 30, 2017, from $16.2 million for the nine months ended September 30, 2016. The increase for both the three and nine months ended September 30, 2017 resulted from increased interest income due to higher average loan balances and higher yields on our loan portfolio. Our average yield on loans receivable increased during the three and nine months ended September 30, 2017, as compared to the same periods last year as rates have increased compared to a year ago.March 31, 2022. Our net interest margin was ~~4.40%~~4.01% and ~~4.34% for the three and nine months ended September 30, 2017, respectively, compared to 4.19% and 4.23% for the three and nine months ended September 30, 2016, respectively.~~

~~Provision for Loan Losse~~s. We establish provisions for loan losses, which are charged to earnings, at a level required to reflect management's best estimate of the probable incurred credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect borrowers' ability to repay, estimated value of any underlying collateral, peer group data, prevailing economic conditions, and current factors. Large groups of smaller balance homogeneous loans, such as one- to four- family, small commercial and multifamily, home equity and consumer loans, are evaluated in the aggregate using historical loss factors adjusted for current economic conditions and other relevant data. Loan's for which management has concerns about the borrowers' ability to repay, are evaluated individually, and specific loss allocations are provided for these loans when necessary.

~~The provision for loan losses was $250,000 for both the three and nine months ended September 30, 2017, compared to no provision~~3.49% for the three months ended ~~September 30, 2016~~March 31, 2023 and ~~a provision of $250,000 for the nine months ended September 30, 2016.~~2022, respectively. The increase in net interest income primarily was the result of higher interest income earned on loans, investments and interest-bearing cash, partially offset by higher interest expense paid on deposits and borrowings. The increase in net interest margin primarily was due to the higher interest income earned on interest-earning assets, driven by the higher average balance of and yield earned on loans, the increase in rates paid on interest-bearing liabilities and the higher average balance of borrowings.

Since March 2022, in response to inflation, the Federal Open Market Committee of the Federal Reserve has increased the target range for the federal funds rate by 475 basis points, including 50 basis points during the first quarter of 2023, to a range of 4.75% to 5.00% as of March 31, 2023. In May 2023, the FOMC increased the target range for the federal funds rate another 25 basis points to a range of 5.00% to 5.25%.

Provision for Credit Losses.

A provision for credit losses of $10 thousand was recorded for the three months ended ~~September 30, 2017~~March 31, 2023, consisting of a provision for credit losses on loans of $245 thousand and a release of reserve for unfunded loan commitments of $235 thousand. This compared to a provision for credit losses of $140 thousand for the ~~same quarter in 2016 reflects the increase~~three months ended March 31, 2022, consisting of a provision for loan losses and unfunded loan commitments of $125 thousand and $15 thousand respectively. The decrease in the provision for credit losses resulted primarily from changes in methodology used to reserve for credit losses. The Company adopted the CECL standard as of January 1, 2023, which resulted in a one-time upward adjustment to the ACL - loans of $760 thousand and an ACL - unfunded loan ~~portfolio~~commitments of $695 thousand, and ~~higher net~~an after-tax decrease to opening retained earnings of $1.1 million. All amounts prior to January 1, 2023 were calculated using the previous incurred loss methodology to compute our allowance for loan ~~charge-offs.~~losses, which is not directly comparable to the new current expected credit losses methodology. The ~~gross loan portfolio increased~~provision for credit losses for the three months ended March 31, 2023 also reflects assumptions related to ~~$528.2 million at September 30, 2017 from $477.1 million at September 30, 2016.~~our forecast concerning the economic environment as a result of local, national and global events, including recent bank failures. In addition, expected loss estimates consider various factors, including customer-specific information, changes in risk ratings, projected delinquencies, and the impact of economic conditions on borrowers' ability to repay. Net charge-offs for the ~~third quarter of 2017 totaled $94,000 compared to net recoveries of $21,000 for the same quarter in 2016. Net charge-offs for the nine~~three months ended ~~September 30, 2017~~March 31, 2023 totaled ~~$81,000~~$72 thousand, compared to net charge-offs of ~~$27,000 during~~$24 thousand for the ~~nine~~three months ended September 30, 2016. Nonperforming loans decreased to $3.5 million at September 30, 2017 compared to $4.9 million at September 30, 2016. Nonperforming loans to total loans was 0.66% at September 30, 2017 as compared to 1.02% at September 30, 2016. Impaired loans increased $2.0 million, or 24.0% to $10.2 million at September 30, 2017 as compared to $8.2 million at DecemberMarch 31, 2016 principally as a result of the addition of 22 loans totaling $3.2 million, which were partially offset by the reduction of nine loans totaling $1.0 million that were impaired at December 31, 2016 but were not impaired at September 30, 2017. The allowance for loan losses increased to $5.0 million at September 30, 2017 compared to $4.8 million at December 31, 2016.

The ratio of nonperforming assets to total assets decreased to 0.73% at September 30, 2017 from 1.02% at September 30, 2016. This decrease is the result of the reduction in our nonperforming assets principally due to the payoff of a $2.1 million multifamily loan.

2022.

While we believe the estimates and assumptions used in our determination of the adequacy of the ~~allowance~~ACL are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not ~~adversely~~have a material adverse impact on our financial condition and results of operations. A further decline in national and local economic conditions, as a result of the effects of inflation, and a potential recession or slowed economic growth, among other factors, could result in a material increase in the ACL and have a material adverse impact on our financial condition and results of operations. In addition, the determination of the amount of our ~~allowance for loan losses~~ACL is subject to review by bank regulators as part of the routine examination process, which may result in the adjustment of reserves based upon their judgment of information available to them at the time of their examination.

Noninterest ~~Income~~.Income. Noninterest income decreased ~~$717,000,~~$554 thousand, or ~~46.5%~~36.4%, to ~~$826,000~~$1.0 million for the three months ended ~~September 30, 2017,~~March 31, 2023, as compared to $1.5 million for the three months ended ~~September 30, 2016,~~March 31, 2022, as reflected below (dollars in thousands):


	Three Months Ended September 30,				Amount			Percent				Three Months Ended March 31,				Amount Change				Percent Change
	2017		2016		Change			Change				2023		2022
Service charges and fee income	$	439	$	743	$	(304	)		(40.9	)%	Service charges and fee income	$	581	$	549			$	32			5.8	%
Earnings on cash surrender value of BOLI		82		84		(2	)		(2.4	)	Earnings on cash surrender value of BOLI	151		21		130				619.0
Mortgage servicing income		18		239		(221	)		(92.5	)	Mortgage servicing income	299		320		(21)				(6.6)
Fair value adjustment on mortgage servicing rights											Fair value adjustment on mortgage servicing rights	(140)		268		(408)				(152.2)
Net gain on sale of loans		287		477		(190	)		(39.8	)	Net gain on sale of loans	78		365		(287)				(78.6)
Total noninterest income	$	826	$	1,543	$	(717	)		(46.5	)%	Total noninterest income	$	969	$	1,523	$	(554)			(36.4)	%

The decrease in noninterest income during the three months ended ~~September 30, 2017~~March 31, 2023 compared to the same ~~period last year was a result of a $304,000 decline~~quarter in service charges and fee income, a $221,000 decline in mortgage servicing income and a $190,000 decline in the gain on sale of loans. The decrease in service charges and fee income included a decrease in overdraft fees, as well as loan fees. The decrease in loan fees2022 primarily was due to a ~~decline in the amount of loan originations and lower volume as well as the deferral of additional loan fees compared to the same period in 2016. The~~$287 thousand decrease in the mortgage servicing income was due to the larger decline in the mortgage servicing loan balances relative to the improvement in the market value of the servicing rights over the last year. The decline in thenet gain on sale of loans ~~was due to~~as a ~~lower volume~~result of a decline in both the amount of loans originated for sale and gross margins earned on loans sold and a $408 thousand decrease in the fair value adjustment on mortgage servicing rights due primarily to a decrease in the ~~secondary market. During~~servicing portfolio, partially offset by a $130 thousand increase in earnings on cash surrender value of BOLI, reflecting recent price increases in the ~~third~~securities markets. Loans sold during the quarter ~~of 2017, we originated and sold $13.8~~ended March 31, 2023, totaled $3.9 million, ~~of loans~~ compared ~~with $22.4~~to $12.2 million during the ~~third~~ quarter ~~of 2016.~~ended March 31, 2022.

Noninterest ~~income decreased $924,000,~~Expense. Noninterest expense increased $795 thousand, or ~~24.8%~~11.7%, to ~~$2.8~~$7.6 million ~~for~~during the ~~nine~~three months ended ~~September 30, 2017, as~~March 31, 2023, compared to ~~$3.7~~$6.8 million ~~for~~during the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2022, as reflected below (dollars in thousands):

Nine Months Ended September 30, Amount Percent
2017 2016 Change Change
Service charges and fee income $ 1,442 $ 1,988 $ (546 ) (27.5 )%
Earnings on cash surrender value of BOLI 245 252 (7 ) (2.8 )
Mortgage servicing income 399 462 (63 ) (13.6 )
Net gain on sale of loans 720 1,028 (308 ) (30.0 )
Total noninterest income $ 2,806 $ 3,730 $ (924 ) (24.8 )%


	Three Months Ended March 31,				Amount Change		Percent Change
	2023		2022
Salaries and benefits	$	4,485	$	4,167	$	318	7.6	%
Operations	1,441		1,299		142		10.9
Regulatory assessments	153		101		52		51.5
Occupancy	459		432		27		6.3
Data processing	993		821		172		21.0
Total noninterest expense	$	7,615	$	6,820	$	795	11.7	%

The primary reasons for the decrease in noninterest income during the nine months ended September 30, 2017 compared to the same period last year was the decline in service charges and fee income and net gain on sale of loans. The decreases in service charges and fee income and gain on sale of loans were for the same reasons as reported for the quarterly period above. During the first nine months of 2016, we originated and sold $58.5 million of loans compared with $35.8 million for the first nine months of 2017.

~~Noninterest Expense~~. Noninterest expense increased $186,000, or 3.9%, to $4.9 million during the three months ended September 30, 2017 as compared to $4.8 million during the three months ended September 30, 2016, as reflected below (dollars in thousands):

Three Months Ended September 30, Amount Percent
2017 2016 Change Change
Salaries and benefits $ 2,777 $ 2,632 $ 145 5.5 %
Operations 1,002 1,181 (179 ) (15.2 )
Regulatory assessments 80 124 (44 ) (35.5 )
Occupancy 520 376 144 38.3
Data processing 448 434 14 3.2
Net loss on OREO and repossessed assets 109 3 106 3,533.3
Total noninterest expense $ 4,936 $ 4,750 $ 186 3.9 %

The increase in noninterest expense during the three months ended ~~September 30, 2017~~March 31, 2023 compared to the same ~~period last year~~quarter in 2022 was ~~primarily due~~mainly attributable to an increase in salaries and benefits ~~occupancy,~~of $318 thousand, primarily due to higher wages and ~~OREO related expenses,~~lower deferred compensation, partially offset by ~~decreases~~a decrease in operations expense and regulatory assessments. Salaries and benefits expense increased $145,000, principally due to higher health insurance-related expenses. Occupancy expense rose in 2017 due to the relocation of the company headquarters to a new location and the costs associated with the acquisition of the University Place branch in July, 2017. Occupancy expenses are anticipated to be higher compared to 2016 due to the lease of the University Place branch and the purchase of the new loan production office in Sequim, WA, as well as amortization expenses resulting from purchases of fixed assets and tenant improvements for these three locations. During the third quarter of 2017, we entered into an agreement to sell one of our OREO properties located in East Islip, NY for $117,000 less than our book value. As a result, we recorded a loss on OREO of $117,000 during the third quarter of 2017. Operations expense decreased $179,000incentive compensation as a result of a ~~$65,000 reduction~~lower percentage earned on loans originated, changes to incentive compensation programs, such as the addition of ~~expenses~~non-production performance requirements, and lower commission expense related to ~~losses on serviced loans,~~ a ~~$55,000 reduction~~decline in ~~professional fees, and a $41,000 decrease~~mortgage originations. Operations expense increased $142 thousand compared to the quarter ended March 31, 2022 due to increases in various accounts including travel expenses, debit card processing, ~~fees.~~

Noninterest expense increased $485,000, or 3.5%, to $14.4 million during the nine months ended September 30, 2017 as compared to $13.9 million during the nine months ended September 30, 2016, as reflected below (dollars in thousands):

Nine Months Ended September 30, Amount Percent
2017 2016 Change Change
Salaries and benefits $ 8,130 $ 7,813 $ 317 4.1 %
Operations 3,052 3,237 (185 ) (5.7 )
Regulatory assessments 340 404 (64 ) (15.8 )
Occupancy 1,415 1,141 274 24.0
Data processing 1,293 1,264 29 2.3
Net loss on OREO and repossessed assets 123 9 114 1,266.7
Total noninterest expense $ 14,353 $ 13,868 $ 485 3.5 %

~~The increase in noninterest expense during the nine months ended September 30, 2017 compared to the same period last year was primarily due to an increase in salaries~~audit fees, fixed assets, state and ~~benefits, occupancy,~~local taxes, charitable contributions and ~~OREO related expenses,~~office expenses. These increases were partially offset by lower loan origination costs due to lower mortgage origination volume and decreases in ~~operations expense~~various accounts, including marketing, legal and ~~regulatory assessments. The increases for salaries and benefits, occupancy, and OREO and the related decrease in occupancy expense were due to the same reasons discussed above for the quarter.~~

professional fees.

The efficiency ratio for the quarter ended ~~September 30, 2017~~March 31, 2023 was ~~70.39%~~73.65%, compared to ~~68.19%~~74.61% for the quarter ended ~~September 30, 2016 and was 69.87% for the nine months ended September 30, 2017, compared to 69.67% for the nine months ended September 30, 2016.~~March 31, 2022. The ~~increase~~improvement in the efficiency ratio ~~on a quarterly and on a year-to-date comparison was~~for the current quarter compared to the same period in the prior year is primarily due to ~~higher~~net interest income rising at a faster rate than the increase in noninterest expense and ~~lower~~the decline in noninterest income.

Income Tax Expense. ~~For the three and nine months ended September 30, 2017, we~~We incurred income tax expense of ~~$604,000 and $2.0 million on our pre-tax income as compared to $757,000 and $2.0 million~~$547 thousand for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2023, compared to $458 thousand for the same period in 2022. The effective tax rates for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and March 31, 2022 were ~~33.1%~~20.15% and ~~33.7%~~21.00%, respectively. ~~The effective tax rates for the three~~

Capital and ~~nine months ended September 30, 2016 were 34.2% and 34.1%, respectively.~~

Liquidity

The Management Discussion and Analysis in Item 7 of the ~~Company's 2016~~Company’s 2022 Form 10-K contains an overview of Sound Financial ~~Bancorp's~~Bancorp’s and the ~~Bank's~~Bank’s liquidity management, sources of liquidity and cash flows. ~~This~~Although, there have been no

material changes in our liquidity management, sources of liquidity and cash flows since our 2022 Form 10-K, this discussion updates that disclosure for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2023.

Capital. Stockholders’ equity totaled $98.6 million at March 31, 2023 and $97.7 million at December 31, 2022. In addition to net income of $2.2 million, other sources of capital during the three months ended March 31, 2023 included $247 thousand in proceeds from stock option exercises and other comprehensive income, net of tax, of $83 thousand. Uses of capital during the three months ended March 31, 2023 primarily included $442 thousand of dividends paid on common stock and $9 thousand of stock repurchases. In addition, stockholders' equity was impacted by the adoption of CECL in the first quarter of 2023, which as of January 1, 2023, resulted in an after-tax decrease to opening retained earnings of $1.1 million.

We paid regular quarterly dividends of $0.17 per common share during the three months ended March 31, 2023 and regular quarterly dividends of $0.17 per common share and a special dividend of $0.10 per common share during the three months ended March 31, 2022, which equates to a dividend payout ratio of 20.39% in the first quarter of 2023 and 41.15% in the first quarter of 2022. The Company expects to continue paying quarterly cash dividends on its common stock, subject to the Board of Directors' discretion to change this practice at any time and for any reason, without prior notice. Assuming continued payment of the regular quarterly cash dividend during the remainder of 2023 at the new rate of $0.19 per share, which the Company announced in April 2023, our average total dividend paid each quarter would be approximately $494 thousand based on the number of our current outstanding shares as of March 31, 2023.

The ~~Bank's primary~~dividends, if any, we may pay may be limited as more fully discussed under “Business—How We Are Regulated—Limitations on Dividends and Stock Repurchases” contained in Item 1, Part I of the Company’s 2022 Form 10-K.

Stock Repurchase Programs. From time to time, our board of directors has authorized stock repurchase programs. In general, stock repurchases allow us to proactively manage our capital position and return excess capital to stockholders. Stock repurchases may also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. As of March 31, 2023, approximately $2.1 million of our common stock remained available for repurchase under our existing stock repurchase program. Purchases under the Company’s existing stock repurchase program may be made through open market purchases, privately-negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as well as any constraints specified in any trading plan that may be adopted in accordance with SEC Rule 10b5-1. The repurchase program may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. The Company’s stock repurchase program does not obligate the Company to purchase any particular number of shares.

Liquidity. Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of ~~funds~~funds. The objective of our liquidity management is to manage cash flow and liquidity reserves so that they are deposits, principal and interest payments on loans and borrowings. While maturities and scheduled amortization of loans are a predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Bank's primary investing activity is loan originations. The Bank maintains liquidity levels it believes to be adequate to fund ~~loan commitments, investment opportunities, deposit withdrawals~~our operations and to meet obligations and other commitments on a timely basis and at a reasonable cost. We seek to achieve this objective and ensure that funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management, which includes managing the mix and time to maturity of financial ~~commitments. At September 30, 2017,~~assets and financial liabilities on our balance sheet. Our liquidity position is enhanced by our ability to raise additional funds as needed in the ~~Bank~~wholesale markets.

Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets generally include cash, interest-bearing deposits in banks, securities available for sale, maturities and cash flow from securities, sales of fixed rate residential mortgage loans in the secondary market and federal funds sold. Liability liquidity generally is provided by access to funding sources, which include core deposits and advances from the FHLB and other borrowing relationships with third party financial institutions.

Our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding challenges resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs.

As of March 31, 2023, we had ~~$66.3~~$92.4 million in cash and available-for-sale investment securities ~~available-for-sale~~ and ~~$296,000~~$1.4 million in loans ~~held-for-sale generally available for its cash needs. Also, at September 30, 2017, the Bank~~held-for-sale. At March 31, 2023, we had the ability to borrow ~~an additional $161.6~~$197.0 million in FHLB advances ~~based on existing collateral pledged,~~ and ~~could~~ access ~~$34.8~~to additional borrowings of $22.0 million through the Federal Reserve's ~~Discount Window. At September 30, 2017, we~~discount window, in each case subject to certain collateral requirements. We had $35.0 million in outstanding advances with the FHLB and none with the Federal Reserve at March 31, 2023. We also had ~~available~~ a ~~total of $21.0~~$20.0 million in credit ~~facilities~~facility with ~~other financial institutions,~~PCBB available, with no balance ~~outstanding. The Bank uses~~outstanding at March 31, 2023. Subject to market conditions, we expect to utilize these ~~sources of funds primarily~~borrowing facilities from time to ~~meet ongoing commitments, pay maturing deposits and fund withdrawals, and~~time in the future to fund loan ~~commitments. At September 30, 2017, outstanding loan~~originations and deposit withdrawals, to satisfy other financial commitments, ~~including unused lines~~repay maturing debt and to take advantage of investment opportunities to the extent feasible. As of March 31, 2023, management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us. For additional details, see “Note 8—Borrowings, FHLB Stock and Subordinated Notes” in the Notes to Condensed Consolidated Financial Statements contained in "Item 1. Financial Statements" of this Form 10-Q.

In the ordinary course of business, we have entered into contractual obligations and have made other commitments to make future payments. Refer to the accompanying Notes to Condensed Consolidated Financial Statements elsewhere in this report for the expected timing of such payments as of March 31, 2023. These include payments related to (i) long-term borrowings (Note 8—Borrowings, FHLB Stock and Subordinated Notes) and (ii) operating leases (Note 11—Leases). See the discussion below for commitments to extend credit and standby letters of credit.

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its clients. These financial instruments generally represent a commitment to extend credit ~~totaled $74.0 million, including $38.9 million~~in the form of ~~undisbursed construction~~loans. The instruments involve, to varying degrees, elements of credit- and ~~land loans. Certificates~~interest-rate risk in excess of ~~deposit scheduled~~the amount recognized in the Condensed Consolidated Balance Sheets.

The Company's exposure to ~~mature~~credit loss, in ~~one year or less at September 30, 2017, totaled $60.6 million. Based on our competitive pricing, we believe that a majority~~the event of ~~maturing deposits will remain with the Bank.~~

Cash and cash equivalents increased $6.1 million to $60.7 million as of September 30, 2017, from $54.6 million as of December 31, 2016. Net cash provided by operating activities was $5.5 million for the nine months ended September 30, 2017. Net cash used by investing activities totaled $15.3 million during the nine months ended September 30, 2017 and was principally used to fund loan growth of $28.5 million, net of principal repayments, which was partially offsetnonperformance by the ~~$13.7 million~~other party to the financial instrument for commitments to extend credit, is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in ~~cash received from~~making commitments as it does for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established by the ~~University Place branch acquisition. The $15.8 million of cash provided by financing activities during the nine months ended September 30, 2017 was primarily a result~~agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a ~~net increase~~fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. These commitments are not reflected in ~~deposits~~the condensed consolidated financial statements. The Company evaluates each client's creditworthiness on a case-by-case basis. The amount of ~~$43.4 million, partially offset~~collateral obtained, if it is deemed necessary by ~~a $26.8 million decrease in FHLB advances.~~the Company, is based on management's credit evaluation of the client.

Financial instruments whose contract amount represents credit risk were as follow (in thousands):


	March 31, 2023		December 31, 2022
Residential mortgage commitments	$	8,693	$	3,184
Unfunded construction commitments	50,089		65,072
Unused lines of credit	28,828		32,793
Irrevocable letters of credit	255		275
Total loan commitments	$	87,864	$	101,324

Sound Financial Bancorp is a separate legal entity from ~~the~~Sound Community Bank ~~the Company~~and must provide for its own liquidity. In addition to its own operating expenses (many of which are paid to Sound Community Bank), Sound Financial Bancorp is responsible for paying for any stock repurchases, dividends declared to its stockholders, interest and principal on its outstanding debt, and other general corporate expenses.

Sound Financial Bancorp is a holding company and does not conduct operations; its sources of liquidity are generally dividends up-streamed from Sound Community Bank, interest on investment securities, if any, and borrowings from outside sources. Banking regulations may limit the dividends that may be paid to Sound Financial Bancorp by Sound Community Bank. See “Business — How We Are Regulated — Limitations on Dividends and Stock Repurchases” contained in Item 1, Part I of the Company’s 2022 Form 10-K. At ~~September 30, 2017, the Company,~~March 31, 2023 Sound Financial Bancorp, on an unconsolidated basis, had ~~$506,000~~$2.2 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs. ~~The Company's principal source~~

See also the “Condensed Consolidated Statements of ~~liquidity is dividends~~Cash Flows” included in “Item 1. Financial Statements and ~~ESOP loan repayments from the Bank.~~Supplementary Data” of this Form 10-Q, for further information.

Except as set forth above, management is not aware of any trends, events, or uncertainties that will have, or that are reasonably likely to have a material impact on liquidity, capital resources or operations.

~~Off-Balance Sheet Activities~~

In the normal course of operations, we engage 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 customers' requests for funding and take the form of loan commitments and lines of credit. For the nine months ended September 30, 2017, we engaged in no off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows.

~~A summary of our off-balance sheet loan commitments at September 30, 2017, is as follows (in thousands):~~

September 30,
2017

Residential mortgage commitments $ 4,404
Undisbursed portion of loans originated 38,850
Unused lines of credit 29,412
Irrevocable letters of credit 1,360
Total loan commitments $ 74,026

Regulatory Capital

Sound Community Bank is subject to minimum capital requirements imposed by regulations of the FDIC. Capital adequacy requirements are quantitative measures established by regulation that require Sound Community Bank to maintain minimum amounts and ratios of capital.

~~Based on its capital levels at September 30, 2017, Sound Community Bank exceeded all regulatory capital requirements as of that date.~~ Consistent with our ~~goals~~goal to operate a sound and profitable financial organization, ~~our policy~~we actively seek to maintain a well-capitalized status for the Bank per the regulatory framework for prompt corrective action (“PCA”). Qualifying institutions that elect to use the Community Bank Leverage Ratio, or CBLR, framework, such as the Bank and the Company, that maintain the required minimum leverage ratio will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules, and to have met the capital requirements for the well capitalized category under the agencies’ PCA framework. As of March 31, 2023, the Bank and Company’s CBLR was 10.94% and 9.93%, respectively, which exceeded the minimum requirement of 9%.

In February 2019, the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase-in over a three-year period the Day 1 adverse regulatory capital effects of the CECL accounting standard. The capital relief is ~~for~~phased into regulatory capital at 25% per year over a three-year transition period. The final rule was adopted and became effective in September 2020. The Company implemented the CECL model commencing January 1, 2023 and elected to phase in the full effect of CECL on regulatory capital over the three-year transition period.

See "Part I, Item 1. Business – Regulation of Sound Community Bank ~~to maintain a "well-capitalized" status under~~– Capital Rules " in the regulatory capital categories of the FDIC. Based on capital levels at September 30, 2017, Sound Community Bank was considered to be well-capitalized under applicable regulatory requirements. Management monitors the capital levels to provideCompany's 2022 Form 10-K for ~~current and future business opportunities and to maintain Sound Community Bank's "well-capitalized" status.~~

~~The actual regulatory capital amounts and ratios calculated for Sound Community Bank at September 30, 2017, were as follows (dollars in thousands):~~

Actual
Minimum For Capital
Adequacy Purposes

To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount Ratio Amount Ratio Amount Ratio
Tier 1 Capital to average assets $ 60,949 10.15 % $ 24,015 > 4.0% $ 30,018 > 5.0%
Common Equity Tier 1 ("CET1") risk-based capital ratio 60,949 11.94 % 22,976 > 4.5% 33,188 > 6.5%
Tier 1 Capital to risk-weighted assets 60,949 11.94 % 30,635 > 6.0% 40,846 > 8.0%
Total Capital to risk-weighted assets 66,135 12.95 % 40,846 > 8.0% 51,058 > 10.0%

~~Pursuant to the capital regulations of the FDIC and the other federal banking agencies, the Bank must maintain a capital conservation buffer consisting of~~ additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum levels of risk-based CET1 capital, tier 1 capital and total capital in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. For our fiscal year ending December 31, 2017, the capital conservation buffer rule requires a buffer of greater than 1.25% of risk-weighted assets, which amount will increase by 0.625% yearly until the requirement is fully phased-in on January 1, 2019, when the buffer must exceed 2.5% of risk-weighted assets. As September 30, 2017, the Bank's CET1 capital exceeded the required capital conservation buffer of 1.25%.

For a bank holding company with less than $1.0 billion in assets, the capital guidelines apply on a bank only basis and the Federal Reserve expects the holding company's subsidiary banks to be well capitalized under the prompt corrective action regulations. If Sound Financial Bancorp was subjectinformation related to regulatory guidelines for bank holding companies with $1.0 billion or more in assets, at September 30, 2017 Sound Financial Bancorp would have exceeded all regulatory capital requirements. The estimated regulatory capital ratios calculated for Sound Financial Bancorp as of September 30, 2017 were 10.34% for Tier 1 leverage-based capital, 12.15% for both Common Equity Tier 1 risk-based capital, Tier 1 Capital to risk-based assets and 13.16% for total risk-based capital.

~~Item 3.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company provided information about market risk in Item 7A of its ~~2016~~2022 Form 10-K. There have been no material changes in our market risk since our ~~2016~~2022 Form 10-K.

~~Item 4.~~

Item 4. Controls and Procedures

~~(a)~~

~~Evaluation of Disclosure Controls and Procedures.~~

(a)Evaluation of Disclosure Controls and Procedures.

An evaluation of the ~~Company's~~Company’s disclosure controls and procedures (as defined in Rule 13a -15(e) under the Securities Exchange Act of 1934 (the ~~"Act")~~“Act”), as of ~~September 30, 2017,~~March 31, 2023, was carried out under the supervision and with the participation of the ~~Company's Chief Executive Officer, Chief Financial Officer~~Company’s principal executive officer and principal financial officer, and several other members of the ~~Company's~~Company’s senior management. The ~~Chief Executive Officer~~Company’s principal executive officer and ~~Chief Financial Officer~~principal financial officer concluded that, as of ~~September 30, 2017,~~March 31, 2023, the ~~Company's~~Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is: (i) accumulated and communicated to the ~~Company's~~Company’s management (including the ~~Chief Executive Officer~~Company’s principal executive officer and ~~the Chief Financial Officer)~~principal financial officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the ~~SEC's~~SEC’s rules and forms.

We intend to continually review and evaluate the design and effectiveness of the ~~Company's~~Company’s disclosure controls and procedures and to improve the ~~Company's~~Company’s controls and procedures over time and to correct any deficiencies that we may discover in the future. The goal is to ensure that senior management has timely access to all material financial and non-financial information concerning the ~~Company's~~Company’s business. While we believe the present design of the disclosure controls and procedures is effective to achieve this goal, future events affecting our business may cause the Company to modify its disclosure controls and procedures.

The Company does not expect that its disclosure controls and procedures will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple ~~error~~errors or ~~mistake.~~mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies and procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

~~(b)~~

~~Changes in Internal Control over Financial Reporting.~~

(b)Changes in Internal Control over Financial Reporting.

There were no changes in our internal control over financial reporting (as defined in Rule ~~13a - 15(f)~~13a-15(f) under the Act) that occurred during the three months ended ~~September 30, 2017,~~March 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

~~Item 1~~

Item 1 Legal Proceedings

In the normal course of business, the Company occasionally becomes involved in various legal proceedings. ~~In the opinion of management, any~~Any liability from such currently pending proceedings ~~would~~is not expected to have a material adverse effect on the business or financial condition of the Company.

~~Item 1A~~

Item 1A Risk Factors

There have been no material changes in the Risk Factors previously disclosed in Item 1A of our 2022 Form 10-K.

~~Not required; the Company is a smaller reporting company.~~

~~Item 2~~

~~Unregistered Sales of Equity Securities and use of Proceeds~~

Item 2 Unregistered Sales of Equity Securities and use of Proceeds

(a) Not applicable.

(b)Not applicable.

(c)On April 25, 2022, the Company announced that its Board of Directors approved an extension of a previously announced stock repurchase program, which was set to expire on April 29, 2022, until October 29, 2022. Under this program the Company was authorized to repurchase up to $2.0 million of its outstanding shares of common stock from time to time in the open market, based on prevailing market prices, or in privately negotiated transactions. On July 26, 2022, the Company announced that its Board of Directors amended the program to increase the authorized repurchase amount to $4.0 million and to further extend the program maturity to January 31, 2023. On January 27, 2023, the Company announced that its Board of Directors again extended the program, scheduled to expire on January 31, 2023, to July 31, 2023. The actual timing, number and value of shares repurchased under the stock repurchase program will depend on a number of factors, including constraints specified in any trading plan that may be adopted in accordance with Rule 10b5-1 of the SEC and limitations imposed on repurchases made pursuant to Rule 10b-18 under the Securities Exchange Act of 1934, price, general business and market conditions, and alternative investment opportunities.

The following table sets forth information with respect to our repurchases of our outstanding common shares during the three months ended March 31, 2023:

a)	~~Not applicable~~


	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximated Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
January 1, 2023 - January 31, 2023	—	$	—	—	$	2,140,223
February 1, 2023 - February 28, 2023	4,750	$	40.07	—	2,140,223
March 1, 2023 - March 31, 2023	204	$	37.93	204	2,132,475
Total	4,954	$	39.98	204	$	2,132,475

________________________

~~(b)~~

~~Not applicable~~

(1) Includes the surrender of shares of Company common stock that the participants already own as payment of the exercise price for stock options. Shares surrendered by participants in the equity incentive plans are repurchased pursuant to the terms of the plan and applicable award agreement and not pursuant to publicly announced share repurchase programs.

~~(c)~~

~~There were no repurchases of the Company's common stock during the three months ended September 30, 2017.~~

~~Item 3~~

Item 3 Defaults Upon Senior Securities

None.

~~Nothing to report.~~

~~Item 4~~

Item 4. Mine Safety Disclosures

Not ~~Applicable~~applicable.

~~Item 5.~~

Item 5. Other Information

None.

~~Nothing to report.~~

Item 6. Exhibits

~~Item 6.~~

~~Exhibits~~

Exhibits:
3.1		Articles of Incorporation of Sound Financial Bancorp, Inc.~~(incorporated herein by reference to the Registration Statement on Form S-1 filed with the SEC on March 27, 2012 (File No. 333-180385))~~
~~3.2~~	~~Bylaws of Sound Financial Bancorp, Inc.~~ (incorporated herein by reference to the Registration Statement on Form S-1 filed with the SEC on March 27, 2012 (File No. 333-180385))
~~4.0~~ 3.2		Amended and Restated Bylaws of Sound Financial Bancorp, Inc. (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on October 26, 2021 (File No. 001-35633))
4.1		Form of Common Stock Certificate of Sound Financial Bancorp, Inc. (incorporated herein by reference to the Registration Statement on Form S-1 filed with the SEC on March 27, 2012 (File No. 333-180385))
~~10.1~~ 4.3		~~Form~~Forms of ~~Amended and Restated Employment~~5.25% Fixed-to-Floating Rate Subordinated Note due October 1, 2030 (included as Exhibit A to the Subordinate Note Purchase Agreement ~~dated August 30, 2016, among Sound Financial Bancorp, Inc., Sound Community Bank and Laura Lee Stewart~~included in Exhibit 10.16) (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on September ~~1, 2016~~21, 2020 (File No. 001-35633)) .
~~10.2~~ 10.1+		Amended and Restated ~~Supplemental Executive Retirement~~Employment Agreement dated January 25, 2019, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on January 30, 2019 (File No. 001-35633))
10.2+		Amended and Restated Supplemental Executive Retirement Agreement dated July 11, 2022, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on July 14, 2022 (File No. 001-35633))
10.3+		Amended and Restated Long Term Compensation Agreement dated November 23, 2015, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on November 27, 2015 (File No. 001-35633))
~~10.3~~ 10.4+		Amended and Restated ~~Long Term Compensation~~Confidentiality, Non-Competition and Non-Solicitation Agreement dated January 25, 2019, by and between Sound Community Bank and Laura Lee Stewart (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on ~~November 27, 2015~~January 30, 2019 (File No. 001-35633))
~~10.4~~ 10.5+		~~Amended and Restated Confidentiality, Non-Competition and Non-Solicitation Agreement by and between Sound Community Bank and Laura Lee Stewart~~ ~~(incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on November 27, 2015 (File No. 001-35633))~~
~~10.5~~	2008 Equity Incentive Plan (incorporated herein by reference to the Annual Report on Form 10-K filed with the SEC on March 31, 2009 (File No. 000-52889))
~~10.6~~10.6+		Forms of Incentive Stock Option Agreement, Non-Qualified Stock Option Agreement and Restricted Stock Agreements under the 2008 Equity Incentive Plan (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on January 29, 2009 (File No. 000-52889))
10.7+		Summary of Annual Bonus Plan (incorporated herein by reference to the ~~Registration Statement~~Current Report on Form ~~SB-2~~8-K filed with the SEC on ~~September 20, 2007~~February 3, 2020 (File No. ~~333-146196)~~000-35633))
10.8+		2013 Equity Incentive Plan (included as Exhibit 10.13 to the Registrant's Quarterly Report on Form ~~10-Q~~ 10-Q/A for the quarter ended September 30, 2013 and incorporated herein by reference (File No. 001-35633))
10.9+		Form of Incentive Stock Option Agreement, Non-Qualified Stock Option Agreement and Restricted Stock Agreement under the 2013 Equity Incentive Plan (included as Exhibit 10.14 to the Registrant's Quarterly Report on Form ~~10-Q~~10-Q/A for the quarter ended September 30, 2013 and incorporated herein by reference (File No. 001-35633))
10.10+		~~Amended and Restated Change~~Form of ~~Control Agreement dated June 21, 2016, by and among Sound Financial Bancorp, Inc., Sound Community Bank and Matthew P. Deines~~ ~~(incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on June 24, 2016 (File No. 001-35633))~~
~~10.11~~	~~Change of Control Agreement dated June 21, 2016, by and among Sound Financial Bancorp, Inc., Sound Community Bank and Elliott Pierce~~ ~~(included as Exhibit 10.11 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and incorporated herein by reference (File No. 0001140361-17-020150))~~
~~10.12~~	Adoption Agreement for the Sound Community Bank Nonqualified Deferred Compensation Plan (incorporated herein by reference to the Annual Report on Form 10-K filed with the SEC on March 30, 2021 (File No. (001-35633))
10.11+		The Sound Community Bank Nonqualified Deferred Compensation Plan (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on March 24, 2017 (File No. ~~(0001140361-17-013082)~~001-35633))
~~10.13~~ 10.12+		~~The~~Change of Control Agreement dated October 25, 2018, by and among Sound Financial Bancorp, Inc., Sound Community Bank ~~Nonqualified Deferred Compensation Plan~~and Heidi Sexton (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on ~~March 24, 2017~~October 26, 2018 (File No. ~~(0001140361-17-013082)~~(001-35633))
10.13+		Credit Union of the Pacific Incentive Compensation Achievement Plan, dated January 1, 1994 (incorporated herein by reference to the Annual Report on Form 10-K filed with the SEC on March 14, 2019 (File No. (001-35633))
10.14+		Form of Subordinated Note Purchase Agreement, dated September 18, 2020, by and among Sound Financial Bancorp, Inc. and the Purchasers (incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on September 21, 2020 (File No. 001-35633)).
10.15+		Change ofin Control Agreement dated ~~June 22, 2016,~~August 25, 2021 by and among Sound Financial Bancorp, Inc., Sound Community Bank and ~~Christina Gehrke~~
11	~~Statement re computation of per share earnings (See Note 9 of~~Wes Ochs (incorporated herein by reference to the ~~Notes to Condensed Consolidated Financial Statements contained in Item 1, Part I of this~~ Current Report on Form ~~10-Q.~~8-K filed with the SEC on August 31, 2021 (File No. 001-35633)).
31.1		Rule 13(a)-14(a) Certification (Chief Executive Officer)
31.2		Rule 13(a)-14(a) Certification (Chief Financial Officer)
32		Section 1350 Certification
101		The following financial statements from the Sound Financial Bancorp, Inc. Quarterly Report on Form 10-Q for the three months ended March 31, 2023, formatted in Extensive Business Reporting Language (XBRL): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of income, (iii) condensed consolidated statements of comprehensive income, (iv) condensed consolidated statements of equity (v) condensed consolidated statements of cash flows and (vi) the notes to condensed consolidated financial statements
104		Cover Page Interactive Data ~~Files~~File (embedded within the Inline XBRL document)

+ Indicates management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Sound Financial Bancorp, Inc.

Date: ~~November 13, 2017~~May 12, 2023	By:	/s/ Laura Lee Stewart
		Laura Lee Stewart
		~~President and~~ President/Chief Executive Officer
		(Principal Executive Officer)
~~Date: November 13, 2017~~	~~By:~~	~~/s/ Matthew P. Deines~~
	By:	~~Matthew P. Deines~~/s/ Wes Ochs
		Wes Ochs
		Executive Vice ~~President~~President/Chief Strategy Officer and Chief Financial Officer
		(Principal Financial Officer)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
INTEREST INCOME
Loans, including fees	$	6,832	$	6,050	$	19,630	$	18,053
Interest and dividends on investments, cash and cash equivalents		234		98		544		279
Total interest income		7,066		6,148		20,174		18,332
INTEREST EXPENSE
Deposits		808		678		2,199		2,020
Borrowings		72		52		238		136
Total interest expense		880		730		2,437		2,156
Net interest income		6,186		5,418		17,737		16,176
PROVISION FOR LOAN LOSSES		250		-		250		250
Net interest income after provision for loan losses		5,936		5,418		17,487		15,926
NONINTEREST INCOME
Service charges and fee income		439		743		1,442		1,988
Earnings on cash surrender value of bank-owned life insurance		82		84		245		252
Mortgage servicing income		18		239		399		462
Net gain on sale of loans		287		477		720		1,028
Total noninterest income		826		1,543		2,806		3,730
NONINTEREST EXPENSE
Salaries and benefits		2,777		2,632		8,130		7,813
Operations		1,002		1,181		3,052		3,237
Regulatory assessments		80		124		340		404
Occupancy		520		376		1,415		1,141
Data processing		448		434		1,293		1,264
Net loss on OREO and repossessed assets		109		3		123		9
Total noninterest expense		4,936		4,750		14,353		13,868
Income before provision for income taxes		1,826		2,211		5,940		5,788
Provision for income taxes		604		757		2,001		1,974
Net income	$	1,222	$	1,454	$	3,939	$	3,814

Earnings per common share:
Basic	$	0.49	$	0.58	$	1.57	$	1.54
Diluted	$	0.48	$	0.57	$	1.54	$	1.48
Weighted-average number of common shares outstanding:
Basic		2,506,863		2,490,089		2,502,399		2,483,004
Diluted		2,562,373		2,568,457		2,562,606		2,556,949

	Shares			Common Stock		Additional Paid -in Capital		Unearned ESOP Shares			Retained Earnings			Accumulated Other Comprehensive Income, net of tax		Total Stockholders' Equity
Balances at December 31, 2015		2,469,206		$	25	$	23,002	$	(911	)	$	32,240		$	164	$	54,520
Net income												3,814					3,814
Other comprehensive income, net of tax															23		23
Share-based compensation							354										354
Cash dividends paid on common stock ($0.23 per share)												(558	)				(558	)
Common Stock repurchase in conjunction with stock option exercise		(2,805	)														-
Restricted stock awards issued		11,606															-
Restricted stock forfeited and retired		(1,059	)														-
Exercise of options		21,656					164										164
Balances at September 30, 2016		2,498,604		$	25	$	23,520	$	(911	)	$	35,496		$	187	$	58,317

	Shares			Common Stock		Additional Paid- in Capital		Unearned ESOP Shares			Retained Earnings			Accumulated Other Comprehensive Income, net of tax		Total Stockholders' Equity
Balances at December 31, 2016		2,498,804		$	25	$	23,979	$	(683	)	$	36,873		$	81	$	60,275
Net income												3,939					3,939
Other comprehensive income, net of tax															66		66
Share-based compensation							285										285
Cash dividends paid on common stock ($0.50 per share)												(1,254	)				(1,254	)
Common stock surrendered		(3,353	)														-
Restricted stock awards issued		576															-
Exercise of options		14,018					33										33
Balances at September 30, 2017		2,510,045		$	25	$	24,297	$	(683	)	$	39,558		$	147	$	63,344

	One- to four- family		Home equity		Commercial and multifamily		Construction and land		Manufactured homes		Floating homes		Other consumer		Commercial business		Unallocated		Total
Allowance for loan losses:
Individually evaluated for impairment	$	377	$	168	$	-	$	32	$	70	$	-	$	57	$	276	$	-	$	980
Collectively evaluated for impairment		874		183		1,185		327		110		154		41		231		906		4,011
Ending balance	$	1,251	$	351	$	1,185	$	359	$	180	$	154	$	98	$	507	$	906	$	4,991
Loans receivable:
Individually evaluated for impairment	$	6,664	$	1,007	$	1,717	$	99	$	309	$	-	$	57	$	357	$	-	$	10,210
Collectively evaluated for impairment		150,207		28,122		199,694		54,822		16,555		26,699		4,975		38,801		-		519,875
Ending balance	$	156,871	$	29,129	$	201,411	$	54,921	$	16,864	$	26,699	$	5,032	$	39,158	$	-	$	530,085

	One- to four- family		Home equity		Commercial and multifamily		Construction and land		Manufactured homes		Floating homes		Other consumer		Commercial business		Total
Grade:
Pass	$	151,786	$	28,321	$	192,817	$	54,872	$	16,711	$	26,699	$	4,975	$	38,396	$	514,577
Watch		246		-		6,876		-		-		-		-		494		7,616
Special Mention		138		-		360		-		-		-		-		134		632
Substandard		4,701		808		1,358		49		153		-		57		134		7,260
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	156,871	$	29,129	$	201,411	$	54,921	$	16,864	$	26,699	$	5,032	$	39,158	$	530,085

	Three Months Ended September 30, 2017					Three Months Ended September 30, 2016
	Average Recorded Investment		Interest Income Recognized			Average Recorded Investment		Interest Income Recognized

One- to four- family	$	6,603	$	117		$	5,445	$	58
Home equity		1,008		10			968		4
Commercial and multifamily		1,732		24			4,365		19
Construction and land		114		(1	)		86		1
Manufactured homes		306		9			383		6
Other consumer		58		1			24		-
Commercial business		348		5			640		9
Total	$	10,169	$	165		$	11,911	$	97

	Nine Months Ended September 30, 2017				Nine Months Ended September 30, 2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

One- to four- family	$	5,718	$	269	$	5,533	$	197
Home equity		921		30		944		31
Commercial and multifamily		1,652		72		3,902		152
Construction and land		91		2		88		3
Manufactured homes		311		19		377		23
Other consumer		60		3		20		2
Commercial business		487		16		474		27
Total	$	9,240	$	411	$	11,338	$	435

	Fair Value at September 30, 2017
Description	Total		Level 1		Level 2		Level 3
Municipal bonds	$	3,417	$	-	$	3,417	$	-
Agency mortgage-backed securities		2,271		-		2,271		-
Mortgage servicing rights		3,370		-		-		3,370

	Fair Value at December 31, 2016
Description	Total		Level 1		Level 2		Level 3
Municipal bonds	$	3,353	$	-	$	3,353	$	-
Agency mortgage-backed securities		2,904		-		2,904		-
Non-agency mortgage-backed securities		347		-		-		347
Mortgage servicing rights		3,561		-		-		3,561

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Beginning balance, at fair value	$	318		$	379		$	347		$	428
OTTI impairment losses		-			-			-			-
Sales, redemptions and principal payments		(318	)		(29	)		(347	)		(90	)
Change in unrealized loss		-			5			-			17
Ending balance, at fair value	$	-		$	355		$	-		$	355

Annual dividend yield		1.28	%
Expected volatility		22.99	%
Risk-free interest rate		2.20	%
Expected term	6.50 years
Weighted-average grant date fair value per option granted	$	6.62

Annual dividend yield		1.03	%
Expected volatility		25.48	%
Risk-free interest rate		1.64	%
Expected term	6.92 years
Weighted-average grant date fair value per option granted	$	5.78

	Shares			Weighted-Average Grant-Date Fair Value Per Share
Non-vested at January 1, 2017		26,138		$	18.08
Granted		576			28.34
Vested		(14,929	)		17.61
Forfeited		-			-
Expired		-			-
Non-vested at September 30, 2017		11,785			19.05
Expected to vest assuming a 0% forfeiture rate over the vesting term		11,785		$	19.05

	September 30, 2017		December 31, 2016
Allowance as a percentage of nonperforming loans (end of period)		142.48%		143.98%
Allowance as a percentage of total loans (end of period)		0.94%		0.96%

	September 30, 2017
Residential mortgage commitments	$	4,404
Undisbursed portion of loans originated		38,850
Unused lines of credit		29,412
Irrevocable letters of credit		1,360
Total loan commitments	$	74,026

	Actual					Minimum For Capital Adequacy Purposes			To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio	Amount		Ratio
Tier 1 Capital to average assets	$	60,949		10.15	%	$	24,015	> 4.0%	$	30,018	> 5.0%
Common Equity Tier 1 ("CET1") risk-based capital ratio		60,949		11.94	%		22,976	> 4.5%		33,188	> 6.5%
Tier 1 Capital to risk-weighted assets		60,949		11.94	%		30,635	> 6.0%		40,846	> 8.0%
Total Capital to risk-weighted assets		66,135		12.95	%		40,846	> 8.0%		51,058	> 10.0%