tsbk-20241231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2024

☐ 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 000-23333

TIMBERLAND BANCORP, INC.

(Exact name of registrant as specified in its charter)


Washington			91-1863696
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)


624 Simpson Avenue, Hoquiam, Washington			98550
(Address of principal executive offices)			(Zip Code)

(360) 533-4747

(Registrant’s telephone number, including area code)

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, $.01 par value	TSBK	The NASDAQ Stock Market LLC

Indicate by 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 ☒ No ___

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes _☒_ No __

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

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ 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 check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ___ No _☒_

As of February 3, 2025, there were 7,955,453 shares of the registrant's common stock, $.01 par value per share outstanding.

INDEX


PART I.	FINANCIAL INFORMATION	Page

Item 1.	Financial Statements (unaudited)

	Consolidated Balance Sheets	3

	Consolidated Statements of Income	5

	Consolidated Statements of Comprehensive Income	7

	Consolidated Statements of Shareholders’ Equity	8

	Consolidated Statements of Cash Flows	9

	Notes to Unaudited Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4.	Controls and Procedures	50

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 3.	Defaults Upon Senior Securities	52

Item 4.	Mine Safety Disclosures	52

Item 5.	Other Information	52

Item 6.	Exhibits	52

SIGNATURES
Certifications
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32
	Exhibit 101
	Exhibit 104

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

TIMBERLAND BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

December 31, 2024 and September 30, 2024

(Dollars in thousands, except per share amounts)


	December 31, 2024		September 30, 2024
	(Unaudited)		*
Assets
Cash and cash equivalents:
Cash and due from financial institutions	$	24,538	$	29,071
Interest-bearing deposits in banks	139,533		135,657
Total cash and cash equivalents	164,071		164,728

Certificates of deposit (“CDs”) held for investment, at cost	7,470		10,209
Investment securities held to maturity, at amortized cost (net of allowance for credit losses ("ACL") of $55 and $60), (estimated fair value of $147,709 and $166,007)	156,105		172,097
Investment securities available for sale, at fair value	77,080		72,257
Investments in equity securities, at fair value	840		866
Federal Home Loan Bank of Des Moines (“FHLB”) stock, at cost	2,037		2,037
Other investments, at cost	3,000		3,000
Loans held for sale	411		—


Loans receivable, net of ACL of $17,288 and $17,478	1,411,819		1,421,523

Premises and equipment, net	21,617		21,486
Other real estate owned (“OREO”) and other repossessed assets, net	221		—
Accrued interest receivable	7,095		6,990
Bank owned life insurance (“BOLI”)	23,777		23,611
Goodwill	15,131		15,131
Core deposit intangible (“CDI”), net	406		451
Loan servicing rights, net	1,195		1,372


Operating lease right-of-use ("ROU") assets	1,400		1,475
Other assets	15,805		6,242
Total assets	$	1,909,480	$	1,923,475

Liabilities and shareholders’ equity
Liabilities
Deposits:
Non-interest-bearing demand	$	402,911	$	413,116
Interest-bearing	1,227,505		1,234,552
Total deposits	1,630,416		1,647,668

FHLB borrowings	20,000		20,000
Operating lease liabilities	1,501		1,575
Other liabilities and accrued expenses	8,364		8,819
Total liabilities	$	1,660,281	$	1,678,062

* Derived from audited consolidated financial statements.

See notes to unaudited consolidated financial statements

TIMBERLAND BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (continued)

December 31, 2024 and September 30, 2024

(Dollars in thousands, except per share amounts)


	December 31, 2024		September 30, 2024
	(Unaudited)		*
Commitments and contingencies (see Note 12)
Shareholders’ equity
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued	$	—	$	—
Common stock, $0.01 par value; 50,000,000 shares authorized; 7,954,673 shares issued and outstanding - December 31, 2024 7,960,127 shares issued and outstanding - September 30, 2024	29,593		29,862

Retained earnings	220,398		215,531
Accumulated other comprehensive (loss) income	(792)		20
Total shareholders’ equity	249,199		245,413
Total liabilities and shareholders’ equity	$	1,909,480	$	1,923,475

* Derived from audited consolidated financial statements.

See notes to unaudited consolidated financial statements

TIMBERLAND BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

For the three months ended December 31, 2024 and 2023

(Dollars in thousands, except per share amounts)

(Unaudited)


	Three Months Ended December 31,
	2024		2023
Interest and dividend income
Loans receivable and loans held for sale	$	21,032	$	18,395
Investment securities	2,138		2,311
Dividends from mutual funds, FHLB stock and other investments	86		91
Interest-bearing deposits in banks and CDs	2,001		1,699
Total interest and dividend income	25,257		22,496

Interest expense
Deposits	8,084		6,143
FHLB borrowings	203		349
Total interest expense	8,287		6,492

Net interest income	16,970		16,004

Provision for (recapture of) credit losses
Provision for credit losses - loans	52		379
Recapture of credit losses - investment securities	(5)		(10)
Recapture of credit losses - unfunded commitments	(20)		(33)
Total provision for credit losses - net	27		336

Net interest income after provision for (recapture of) credit losses	16,943		15,668

Non-interest income


Net recoveries on investment securities	3		5

Service charges on deposits	999		1,023
ATM and debit card interchange transaction fees	1,267		1,264
BOLI net earnings	166		156
Gain on sales of loans, net	43		78
Escrow fees	18		19




Other, net	201		253
Total non-interest income, net	2,697		2,798

See notes to unaudited consolidated financial statements

TIMBERLAND BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (continued)

For the three months ended December 31, 2024 and 2023

(Dollars in thousands, except per share amounts)

(Unaudited)


	Three Months Ended December 31,
	2024		2023
Non-interest expense
Salaries and employee benefits	$	6,092	$	5,911
Premises and equipment	950		973

Advertising	181		186

ATM and debit card interchange transaction fees	521		615
Postage and courier	121		126
State and local taxes	346		319
Professional fees	346		253
Federal Deposit Insurance Corporation ("FDIC") insurance	210		210
Loan administration and foreclosure	128		105
Technology and communications	1,140		974

Deposit operations	332		320
Amortization of CDI	45		56
Other	655		576
Total non-interest expense, net	11,067		10,624

Income before income taxes	8,573		7,842

Provision for income taxes	1,713		1,546

Net income	$	6,860	$	6,296

Net income per common share
Basic	$	0.86	$	0.78
Diluted	$	0.86	$	0.77

Weighted average common shares outstanding
Basic	7,958,275		8,114,209
Diluted	7,999,504		8,166,048

Dividends paid per common share	$	0.25	$	0.23

See notes to unaudited consolidated financial statements

TIMBERLAND BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the three months ended December 31, 2024 and 2023

(Dollars in thousands)

(Unaudited)


	Three Months Ended December 31,
	2024		2023
Comprehensive income
Net income	$	6,860	$	6,296
Other comprehensive income (loss)
Unrealized holding (loss) gain on investment securities available for sale, net of income taxes of $(216) and $66, respectively	(812)		248

Change in other than temporary impairment ("OTTI") on investment securities held to maturity, net of income taxes:


Accretion of OTTI on investment securities held to maturity, net of income taxes of $0 and $1, respectively	—		9
Total other comprehensive (loss) income, net of income taxes	(812)		257

Total comprehensive income	$	6,048	$	6,553

See notes to unaudited consolidated financial statements

TIMBERLAND BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the three months ended December 31, 2024 and 2023

(Dollars in thousands, except per share amounts)

(Unaudited)


	Common Stock				Accumulated Other Compre-hensive Income (Loss)
	Number of Shares	Amount		Retained Earnings					Total
Balance, September 30, 2023	8,105,338	$	34,771		$	199,386	$	(1,084)		$	233,073
Net income	—	—			6,296		—			6,296
Other comprehensive income	—	—			—		257			257
Repurchase of common stock, net of tax	(12,330)	(362)			—		—			(362)




Exercise of stock options	27,700	355			—		—			355


Common stock dividends ($0.23 per common share)	—	—			(1,867)		—			(1,867)


Stock-based compensation expense	—	105			—		—			105
Adoption of Accounting Standards Update ("ASU") 2016-13	—	—			(488)		—			(488)
Balance, December 31, 2023	8,120,708	$	34,869		$	203,327	$	(827)		$	237,369


Balance, September 30, 2024	7,960,127	$	29,862		$	215,531	$	20		$	245,413

Net income	—	—			6,860		—			6,860
Other comprehensive loss	—	—			—		(812)			(812)
Repurchase of common stock, net of tax	(27,404)	(884)			—		—			(884)


Restricted stock grant forfeitures	(450)	—			—		—			—
Exercise of stock options	22,400	474			—		—			474


Common stock dividends ($0.25 per common share)	—	—			(1,993)		—			(1,993)


Stock-based compensation expense	—	141			—		—			141

Balance, December 31, 2024	7,954,673	$	29,593		$	220,398	$	(792)		$	249,199

See notes to unaudited consolidated financial statements

TIMBERLAND BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended December 31, 2024 and 2023

(Dollars in thousands)

(Unaudited)


	Three Months Ended December 31,
	2024		2023
Cash flows from operating activities
Net income	$	6,860	$	6,296
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for credit losses	27		336
Depreciation	375		356

Accretion of discount on purchased loans	(8)		(10)
Amortization of CDI	45		56

Stock-based compensation expense	141		105


Net recoveries on investment securities	(3)		(5)
Change in fair value of investments in equity securities	26		(37)

Accretion of discounts and premiums on securities	(252)		(293)


Gain on sales of loans, net	(43)		(78)

Loans originated for sale	(2,680)		(4,742)
Proceeds from sales of loans	2,312		3,795
Amortization of loan servicing rights	200		236

BOLI net earnings	(166)		(156)

Increase in deferred loan origination fees	20		95
Net change in accrued interest receivable and other assets, and other liabilities and accrued expenses	(9,910)		(1,087)
Net cash (used in) provided by operating activities	(3,056)		4,867

Cash flows from investing activities
Net decrease in CDs held for investment	2,739		2,739


Purchase of investment securities held to maturity	—		(1,919)
Purchase of investment securities available for sale	(8,577)		—
Proceeds from maturities and prepayments of investment securities held to maturity	16,119		6,275
Proceeds from maturities and prepayments of investment securities available for sale	2,860		1,644

Redemption of FHLB stock	—		1,601

Decrease (increase) in loans receivable, net	9,419		(34,869)
Purchases of premises and equipment	(506)		(298)






Net cash provided by (used in) investing activities	22,054		(24,827)

See notes to unaudited consolidated financial statements

TIMBERLAND BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

For the three months ended December 31, 2024 and 2023

(Dollars in thousands)

(Unaudited)


	Three Months Ended December 31,
	2024		2023
Cash flows from financing activities
Net (decrease) increase in deposits	$	(17,252)	$	66,134

Repayment of FHLB borrowings	—		(15,000)
Proceeds from exercise of stock options	474		355


Repurchase of common stock	(884)		(362)
Payment of dividends	(1,993)		(1,867)
Net cash (used in) provided by financing activities	(19,655)		49,260

Net (decrease) increase in cash and cash equivalents	(657)		29,300
Cash and cash equivalents
Beginning of period	164,728		128,721
End of period	$	164,071	$	158,021

Supplemental disclosure of cash flow information

Interest paid	$	8,543	$	6,206

Supplemental disclosure of non-cash investing activities

Other comprehensive (loss) income related to investment securities	$	(812)	$	257
Loans transferred to OREO	$	221	$	—


Adjustment to retained earnings, net of deferred tax - adoption of ASU 2016-13	$	—	$	(488)

See notes to unaudited consolidated financial statements

Timberland Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation: The accompanying unaudited consolidated financial statements of Timberland Bancorp, Inc. and its wholly-owned subsidiary, Timberland Bank (the "Bank") (collectively, "the Company") were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of consolidated financial condition, results of operations, and cash flows in conformity with GAAP. However, all adjustments which are, in the opinion of management, necessary for a fair presentation of the interim consolidated financial statements have been included. All such adjustments are of a normal recurring nature. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2024 (“2024 Form 10-K”). The unaudited consolidated results of operations for the three months ended December 31, 2024 are not necessarily indicative of the results that may be expected for the entire fiscal year ending September 30, 2025.

(b) Principles of Consolidation: The unaudited consolidated financial statements include the accounts of the Company and the Bank’s wholly-owned subsidiary, Timberland Service Corp. All significant inter-company transactions and balances have been eliminated in consolidation.

(c) Operating Segment: The Company has one reportable operating segment which is defined as community banking in western Washington under the operating name, "Timberland Bank."

(d) The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, as of the date of the consolidated balance sheets, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

(e) Certain prior period amounts have been reclassified to conform to the December 31, 2024 presentation with no change to previously reported net income or total shareholders’ equity.

(2) INVESTMENT SECURITIES

Held to maturity and available for sale investment securities have been classified according to management’s intent and were as follows as of December 31, 2024 and September 30, 2024 (dollars in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Allowance for Credit Losses
December 31, 2024
Held to Maturity
U.S. Treasury and U.S. government agency securities	$	79,391	$	—	$	(4,916)	$	74,475	$	—
Mortgage-backed securities ("MBS"):
U.S. government agencies	48,161		—		(2,324)		45,837		—
Private label residential	26,833		264		(1,422)		25,675		52
Municipal securities	1,223		9		—		1,232		—
Bank issued trust preferred securities	497		—		(7)		490		3
Total	$	156,105	$	273	$	(8,669)	$	147,709	$	55


December 31, 2024	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for Sale
U.S. Treasury and U.S. government agency securities	$	9,569	$	—	$	(25)	$	9,544
MBS: U.S. government agencies	68,513		55		(1,032)		67,536

Total	$	78,082	$	55	$	(1,057)	$	77,080


September 30, 2024	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Allowance for Credit Losses
Held to Maturity
U.S. Treasury and U.S. government agency securities	$	92,312	$	70	$	(4,197)	$	88,185	$	—
MBS:
U.S. government agencies	49,481		174		(1,378)		48,277		—
Private label residential	28,479		231		(980)		27,730		55
Municipal securities	1,330		8		—		1,338		$	—
Bank issued trust preferred securities	495		—		(18)		477		5
Total	$	172,097	$	483	$	(6,573)	$	166,007	$	60


September 30, 2024	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for Sale
U.S. Treasury and U.S. government agency securities	$	3,934	$	6	$	(1)	$	3,939
MBS: U.S. government agencies	68,297		545		(524)		68,318

Total	$	72,231	$	551	$	(525)	$	72,257

Held to maturity and available for sale investment securities with unrealized losses were as follows as of December 31, 2024 (dollars in thousands):


	Less Than 12 Months					12 Months or Longer					Total
	Estimated Fair Value		Gross Unrealized Losses		Quantity	Estimated Fair Value		Gross Unrealized Losses		Quantity	Estimated Fair Value		Gross Unrealized Losses
Held to maturity
U.S. Treasury and U.S. government agency securities	$	9,786	$	(9)	1	$	64,689	$	(4,907)	15	$	74,475	$	(4,916)
MBS:
U.S. government agencies	18,746		(237)		15	26,938		(2,087)		43	45,684		(2,324)
Private label residential	2,731		(12)		4	19,187		(1,410)		19	21,918		(1,422)

Bank issued trust preferred securities	—		—		—	490		(7)		1	490		(7)
Total	$	31,263	$	(258)	20	$	111,304	$	(8,411)	78	$	142,567	$	(8,669)

Available for sale
U.S. Treasury and U.S. government agency securities	$	7,557	$	(25)	5	$	—	$	—	—	$	7,557	$	(25)
MBS:
U.S. government agencies	22,027		(522)		7	24,959		(510)		22	46,986		(1,032)
Total	$	29,584	$	(547)	12	$	24,959	$	(510)	22	$	54,543	$	(1,057)

Held to maturity and available for sale investment securities with unrealized losses were as follows as of September 30, 2024 (dollars in thousands):


	Less Than 12 Months					12 Months or Longer					Total
	Estimated Fair Value		Gross Unrealized Losses		Quantity	Estimated Fair Value		Gross Unrealized Losses		Quantity	Estimated Fair Value		Gross Unrealized Losses
Held to maturity
U.S. Treasury and U.S. government agency securities	$	—	$	—	—	$	78,363	$	(4,197)	17	$	78,363	$	(4,197)
MBS:
U.S. government agencies	1		—		1	28,618		(1,378)		44	28,619		(1,378)
Private label residential	804		(6)		1	20,447		(974)		19	21,251		(980)

Bank issued trust preferred securities	—		—		—	477		(18)		1	477		(18)
Total	$	805	$	(6)	2	$	127,905	$	(6,567)	81	$	128,710	$	(6,573)

Available for sale
U.S. Treasury and U.S. government agency securities	$	1,962	$	(1)	1	$	—	$	—	—	$	1,962	$	(1)
MBS:
U.S. government agencies	11,368		(117)		4	25,751		(407)		23	37,119		(524)

Total	$	13,330	$	(118)	5	$	25,751	$	(407)	23	$	39,081	$	(525)

During the three months ended December 31, 2024, the Company recorded a $2,000 net realized loss on 13 held to maturity investment securities, all of which had been recognized previously as a credit loss. During the three months ended December 31, 2023, the Company recorded a $1,000 net realized loss on 13 held to maturity investment securities, all of which had been recognized previously as credit loss.

The recorded amount of investment securities pledged as collateral for public fund deposits, federal treasury tax and loan deposits, FHLB collateral and other non-profit organization deposits totaled $193.62 million and $208.81 million at December 31, 2024 and September 30, 2024, respectively.

The contractual maturities of investment securities at December 31, 2024 were as follows (dollars in thousands). Expected maturities may differ from scheduled maturities due to the prepayment of principal or call provisions.


	Held to Maturity				Available for Sale
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due within one year	$	15,209	$	15,152	$	4,932	$	4,927
Due after one year to five years	80,597		75,568		9,553		9,537
Due after five years to ten years	1,210		1,252		1,915		1,906
Due after ten years	59,089		55,737		61,682		60,710
Total	$	156,105	$	147,709	$	78,082	$	77,080

Credit Quality Indicators and Allowance for Credit Losses

Available for Sale Investment Securities

The Company assesses each available for sale investment security that is in an unrealized loss position to determine whether the decline in fair value below the amortized cost basis results from a credit loss or other factors. The Company did not record an ACL on any available for sale investment securities at December 31, 2024 or September 30, 2024. As of both dates, the Company considered the unrealized losses across the classes of major security-type to be related to fluctuations in market conditions, primarily interest rates, and not reflective of a deterioration in credit value. The Company expects the fair value of these securities to recover as the securities approach their maturity dates or sooner if market yields for such securities decline. The Company does not believe that these securities are impaired because of their credit quality or related to any issuer or industry specific event. The Company has the ability and intent to hold the investments until the fair value recovers.

Held to Maturity Investment Securities

The Company measures expected credit losses on held to maturity investment securities, which are comprised of U.S. government agency and U.S. government mortgage-backed securities, private label mortgage-backed securities, municipal, and other bonds. The Company’s agency and mortgage-backed securities that are issued by U.S. government entities and agencies are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. As such, no ACL has been established for these securities. The ACL on the private label mortgage-backed securities, municipal, and other bonds within the held to maturity securities portfolio is calculated using the probability of default/loss given default ("PD/LGD") method. The calculation is completed on a quarterly basis using the default studies provided by an industry leading source. At December 31, 2024 and September 30, 2024, the ACL on the held to maturity securities portfolio totaled $55,000 and $60,000, respectively.

The following tables set forth information for the three months ended December 31, 2024 regarding activity in the ACL by portfolio segment (dollars in thousands):


	Three Months Ended December 31, 2024
Held to Maturity	Beginning Allowance		Provision for (Recapture of) Credit Losses		Ending Allowance

MBS:

Private label residential	$	55	$	(3)	$	52

Bank issued trust preferred securities	5		(2)		3
Total	$	60	$	(5)	$	55


	Three Months Ended December 31, 2023
Held to Maturity	Beginning Allowance		Impact of Adopting CECL (ASU 2016-13)		Provision for (Recapture of) Credit Losses		Ending Allowance

MBS:

Private label residential	$	—	$	82	$	(9)	$	73

Bank issued trust preferred securities	—		10		(1)		9
Total	$	—	$	92	$	(10)	$	82

The ACL on held to maturity securities is included within investment securities held to maturity on the consolidated balance sheets. Changes in the ACL are recorded through the provision for (recapture of) credit losses on the consolidated income statement.

Accrued interest receivable on held to maturity investment securities totaled $810,000 at December 31, 2024 and is included in accrued interest receivable on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses. Held to maturity investment securities are typically classified as non-accrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When held to maturity investment securities are placed on non-accrual status, unpaid interest credited to income is reversed. The Company had $45,000 of private label mortgage-backed held to maturity investment securities in non-accrual status at December 31, 2024.

The Company monitors the credit quality of investment securities held to maturity using credit ratings from Moody's, S&P and Fitch. The Company monitors the credit ratings on a quarterly basis.

The following table sets forth the Company's held to maturity investment securities at December 31, 2024 by credit quality indicator:


	Credit Ratings
As of December 31, 2024	AAA/AA/A		BBB/BB/B		Unrated		Total
Held to Maturity
U.S. Treasury and U.S. government agency securities	$	79,391	$	—	$	—	$	79,391
MBS:
U.S. government agencies	48,161		—		—		48,161
Private label residential	15,326		—		11,507		26,833
Municipal securities	1,223		—		—		1,223
Bank issued trust preferred securities	—		—		497		497
Total held to maturity	$	144,101	$	—	$	12,004	$	156,105


	Credit Ratings
As of September 30, 2024	AAA/AA/A		BBB/BB/B		Unrated		Total
Held to Maturity
U.S. Treasury and U.S. government agency securities	$	92,312	$	—	$	—	$	92,312
MBS:							—
U.S. government agencies	49,481		—		—		49,481
Private label residential	16,277		—		12,202		28,479
Municipal securities	1,230		—		100		1,330
Bank issued trust preferred securities	—		—		495		495
Total held to maturity	$	159,300	$	—	$	12,797	$	172,097

Prior to adopting ASU 2016-13, the Company bifurcated OTTI into (1) amounts related to credit losses which are recognized through earnings and (2) amounts related to all other factors which are recognized as a component of other comprehensive income (loss). To determine the component of the gross OTTI related to credit losses, the Company compared the amortized cost basis of the OTTI security to the present value of its revised expected cash flows, discounted using its pre-impairment yield. The revised expected cash flow estimates for individual securities are based primarily on an analysis of default rates, prepayment speeds and third-party analytic reports. Significant judgment by management was required in this analysis that included, but not limited to, assumptions regarding the collectability of principal and interest, net of related expenses, on the underlying loans. The amounts written off due to credit loss remain and continue to be recovered on a cash basis.

The following table presents a roll forward of the credit loss component of held to maturity investment securities that have been written down for OTTI with the credit loss component recognized in earnings for the three months ended December 31, 2024 and 2023 (dollars in thousands):


	Three Months Ended December 31,
	2024		2023
Beginning balance of credit loss	$	803	$	816



Subtractions:
Net realized loss previously recorded as credit losses	—		(1)
Recapture of prior credit loss	(2)		(4)
Ending balance of credit loss	$	801	$	811

(3) GOODWILL AND CDI

Goodwill is initially recorded when the purchase price paid in a business combination exceeds the estimated fair value of the net identified tangible and intangible assets acquired and liabilities assumed. Goodwill is presumed to have an indefinite useful life and is analyzed annually for impairment. The Company performs an annual review during the third quarter of each fiscal year, or more frequently if indicators of potential impairment exist, to determine if the recorded goodwill is impaired. For purposes of goodwill impairment testing, the services offered through the Bank and its subsidiary are managed as one strategic unit and represent the Company's only reporting unit.

An assessment of qualitative factors is completed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative analysis concludes that further analysis is required, then a quantitative impairment test would be completed. The quantitative goodwill impairment test is used to identify the existence of impairment and the amount of impairment loss and compares the reporting unit’s estimated fair value, including goodwill, to its carrying amount. If the fair value exceeds the carrying amount, then goodwill is not considered impaired. If the carrying amount exceeds its fair value, an impairment loss would be recognized equal to the amount of excess, limited to the amount of total goodwill allocated to that reporting unit. The Company performed its fiscal year 2024 goodwill impairment test during the quarter ended June 30, 2024. Based on this assessment, the Company determined that it is not "more likely than not" that the Company's fair value is less than its carrying amount, and, therefore, goodwill was determined not to be impaired at May 31, 2024.

As of December 31, 2024, management believes that there have been no events or changes in the circumstances since May 31, 2024 that would indicate a potential impairment of goodwill. No assurances can be given, however, that the Company will not record an impairment loss on goodwill in the future. If adverse economic conditions or any decreases in the Company's stock price and market capitalization were deemed to be other than temporary, it may significantly affect the fair value of the Company's goodwill and may trigger impairment charges. Any impairment charge could have a material adverse effect on the Company's results of operations and financial condition.

CDI represents the future economic benefit of the potential cost savings from acquiring core deposits as part of a business combination compared to the cost of alternative funding sources. CDI is amortized to non-interest expense using an accelerated method based on an estimated runoff of related deposits over a period of ten years. CDI is evaluated for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable, with any changes in estimated useful life accounted for prospectively over the revised remaining life. As of December 31, 2024, management believes that there have been no events or changes in the circumstances that would indicate a potential impairment of CDI.

(4) LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Loans receivable by portfolio segment consisted of the following at December 31, 2024 and September 30, 2024 (dollars in thousands):


	December 31, 2024				September 30, 2024
	Amount		Percent		Amount		Percent
Mortgage loans:
One- to four-family (1)	$	306,443	20.2	%	$	299,123	19.7	%
Multi-family	177,861		11.7		177,350		11.7
Commercial real estate	597,054		39.3		599,219		39.6
Construction - custom and owner/builder	124,104		8.2		132,101		8.7
Construction - speculative one- to four-family	8,887		0.6		11,495		0.8
Construction - commercial	22,841		1.5		29,463		1.9
Construction - multi-family	48,940		3.2		28,401		1.9
Construction - land development	15,977		1.0		17,741		1.2
Land	30,538		2.0		29,366		1.9
Total mortgage loans	1,332,645		87.7		1,324,259		87.4

Consumer loans:
Home equity and second mortgage	48,851		3.2		47,913		3.2
Other	2,889		0.2		3,129		0.2
Total consumer loans	51,740		3.4		51,042		3.4

Commercial loans:
Commercial business	135,312		8.9		138,743		9.2
U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans	204		—		260		—
Total commercial loans	135,516		8.9		139,003		9.2

Total loans receivable	1,519,901		100.0	%	1,514,304		100.0	%
Less:
Undisbursed portion of construction loans in process ("LIP")	85,350				69,878
Deferred loan origination fees, net	5,444				5,425
ACL	17,288				17,478
Subtotal	108,082				92,781
Loans receivable, net	$	1,411,819			$	1,421,523

Loans receivable at December 31, 2024 and September 30, 2024 are reported net of unamortized discounts totaling $147,000 and $155,000, respectively.

Credit Quality Indicators

The Company uses credit risk grades which reflect the Company’s assessment of a loan’s risk or loss potential. The Company categorizes loans into risk grade categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors such as the estimated fair value of the collateral. The Company uses the following definitions for credit risk ratings as part of the on-going monitoring of the credit quality of its loan portfolio:

Pass: Pass loans are defined as those loans that meet acceptable quality underwriting standards.

Watch: Watch loans are defined as those loans that still exhibit acceptable quality, but have some concerns that justify greater attention. If these concerns are not corrected, a potential for further adverse categorization exists. These concerns could relate to a specific condition peculiar to the borrower, its industry segment or the general economic environment.

Special Mention: Special mention loans are defined as those loans deemed by management to have some potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the payment prospects of the loan.

Substandard: Substandard loans are defined as those loans that are inadequately protected by the current net worth and paying capacity of the obligor, or of the collateral pledged. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. If the weakness or weaknesses are not corrected, there is the distinct possibility that some loss will be sustained.

Doubtful: Loans in this classification have the weaknesses of substandard loans with the additional characteristic that the weaknesses make the collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. At December 31, 2024 and September 30, 2024, there was one loan classified as doubtful which is supported by an SBA guarantee of the remaining balance.

Loss: Loans in this classification are considered uncollectible and of such little value that continuance as an asset is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this loan even though partial recovery may be realized in the future. At December 31, 2024 and September 30, 2024, there were no loans classified as loss.

The following table sets forth the Company's loan portfolio at December 31, 2024 by risk attribute and year of origination as well as current period gross charge-offs (dollars in thousands):


	Term Loans Amortized Cost Basis by Origination Fiscal Year
Type	2025		2024		2023		2022		2021		Prior		Revolving Loans		Total Loans Receivable
One-to four-family
Risk Rating
Pass	$	1,883	$	14,158	$	76,808	$	112,988	$	46,422	$	52,343	$	—	$	304,602
Watch	—		—		1,794		—		—		—		—		1,794

Substandard	—		—		—		—		—		47		—		47
Total one- to four-family	$	1,883	$	14,158	$	78,602	$	112,988	$	46,422	$	52,390	$	—	$	306,443


Multi-family
Risk Rating
Pass	$	2,908	$	13,134	$	19,416	$	39,515	$	32,976	$	68,743	$	1,169	$	177,861



Total multi-family	$	2,908	$	13,134	$	19,416	$	39,515	$	32,976	$	68,743	$	1,169	$	177,861


Commercial real estate
Risk Rating
Pass	$	5,995	$	25,866	$	77,637	$	125,111	$	89,546	$	248,060	$	7,877	$	580,092
Watch	—		—		907		—		—		10,921		—		11,828
Special Mention	—		—		—		—		—		4,401		—		4,401
Substandard	—		—		—		—		—		733		—		733
Total commercial real estate	$	5,995	$	25,866	$	78,544	$	125,111	$	89,546	$	264,115	$	7,877	$	597,054


	Term Loans Amortized Cost Basis by Origination Fiscal Year
Type	2025		2024		2023		2022		2021		Prior		Revolving Loans		Total Loans Receivable
Construction-custom & owner/builder (1)
Risk Rating
Pass	$	2,276	$	47,406	$	9,167	$	—	$	209	$	—	$	—	$	59,058
Watch	—		248		9,595		5,306		2,726		746		—		18,621


Total construction-custom & owner/builder	$	2,276	$	47,654	$	18,762	$	5,306	$	2,935	$	746	$	—	$	77,679


Construction-speculative one-to four-family (1)
Risk Rating
Pass	$	982	$	2,921	$	866	$	—	$	—	$	—	$	—	$	4,769



Total construction-speculative one-to four-family	$	982	$	2,921	$	866	$	—	$	—	$	—	$	—	$	4,769


Construction-commercial (1)
Risk Rating
Pass	$	1,401	$	2,060	$	8,966	$	2,072	$	—	$	—	$	—	$	14,499



Total construction-commercial	$	1,401	$	2,060	$	8,966	$	2,072	$	—	$	—	$	—	$	14,499


Construction-multi-family (1)
Risk Rating
Pass	$	838	$	2,572	$	20,603	$	—	$	—	$	—	$	—	$	24,013



Total construction-multi-family	$	838	$	2,572	$	20,603	$	—	$	—	$	—	$	—	$	24,013


Construction-land development (1)
Risk Rating
Pass	$	—	$	1,444	$	1,446	$	—	$	—	$	—	$	—	$	2,890
Watch	—		—		—		11,549		—		—		—		11,549


Total construction-land development	$	—	$	1,444	$	1,446	$	11,549	$	—	$	—	$	—	$	14,439


Land
Risk Rating
Pass	$	2,417	$	9,785	$	4,430	$	6,449	$	3,793	$	2,656	$	232	$	29,762
Watch	—		—		—		301		—		475		—		776


Total land	$	2,417	$	9,785	$	4,430	$	6,750	$	3,793	$	3,131	$	232	$	30,538


Home equity and second mortgage
Risk Rating
Pass	$	885	$	5,728	$	4,435	$	1,783	$	249	$	2,584	$	31,271	$	46,935
Watch	—		—		—		—		1,250		—		—		1,250

Substandard	—		—		—		—		—		79		587		666
Total home equity and second mortgage	$	885	$	5,728	$	4,435	$	1,783	$	1,499	$	2,663	$	31,858	$	48,851


	Term Loans Amortized Cost Basis by Origination Fiscal Year
Type	2025		2024		2023		2022		2021		Prior		Revolving Loans		Total Loans Receivable
Other consumer
Risk Rating
Pass	$	1,319	$	395	$	427	$	94	$	40	$	506	$	73	$	2,854
Watch	—		—		—		—		—		35		—		35


Total other consumer	$	1,319	$	395	$	427	$	94	$	40	$	541	$	73	$	2,889
Current period gross write-offs	$	—	$	2	$	—	$	—	$	—	$	—	$	1	$	3

Commercial business
Risk Rating
Pass	$	2,475	$	15,538	$	18,992	$	33,119	$	7,192	$	11,129	$	44,607	$	133,052
Watch	—		—		—		197		380		625		180		1,382

Substandard	—		166		—		—		—		254		256		676
Doubtful	—		202		—		—		—		—		—		202
Total commercial business	$	2,475	$	15,906	$	18,992	$	33,316	$	7,572	$	12,008	$	45,043	$	135,312
Current period gross write-offs	$	—	$	—	$	—	$	241	$	—	$	—	$	—	$	241

SBA PPP
Risk Rating
Pass	$	—	$	—	$	—	$	—	$	182	$	22	$	—	$	204



Total SBA PPP	$	—	$	—	$	—	$	—	$	182	$	22	$	—	$	204


Total loans receivable, gross (1)
Risk Rating
Pass	$	23,379	$	141,007	$	243,193	$	321,131	$	180,609	$	386,043	$	85,229	$	1,380,591
Watch	—		248		12,296		17,353		4,356		12,802		180		47,235
Special Mention	—		—		—		—		—		4,401		—		4,401
Substandard	—		166		—		—		—		1,113		843		2,122
Doubtful	—		202		—		—		—		—		—		202
Total loans receivable	$	23,379	$	141,623	$	255,489	$	338,484	$	184,965	$	404,359	$	86,252	$	1,434,551
Current period gross charge-off	$	—	$	2	$	—	$	241	$	—	$	—	$	1	$	244

_____________________

(1) Net of construction LIP

The following table sets forth the Company's loan portfolio at September 30, 2024 by risk attribute and year of origination as well

as gross charges offs in the year ending September 30, 2024:


	Term Loans Amortized Cost Basis by Origination Fiscal Year
Type	2024		2023		2022		2021		2020		Prior		Revolving Loans		Total Loans Receivable
One-to four-family
Risk Rating
Pass	$	12,941	$	66,671	$	113,834	$	48,120	$	19,053	$	36,659	$	—	$	297,278
Watch	—		1,796		—		—		—		—		—		1,796

Substandard	—		—		—		—		—		49		—		49
Total one- to four-family	$	12,941	$	68,467	$	113,834	$	48,120	$	19,053	$	36,708	$	—	$	299,123


Multi-family
Risk Rating
Pass	$	13,136	$	19,440	$	39,673	$	33,144	$	27,029	$	43,759	$	1,169	$	177,350



Total multi-family	$	13,136	$	19,440	$	39,673	$	33,144	$	27,029	$	43,759	$	1,169	$	177,350


Commercial real estate
Risk Rating
Pass	$	23,758	$	73,005	$	126,939	$	91,035	$	55,498	$	194,273	$	8,799	$	573,307
Watch	—		944		—		—		4,201		10,548		—		15,693
Special Mention	—		—		—		—		—		4,401		—		4,401
Substandard	—		—		—		—		—		5,818		—		5,818
Total commercial real estate	$	23,758	$	73,949	$	126,939	$	91,035	$	59,699	$	215,040	$	8,799	$	599,219


Construction-custom & owner/builder (1)
Risk Rating
Pass	$	38,303	$	29,159	$	778	$	—	$	—	$	—	$	—	$	68,240
Watch	221		3,239		5,848		2,861		429		436		—		13,034


Total construction-custom & owner/builder	$	38,524	$	32,398	$	6,626	$	2,861	$	429	$	436	$	—	$	81,274


Construction-speculative one-to four-family (1)
Risk Rating
Pass	$	5,039	$	2,412	$	—	$	—	$	—	$	—	$	—	$	7,451



Total construction-speculative one-to four-family	$	5,039	$	2,412	$	—	$	—	$	—	$	—	$	—	$	7,451


Construction-commercial (1)
Risk Rating
Pass	$	6,006	$	16,349	$	1,457	$	—	$	—	$	—	$	—	$	23,812



Total construction-commercial	$	6,006	$	16,349	$	1,457	$	—	$	—	$	—	$	—	$	23,812


	Term Loans Amortized Cost Basis by Origination Fiscal Year
Type	2024		2023		2022		2021		2020		Prior		Revolving Loans		Total Loans Receivable
Construction-multi-family (1)
Risk Rating
Pass	$	588	$	20,169	$	—	$	—	$	—	$	—	$	—	$	20,757



Total construction-multi-family	$	588	$	20,169	$	—	$	—	$	—	$	—	$	—	$	20,757


Construction-land development (1)
Risk Rating
Pass	$	1,673	$	2,807	$	—	$	—	$	—	$	—	$	—	$	4,480
Watch	—		—		11,549		—		—		—		—		11,549


Total construction-land development	$	1,673	$	2,807	$	11,549	$	—	$	—	$	—	$	—	$	16,029



Land
Risk Rating
Pass	$	10,287	$	4,828	$	6,588	$	4,004	$	766	$	1,954	$	458	$	28,885
Watch	—		—		—		—		—		481		—		481


Total land	$	10,287	$	4,828	$	6,588	$	4,004	$	766	$	2,435	$	458	$	29,366


Home equity and second mortgage
Risk Rating
Pass	$	5,820	$	4,716	$	1,990	$	252	$	573	$	2,097	$	31,766	$	47,214


Substandard	—		—		—		—		—		81		618		699
Total home equity and second mortgage	$	5,820	$	4,716	$	1,990	$	252	$	573	$	2,178	$	32,384	$	47,913


Other consumer
Risk Rating
Pass	$	1,744	$	441	$	241	$	57	$	8	$	501	$	71	$	3,063
Watch	—		—		—		—		—		65		1		66


Total other consumer	$	1,744	$	441	$	241	$	57	$	8	$	566	$	72	$	3,129
Current period gross write-offs	$	6	$	1	$	—	$	—	$	—	$	—	$	2	$	9
Commercial business
Risk Rating
Pass	$	16,129	$	19,910	$	35,117	$	8,588	$	7,589	$	4,775	$	43,444	$	135,552
Watch	—		—		202		36		696		6		180		1,120

Substandard	—		1,352		—		—		—		517		—		1,869
Doubtful	—		202		—		—		—		—		—		202
Total commercial business	$	16,129	$	21,464	$	35,319	$	8,624	$	8,285	$	5,298	$	43,624	$	138,743
Current period gross write-offs	$	—	$	79	$	—	$	—	$	—	$	13	$	—	$	92

SBA PPP
Risk Rating
Pass	$	—	$	—	$	—	$	224	$	36	$	—	$	—	$	260



Total SBA PPP	$	—	$	—	$	—	$	224	$	36	$	—	$	—	$	260


	Term Loans Amortized Cost Basis by Origination Fiscal Year
Type	2024		2023		2022		2021		2020		Prior		Revolving Loans		Total Loans Receivable
Total loans receivable, gross (1)
Risk Rating
Pass	$	135,424	$	259,907	$	326,617	$	185,424	$	110,552	$	284,018	$	85,707	$	1,387,649
Watch	221		5,979		17,599		2,897		5,326		11,536		181		43,739
Special Mention	—		—		—		—		—		4,401		—		4,401
Substandard	—		1,352		—		—		—		6,465		618		8,435
Doubtful	—		202		—		—		—		—		—		202
Total loans receivable	$	135,645	$	267,440	$	344,216	$	188,321	$	115,878	$	306,420	$	86,506	$	1,444,426
Current period gross charge-off	$	6	$	80	$	—	$	—	$	—	$	13	$	2	$	101

_____________________

(1) Net of construction LIP

Allowance for Credit Losses

The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost. The ACL is evaluated and calculated on a collective basis for those loans which share similar risk characteristics. For loans that do not share similar risk characteristics and cannot be evaluated on a collective basis, the Company will evaluate the loan individually. The Company estimates the expected credit losses over the loans' contractual terms, adjusted for expected prepayments. The ACL is calculated for loan segments utilizing loan level information and relevant information from internal and external sources related to past events and current conditions. The calculation utilizes the discounted cash flow ("DCF") methodology for all segments. The Company incorporates a reasonable and supportable forecast that utilizes current period national gross domestic product ("GDP") and national unemployment figures. Each of the loan segments are impacted by those factors. Prepayment rates are established for each segment based on historical averages for the segments, which management believes is an accurate presentation of future prepayment activity. Loans that are evaluated individually are not included in the collective analysis. The ACL on loans that are individually evaluated may be estimated based on their expected cash flows, or in the case of loans for which repayment is expected substantially through the operation or sale of collateral when the borrower is experiencing financial difficulty, may be measured based on the fair value of the collateral less estimated selling costs.

When available information confirms that specific loans or portions thereof are uncollectible, identified amounts are charged against the ACL. The existence of some or all of the following criteria will generally confirm that a loss has been incurred: the loan is significantly delinquent and the borrower has not demonstrated the ability or intent to bring the loan current; the Company has no recourse to the borrower, or if it does, the borrower has insufficient assets to pay the debt; and/or the estimated fair value of the loan collateral is significantly below the current loan balance, and there is little or no near-term prospect for improvement.

Management's evaluation of the ACL is based on ongoing, quarterly assessments of the known and inherent risks in the loan portfolio. Loss factors are based on the Company's historical loss experience with additional consideration and adjustments made for changes in economic conditions, changes in the amount and composition of the loan portfolio, delinquency rates, changes in collateral values, seasoning of the loan portfolio, duration of the current business cycle, a detailed analysis of individually evaluated loans and other factors as deemed appropriate. Management also assesses the risk related to reasonable and supportable forecasts that are used. These factors are evaluated on a quarterly basis. Loss rates used by the Company are affected as changes in these factors increase or decrease from quarter to quarter. In addition, regulatory agencies, as integral part of their examination process, periodically review the Company's ACL and may require the Company to make adjustments to the ACL based on their judgment about information available to them at the time of their examinations.

The following tables set forth information for the three months ended December 31, 2024 and 2023 regarding activity in the ACL by portfolio segment (dollars in thousands):


	Three Months Ended December 31, 2024
	Beginning Allowance		Provision for (Recapture of) Credit Losses		Charge- offs		Recoveries		Ending Allowance
Mortgage loans:
One- to four-family	$	2,632	$	67	$	—	$	—	$	2,699
Multi-family	1,308		3		—		—		1,311
Commercial real estate	6,934		(42)		—		—		6,892
Construction – custom and owner/builder	1,328		(67)		—		—		1,261
Construction – speculative one- to four-family	128		(46)		—		—		82
Construction – commercial	537		(208)		—		—		329
Construction – multi-family	456		71		—		—		527
Construction – land development	335		(43)		—		—		292
Land	793		9		—		—		802
Consumer loans:
Home equity and second mortgage	348		5		—		—		353
Other	39		(3)		(3)		—		33
Commercial business loans	2,640		306		(241)		2		2,707

Total	$	17,478	$	52	$	(244)	$	2	$	17,288


	Three Months Ended December 31, 2023
	Beginning Allowance		Impact of Adopting CECL (ASU 2016-13)		Provision for (Recapture of) Loan Losses		Charge- offs		Recoveries		Ending Allowance
Mortgage loans:
One- to four-family	$	2,417	$	(408)	$	87	$	—	$	—	$	2,096
Multi-family	1,156		(120)		164		—		—		1,200
Commercial real estate	7,209		(494)		107		—		—		6,822
Construction – custom and owner/builder	750		542		(58)		—		—		1,234
Construction – speculative one- to four-family	148		(16)		—		—		—		132
Construction – commercial	316		176		(62)		—		—		430
Construction – multi-family	602		204		(71)		—		—		735
Construction – land development	274		25		(1)		—		—		298
Land	406		318		33		—		—		757
Consumer loans:
Home equity and second mortgage	519		(243)		10		—		—		286
Other	53		(7)		2		(2)		—		46
Commercial business loans	1,967		484		168		—		—		2,619

Total	$	15,817	$	461	$	379	$	(2)	$	—	$	16,655

Non-Accrual Loans

When a loan is 90 days delinquent the accrual of interest is generally discontinued and the loan is placed on non-accrual. All interest accrued but not collected for loans placed on non-accrual is reversed out of interest income. Generally, payments received on non-accrual loans are applied to reduce the outstanding principal balance of the loan. At times interest may be accounted for on a cash basis, depending on the collateral value and the borrower's payment history. A loan is generally not removed from non-accrual until all delinquent principal, interest and late fees have been brought current and the borrower demonstrates repayment ability over a period of not less than six months and all taxes are current.

The following tables present an analysis of loans by aging category and portfolio segment at December 31, 2024 and September 30, 2024 (dollars in thousands):


	30–59 Days Past Due		60-89 Days Past Due		Non- Accrual (1)		Past Due 90 Days or More and Still Accruing		Total Past Due		Current		Total Loans
December 31, 2024
Mortgage loans:
One- to four-family	$	—	$	62	$	47	$	—	$	109	$	306,334	$	306,443
Multi-family	—		—		—		—		—		177,861		177,861
Commercial real estate	—		436		698		—		1,134		595,920		597,054
Construction – custom and owner/builder	—		—		—		—		—		77,679		77,679
Construction – speculative one- to four-family	—		—		—		—		—		4,769		4,769
Construction – commercial	—		—		—		—		—		14,499		14,499
Construction – multi-family	—		—		—		—		—		24,013		24,013
Construction – land development	—		—		—		—		—		14,439		14,439
Land	—		—		—		—		—		30,538		30,538
Consumer loans:
Home equity and second mortgage	—		—		587		—		587		48,264		48,851
Other	—		—		—		—		—		2,889		2,889
Commercial business loans	541		248		1,401		—		2,190		133,122		135,312
SBA PPP loans	—		—		—		—		—		204		204
Total	$	541	$	746	$	2,733	$	—	$	4,020	$	1,430,531	$	1,434,551

(1) Includes non-accrual loans past due 90 days or more and other loans classified as non-accrual.


	30–59 Days Past Due		60-89 Days Past Due		Non- Accrual (1)		Past Due 90 Days or More and Still Accruing		Total Past Due		Current		Total Loans
September 30, 2024
Mortgage loans:
One- to four-family	$	—	$	—	$	49	$	—	$	49	$	299,074	$	299,123
Multi-family	—		—		—		—		—		177,350		177,350
Commercial real estate	—		—		1,158		—		1,158		598,061		599,219
Construction – custom and owner/builder	—		—		—		—		—		81,274		81,274
Construction – speculative one- to four-family	—		—		—		—		—		7,451		7,451
Construction – commercial	—		—		—		—		—		23,812		23,812
Construction – multi-family	—		—		—		—		—		20,757		20,757
Construction – land development	—		—		—		—		—		16,029		16,029
Land	—		—		—		—		—		29,366		29,366
Consumer loans:
Home equity and second mortgage	—		—		618		—		618		47,295		47,913
Other	—		1		—		—		1		3,128		3,129
Commercial business loans	424		169		2,060		—		2,653		136,090		138,743
SBA PPP loans	—		—		—		—		—		260		260
Total	$	424	$	170	$	3,885	$	—	$	4,479	$	1,439,947	$	1,444,426

(1) Includes non-accrual loans past due 90 days or more and other loans classified as non-accrual.

At December 31, 2024, the Company had $1.40 million of non-accrual loans with an ACL of $431,000 and $1.33 million of non-accrual loans with no ACL. The following table is a summary of the amortized cost of collateral dependent non-accrual loans as of December 31, 2024 (in thousands):


	Recorded Investment		Related ACL
Mortgage loans:
One- to four-family	$	47	$	—
Commercial real estate	698		—

Consumer loans:
Home equity and second mortgage	587		—
Commercial business loans	1,401		431
Total	$	2,733	$	431

At September 30, 2024, the Company had $1.83 million of non-accrua1 loans with an ACL of $506,000 and $2.06 million of non-accrual loans with no ACL. The following table is a summary of the amortized cost of collateral dependent non-accrual loans as of September 30, 2024 (in thousands):


	Recorded Investment		Related ACL
Mortgage loans:
One- to four-family	$	49	$	—
Commercial real estate	1,158		—

Consumer loans:
Home equity and second mortgage	618		—
Commercial business loans	2,060		506
Total	$	3,885	$	506

Troubled Loan Modifications

Occasionally, the Company offers modifications of loans to borrowers experiencing financial difficulty by providing principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions or any combination of these. When principal forgiveness is provided, the amount of the forgiveness is charged-off against the ACL for loans. Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged-off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL for loans is adjusted by the same amount. The ACL on modified loans is measured using the same credit loss estimation methods used to determine the ACL of all other loans held for investment. These methods incorporate the post-modification of loan terms, as well as defaults and charge-offs associated with historical modified loans.

There were no loans modified related to borrowers experiencing financial difficulty during the three months ended December 31, 2024. There were no loans past due at December 31, 2024 that had been modified in the previous 12 months.

(5) LEASES

At December 31, 2024, the Company has operating leases for two retail bank branch offices and an administrative office. The Company's leases have remaining lease terms of two to seven years, and include options to extend the leases for up to five years. Lease extensions are not certain, and the Company evaluates each lease based on the specific circumstances for the location to determine the probability of exercising the extensions in the calculation of ROU assets and lease liabilities.

The components of lease cost (included in the premises and equipment expense category in the consolidated statements of income) are as follows for the three months ended December 31, 2024 and 2023 (dollars in thousands):


	Three Months Ended December 31,
Lease cost:	2024		2023
Operating lease cost	$	96	$	93
Short-term lease cost	—		—
Total lease cost	$	96	$	93

The following table provides supplemental information related to operating leases at or for the three months ended December 31, 2024 and 2023 (dollars in thousands):


	At or For the Three Months Ended December 31, 2024			At or For the Three Months Ended December 31, 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	83		$	82
Weighted average remaining lease term-operating leases	5.8 years			6.5 years
Weighted average discount rate-operating leases	2.34		%	2.34		%

The Company's leases typically do not contain a discount rate implicit in the lease contracts. As an alternative, the weighted average discount rate used to estimate the present value of future lease payments in calculating the value of the ROU asset and lease liability was determined by utilizing the FHLB fixed-rate credit advance borrowing rate for the term correlating to the remaining term of each lease.

Maturities of operating lease liabilities at December 31, 2024 for future fiscal years are as follows (dollars in thousands):


Remainder of 2025	$	253
2026	304
2027	232
2028	219
2029	218
Thereafter	383
Total lease payments	1,609
Less imputed interest	108
Total	$	1,501

(6) NET INCOME PER COMMON SHARE

Basic net income per common share is computed by dividing net income to common shareholders by the weighted average number of common shares outstanding during the period, without considering any dilutive items. Nonvested shares of restricted stock are included in the computation of basic earnings per share because the holder has voting rights and shares in non-forfeitable dividends during the vesting period. Diluted net income per common share is computed by dividing net income to common shareholders by the weighted average number of common shares and common stock equivalents for items that are dilutive, net of shares assumed to be repurchased using the treasury stock method at the average share price for the Company’s common stock during the period. Common stock equivalents arise from the assumed conversion of outstanding stock options.

Information regarding the calculation of basic and diluted net income per common share for the three months ended December 31, 2024 and 2023 is as follows (dollars in thousands, except per share amounts):


	Three Months Ended December 31,
	2024		2023
Basic net income per common share computation
Numerator – net income	$	6,860	$	6,296





Denominator – weighted average common shares outstanding	7,958,275		8,114,209

Basic net income per common share	$	0.86	$	0.78

Diluted net income per common share computation
Numerator – net income	$	6,860	$	6,296





Denominator – weighted average common shares outstanding	7,958,275		8,114,209
Effect of dilutive stock options (1)	41,229		51,839

Weighted average common shares outstanding - assuming dilution	7,999,504		8,166,048

Diluted net income per common share	$	0.86	$	0.77

____________________________________________

(1) For the three months ended December 31, 2024 and 2023, average options to purchase 96,220 and 214,595 shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per common share because their effect would have been anti-dilutive.

(7) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The changes in accumulated other comprehensive income (loss) ("AOCI") by component during the three months ended December 31, 2024 and 2023 are as follows (dollars in thousands):


	Three Months Ended December 31, 2024
	Changes in fair value of available for sale securities (1)		Total (1)
Balance of AOCI at the beginning of period	$	20	$	20
Other comprehensive loss	(812)		(812)

Balance of AOCI at the end of period	$	(792)	$	(792)

__________________________

(1) All amounts are net of income taxes.


	Three Months Ended December 31, 2023
	Changes in fair value of available for sale securities (1)		Changes in OTTI on held to maturity securities (1)		Total (1)
Balance of AOCI at the beginning of period	$	(1,075)	$	(9)	$	(1,084)
Other comprehensive income	248		9		257

Balance of AOCI at the end of period	$	(827)	$	—	$	(827)

__________________________

(1) All amounts are net of income taxes.

(8) STOCK COMPENSATION PLANS

The Company has two active stock compensation plans: the 2014 Equity Incentive Plan and the 2019 Equity Incentive Plan. Under the Company's 2014 Equity Incentive Plan, the Company may grant options and awards of restricted stock (with or without performance measures) for up to 352,366 shares of common stock to employees, officers, directors and directors emeriti. Under the Company's 2019 Equity Incentive Plan, the Company may grant options and awards of restricted stock (with or without performance measures) for up to 350,000 shares of common stock, of which 300,000 shares are reserved to be awarded to employees and officers, and 50,000 shares are reserved to be awarded to directors and directors emeriti. Shares issued may be purchased in the open market or may be issued from authorized and unissued shares. The exercise price of each option equals the fair market value of the Company’s common stock on the date of grant. Generally, options and restricted stock vest in equal annual installments commencing on the first anniversary of the grant date. Stock options generally vest over a five year period from the date of the grant with a maximum contractual term of ten years from the date of grant. Restricted stock grants generally vest over a three or five year term from the grant date. At December 31, 2024, there were 15,576 and 155,705 shares of common stock available which may be awarded as options or restricted stock pursuant to future grants under the 2014 and 2019 Equity Incentive Plans, respectively.

Stock option activity for the three months ended December 31, 2024 and 2023 is summarized as follows:


	Three Months Ended December 31, 2024			Three Months Ended December 31, 2023
	Number of Shares	Weighted Average Exercise Price		Number of Shares	Weighted Average Exercise Price
Options outstanding, beginning of period	306,240	$	25.21	369,150	$	24.00
Exercised	(22,400)	21.17		(27,700)	12.81

Forfeited	(600)	27.40		(5,380)	25.10
Options outstanding, end of period	283,240	$	25.52	336,070	$	24.91

The fair value of stock options is determined using the Black-Scholes valuation model.

There were no stock options granted during the three months ended December 31, 2024 and 2023.

The aggregate intrinsic value of options exercised during the three months ended December 31, 2024 and 2023 was $239,000 and $469,000, respectively.

At December 31, 2024, there were 76,530 unvested options with an aggregate grant date fair value of $464,000, all of which the Company assumes will vest. The aggregate intrinsic value of unvested options at December 31, 2024 was $328,000. There were 100 options that vested during the three months ended December 31, 2024 with a total fair value of $326.

At December 31, 2023, there were 124,640 unvested options with an aggregate grant date fair value of $725,000. There were 100 options that vested during the three months ended December 31, 2023 with a total fair value of $326.

Additional information regarding options outstanding at December 31, 2024 is as follows:


			Options Outstanding				Options Exercisable
Range of Exercise Prices ($)			Number	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Number	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)

10.26	-	10.71	14,750	$	10.62	0.5	14,750	$	10.62	0.5
15.67	-	19.13	50,750	16.57		4.7	39,920	16.48		4.5
26.50	-	27.40	91,020	27.32		6.9	51,720	27.25		6.1
28.23	-	29.69	95,400	28.80		5.2	69,800	29.01		4.6
31.80	-	33.40	31,320	31.85		3.9	30,520	31.59		3.8
			283,240	$	25.52	5.3	206,710	$	25.25	4.5

The aggregate intrinsic value of options outstanding at December 31, 2024 and 2023 was $1.45 million and $2.22 million, respectively.

As of December 31, 2024, unrecognized compensation cost related to unvested stock options was $437,000, which is expected to be recognized over a weighted average period of 1.60 years.

There were no restricted stock awards granted during the three months ended December 31, 2024 and 2023.


	Three Months Ended December 31, 2024			Three Months Ended December 31, 2023
	Number of Unvested Shares	Weighted Average Grant Date Fair Value		Number of Unvested Shares	Weighted Average Grant Date Fair Value
Restricted stock outstanding beginning of period	49,015	$	29.28	26,150	$	27.37

Forfeited	(450)	29.28		—	—

Restricted stock outstanding end of period	48,565	$	29.28	26,150	$	27.37

The fair value of restricted stock awards is equal to the fair value of the Company's stock on the date of the grant. The related stock-based compensation expense is recorded over the requisite service period. At December 31, 2024, unrecognized compensation cost related to unvested restricted stock awards was $1.34 million, which is expected to be recognized over a weighted average period of 2.45 years.

(9) FAIR VALUE MEASUREMENTS

Fair value is defined under GAAP as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of three levels. These levels are:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2: Significant observable inputs other than quoted prices included within Level 1, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability based on the best information available in the circumstances.

The Company's assets measured at fair value on a recurring basis consist of investment securities available for sale and investments in equity securities. The estimated fair values of MBS are based upon quoted market prices (Level 1) and market prices of similar securities or observable inputs (Level 2). The estimated fair values of mutual funds and U.S. Treasury and U.S. government agency securities are based upon quoted market prices (Level 1).

The Company had no liabilities measured at fair value on a recurring basis at December 31, 2024 and September 30, 2024. The Company's assets measured at estimated fair value on a recurring basis at December 31, 2024 and September 30, 2024 were as follows (dollars in thousands):


December 31, 2024	Estimated Fair Value
	Level 1		Level 2		Level 3		Total
Available for sale investment securities
U.S. Treasury and U.S. government agency securities	$	9,544	$	—	$	—	$	9,544
MBS: U.S. government agencies	—		67,536		—		67,536
Investments in equity securities
Mutual funds	840		—		—		840
Total	$	10,384	$	67,536	$	—	$	77,920



September 30, 2024	Estimated Fair Value
	Level 1		Level 2		Level 3		Total
Available for sale investment securities
U.S. Treasury and U.S. government agency securities	$	3,939	$	—	$	—	$	3,939
MBS: U.S. government agencies	—		68,318		—		68,318
Investments in equity securities

Mutual funds	866		—		—		866
Total	$	4,805	$	68,318	$	—	$	73,123

There were no transfers among Level 1, Level 2 and Level 3 during the three months ended December 31, 2024 and the year ended September 30, 2024.

The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period.

The Company uses the following methods and significant assumptions to estimate fair value on a non-recurring basis:

Individually Evaluated Collateral-Dependent Loans: Loans for which repayment is substantially expected to be provided through the operation or sale of collateral are considered collateral dependent, and are valued based on the estimated fair value of the collateral, less estimated costs to sell, where applicable. Accordingly, collateral dependent loans are classified within level 3 of the fair value hierarchy.

OREO and Other Repossessed Assets, net: OREO and other repossessed assets are recorded at estimated fair value less estimated costs to sell. Estimated fair value is generally determined by management based on a number of factors, including third-party appraisals of estimated fair value in an orderly sale. Estimated costs to sell are based on standard market factors. The valuation of OREO and other repossessed assets is subject to significant external and internal judgment (Level 3).

The following table summarizes the balances of assets measured at estimated fair value on a non-recurring basis at December 31, 2024 and September 30, 2024 (dollars in thousands):


	Estimated Fair Value						Total Estimated
December 31, 2024	Level 1		Level 2		Level 3		Fair Value
Individually evaluated collateral-dependent loans:









Commercial business loans	$	—	$	—	$	970	$	970
Total loans	—		—		970		970


OREO and other repossessed assets	—		—		221		221
Total	$	—	$	—	$	1,191	$	1,191


	Estimated Fair Value						Total Estimated
September 30, 2024	Level 1		Level 2		Level 3		Fair Value
Individually evaluated collateral-dependent loans:









Commercial business loans	$	—	$	—	$	1,315	$	1,315




Total	$	—	$	—	$	1,315	$	1,315

The following table presents quantitative information about Level 3 inputs for financial instruments measured at fair value on a non-recurring basis as of December 31, 2024 and September 30, 2024 (dollars in thousands):

Valuation
Technique(s)

Unobservable Input(s)

Range

Individually evaluated collateral-dependent loans

Market approach

Appraised value less estimated selling costs

N/A

OREO and other repossessed assets

Market approach

Lower of appraised value or listing price less estimated selling costs

N/A

GAAP requires disclosure of estimated fair values for certain financial instruments. Such estimates are subjective in nature, and significant judgment is required regarding the risk characteristics of various financial instruments at a discrete point in time. Therefore, such estimates could vary significantly if assumptions regarding uncertain factors were to change. In addition, as the Company normally intends to hold the majority of its financial instruments until maturity, it does not expect to realize many of the estimated amounts disclosed. The disclosures also do not include estimated fair value amounts for certain items which are not defined as financial instruments but which may have significant value. The Company does not believe that it would be practicable to estimate a fair value for these types of items as of December 31, 2024 and September 30, 2024. Because GAAP excludes certain items from fair value disclosure requirements, any aggregation of the fair value amounts presented would not represent the underlying value of the Company. Additionally, the Company uses the exit price notion in calculating the fair values of financial instruments not measured at fair value on a recurring basis.

The recorded amounts and estimated fair values of financial instruments were as follows as of December 31, 2024 and September 30, 2024 (dollars in thousands):


	December 31, 2024
					Fair Value Measurements Using:
	Recorded Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	164,071	$	164,071	$	164,071	$	—	$	—
CDs held for investment	7,470		7,470		7,470		—		—
Investment securities	233,185		224,790		84,019		140,771		—
Investments in equity securities	840		840		840		—		—
FHLB stock	2,037		2,037		2,037		—		—
Other investments	3,000		3,000		3,000		—		—
Loans held for sale	411		424		424		—		—
Loans receivable, net	1,411,819		1,372,737		—		—		1,372,737
Accrued interest receivable	7,095		7,095		7,095		—		—

Financial liabilities
Certificates of deposit	385,835		385,987		—		—		385,987
FHLB borrowings	20,000		19,896		—		—		19,896
Accrued interest payable	1,876		1,876		1,876		—		—


	September 30, 2024
					Fair Value Measurements Using:
	Recorded Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	164,728	$	164,728	$	164,728	$	—	$	—
CDs held for investment	10,209		10,209		10,209		—		—
Investment securities	244,354		238,264		146,141		92,123		—
Investments in equity securities	866		866		866		—		—
FHLB stock	2,037		2,037		2,037		—		—
Other investments	3,000		3,000		3,000		—		—

Loans receivable, net	1,421,523		1,387,642		—		—		1,387,642
Accrued interest receivable	6,990		6,990		6,990		—		—

Financial liabilities
Certificates of deposit	368,308		368,312		—		—		368,312
FHLB borrowings	20,000		20,035		—		—		20,035
Accrued interest payable	2,132		2,132		2,132		—		—

(10) RECENT ACCOUNTING PRONOUNCEMENTS

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU are intended to provide more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income tax paid information. The ASU requires disclosure in the rate reconciliation of specific categories as well as additional information for reconciling items that meet a quantitative threshold. The amendment requires on an annual basis a reconciliation broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. The new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity should apply the amendments in this ASU on a prospective basis. The Company expects this ASU to only impact its disclosure requirements and does not expect the adoption of this ASU to have a material impact on its business operations or the Company's consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement (Topic 220): Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures. The amendments in this ASU require disclosure, in the notes to the financial statements, of specified information about certain costs and expenses. In conjunction with recent standards that enhanced the disaggregation of revenue and income tax information, the disaggregated expense information will enable investors to better understand the major components of an entity's income statement. The new standard is effective for annual periods beginning after December 15, 2026, with early adoption permitted. The Company expects this ASU to only impact its disclosure requirements and does not expect the adoption of the ASU to have a material impact on its business operations or the Company's consolidated financial statements.

Other accounting standards that have been issued by the FASB or other standards-setting bodies are not currently expected to have a material effect on the Company's financial position, results of operations or cash flows.

(11) REVENUE FROM CONTRACTS WITH CUSTOMERS

ASU 2014-09 Revenue from Contracts with Customers ("ASC 606") applies to all contracts with customers to provide goods or services in the ordinary course of business, except for contracts that are specifically excluded from its scope. The majority of the Company's revenues are composed of interest income, deferred loan fee accretion, premium/discount accretion, gains on sales of loans and investments, BOLI net earnings, servicing income on loans sold and other loan fee income, which are not within the scope of ASC 606. Revenue reported as service charges on deposits, ATM and debit card interchange transaction fees, merchant services fees, non-deposit investment fees and escrow fees are within the scope of ASC 606. All of the Company's revenue from contracts with customers within the scope of ASC 606 is recognized in non-interest income with the exception of gains on sales of OREO and gains on sales/disposition of premises and equipment, which are included in non-interest expense. For the three months ended December 31, 2024, the Company recognized $999,000 in service charges on deposits, $1.27 million in ATM and debit card interchange transaction fees, $18,000 in escrow fees, and $1,000 in fee income from non-deposit investment sales included in "Other" on the consolidated statement of income, all considered within the scope of ASC 606. For the three months ended December 31, 2023, the Company recognized $1.02 million in service charges on deposits, $1.26 million in ATM and debit card interchange transaction fees, $19,000 in escrow fees, and $2,000 in fee income from non-deposit investment sales.

If a contract is determined to be within the scope of ASC 606, the Company recognizes revenue when it satisfies its performance obligation. Descriptions of the Company's revenue-generating activities that are within the scope of ASC 606 are as follows:

•Service Charges on Deposits: The Company earns fees from its deposit customers from a variety of deposit products and services. Non-transaction based fees such as account maintenance fees and monthly statement fees are considered to be provided to the customer under a day-to-day contract with ongoing renewals. Revenue for these non-transaction fees are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Transaction-based fees such as non-sufficient fund charges, stop payment charges and wire fees are recognized at the time the transaction is executed, as the contract duration does not extend beyond the service performed.

•ATM and Debit Card Interchange Transaction Fees: The Company earns fees from cardholder transactions conducted through third-party payment network providers which consist of interchange fees earned from the payment networks

as a debit card issuer. These fees are recognized when the transaction occurs, but may settle on a daily or monthly basis.

•Escrow Fees: The Company earns fees from real estate escrow contracts with customers. The Company receives and disburses money and/or property according to the customer's contract. Fees are recognized when the escrow contract closes.

•Fee Income from Non-deposit Investment Sales: The Company earns fees from contracts with customers for investment activities. Revenues are generally recognized monthly and are generally based on a percentage of the customer's assets under management or based on investment solutions that are implemented for the customer.

(12) COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk not recognized in the consolidated balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit-worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. However, such loan to value ratios will subsequently change, based on increases and decreases in the supporting collateral values. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate, land and income-producing commercial properties.

A summary of the Company's commitments at December 31, 2024 and 2023 are listed below (in thousands):


	December 31, 2024		December 31, 2023
Undisbursed portion of construction loans in process (see Note 4)	$	85,350	$	104,683
Undisbursed lines of credit	115,279		135,250
Commitments to extend credit	16,265		11,810
	$	216,894	$	251,743

The Company maintains a separate ACL related to unfunded loan commitments. Management estimates the amount of expected losses related to unfunded, off-balance sheet commitments over the contractual period during which it is exposed to credit risk from its obligation to extend credit, unless the Company has determined that obligation is unconditionally cancellable. The methodology for calculating the ACL on unfunded loan commitments is similar to the methodology for calculating the ACL on loans but also includes an estimate of the future utilization of the commitment as determined by historical utilization. Credit risk associated with the unfunded commitments is consistent with the loss ratio for each loan segment within the ACL for loans. The ACL on unfunded commitments is recognized in other liabilities and accrued expenses in the consolidated balance sheets and is adjusted as a provision for (recapture of) credit losses on the consolidated income statements. The ACL on unfunded loan commitments totaled $307,000 at December 31, 2024.

The following table sets forth information for the three months ended December 31, 2024 and 2023 regarding activity in the ACL on unfunded loan commitments (dollars in thousands):


	Three Months Ended December 31, 2024		Three Months Ended December 31, 2023
Beginning ACL	$	327	$	332
Impact of adopting CECL (ASU 2016-13)	—		65
Provision for (recapture of) credit losses	(20)		(33)
Ending ACL	$	307	$	364

The Bank has an employee severance compensation plan which expires in 2027 that provides severance pay benefits to eligible employees in the event of a change in control of Timberland Bancorp or the Bank (as defined in the plan). In general, all employees with two or more years of service are eligible to participate in the plan. Under the plan, in the event of a change in control of Timberland Bancorp or the Bank, eligible employees who are terminated or who terminate employment (but only upon the occurrence of events specified in the plan) within 12 months of the effective date of a change in control would be entitled to a payment based on years of service or officer rank with the Bank. The maximum payment for any eligible employee would be equal to 18 months of the employee’s current compensation.

Timberland Bancorp has employment agreements with the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Lending Officer, Chief Credit Officer and Chief Technology Officer which provide for a severance payment and other benefits if the officers are involuntarily terminated following a change in control of Timberland Bancorp or the Bank. The maximum value of the severance benefits under the employment agreements is 2.99 times the officer's average annual compensation during the five-year period prior to the effective date of the change in control.

Because of the nature of its activities, the Company is subject to various pending and threatened legal actions which arise in the ordinary course of business. In the opinion of management, liabilities arising from these claims, if any, will not have a material effect on the future consolidated financial position of the Company.

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

As used in this Form 10-Q, the terms “we,” “us,” “our” and the “Company” refer to Timberland Bancorp, Inc. and its consolidated subsidiaries, unless the context indicates otherwise. References to the “Bank” in this Form 10-Q, refer to Timberland Bank, a wholly-owned subsidiary of Timberland Bancorp, Inc., and the Bank’s wholly-owned subsidiary, Timberland Service Corporation.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding our financial condition and results of operations. The information contained in this section should be read in conjunction with the consolidated financial statements and accompanying notes to the consolidated financial statements contained in Item 1 of this Form 10-Q. The following analysis discusses the material changes in the consolidated financial condition and results of operations of the Company at and for the three months ended December 31, 2024.

Special Note Regarding Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q may contain 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 often include the words "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" and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future economic performance. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the results anticipated or implied by our forward-looking statements, including, but not limited to:

•adverse impacts to economic conditions in our local markets or other markets where we have lending relationships

•effects of employment levels, labor shortages inflation, a recession or slowed economic growth;

•changes in the interest rate environment, including the past increases in the Board of Governors of the Federal Reserve System (“Federal Reserve”) benchmark rate and duration of such increased levels, which could adversely affect our revenues and expenses, the values of our assets and obligations, and the availability and cost of capital and liquidity;

•the impact of inflation and the Federal Reserve monetary policy;

•the effects of any Federal government shutdown;

•credit risks of lending activities, including loan delinquencies, write-offs, changes in our ACL, and provision for credit losses;

•fluctuations in the demand for loans, the number of unsold homes, land and other properties, and real estate values in our market areas;

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

•results of examinations of us by regulatory authorities, which may the possibility that any such regulatory authority may, among other things, institute a formal or informal enforcement action against us or our bank subsidiary which could require us to increase our ACL, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings;

•the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment;

•legislative or regulatory changes, including changes in banking, securities and tax law, in regulatory policies and principles, or the interpretation of regulatory capital or other rules;

•our ability to attract and retain deposits;

•our ability to control operating costs and expenses;

•use of estimates in determining the fair value of assets, which may prove incorrect;

•disruptions or security breaches or other adverse events, failures or interruptions in or attacks on our information technology systems or on the third-party vendors;

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

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

•our ability to implement our business strategies, including expectations regarding key growth initiatives and strategic priorities;

•increased competitive pressures among financial services companies, including repricing and competitors' pricing initiatives, and their impact on our market position, loan and deposit products;

•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;

•our ability to pay dividends on our common stock;

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

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

•changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board (“FASB”);

•The potential imposition of new tariffs or changes to existing trade policies that could affect economic activity or specific industry sectors;

•environmental, social and governance goals and targets;

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

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

•other risks described elsewhere in this Form 10-Q and our other reports filed with or furnished to the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended September 30, 2024 (the "2024 Form 10-K”).

Any of the forward-looking statements that we make in this Form 10-Q and in the other public statements we make are based upon management's beliefs and assumptions at the time they are made. We do not undertake and specifically disclaim any obligation to publicly update or revise any forward-looking statements included in this quarterly report to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this document might not occur and we caution readers not to place undue reliance on any forward-looking statements. These risks could cause our actual results for fiscal 2025 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us, and could negatively affect the Company's consolidated financial condition and results of operations as well as its stock price performance.

Overview

Timberland Bancorp, Inc., a Washington corporation, is the holding company for Timberland Bank. The Bank opened for business in 1915 and serves consumers and businesses across Grays Harbor, Thurston, Pierce, King, Kitsap and Lewis counties, Washington with a full range of lending and deposit services through its 23 offices (including its main office in Hoquiam). At December 31, 2024, the Company had total assets of $1.91 billion, net loans receivable of $1.41 billion, total deposits of $1.63 billion and total shareholders’ equity of $249.20 million. The Company's business activities generally are limited to passive investment activities and oversight of its investment in the Bank. Accordingly, the information set forth in this report, including the unaudited consolidated financial statements and related data, relates primarily to the Bank's operations.

The Bank is a community-oriented bank which has traditionally offered a variety of savings products to its retail and business customers while concentrating its lending activities on real estate secured loans. Lending activities have been focused primarily on the origination of loans secured by real estate, including residential construction loans, one- to four-family residential loans, multi-family loans and commercial real estate loans. The Bank also originates commercial business loans and other consumer loans.

The profitability of the Company’s operations depends primarily on its net interest income after provision for (recapture of) credit losses. Net interest income is the difference between interest income, which is the income that the Company earns on interest-earning assets, which are primarily loans and investments, and interest expense, the amount that the Company pays on its interest-bearing liabilities, which are primarily deposits and borrowings (as needed). Net interest income is affected by changes in the volume and mix of interest-earning assets, the interest earned on those assets, the volume and mix of interest-bearing liabilities and the interest paid on those interest-bearing liabilities.

Changes in market interest rates, the slope of the yield curve, and interest we earn on interest earning assets or pay on interest bearing liabilities, as well as the volume and types of interest earning assets, interest bearing and non-interest bearing liabilities and shareholders’ equity, usually have the largest impact on changes in our net interest spread, net interest margin and net interest income during a reporting period. Since March 2022, through July 2023, in response to inflation, the Federal Open Market Committee ("FOMC") of the Federal Reserve had increased the target range for the federal funds rate by 525 basis points, to a range of 5.25% to 5.50%. Inflation has decreased over the last year and as a result, the Federal Reserve has decreased the target range by 100 basis points in the last four months, to a range of 4.25% to 4.50% at December 31, 2024.

The provision for (recapture of) credit losses is dependent on changes in the loan portfolio and management’s assessment of the collectability of the loan portfolio as well as prevailing economic and market conditions. The ACL on loans reflects the amount that management has determined is adequate to cover probable expected credit losses in the loan portfolio. As the loan portfolio increases, or due to an increase in probable expected losses inherent in the loan portfolio, the ACL may increase, resulting in a decrease to net interest income after the provision. Improvement in loan risk ratings, increase in property values, or receipts of recoveries of amounts previously charged off may partially or fully offset any required increases to the ACL on loans due to loan growth or an increase in the probable expected credit losses. The Company recorded a provision for credit losses on loans of $52,000 and $379,000 for the three months ended December 31, 2024 and 2023, respectively, primarily due to loan portfolio growth.

Net income is also affected by non-interest income and non-interest expense. For the three months ended December 31, 2024, non-interest income consisted primarily of service charges on deposit accounts, gain on sales of loans, ATM and debit card interchange transaction fees, BOLI net earnings, servicing income on loans sold, escrow fees and other operating income. Non-interest income is also increased by net recoveries on investment securities and recoveries of prior OTTI losses on investment securities, if any. Non-interest income is also decreased by valuation allowances on loan servicing rights and increased by recoveries of valuation allowances on loan servicing rights, if any. Non-interest expense consisted primarily of salaries and employee benefits, premises and equipment, advertising, ATM and debit card interchange transaction fees, postage and courier expenses, state and local taxes, professional fees, FDIC insurance premiums, loan administration and foreclosure expenses, technology and communications expenses, deposit operation expenses, amortization of CDI, and other non-interest expenses. In certain periods, non-interest expense may be reduced by gains on the sale of premises and equipment and OREO. Both non-interest income and non-interest expense are affected by the growth of the Company's operations and growth in the number of loan and deposit accounts.

Results of operations may also be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

Critical Accounting Estimates

Management's discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make significant estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.

The Company's critical accounting estimates are described in the Company’s 2024 Form 10-K under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Critical Accounting Estimates.” That discussion highlights estimates that the Company makes that involve uncertainty or potential for substantial change. There have been no material changes in the Company’s critical accounting policies and estimates as previously disclosed in the Company’s 2024 Form 10-K.

Comparison of Financial Condition at December 31, 2024 and September 30, 2024

General: Total assets decreased by $14.00 million, or 0.7%, to $1.91 billion at December 31, 2024 from $1.92 billion at September 30, 2024. The decrease in total assets was primarily due to decreases in loans receivable and investment securities, which were partially offset by increases in several other asset categories.

Net loans receivable decreased by $9.70 million, or 0.7%, to $1.41 billion at December 31, 2024 from $1.42 billion at September 30, 2024, primarily due to decreases in commercial business and commercial real estate loans, as well as construction loans due to an increase in the undisbursed portion of construction loans. Smaller declines in several other loan categories also contributed to the overall decrease. These decreases were partially offset by an increase in one- to four-family loans and in several other loan categories.

Total deposits decreased by $17.25 million, or 1.0%, to $1.63 billion at December 31, 2024 from $1.65 billion at September 30, 2024, primarily due to decreases in money market, non-interest bearing and NOW checking account balances. These decreases were partially offset by increases in certificate of deposit ("CDs") and savings account balances.

Shareholders’ equity increased by $3.79 million, or 1.5%, to $249.20 million at December 31, 2024 from $245.41 million at September 30, 2024. The increase was primarily due to net income and proceeds from stock option exercises during the current period. These increases were partially offset by the payment of dividends to common shareholders, repurchases of common stock and an other comprehensive loss during the three months ended December 31, 2024.

A more detailed explanation of the changes in significant balance sheet categories follows:

Cash and Cash Equivalents and CDs Held for Investment: Cash and cash equivalents and CDs held for investment decreased by $3.40 million, or 1.9%, to $171.54 million at December 31, 2024 from $174.94 million at September 30, 2024. The decrease was due to a $2.74 million decrease in CDs held for investments and a $657,000 decrease in cash and cash equivalents, which was used to fund deposit withdrawals.

Investment Securities: Investment securities (including investments in equity securities) decreased by $11.19 million, or 4.6%, to $234.03 million at December 31, 2024 from $245.22 million at September 30, 2024. This decrease was primarily due to maturities, prepayments and scheduled amortizations. Partially offsetting these decreases was the purchase of additional U.S. government agency mortgage-backed investment securities and U.S. Treasury investment securities, all of which were classified as available for sale. For additional information on investment securities, see Note 2 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”

FHLB Stock: FHLB stock remained constant at $2.04 million at December 31, 2024 and September 30, 2024.

Other Investments: Other investments, consisting solely of the Company's investment in the Solomon Hess SBA Loan Fund LLC, was unchanged at $3.00 million at both December 31, 2024 and September 30, 2024. This investment is utilized to help satisfy compliance with the Bank's Community Reinvestment Act investment test requirements.

Loans: Net loans receivable decreased by $9.70 million, or 0.7%, to $1.41 billion at December 31, 2024 from $1.42 billion at September 30, 2024. The decrease was primarily due to a $3.43 million decrease in commercial business loans, a $2.17 million decrease in commercial real estate loans and a $13.92 million decrease in construction loans due to a $15.47 million increase in the undisbursed portion of construction loans. These decreases were partially offset by a $7.32 million increase in one- to four-family loans, and smaller increases in other loan categories.

Loan originations decreased by $16.86 million, or 19.1%, to $72.07 million for the three months ended December 31, 2024 from $88.93 million for the three months ended December 31, 2023. The decrease in loan originations was primarily due to a decrease in multi-family, commercial business, one- to four-family and consumer loans originated. The decrease was partially offset by an increase in construction loan originations. The Company generally sells longer-term fixed-rate one- to four-family mortgage loans for asset liability management purposes and to generate non-interest income. Sales of fixed-rate one- to four-

family loans decreased by $1.48 million, or 39.08%, to $2.31 million for the three months ended December 31, 2024 from $9.60 million for the three months ended December 31, 2023, primarily due to a decrease in one- to four-family construction loans refinancing to permanent loans and being sold into the secondary market.

For additional information on loans, see Note 4 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”

Premises and Equipment: Premises and equipment increased by $131,000, or 0.6%, to $21.62 million at December 31, 2024 from $21.49 million at September 30, 2024. This increase was primarily due to additions from remodeling projects, partially offset by scheduled depreciation.

OREO (Other Real Estate Owned): At December 31, 2024, total OREO and other repossessed assets consisted of one commercial real estate property with a value of $221,000 and one land parcel with no recorded value. At September 30, 2024 total OREO and other repossessed assets consisted of one land parcel with no recorded value.

BOLI (Bank Owned Life Insurance): BOLI increased by $166,000, or 0.7%, to $23.78 million at December 31, 2024 from $23.61 million at September 30, 2024. The increase was due to net BOLI earnings, representing the increase in the cash surrender value of the BOLI policies.

Goodwill and CDI: The recorded amount of goodwill remained unchanged at $15.13 million at both December 31, 2024 and September 30, 2023. CDI decreased by $45,000, or 10.0%, to $406,000 at December 31, 2024 from $451,000 at September 30, 2024 due to scheduled amortization. For additional information on goodwill and CDI, see Note 3 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”

Loan Servicing Rights, Net: Loan servicing rights, net decreased by $177,000, or 12.90%, to $1.20 million at December 31, 2024 from $1.37 million at September 30, 2024 primarily due to the amortization of servicing rights. The principal amount of loans serviced for Freddie Mac and SBA decreased by $7.46 million to $363.10 million at December 31, 2024 from $370.56 million at September 30, 2024.

Deposits: Deposits decreased by $17.25 million, or 1.0%, to $1.63 billion at December 31, 2024 from $1.65 billion at September 30, 2024. The decrease was primarily due to a $15.51 million decrease in money market account balances, a $10.21 million decrease in non-interest bearing demand account balances and a $9.91 million decrease in NOW checking accounts balances in part due to some larger customers ending the calendar year with lower balances. These decreases were partially offset by a $17.53 million increase in certificates of deposit account balances and a $852,000 increase in savings account balances.

Deposits consisted of the following at December 31, 2024 and September 30, 2024 (dollars in thousands):


	December 31, 2024				September 30, 2024
	Amount		Percent		Amount		Percent
Non-interest-bearing demand	$	402,911	24.7	%	$	413,116	25.1	%
NOW checking	323,412		19.8		333,329		20.2

Savings	206,845		12.7		205,993		12.5
Money market	311,413		19.1		326,922		19.8

Certificates of deposit under $250	212,764		13.1		205,970		12.4
Certificates of deposit $250 and over	122,997		7.5		113,579		6.9
Certificates of deposit - brokered	50,074		3.1		48,759		3.1
Total	$	1,630,416	100.0	%	$	1,647,668	100.0	%

FHLB Borrowings: The Company has short- and long-term borrowing lines with the FHLB with total credit available on the lines equal to 45% of the Bank's total assets, limited by available collateral. FHLB borrowings remained constant at $20.00 million at both December 31, 2024 and September 30, 2024. The borrowings consist of three long-term borrowings: two totaling $15.00 million with scheduled maturities in May 2026, both bearing interest at 3.95%, and one $5.00 million borrowing maturing in August 2026 with an interest rate of 4.03%.

Shareholders’ Equity: Total shareholders’ equity increased by $3.79 million, or 1.5%, to $249.20 million at December 31, 2024 from $245.41 million at September 30, 2024. The increase was primarily due to net income of $6.86 million and proceeds of $474,000 from the exercise of stock options. This increase was partially offset by dividend payments to common shareholders of $1.99 million, the repurchase of 27,404 shares of the Company's common stock for $884,000 and an $812,000 other comprehensive loss for fair value adjustment on available for sale investment securities.

Asset Quality and Commercial Real Estate Portfolio Breakdown:

Non-performing assets to total assets was 0.16% at December 31, 2024 and 0.20% at September 30, 2024. Non-performing assets decreased by $937,000, or 23.8%, to $3.00 million at December 31, 2024 from $3.94 million at September 30, 2023. The decrease was primarily due to a $1.15 million decrease in non-accrual loans, with the largest decreases occurring in the commercial business and commercial real estate portfolios. These decreases were partially offset by a $221,000 increase in OREO.

The following table sets forth information with respect to the Company’s non-performing assets at December 31, 2024 and September 30, 2024 (dollars in thousands):


	December 31, 2024			September 30, 2024
Loans accounted for on a non-accrual basis:
Mortgage loans:
One- to four-family (1)	$	47		$	49

Commercial	698			1,158



Consumer loans:
Home equity and second mortgage	587			618

Commercial business loans	1,401			2,060
Total loans accounted for on a non-accrual basis	2,733			3,885

Accruing loans which are contractually past due 90 days or more	—			—

Total of non-accrual and 90 days or more past due loans	2,733			3,885

Non-accrual investment securities	45			51

OREO and other repossessed assets, net	221			—
Total non-performing assets	$	2,999		$	3,936


Non-accrual and 90 days or more past due loans as a percentage of loans receivable	0.19		%	0.27		%

Non-accrual and 90 days or more past due loans as a percentage of total assets	0.14		%	0.20		%

Non-performing assets as a percentage of total assets	0.16		%	0.20		%

Loans receivable (2)	$	1,429,107		$	1,439,001

Total assets	$	1,909,480		$	1,923,475

___________________________________

(1) At December 31, 2024 and September 30, 2024, there were no one-to four-family properties in the process of foreclosure.

(2) Does not include loans held for sale. Loan balances are before any reduction of the ACL.

The following tables provide a breakdown of commercial real estate ("CRE") loans by collateral types as of December 31, 2024 and September 30, 2024:


CRE Loan Portfolio Breakdown by Collateral at December 31, 2024
($ in thousands)
Collateral Type	Balance		Percent of CRE Portfolio		Percent of Total Loan Portfolio		Average Balance per Loan		Non-Accrual
Industrial warehouse	$	126,435	21	%	8	%	$	1,228	$	195
Medical/dental offices	84,786		14		6		1,265		—
Office buildings	67,600		11		4		768		—
Other retail buildings	52,313		9		3		545		—
Mini-storage	33,773		6		2		1,351		—
Hotel/motel	32,367		5		2		2,697		—
Restaurants	27,977		5		2		560		273
Gas stations/convenience stores	24,881		4		2		1,037		—
Churches	15,874		3		1		934		—
Nursing homes	13,745		2		1		1,964		—
Mobile home parks	10,694		2		1		465		—
Shopping centers	10,648		2		1		1,774		—
Other	95,961		16		6		706		230
Total CRE	$	597,054	100	%	39	%	$	913	$	698


CRE Loan Portfolio Breakdown by Collateral at September 30, 2024
($ in thousands)
Collateral Type	Balance		Percent of CRE Portfolio		Percent of Total Loan Portfolio		Average Balance per Loan		Non-Accrual
Industrial warehouse	$	125,852	21	%	8	%	$	1,246	$	195
Medical/dental offices	83,276		14		5		1,262		—
Office buildings	68,526		11		5		779		—
Other retail buildings	50,067		8		3		533		—
Mini-storage	38,600		6		3		1,430		—
Hotel/motel	31,182		5		2		2,835		—
Restaurants	27,269		5		2		557		273
Gas stations/convenience stores	25,145		4		2		1,048		—
Nursing homes	18,434		3		1		2,304		—
Churches	16,235		3		1		854		—
Mobile home parks	10,798		2		1		491		—
Shopping centers	10,718		2		1		1,786		—
Other	93,117		16		6		705		690
Total CRE	$	599,219	100	%	40	%	$	926	$	1,158

Comparison of Operating Results for the Three Months Ended December 31, 2024 and 2023

Net income increased by $564,000, or 9.0%, to $6.86 million for the quarter ended December 31, 2024 from $6.30 million for the quarter ended December 31, 2023. Net income per diluted common share increased by $0.09, or 11.7%, to $0.86 for the quarter ended December 31, 2024 from $0.77 for the quarter ended December 31, 2023. The increases in net income and net income per diluted common share for the three months ended December 31, 2024, were primarily due to a $966,000 increase in net interest income and a $309,000 decrease in the provision for credit losses. These increases were partially offset by a $443,000 increase in non-interest expense, a $167,000 increase in the provision for income taxes and $101,000 decrease in non-interest income.

Net Interest Income: Net interest income increased by $966,000, or 6.0%, to $16.97 million for the quarter ended December 31, 2024 from $16.00 million for the quarter ended December 31, 2023. This increase was due to a 35 basis point increase in the weighted average yield of interest-earning assets to 5.42% at December 31, 2024 from 5.07% at December 31, 2023 and to a $75.76 million increase in average total interest-earning assets. Partially offsetting the increase in the yield on interest-earning assets, was a a 40 basis point increase in the average cost of interest-bearing liabilities to 2.62% for the current quarter from 2.22% for the quarter ended December 31, 2023 and a $94.91 million increase in average total interest-bearing liabilities.

Total interest and dividend income increased by $2.76 million, or 12.3%, to $25.26 million for the quarter ended December 31, 2024 from $22.50 million for the quarter ended December 31, 2023, primarily due to increases in the average yield earned on and average balance of loans receivable, as well as an increase in the average balance of interest-bearing deposits in banks and CDs and a higher average yield on investment securities. These increases were partially offset by a decrease in the average balance of investment securities and, to a lesser extent, a decrease in the average rate paid on interest-bearing deposits in banks and CDs.

The average balance of total interest-earning assets increased by $75.76 million, or 4.3%, to $1.85 billion for the quarter ended December 31, 2024 from $1.78 billion for the quarter ended December 31, 2023. The average balance of loans receivable increased by $105.17 million, or 7.9%, and the average balance of interest-bearing deposits in banks and CDs increased by $40.51 million or 32.1%. These increases were partially offset by a decrease in the average balance of investment securities of $68.84 million or 22.2% between the periods. During the quarter ended December 31, 2024, there was a total of $123,000 of pre-payment penalties, non-accrual interest and late fees collected compared to $142,000 collected for the quarter ended December 31, 2023. The average yield on interest-earning assets increased by 35 basis points to 5.42% for the quarter ended December 31, 2024 from 5.07% for the quarter ended December 31, 2023. The average yield on investment securities increased 55 basis points to 3.51% for the quarter ended December 31, 2024 compared to the quarter ended December 31, 2023, while the average yield on loans receivable increased 28 basis points to 5.8% during the same period.

Total interest expense increased by $1.80 million, or 27.6%, to $8.29 million for the quarter ended December 31, 2024 from $6.49 million for the quarter ended December 31, 2023. This increase was due to an increase in the average balance and, to a lesser extent, an increase in the average cost of interest-bearing liabilities, primarily deposits. The average balance of interest-bearing liabilities increased by $94.91 million, or 8.2%, to $1.26 billion for the quarter ended December 31, 2024 from $1.16 billion for the quarter ended December 31, 2023, primarily due to increases in the average balances of money market and certificate of deposit accounts, partially offset by decreases in the average balance of NOW checking accounts. The average cost of interest-bearing liabilities increased to 2.62% for the quarter ended December 31, 2024 from 2.22% for the quarter ended December 31, 2023.

As a result of changes above, the net interest margin ("NIM") increased to 3.64% for the quarter ended December 31, 2024 from 3.60% for the quarter ended December 31, 2023.

Average Balances, Interest and Average Yields/Cost

The following tables set forth, for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities and average yields and costs. Such yields and costs for the periods indicated are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the periods presented (dollars in thousands).


	Three Months Ended December 31,
	2024						2023
	Average Balance		Interest and Dividends		Yield/ Cost		Average Balance		Interest and Dividends		Yield/ Cost
Interest-earning assets:
Loans receivable (1)(2)	$	1,438,144	$	21,032	5.80	%	$	1,332,971	$	18,395	5.52	%
Investment securities (2)	241,345		2,138		3.51		310,183		2,311		2.96
Dividends from mutual funds, FHLB stock and other investments	5,891		86		6.41		6,981		91		5.19
Interest-bearing deposits in banks and CDs	166,764		2,001		4.76		126,253		1,699		5.35
Total interest-earning assets	1,852,144		25,257		5.42		1,776,388		22,496		5.07
Non-interest-earning assets	75,534						81,612
Total assets	$	1,927,678					$	1,858,000

Interest-bearing liabilities:
Savings	$	205,650	144		0.28		$	220,042	121		0.22
Money market	324,424		2,797		3.42		224,939		1,329		2.34
NOW checking	328,455		1,142		1.38		376,682		1,435		1.51
Certificates of deposit	331,785		3,418		4.10		268,628		2,681		3.97
Brokered CDs	46,414		583		4.98		42,725		578		5.38
Short-term borrowings	—		—		—		13,804		195		5.62
Long-term borrowings	20,000		203		4.03		15,000		153		4.06
Total interest-bearing liabilities	1,256,728		8,287		2.62		1,161,820		6,492		2.22
Non-interest-bearing deposits	414,149						450,027
Other liabilities	10,146						11,878
Total liabilities	1,681,023						1,623,725
Shareholders' equity	246,655						234,275
Total liabilities and
shareholders' equity	$	1,927,678					$	1,858,000

Net interest income			$	16,970					$	16,004

Interest rate spread					2.81	%					2.85	%
Net interest margin (3)					3.64	%					3.60	%
Ratio of average interest-earning assets to average interest- bearing liabilities					147.38	%					152.90	%

_______________

(1)Does not include interest on loans on non-accrual status. Includes loans held for sale. Amortized net deferred loan fees, late fees, extension fees, prepayment penalties, and the accretion of the fair value discount on loans are included with interest and dividends.

(2)Average balances include loans and investment securities on non-accrual status.

(3)Net interest income divided by total average interest-earning assets, annualized.

Rate Volume Analysis

The following table sets forth the effects of changing rates and volumes on the net interest income of the Company. Information is provided with respect to the (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate), (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change (sum of the prior columns). Changes in rate/volume have been allocated to rate and volume variances based on the absolute values of each (dollars in thousands).


	Three months ended December 31, 2024 compared to three months ended December 31, 2023 increase (decrease) due to
	Rate		Volume		Net Change
Interest-earning assets:
Loans receivable and loans held for sale	$	1,136	$	1,501	$	2,637
Investment securities	392		(565)		(173)
Dividends from mutual funds, FHLB stock and other investments	10		(15)		(5)
Interest-bearing deposits in banks and CDs	(199)		501		302
Total net increase in income on interest-earning assets	1,339		1,422		2,761

Interest-bearing liabilities:
Savings	31		(8)		23
Money market	747		720		1,467
NOW checking	(118)		(174)		(292)
Certificates of deposit	37		706		743
Short-term FHLB borrowings	(98)		(98)		(196)
Long-term borrowings	(1)		51		50
Total net increase in expense on interest-bearing liabilities	598		1,197		1,795

Net increase in net interest income	$	741	$	225	$	966

Provision for Credit Losses: A $27,000 provision for credit losses was recorded for the quarter ended December 31, 2024, consisting of a $52,000 provision for credit losses on loans which was primarily due to an increase in loans receivable, a $5,000 recapture of credit losses on investment securities, and a $20,000 recapture of credit losses on unfunded commitments which was primarily due to a decrease in the balance of unfunded loan commitments. A $336,000 provision for credit losses was recorded for the quarter ended December 31, 2023, consisting of a $379,000 provision for credit losses on loans, a $10,000 recapture of credit losses on investment securities and a $33,000 recapture of credit losses on unfunded commitments.

For the quarter ended December 31, 2024, net charge-offs were $242,000 compared to $2,000 for the quarter ended December 31, 2023. Non-accrual loans decreased by $1.15 million, or 29.7%, to $2.73 million at December 31, 2024 from $3.89 million at September 30, 2024, and decreased by $633,000, or 18.8%,from $3.36 million at December 31, 2023. Total delinquent loans (past due 30 days or more) and non-accrual loans decreased by $459,000, or 10.2%, to $4.02 million at December 31, 2024, from $4.48 million at September 30, 2024 and increased by $417,000, or 11.6%, from $3.60 million one year ago.

While management believes the estimates and assumptions used in its determination of the adequacy of the 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 will not 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, 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 the financial condition and results of operations. In addition, the determination of the amount of the 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 and have a material adverse impact on the financial condition and results of operations.

In accordance with GAAP, acquired loans are recorded at their estimated fair value, resulting in a net discount to the loans' contractual amounts, with a portion of this discount reflecting possible credit losses. Credit discounts are included in the determination of fair value. With the adoption of CECL, purchased loans are evaluated for impairment in the same manner as the rest of the loan portfolio. The remaining fair value discount associated with acquired loans was $147,000 at December 31, 2024. This discount will continue to accrete into income as these loans continue to pay down.

For additional information, see Note 4 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”

Non-interest Income: Total non-interest income decreased by $101,000, or 3.6%, to $2.70 million for the quarter ended December 31, 2024 from $2.80 million for the quarter ended December 31, 2023. This decrease was primarily due to a $52,000 decrease in other, net non-interest income, largely due to a $63,000 decrease in the fair value of investments in equity securities, $35,000 decrease in gain on sales loans and a $24,000 decrease in service charges on deposits. These decreases were partially offset by a $10,000 increase in BOLI net earnings.

Non-interest Expense: Total non-interest expense increased by $443,000, or 4.2%, to $11.07 million for the quarter ended December 31, 2024 from $10.62 million for the quarter ended December 31, 2023. This increase was primarily due to increased expenses of $181,000 in salary and employee benefits, due to annual salary increases, $166,000 in technology and communications due to increased usage charges, $93,000 in professional fees mainly due to additional costs related to CECL, and $79,000 in other non-interest expenses. These increases were partially offset by a $94,000 decrease in ATM and debit card interchange transaction fees as a result of a decrease in fraud charges. The efficiency ratio for the current quarter was 56.27% compared to 56.50% for the comparable quarter one year ago. The slight improvement in the efficiency ratio was due to higher overall revenue, which was partially offset by higher non-interest expense.

Provision for Income Taxes: The provision for income taxes increased by $167,000, or 10.8%, to $1.71 million for the quarter ended December 31, 2024 from $1.55 million for the quarter ended December 31, 2023. The increase in the provision for income taxes was primarily due to higher pre-tax income. The Company's effective income tax rate was 20.0% for the quarter ended December 31, 2024 and 19.6% for the quarter ended December 31, 2023.

Liquidity

The Company's primary sources of funds are customer deposits, proceeds from principal and interest payments on loans, the sale of loans, maturing investment securities, maturing CDs held for investment and borrowings, if needed, from the FHLB and FRB. While the maturities and the scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition.

The Bank must maintain an adequate level of liquidity to help ensure the availability of sufficient funds to fund its operations. The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs. At December 31, 2024, the Bank's regulatory liquidity ratio (net cash, and short-term and marketable assets, as a percentage of net deposits and short-term liabilities) was 12.92%. The Bank maintains a credit facility with the FHLB that provides for immediately available borrowings up to an aggregate amount equal to 45% of total assets, limited by available collateral. At December 31, 2024, the Bank had a total of $599.34 million available for borrowings with the FHLB of which $20.00 million was outstanding. The Bank maintains a short-term borrowing line with the FRB with total credit based on eligible collateral: Borrower-in-Custody ("BIC"). At December 31, 2024, the Bank had no outstanding balance on the BIC line, under which $77.14 million was available for future borrowings. The Bank also maintains a $50.00 million overnight borrowing line with Pacific Coast Bankers' Bank ("PCBB"). At December 31, 2024, the Bank did not have an outstanding balance on this borrowing line. Subject to market conditions, the Bank expects to utilize these borrowing facilities from time to time in the future to fund loan originations and deposits withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible.

Liquidity management is both a short and long-term responsibility of the Bank's management. The Bank adjusts its investments in liquid assets based upon management's assessment of (i) expected loan demand, (ii) projected loan sales, (iii) expected

deposit flows, and (iv) yields available on interest-bearing deposits. Excess liquidity is invested generally in interest-bearing overnight deposits, CDs held for investment and short-term government and agency obligations. If the Bank requires funds beyond its ability to generate them internally, it has additional borrowing capacity with the FHLB, the FRB and PCBB.

The Bank's primary investing activity is the origination of loans and, to a lesser extent, the purchase of investment securities. During the three months ended December 31, 2024 and 2023, the Bank originated $72.07 million and $88.93 million of loans, respectively. At December 31, 2024, the Bank had undisbursed lines of credit and commitments to extend credit totaling $131.54 million and undisbursed construction loans in process totaling $85.35 million. Investment securities purchased during the three months ended December 31, 2024 and 2023 totaled $8.58 million and $1.92 million, respectively.

The Bank’s liquidity is also affected by the volume of loans sold and loan principal payments. During the three months ended December 31, 2024 and 2023, the Bank sold $2.31 million and $9.60 million, respectively, in loans and loan participation interests. During the three months ended December 31, 2024 and 2023, the Bank received $65.16 million and $44.35 million in principal repayments, respectively.

The Bank's liquid assets in the form of cash and cash equivalents, CDs held for investment, and investment securities available for sale (including equity securities) increased to $249.46 million at December 31, 2024 from $248.06 million at September 30, 2024. CDs that are scheduled to mature in less than one year from December 31, 2024 totaled $327.38 million. Historically, the Bank has been able to retain a significant amount of its deposits as they mature.

Capital expenditures are incurred on an ongoing basis to expand and improve the Bank's product offerings, enhance and modernize technology infrastructure, and to introduce new technology-based products to compete effectively in the various markets. Capital expenditure projects are evaluated based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and the expected return on investment. The amount of capital investment is influenced by, among other things, current and projected demand for services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations.

Based on current objectives, there are no capital expenditures projected for the remaining nine months of the fiscal year ending September 30, 2025 that would materially impact liquidity. For the remainder of the 2025 fiscal year, the Bank projects that fixed commitments will include $253,000 of operating lease payments. No FHLB borrowings are scheduled to mature during fiscal year 2025. In addition, at December 31, 2024, there were other future obligations and accrued expenses of $8.36 million.

The Bank's management believes that the liquid assets combined with the available lines of credit provide adequate liquidity to meet current financial obligations for at least the next 12 months.

Timberland Bancorp is a separate legal entity from the Bank and must provide for its own liquidity and pay its own operating expenses. In addition to is operating expenses, Timberland Bancorp is responsible for paying any dividends declared, if any, to its shareholders and funds paid for Company stock repurchases. Sources of capital and liquidity for Timberland Bancorp include distributions from the Bank and the issuance of debt or equity securities, although there are regulatory restrictions on the ability of the Bank to pay dividends. At December 31, 2024, Timberland Bancorp (on an unconsolidated basis) had liquid assets of $1.73 million.

The Company currently expects to continue the current practice of paying quarterly cash dividends on common stock subject to the Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice. The current quarterly common stock dividend rate is $0.25 per share, as approved by the Board of Directors, which is a dividend rate per share that enables the Company to balance multiple objectives of managing and investing in the Bank and returning a substantial portion of cash to shareholders. Assuming continued payment during fiscal year 2025 at the rate of $0.25 per share, the average total dividend paid each quarter would be approximately $1.99 million based on the number of current outstanding shares at December 31, 2024 (which assumes no change in the number of shares).

In addition, from time to time, our Board of Directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans may also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On July 25, 2023, the Company announced the adoption of a new stock repurchase program pursuant to which the Company may repurchase up to 404,708 shares of Company common stock, of which 127,762 shares remained available for future purchases as of December 31, 2024. 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 repurchase program does not obligate the Company to purchase any particular number of shares.

Capital Resources

The Bank, as a state-chartered, federally insured savings bank, is subject to the capital requirements established by the FDIC. Under the FDIC's capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

Consistent with the Bank's goals to operate a sound and profitable organization, it is the Bank's policy to maintain a "well-capitalized" status under the regulatory capital categories of the FDIC. Based on capital levels at December 31, 2024, the Bank was considered to be "well-capitalized" under applicable regulatory requirements. Management monitors the capital levels to provide for current and future business opportunities and to maintain the Bank's "well-capitalized" status.

The following table compares the Bank’s actual capital amounts at December 31, 2024, to its minimum regulatory capital requirements at that date (dollars in thousands):


	Actual			Regulatory Minimum To Be “Adequately Capitalized”			To Be “Well Capitalized” Under Prompt Corrective Action Provisions
	Amount	Ratio		Amount	Ratio		Amount	Ratio
Leverage Capital Ratio:
Tier 1 capital	$233,573	12.23	%	$76,404	4.00	%	$95,505	5.00	%
Risk-based Capital Ratios:
Common equity Tier 1 capital	233,573	18.00		56,722	4.50		81,932	6.50
Tier 1 capital	233,573	18.00		75,630	6.00		100,840	8.00
Total capital	249,353	19.25		100,840	8.00		126,050	10.00

In addition to the minimum common equity Tier 1 ("CET1"), Tier 1 and total capital ratios, the Bank is required to maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of retained income that could be utilized for such actions. At December 31, 2024, the Bank's CET1 capital exceeded the required capital conservation buffer.

Timberland Bancorp, Inc. is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve. For a bank holding company with less than $3.0 billion in assets (as of June 30th of the preceding year), the capital guidelines apply on a bank only basis, and the Federal Reserve expects the holding company's subsidiary bank to be well capitalized under the prompt corrective action regulations. If Timberland Bancorp, Inc. were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at December 31, 2024, Timberland Bancorp, Inc. would have exceeded all regulatory requirements. The following table presents for informational purposes the regulatory capital ratios for Timberland Bancorp, Inc. as of December 31, 2024 (dollars in thousands):


	Actual
	Amount	Ratio
Leverage Capital Ratio:
Tier 1 capital	$235,783	12.32	%
Risk-based Capital Ratios:
Common equity Tier 1 capital	235,783	18.69
Tier 1 capital	235,783	18.69
Total capital	251,572	19.55

Key Financial Ratios and Data


	Three Months Ended December 31,
	2024		2023
PERFORMANCE RATIOS:
Return on average assets	1.41	%	1.36	%
Return on average equity	11.03	%	10.75	%
Net interest margin	3.64	%	3.60	%
Efficiency ratio	56.27	%	56.50	%

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There were no material changes in information concerning market risk from the information provided in the Company’s 2024 Form 10-K.

Item 4. Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures: An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of the Company’s Chief Executive Officer (principal executive officer), Chief Financial Officer (principal financial officer) and several other members of the Company’s senior management as of the end of the period covered by this report. The Company’s Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2024, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b)Changes in Internal Controls: There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all errors and 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 in controls or procedures can occur because of simple error or mistake. 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 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; as over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or 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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Neither the Company nor the Bank is a party to any material legal proceedings at this time. From time to time, the Bank is involved in various claims and legal actions arising in the ordinary course of business.

Item 1A. Risk Factors

There have been no material changes in the Risk Factors previously disclosed in Item 1A of the Company's 2024 Form 10-K, except as follows:

Current and future uses of Artificial Intelligence ("AI") and other emerging technologies may create additional risks.

The increasing adoption of AI in financial services presents significant opportunities but also introduces a range of risks that could impact our operations, regulatory compliance, and customer trust. AI introduces model risk, where flawed algorithms or biased data could result in inaccurate credit decisions, compliance violations, or discriminatory outcomes in lending or customer service. Cybersecurity threats, such as data breaches, adversarial attacks, and data poisoning, pose significant challenges, particularly as these systems handle large volumes of sensitive customer information. Additionally, the opaque nature of some AI models, often referred to as "black-box" systems, raises regulatory compliance concerns, as regulators increasingly require transparency and explainability in AI-driven decision-making.

Operational risks also arise from potential system failures, over-reliance on AI, and integration challenges with existing infrastructure. Disruptions in AI systems could impact critical functions such as fraud detection, transaction monitoring, and customer support. Ethical and reputational risks, including unintended consequences or perceived unfairness in AI-driven decisions, may erode customer trust and expose us to regulatory scrutiny.

To mitigate these risks requires a robust governance framework, regularly testing and auditing of AI models, and strong human oversight. Investments in cybersecurity, data privacy protections, and employee training are critical to managing these risks.

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

(a) Not applicable

(b) Not applicable

The following table sets forth the shares repurchased by the Company during the quarter ended December 31, 2024:



Period	Total No. of Shares Repurchased	Average Price Paid Per Share		Total No. of Shares Purchased as Part of Publicly Announced Plan	Maximum No. of Shares that May Yet Be Purchased Under the Plan (1)
10/01/2024 - 10/31/2024	144	$	30.09	144	155,022
11/01/2024 - 11/302024	9,529	32.20		9,529	145,493
12/01/2024 - 12/31/2024	17,731	32.47		17,731	127,762
Total	27,404	$	32.37	27,404	127,762

(1) On July 25, 2023, the Company announced a stock repurchase program to purchase up to 404,708 shares of the Company's common stock. This marked the Company's 19th stock repurchase plan. The existing repurchase program does not have a set expiration date and will expire upon repurchase of the full amount of authorized shares. Shares may be repurchased from time to time in the open market or in privately negotiated transactions based upon market conditions and available liquidity. Cumulatively, since January 1998, the Company has repurchased 8,613,367 shares of its common stock at an average price of $10.45 per share.

The Company is subject to certain restrictions on its ability to repurchase its common stock. The Company is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of its consolidated net worth. The Federal Reserve may disapprove a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would

violate any law, regulation, Federal Reserve order, or any condition imposed by, or written agreement with, the Federal Reserve.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

a.None to be reported.

b.None to be reported.

c.During the quarter ended December 31, 2024, no director or officer (as defined in Rule 16a-1(f) under the Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits

(a) Exhibits


			3.1			Articles of Incorporation of the Registrant (1)
			3.2			Amended and Restated Bylaws of the Registrant (2)
			4.1			Form of Certificate of Timberland Bancorp, Inc. Common Stock (1)
			4.2			Description of Capital Stock of Timberland Bancorp, Inc. (4)
			10.1			Employee Severance Compensation Plan, as revised (3)
			10.2			Employee Stock Ownership Plan (4)
			10.3			Form of Incentive Stock Option Agreement (5)
			10.4			Form of Non-qualified Stock Option Agreement (5)
			10.5			Employment Agreement with Dean J. Brydon, as amended (6)
			10.6			Employment Agreement with Jonathan A. Fischer, as amended (6)
			10.7			Employment Agreement with Marci A. Basich (6)
			10.8			Employment Agreement with Matthew J. DeBord (6)
			10.9			Employment Agreement with Todd Van Cise (7)
			10.10			Employment Agreement with Breanne Antich (7)
			10.11			Timberland Bancorp, Inc. 2014 Equity Incentive Plan (8)
			10.12			Timberland Bancorp, Inc. 2019 Equity Incentive Plan (9)
			10.13			F orm of Restricted Stock Grant Agreement (10)
			21			Subsidiaries of the Registrant*
			31.1			Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act
			31.2			Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act
			32			Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes Oxley Act
			101			The following materials from Timberland Bancorp Inc's Quarterly Report 10-Q for the quarter ended December 31, 2024 formatted on Extensible Business Reporting Language (XBRL) (a) Consolidated Balance Sheets; (b) Consolidated Statements of Income; (c) Consolidated Statements of Comprehensive Income; (d) Consolidated Statements of Shareholders' Equity; (e) Consolidated Statements of Cash Flows; and (f) Notes to Unaudited Consolidated Financial Statements
			104			Cover Page Interactive Data File, formatted in Inline XBRL and included in Exhibit 101

_________________

* Copies of these exhibits are available upon written request to Jonathan A. Fischer, Secretary, Timberland

Bancorp, Inc., 624 Simpson Avenue, Hoquiam, WA 98550

(1)Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (333-35817).

(2)Incorporated by reference to the Registrant's Current Report on Form 8-K filed on August 23, 2023.

(3)Incorporated by reference to the Registrant's Current Report on Form 8-K filed on April 16, 2007.

(4)Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997.

(5)Incorporated by reference to the Exhibits included in the Registrant's Registration Statement on Form S-8 (333-240040).

(6)Incorporated by reference to Registrant's Current Report on Form 8-K filed on December 22, 2023.

(7)Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the year ended September 30, 2023 and incorporated herein by reference.

(8)Attached as Appendix A to the Registrant's Annual Meeting Proxy Statement filed on December 19, 2014.

(9)Attached as Appendix A to the Registrant's Annual Meeting Proxy Statement filed on December 18, 2019.

(10)Filed as exhibits to the Registrant's Registration Statement on Form S-8 (333-240040) and incorporated herein by reference.

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.


			Timberland Bancorp, Inc.


Date: February 10, 2025			By: /s/ Dean J. Brydon
			Dean J. Brydon
			Chief Executive Officer
			(Principal Executive Officer)

Date: February 10, 2025			By: /s/Marci A. Basich
			Marci A. Basich
			Chief Financial Officer
			(Principal Financial Officer)