What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-05 compared with 2022-05-09 · 149 added, 148 removed, 318 unchanged (48% of the section changed)

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When we refer to “Bank” in this Form 10-Q, we are referring to Timberland Bank, a wholly-owned subsidiary of Timberland Bancorp, Inc., and the Bank’s wholly-owned subsidiary, Timberland Service Corporation.

The following analysis discusses the material changes in the consolidated financial condition and results of operations of the Company at and for the three and six months ended March 31, 2022.

The following analysis discusses the material changes in the consolidated financial condition and results of operations of the Company at and for the three and nine months ended June 30, 2022.

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.

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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:

potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company's business operations or financial markets, generally, resulting from the ongoing COVID-19 pandemic and any governmental or societal responses thereto;

the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets which may lead to increased losses and non-performing loans in our loan portfolio, and may result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our loan loss reserves;

changes in general economic conditions, either nationally or in our market areas;

changes in general economic conditions, either nationally or in our market areas, including as a result of employment levels and labor shortages, and the effects of inflation, a potential recession or slowed economic growth caused by increasing oil prices and supply chain disruptions;

changes in the levels of general interest rates, and the relative differences between short and long-term interest rates, deposit interest rates, our net interest margin and funding sources;

regarding the future of LIBOR, and the transition away from LIBOR toward new interest rate benchmarks;

uncertainty regarding the future of LIBOR, and the transition away from LIBOR toward new interest rate benchmarks;

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

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legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules including as a result of Basel III;

the impact of the Dodd Frank Wall Street Reform and Consumer Protection Act and implementing regulations;

our ability to attract and retain deposits;

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

the economic impact of war or any terrorist activities;

the economic impact of war (including the Russia/Ukraine conflict) or any terrorist activities;

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

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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 March 31, 2022, the Company had total assets of $1.88 billion, net loans receivable of $1.03 billion, total deposits of $1.66 billion and total shareholders’ equity of $212.27 million.

At June 30, 2022, the Company had total assets of $1.89 billion, net loans receivable of $1.09 billion, total deposits of $1.66 billion and total shareholders’ equity of $214.32 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 consolidated financial statements and related data, relates primarily to the Bank's operations.

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.

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The profitability of the Company’s operations depends primarily on its net interest income after provision for (recapture of) loan 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.

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The allowance for loan losses reflects the amount that the Company believes is adequate to cover probable credit losses inherent in its loan portfolio.

The Company did not record a provision for loan losses for the three and six months ended March 31, 2022 and 2021, primarily reflecting the improving economy and resulting decline in forecasted probable loan losses from COVID-19 during these periods.

The Company did not record a provision for loan losses for the three and nine months ended June 30, 2022 and 2021, primarily reflecting the improving economy and resulting decline in forecasted probable loan losses from COVID-19 during these periods.

Net income is also affected by non-interest income and non-interest expense.

For the three and six months ended March 31, 2022, non-interest income consisted primarily of service charges on deposit accounts, gain on sales of loans, ATM and debit card interchange transaction fees, an increase in the cash surrender value of BOLI, servicing income on loans sold and other operating income.

For the three and nine months ended June 30, 2022, non-interest income consisted primarily of service charges on deposit accounts, gain on sales of loans, ATM and debit card interchange transaction fees, an increase in the cash surrender value of BOLI, servicing income on loans sold and other operating income.

Non-interest income is also increased by net recoveries on investment securities and reduced by net OTTI losses on investment securities, if any.

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The Company maintains its commitment to supporting its community and customers during the COVID-19 pandemic and remains focused on keeping its employees safe and the Bank running effectively to serve its customers.

As of March 31, 2022, all banking branches are open with normal hours and substantially all employees have returned to their routine working environments.

As of June 30, 2022, all banking branches are open with normal hours and substantially all employees have returned to their routine working environments.

The Bank will continue to monitor branch access and occupancy levels in relation to cases and close contact scenarios and follow governmental restrictions and public health authority guidelines.

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There have been no material changes in the Company’s critical accounting policies and estimates as previously disclosed in the Company’s 2021 Form 10-K.

Comparison of Financial Condition at March 31, 2022 and September 30, 2021

The Company’s total assets increased by $85.29 million, or 4.8%, to $1.88 billion at March 31, 2022 from $1.79 billion at September 30, 2021.

Comparison of Financial Condition at June 30, 2022 and September 30, 2021

The Company’s total assets increased by $95.62 million, or 5.3%, to $1.89 billion at June 30, 2022 from $1.79 billion at September 30, 2021.

The increase in total assets was primarily due to an increase in held to maturity investment securities and an increase in loans receivable, which was partially offset by decreases in total cash and cash equivalents.

The increase in total assets was funded primarily by an increase in total deposits.

Net loans receivable increased by $65.63 million, or 6.8%, to $1.03 billion at March 31, 2022 from $968.45 million at September 30, 2021, primarily due to increases in commercial real estate loans, construction loans, one-to four-family and commercial business loans (other than SBA PPP loans) and smaller increases in several other loan categories.

Net loans receivable increased by $119.51 million, or 12.3%, to $1.09 billion at June 30, 2022 from $968.45 million at September 30, 2021, primarily due to increases in commercial real estate loans, construction loans, one-to four-family and commercial business loans (other than SBA PPP loans) and smaller increases in several other loan categories.

These increases to net loans receivable were partially offset by a decrease in SBA PPP loans, an increase in the undisbursed portion of construction loans in process, and smaller decreases in several other loan categories.

Total deposits increased by $85.87 million, or 5.5%, to $1.656 billion at March 31, 2022 from $1.571 billion at September 30, 2021, primarily due to increases in NOW checking account balances, money market account balances, and savings account balances.

Total deposits increased by $93.56 million, or 6.0%, to $1.66 billion at June 30, 2022 from $1.57 billion at September 30, 2021, primarily due to increases in NOW checking account balances, money market account balances, and savings account balances.

These increases were partially offset by decreases in non-interest bearing account balances and in certificates of deposit account balances.

Shareholders’ equity increased by $5.37 million, or 2.6%, to $212.27 million at March 31, 2022 from $206.90 million at September 30, 2021.

Shareholders’ equity increased by $7.42 million, or 3.6%, to $214.32 million at June 30, 2022 from $206.90 million at September 30, 2021.

The increase in shareholders' equity was primarily due to net income, partially offset by the payment of dividends to common shareholders and the repurchase of common stock.

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Cash and Cash Equivalents and CDs Held for Investment:

Cash and cash equivalents and CDs held for investment decreased by $87.76 million, or 14.4%, to $520.92 million at March 31, 2022 from $608.68 million at September 30, 2021.

The decrease was primarily a result of deploying funds earning a nominal yield into higher-earning loans originations and held to maturity investment securities.

Cash and cash equivalents and CDs held for investment decreased by $162.64 million, or 26.7%, to $446.04 million at June 30, 2022 from $608.68 million at September 30, 2021.

The decrease was primarily a result of deploying overnight liquidity into higher-earning loan originations and held to maturity investment securities.

Investment Securities:

Investment securities (including investments in equity securities) increased by $107.70 million, or 80.8%, to $240.93 million at March 31, 2022 from $133.23 million at September 30, 2021.

Investment securities (including investments in equity securities) increased by $140.98 million, or 105.8%, to $274.21 million at June 30, 2022 from $133.23 million at September 30, 2021.

This increase was primarily due to the purchase of additional held to maturity U.S.

Treasury, U.S.

government agency securities and to a lesser extent mortgage-backed investment securities during the six months ended March 31, 2022, as the Company placed a portion of its excess overnight liquidity into higher-earning investment securities during the period.

Treasury and U.S.

government agency securities and to a lesser extent mortgage-backed investment securities during the nine months ended June 30, 2022, as the Company placed a portion of its excess overnight liquidity into higher-earning investment securities during the period.

These increases were partially offset by maturities, prepayments and scheduled amortization of other investment securities.

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 increased $91,000, or 4.3% to $2.19 million at March 31, 2022 from $2.10 million at September 30, 2021, due to purchases required by the FHLB due to the increase in total assets.

FHLB stock increased $91,000, or 4.3% to $2.19 million at June 30, 2022 from $2.10 million at September 30, 2021, due to purchases required by the FHLB due to the increase in total assets.

Other Investments:

Other investments consist solely of the Company's investment in the Solomon Hess SBA Loan Fund LLC, which was unchanged at $3.00 million at both March 31, 2022 and September 30, 2021.

Other investments consist solely of the Company's investment in the Solomon Hess SBA Loan Fund LLC, which was unchanged at $3.00 million at both June 30, 2022 and September 30, 2021.

This investment is utilized to help satisfy compliance with the Bank's Community Reinvestment Act investment test requirements.

Net loans receivable increased by $65.63 million, or 6.8%, to $1.03 billion at March 31, 2022 from $968.45 million at September 30, 2021.

Net loans receivable increased by $119.51 million, or 12.3%, to $1.09 billion at June 30, 2022 from $968.45 million at September 30, 2021.

The increase was primarily due to a $61.52 million increase in commercial real estate loans, a $48.24 million increase in commercial business loans (other than SBA PPP loans), a $24.75 million increase in one- to four-family loans, a $14.62 million increase in construction loans, and smaller increases in other categories.

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The SBA PPP loan balances decreased primarily due to borrowers applying for forgiveness from the SBA and the loans being subsequently paid off by the SBA.

Loan originations decreased by $16.71 million, or 5.2%, to $307.01 million for the six months ended March 31, 2022 from $323.72 million for the six months ended March 31, 2021.

Loan originations decreased by $34.12 million, or 7.3%, to $435.92 million for the nine months ended June 30, 2022 from $470.04 million for the nine months ended June 30, 2021.

The decrease in loan originations was primarily due to a decrease in the amount of SBA PPP and one- to four-family loans originated.

The decrease was partially offset by increases in commercial real estate loans, constructions loans and commercial business (non-PPP) loans originations.

The Company continued to sell

longer-term fixed-rate one- to four-family mortgage loans for asset liability management purposes and to generate non-interest income.

The Company continued to sell longer-term fixed-rate one- to four-family mortgage loans for asset liability management purposes and to generate non-interest

The Company also periodically sells the guaranteed portion of SBA loans.

Sales of fixed-rate one- to four-family mortgage loans decreased by $45.69 million, or 53.7%, to $39.44 million for the six months ended March 31, 2022 from $85.13 million for the six months ended March 31, 2021, primarily due to decreased refinance activity for one- to four-family loans, as mortgage refinance activity diminished as market interest rates increased.

Sales of fixed-rate one- to four-family mortgage loans decreased by $75.14 million, or 59.5%, to $51.05 million for the nine months ended June 30, 2022 from $126.19 million for the nine months ended June 30, 2021, primarily due to decreased refinance activity for one- to four-family loans, as mortgage refinance activity diminished as market interest rates increased.

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

Premises and Equipment:

Premises and equipment decreased by $489,000, or 2.2%, to $21.88 million at March 31, 2022 from $22.37 million at September 30, 2021.

Premises and equipment decreased by $213,000, or 1.0%, to $22.15 million at June 30, 2022 from $22.37 million at September 30, 2021.

This decrease was primarily due to scheduled depreciation.

OREO (Other Real Estate Owned):

OREO and other repossessed assets was $157,000 at March 31, 2022 and September 30, 2021.

At March 31, 2022, total OREO and other repossessed assets consisted of land parcels totaling $157,000.

At June 30, 2022, total OREO and other repossessed assets consisted of two land parcels with no recorded value.

At September 30, 2021, OREO and other repossessed assets were $157,000.

BOLI (Bank Owned Life Insurance):

BOLI increased by $305,000 or 1.4%, to $22.50 million at March 31, 2022 from $22.19 million at September 30, 2021.

BOLI increased by $456,000 or 2.1%, to $22.65 million at June 30, 2022 from $22.19 million at September 30, 2021.

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 March 31, 2022 and September 30, 2021.

CDI decreased by $158,000, or 12.5%, to $1.11 million at March 31, 2022 from $1.26 million at September 30, 2021 due to scheduled amortization.

The recorded amount of goodwill remained unchanged at $15.13 million at both June 30, 2022 and September 30, 2021.

CDI decreased by $237,000, or 18.8%, to $1.03 million at June 30, 2022 from $1.26 million at September 30, 2021 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.”

Deposits increased by $85.87 million, or 5.5%, to $1.66 billion at March 31, 2022 from $1.57 billion at September 30, 2021.

Deposits increased by $93.56 million, or 6.0%, to $1.66 billion at June 30, 2022 from $1.57 billion at September 30, 2021.

The increase was primarily due to a $46.56 million increase in money market account balances, a $44.12 million increase in NOW checking account balances, and a $18.90 million increase in savings account balances.

These increases were partially offset by a $9.72 million decrease in non-interest bearing account balances and a $7.48 million decrease in certificates of deposit account balances.

Deposits consisted of the following at March 31, 2022 and September 30, 2021 (dollars in thousands):

March 31, 2022 September 30, 2021

These increases were partially offset by an $8.68 million decrease in certificates of deposit account balances and a $7.34 million decrease in non-interest bearing account balances.

Deposits consisted of the following at June 30, 2022 and September 30, 2021 (dollars in thousands):

June 30, 2022 September 30, 2021

Amount Percent Amount Percent

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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.

There were no FHLB borrowings at March 31, 2022 as compared to one $5.00 million borrowing at September 30, 2021,with a scheduled maturity in March 2025.

There were no FHLB borrowings at June 30, 2022 as compared to one $5.00 million borrowing at September 30, 2021,with a scheduled maturity in March 2025.

Due to favorable repayment terms, the Company repaid this borrowing in January 2022.

Shareholders’ Equity:

Total shareholders’ equity increased by $5.37 million, or 2.6%, to $212.27 million at March 31, 2022 from $206.90 million at September 30, 2021.

The increase was primarily due to net income of $10.81 million for the six months ended March 31, 2022 and $332,000 from the exercise of stock options, which was partially offset by dividend payments to common shareholders of $3.59 million and the repurchase of 77,113 shares of the Company's common stock for $2.15 million (an average price of $27.88 per share).

Total shareholders’ equity increased by $7.42 million, or 3.6%, to $214.32 million at June 30, 2022 from $206.90 million at September 30, 2021.

The increase was primarily due to net income of $16.55 million for the nine months ended June 30, 2022 and $359,000 from the exercise of stock options, which was partially offset by dividend payments to common shareholders of $5.42 million, the repurchase of 135,791 shares of the Company's common stock for $3.65 million (an average price of $26.89 per share) and a change in the accumulated other comprehensive income (loss) category of $624,000 related to the unrealized holding loss on investment securities available for sale.

For additional information, see Item 2 of Part II of this Form 10-Q.

Asset Quality:

The non-performing assets to total assets ratio was 0.16% at March 31, 2022 compared to 0.18% at September 30, 2021.

Total non-performing assets decreased by $235,000, or 7.4%, to $2.94 million at March 31, 2022 from $3.17 million

The non-performing assets to total assets ratio was 0.13% at June 30, 2022 compared to 0.18% at September 30, 2021.

Total non-performing assets decreased by $765,000, or 24.1%, to $2.41 million at June 30, 2022 from $3.17 million

at September 30, 2021.

The decrease in non-performing assets was due to a $203,000 decrease in non-accrual loans, and a $32,000 decrease in non-accrual investment securities.

The following table sets forth information with respect to the Company’s non-performing assets at March 31, 2022 and September 30, 2021 (dollars in thousands):

The decrease in non-performing assets was due to a $563,000 decrease in non-accrual loans, a $157,000 decrease in OREO and other repossessed assets and a $45,000 decrease in non-accrual investment securities.

The following table sets forth information with respect to the Company’s non-performing assets at June 30, 2022 and September 30, 2021 (dollars in thousands):

2022 September 30,

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(1) As of March 31, 2022, there was a single one- to four-family property in the process of foreclosure.

(1) As of June 30, 2022, there were no one- to four-family properties in the process of foreclosure.

At September 30, 2021, there were two one- to-four family properties in the process of foreclosure.

(2) As of March 31, 2022 and September 30, 2021, the balance of OREO did not include any foreclosed residential real estate property.

(2) As of June 30, 2022 and September 30, 2021, the balance of OREO did not include any foreclosed residential real estate property.

(3) Does not include TDRs on accrual status.

(4) Does not include TDRs totaling $172 and $182 reported as non-accrual loans at March 31, 2022 and September 30, 2021, respectively.

(4) Does not include TDRs totaling $158 and $182 reported as non-accrual loans at June 30, 2022 and September 30, 2021, respectively.

(5) Does not include loans held for sale, and loan balances are before the allowance for loan losses.

Comparison of Operating Results for the Three and Six Months Ended March 31, 2022 and 2021

Net income decreased by $1.92 million, or 26.5%, to $5.33 million for the quarter ended March 31, 2022 from $7.25 million for the quarter ended March 31, 2021.

Net income per diluted common share decreased by $0.23, or 26.7%, to $0.63 for the quarter ended March 31, 2022 from $0.86 for the quarter ended March 31, 2021.

The decreases in net income and net income per diluted common share for the three months ended March 31, 2022 were primarily due to a $1.80 million decrease in non-interest income and a $782,000 increase in non-interest expense.

These decreases were partially offset by a $336,000 decrease in the provision for income taxes and a $325,000 increase in net interest income.

Net income decreased by $3.73 million, or 25.6%, to $10.81 million for the six months ended March 31, 2022 from $14.54 million for the six months ended March 31, 2021.

Net income per diluted common share decreased by $0.45, or 26.0%, to $1.28 for the six months ended March 31, 2022 from $1.73 for the six months ended March 31, 2021.

The decrease in net income and net income per diluted common share for the six months ended March 31, 2022 were primarily due to a $2.92 million decrease in non-interest income and a $1.64 million increase in non-interest expense.

These decreases were partially offset by an $829,000 decrease in the provision for income taxes.

Comparison of Operating Results for the Three and Nine Months Ended June 30, 2022 and 2021

Net income decreased by $1.29 million, or 18.3%, to $5.74 million for the quarter ended June 30, 2022 from $7.02 million for the quarter ended June 30, 2021.

Net income per diluted common share decreased by $0.14, or 16.9%, to $0.69 for the quarter ended June 30, 2022 from $0.83 for the quarter ended June 30, 2021.

The decreases in net income and net income per diluted common share for the three months ended June 30, 2022 were primarily due to a $1.16 million decrease in non-interest income and a $1.26 million increase in non-interest expense.

These decreases were partially offset by an $825,000 increase in net interest income and a $314,000 decrease in the provision for income taxes .

Net income decreased by $5.02 million, or 23.3%, to $16.55 million for the nine months ended June 30, 2022 from $21.57 million for the nine months ended June 30, 2021.

Net income per diluted common share decreased by $0.58, or 22.75%, to $1.97 for the nine months ended June 30, 2022 from $2.55 for the nine months ended June 30, 2021.

The decrease in net income and net income per diluted common share for the nine months ended June 30, 2022 were primarily due to a $4.08 million decrease in non-interest income and a $2.90 million increase in non-interest expense.

These decreases were partially offset by an $823,000 increase in net interest income and a $1.14 million decrease in the provision for income taxes .

A more detailed explanation of the income statement categories is presented below.

Net Interest Income:

Net interest income increased by $326,000, or 2.6%, to $12.89 million for the quarter ended March 31, 2022 from $12.57 million for the quarter ended March 31, 2021.

The increase in net interest income was primarily due to an increase in the average balance of investment securities, as the Company placed a portion of its excess overnight liquidity into higher-earning investments during the period and a decline in average cost of interest-bearing liabilities., partically offset by a decline in the average balance of loans receivable.

Total interest and dividend income increased by $160,000, or 1.2%, to $13.52 million for the quarter ended March 31, 2022 from $13.36 million for the quarter ended March 31, 2021, primarily due to an increase in the average balance of investment securities.

Average total interest-earning assets increased by $181.22 million, or 11.6%, to $1.75 billion for the quarter ended March 31, 2022 from $1.57 billion for the quarter ended March 31, 2021.

Average investment securities increased by $108.22 million, or 113.0%, average interest-bearing deposits in banks and CDs increased by $87.92 million, or 20.8%, and average loans receivable decreased by $14.89 million, or 1.4%, between the periods.

During the quarter ended March 31, 2022, the accretion of the purchase accounting fair value discount on loans acquired in the October 2018 acquisition of South Sound Bank ("South Sound Acquisition") increased interest income on loans by $34,000 compared to $86,000 for the quarter ended March 31, 2021.

Net interest income increased by $825,000, or 6.3%, to $13.98 million for the quarter ended June 30, 2022 from $13.16 million for the quarter ended June 30, 2021.

The increase in net interest income was primarily due to an increase in the average yield on interest-bearing deposits in banks and CDs, an increase in the average balance of investment securities, as the Company placed a portion of its excess overnight liquidity into higher-earning investments during the period, and a decline in average cost of interest-bearing liabilities.

This increase was partially offset by a decrease in deferred SBA PPP loan origination fees recognized due to a decrease in the volume of forgiven SBA PPP loans between the periods.

Total interest and dividend income increased by $762,000, or 5.5%, to $14.63 million for the quarter ended June 30, 2022 from $13.87 million for the quarter ended June 30, 2021, primarily due to increases in the average balance of investment securities and the average yield on deposits in banks and CDs.

This increase was partially offset by a decrease in the average yield on loans receivable reflecting the decline in deferred SBA PPP loan origination fees recognized between the periods.

Average total interest-earning assets increased by $161.25 million, or 9.9%, to $1.80 billion for the quarter ended June 30, 2022 from $1.64 billion for the quarter ended June 30, 2021.

Average investment securities increased by $147.77 million, or 134.6%, average loans receivable increased by $40.34 million, or 3.9% and partially offset by a decrease in the average balance of interest-bearing deposits in banks and CDs of $26.85 million, or 5.5%, between the periods.

During the quarter ended June 30, 2022, the accretion of the purchase accounting fair value discount on loans acquired in the October 2018 acquisition of South Sound Bank ("South Sound Acquisition") increased interest income on loans by $63,000 compared to $84,000 for the quarter ended June 30, 2021.

The incremental accretion will change during any period based on the volume of prepayments but is expected to decrease over time as the balance of the net discount declines.

During the quarter ended March 31, 2022, there was a total of $246,000 of pre-payment penalties, non-accrual interest and late fees collected, compared to $129,000 collected for the quarter ended March 31, 2021.

During the quarter ended June 30, 2022, there was a total of $246,000 of pre-payment penalties, non-accrual interest and late fees collected, compared to $443,000 collected for the quarter ended June 30, 2021.

Partially offsetting the increase in the average balance of interest-earning assets was a decrease in the average yield on interest-earning assets.

The average yield on interest-earning assets decreased to 3.09% for the quarter ended March 31, 2022 from 3.41% for the quarter ended March 31, 2021.

The average yield on interest-earning assets decreased to 3.26% for the quarter ended June 30, 2022 from 3.39% for the quarter ended June 30, 2021.

Also impacting the average yield and average interest-earning asset balances during the current quarter were SBA PPP loans.

These SBA PPP loans have a prescribed interest rate of 1.00% and are also subject to loan origination fees which are accreted into interest income over the life of each loan.

For the quarter ended March 31, 2022, average SBA PPP loans were $13.26 million, and the Company recorded $31,000 in interest income and accreted $708,000 million in SBA PPP loan origination fees into income.

For the quarter ended March 31, 2021, average SBA PPP loans were $124.48 million, and the Company recorded $306,000 in interest income and accreted $1.14 million in SBA PPP loan origination fees into income.

At March 31, 2022, SBA PPP deferred loan origination fees of $199,000 remain to be accreted into interest income during the remaining life of the loans

Total interest expense decreased by $166,000, or 20.9%, to $627,000 for the quarter ended March 31, 2022 from $793,000 for the quarter ended March 31, 2021.

For the quarter ended June 30, 2022, average SBA PPP loans were $2.08 million, and the Company recorded $9,000 in interest income and accreted $146,000 in SBA PPP loan origination fees into income.

For the quarter ended June 30, 2021, average SBA PPP loans were $118.05 million, and the Company recorded $293,000 in interest income and accreted $1.30 million in SBA PPP loan origination fees into income.

At June 30, 2022, SBA PPP deferred loan origination fees of $52,000 remain to be accreted into interest income during the remaining life of the loans.

Total interest expense decreased by $63,000, or 8.9%, to $645,000 for the quarter ended June 30, 2022 from $708,000 for the quarter ended June 30, 2021.

The decrease in interest expense was primarily due to a decrease in the average cost of interest-bearing liabilities.

The average cost of interest-bearing liabilities decreased to 0.23% for the quarter ended March 31, 2022 from 0.33% for the quarter ended March 31, 2021.

Average interest-bearing liabilities increased by $126.71 million, or 13.1%, to $1.09 billion for the quarter ended March 31, 2022 from $965.95 million for the quarter ended March 31, 2021, primarily due to increases in the average balances of savings accounts, NOW checking accounts, and money market accounts partially offset by a decline in the average balance of certificates of deposit accounts.

As a result of these changes, the net interest margin ("NIM") decreased to 2.95% for the quarter ended March 31, 2022 from 3.21% for the quarter ended March 31, 2021.

Net interest income decreased slightly to $25.59 million for the six months ended March 31, 2022 from $25.59 for the six months ended March 31, 2021.

The decrease in net interest income was primarily due to a decrease in the average yield of interest-earning assets, which was partially offset by an increase in the average balance on interest-earning assets and a decline in the average cost of interest-bearing liabilities.

Total interest and dividend income decreased by $454,000, or 1.7%, to $26.86 million for the six months ended March 31, 2022 from $27.32 million for the six months ended March 31, 2021, primarily due to a decrease in the average yield on interest-earning assets.

The average yield on interest-earning assets decreased to 3.08% for the six months ended March 31, 2022 from 3.56% for the six months ended March 31, 2021.

Average total interest-earning assets increased by $211.47 million, or 13.8%, to $1.74 billion for the six months ended March 31, 2022 from $1.53 billion for the six months ended March 31, 2021.

The average cost of interest-bearing liabilities decreased to 0.23% for the quarter ended June 30, 2022 from 0.28% for the quarter ended June 30, 2021.

Average interest-bearing liabilities increased by $117.48 million, or 11.6%, to $1.13 billion for the quarter ended June 30, 2022 from $1.01 billion for the quarter ended June 30, 2021, primarily due to

increases in the average balances of savings, NOW checking, and money market accounts partially offset by a decline in the average balance of certificates of deposit accounts.

As a result of these changes, the net interest margin ("NIM") decreased to 3.11% for the quarter ended June 30, 2022 from 3.22% for the quarter ended June 30, 2021.

Net interest income increased by $823,000, or 2.1%, to $39.57 million for the nine months ended June 30, 2022 from $38.75 million for the nine months ended June 30, 2021.

The increase in net interest income was primarily due to increases in the average balance of investment securities and the average yield on interest-bearing deposits in banks and CDs, and a decline in average cost of interest-bearing liabilities.

This increase was partially offset by a significant decrease in SBA PPP loan origination fees recognized due to a decrease in the volume of forgiven SBA PPP loans between the periods.

Total interest and dividend income increased by $308,000, or 0.7%, to $41.49 million for the nine months ended June 30, 2022 from $41.18 million for the nine months ended June 30, 2021.

The average yield on interest-earning assets decreased to 3.14% for the nine months ended June 30, 2022 from 3.50% for the nine months ended June 30, 2021.

Average total interest-earning assets increased by $194.73 million, or 12.4%, to $1.76 billion for the nine months ended June 30, 2022 from $1.57 billion for the nine months ended June 30, 2021.

Average loans receivable decreased by $2.56 million, or 0.2%, average investment securities increased by $107.81 million or 110.2%, and average interest-bearing deposits in banks and CDs increased by $89.44 million, or 20.9%, between the periods.

Total interest expense decreased by $452,000, or 26.2%, to $1.27 million for the six months ended March 31, 2022 from $1.73 million for the six months ended March 31, 2021.

Total interest expense decreased by $515,000, or 21.2%, to $1.92 million for the nine months ended June 30, 2022 from $2.43 million for the nine months ended June 30, 2021.

The decrease in interest expense was primarily due to a decrease in the average cost of interest-bearing liabilities.

The average cost of interest-bearing liabilities decreased to 0.24% for the six months ended March 31, 2022 from 0.36% for the six months ended March 31, 2021.

Average interest-bearing liabilities increased by $129.22 million, or 13.6%, to $1.08 billion for the six months ended March 31, 2022 from $949.93 million for the six months ended March 31, 2021, primarily due to increases in the average balances of savings accounts, NOW checking accounts, and money market accounts and partially offset by a decline in the average balance of certificates of deposit accounts.

As a result of these changes, the NIM decreased to 2.93% for the six months ended March 31, 2022 from 3.34% for the six months ended March 31, 2021.

The average cost of interest-bearing liabilities decreased to 0.23% for the nine months ended June 30, 2022 from 0.34% for the nine months ended June 30, 2021.

Average interest-bearing liabilities increased by $125.31 million, or 12.9%, to $1.10 billion for the nine months ended June 30, 2022 from $970.83 million for the nine months ended June 30, 2021, primarily due to increases in the average balances of savings, NOW checking, and money market accounts, partially offset by a decline in the average balance of certificates of deposit accounts.

As a result of these changes, the NIM decreased to 2.99% for the nine months ended June 30, 2022 from 3.30% for the nine months ended June 30, 2021.

Average Balances, Interest and Average Yields/Cost

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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 March 31,

Three Months Ended June 30,

Balance Interest and

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Certificates of deposit 125,132 234 0.75 141,301 361 1.02

Short-term borrowings 10 — 0.20 3 — 0.23

Long-term borrowings — — — 5,769 18 1.25

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

Six Months Ended March 31,

Nine Months Ended June 30,

Balance Interest and

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Non-interest-earning assets 84,426 85,636

$ 1,828,562 $ 1,617,818

Total assets $ 1,846,593 $ 1,653,071

Interest-bearing liabilities:

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Net interest margin (3) 2.99 % 3.30 %

Ratio of average interest-earning

assets to average interest-bearing liabilities 161.67 % 161.40 %

Ratio of average interest-earning assets to average interest- bearing liabilities 160.76 % 161.45 %

(1) Does not include interest on loans on non-accrual status.

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Three months ended

March 31, 2022

June 30, 2022

compared to three months

ended March 31, 2021

increase (decrease) due to Six months ended

March 31, 2022

compared to six months

ended March 31, 2021

ended June 30, 2021

increase (decrease) due to Nine months ended

June 30, 2022

compared to nine months

ended June 30, 2021

increase (decrease) due to

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Provision for Loan Losses:

There was no provision for loan losses for the quarters ended March 31, 2022 and March 31, 2021.

For the quarter ended March 31, 2022, there were net charge offs of $35,000 compared to net recoveries of $2,000 for the quarter ended March 31, 2021.

Non-accrual loans decreased by $203,000, or 7.1%, to $2.65 million at March 31, 2022 from $2.85 million at September 30, 2021 and increased by $346,000, or 15.0%, from $2.31 million at March 31, 2021.

Total delinquent loans (past due 30 days or more) and non-accrual loans decreased by $98,000, or 3.2%, to $2.94 million at March 31, 2022, from $3.04 million at September 30, 2021 and decreased by $987,000, or 25.1%, from $3.93 million one year ago.

The $5.93 million balance of SBA PPP loans was omitted from the Company's normal allowance for loan losses calculation at March 31, 2022, as these loans are fully guaranteed by the SBA, and management expects that most PPP borrowers will seek full or partial forgiveness of their loan obligations from the SBA within a short time frame, which will in turn reimburse the Bank for the amount forgiven.

There was no provision for loans losses made for the six months ended March 31, 2022 and 2021.

For the six months ended March 31, 2022, there were net charge-offs of $36,000 compared to net recoveries of $20,000 for the six months ended March 31, 2021.

There was no provision for loan losses for the quarters ended June 30, 2022 and June 30, 2021.

For the quarter ended June 30, 2022, there were no net charge offs compared to net recoveries of $35,000 for the quarter ended June 30, 2021.

Non-accrual loans decreased by $563,000, or 19.7%, to $2.29 million at June 30, 2022 from $2.85 million at September 30, 2021 and increased by $262,000, or 12.9%, from $2.03 million at June 30, 2021.

Total delinquent loans (past due 30 days or more) and non-accrual loans decreased by $507,000, or 16.7%, to $2.53 million at June 30, 2022, from $3.04 million at September 30, 2021 and decreased by $410,000, or 13.9%, from $2.94 million one year ago.

The $1.32 million balance of SBA PPP loans was omitted from the Company's normal allowance for loan losses calculation at June 30, 2022, as these loans are fully guaranteed by the SBA, and management expects that most PPP borrowers will seek full or partial forgiveness of their loan obligations from the SBA within a short time frame, which will in turn reimburse the Bank for the amount forgiven.

There was no provision for loans losses for the nine months ended June 30, 2022 and 2021.

For the nine months ended June 30, 2022, there were net charge-offs of $36,000 compared to net recoveries of $55,000 for the nine months ended June 30, 2021.

The Company has established a comprehensive methodology for determining the allowance for loan losses.

On a quarterly basis, the Company performs an analysis that considers pertinent factors underlying the quality of the loan portfolio.

These factors include changes in the amount and composition of the loan portfolio, historic loss experience for various loan segments, changes in economic conditions, delinquency rates, a detailed analysis of impaired loans, and other factors to determine an

appropriate level of allowance for loan losses.

Impaired loans are subjected to an impairment analysis to determine an appropriate reserve amount to be allocated to each loan.

The aggregate principal impairment reserve amount determined at March 31, 2022 was $127,000 compared to $247,000 at September 30, 2021 and $73,000 at March 31, 2021.

Impaired loans are subjected to an impairment analysis to determine an

appropriate reserve amount to be allocated to each loan.

The aggregate principal impairment reserve amount determined at June 30, 2022 was $127,000 compared to $247,000 at September 30, 2021 and $171,000 at June 30, 2021.

In accordance with GAAP, loans acquired in the South Sound Acquisition were recorded at their estimated fair value, which resulted in a net discount to the loan's contractual amounts, of which a portion reflects a discount for possible credit losses.

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The discount recorded on the acquired loans is not reflected in the allowance for loan losses or related allowance coverage ratios.

The remaining fair value discount on loans acquired in the South Sound Acquisition was $358,000 at March 31, 2022.

The remaining fair value discount on loans acquired in the South Sound Acquisition was $295,000 at June 30, 2022.

The Company believes that this should be considered by investors when comparing the Company's allowance for loan losses to total loans in periods prior to the South Sound Acquisition.

Based on its comprehensive analysis, management believes that the allowance for loan losses of $13.43 million at March 31, 2022 (1.28% of loans receivable and 506.7% of non-performing loans) was adequate to provide for probable losses inherent in the loan portfolio based on an evaluation of known and inherent risks in the loan portfolio at that date.

The allowance for loan losses was $13.47 million (1.37% of loans receivable and 471.9% of non-performing loans) at September 30, 2021 and $13.43 mil1ion (1.29% of loans receivable and 582.8% of non-performing loans) at March 31, 2021.

Based on its comprehensive analysis, management believes that the allowance for loan losses of $13.43 million at June 30, 2022 (1.22% of loans receivable and 586.3% of non-performing loans) was adequate to provide for probable losses inherent in the loan portfolio based on an evaluation of known and inherent risks in the loan portfolio at that date.

The allowance for loan losses was $13.47 million (1.37% of loans receivable and 471.9% of non-performing loans) at September 30, 2021 and $13.47 million (1.33% of loans receivable and 663.8% of non-performing loans) at June 30, 2021.

While the Company believes that it has established its existing allowance for loan losses in accordance with GAAP, there can be no assurance that bank regulators, in reviewing the Company's loan portfolio, will not request the Company to significantly increase its allowance for loan losses.

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Non-interest Income:

Total non-interest income decreased by $1.80 million, or 36.9%, to $3.08 million for the quarter ended March 31, 2022 from $4.89 million for the quarter ended March 31, 2021.

This decrease was primarily due to a $1.34 million decrease in net gain on sales of loans, a $438,000 decrease in the valuation recovery of loan servicing rights and smaller decreases in several other categories.

Total non-interest income decreased by $1.16 million, or 27.3%, to $3.10 million for the quarter ended June 30, 2022 from $4.27 million for the quarter ended June 30, 2021.

This decrease was primarily due to a $1.35 million decrease in net gain on sales of loans, a $179,000 decrease in the net valuation allowance on loan servicing rights and smaller decreases in several other categories.

These decreases to non-interest income were partially offset by a $104,000 increase in service charges on deposits and smaller increases in several other categories.

The decrease in net gain on sales of loans was primarily due to a decrease in the dollar amount of fixed-rate one- to four-family loans originated and sold during the current quarter reflecting reduced refinance activity and a decrease in the average pricing margin compared to the same period last year.

Total non-interest income for the six months ended March 31, 2022 decreased by $2.92 million, or 30.9%, to $6.53 million from $9.45 million for the six months ended March 31, 2021.

This decrease was primarily due to a $2.68 million decrease in net gain on sales of loans, an $83,000 decrease in the valuation recovery of loan servicing rights and smaller decreases in several other categories.

These decreases were partially offset by a $130,000 increase in ATM and debit card interchange transaction fees and smaller increases in several other categories.

Total non-interest income for the nine months ended June 30, 2022 decreased by $4.08 million, or 29.8%, to $9.63 million from $13.71 million for the nine months ended June 30, 2021.

This decrease was primarily due to a $4.03 million decrease in net gain on sales of loans, and smaller decreases in several other categories.

These decreases were partially offset by a $113,000 increase in ATM and debit card interchange transaction fees, a $96,000 increase in the net valuation recovery on loan servicing rights and smaller increases in several other categories.

Non-interest Expense:

Total non-interest expense increased by $782,000, or 9.1%, to $9.33 million for the quarter ended March 31, 2022 from $8.55 million for the quarter ended March 31, 2021.

This increase was primarily due to a $414,000 increase in salaries and employee benefits expense, a $141,000 increase in professional fees expense and smaller increases in several other categories, which were partially offset by smaller decreases in several categories.

Total non-interest expense increased by $1.26 million, or 14.6%, to $9.87 million for the quarter ended June 30, 2022 from $8.61 million for the quarter ended June 30, 2021.

This increase was primarily due to a $689,000 increase in salaries and employee benefits, a $318,000 increase in professional fees and smaller increases in several other categories, which were partially offset by smaller decreases in several categories.

The increase in salaries and other employee benefits was primarily due to annual salary adjustments (effective October 1, 2021) and the hiring of additional lending personnel.

The increase in professional fees was primarily due to higher legal and consulting fees.

The efficiency ratio for the current quarter increased to 57.80% from 49.43% for the comparable quarter one year ago.

Total non-interest expense increased by $1.64 million, or 9.6% to $18.60 million for the six months ended March 31 2022 from $16.96 million for the six months ended March 31, 2021.

This increase was primarily due to $972,000 increase in salaries and employee benefits expense, a $293,000 increase in the other non-interest expense category, a $181,000 increase in professional fess expense and smaller increases in several other categories, which were partially offset by smaller decreases in several categories.

Total non-interest expense increased by $2.90 million, or 11.3% to $28.47 million for the nine months ended June 30, 2022 from $25.57 million for the nine months ended June 30, 2021.

This increase was primarily due to $1.66 million increase in salaries and employee benefits expense, a $498,000 increase in professional fess, a $454,000 increase in the other non-interest expense and smaller increases and decreases in several other categories.

The increase in salaries and other employee benefits was primarily due to annual salary adjustments (effective October 1, 2021) and the hiring of additional lending personnel.

The increase in the other non-interest expense category was primarily related to refunds issued to customers for deposit account fees that were determined to have been charged in error after the Bank's core system conversion in 2019.

The increase in professional fees was primarily due to higher legal and consulting fees.

Provision for Income Taxes:

The provision for income taxes decreased by $335,000, or 20.3%, to $1.32 million for the quarter ended March 31, 2022 from $1.65 million for the quarter ended March 31, 2021.

The provision for income tax decreased by $829,000, or 23.5%, to $2.71 million for the six months ended March 31, 2022 from $3.53 million for the six months ended March 31, 2021.

The decrease in the provision for income taxes were primarily due to lower income before income taxes.

The Company's effective income tax rate was 19.81% for the quarter ended March 31, 2022 and 18.56% for the quarter ended March 31, 2021.

The Company's effective tax rate was 20.01% for the six months ended March 31, 2022 and 19.55% for the six months ended March 31, 2021.

The provision for income taxes decreased by $314,000, or 17.6%, to $1.47 million for the quarter ended June 30, 2022 from $1.79 million for the quarter ended June 30, 2021.

The provision for income taxes decreased by $1.14 million, or 21.5% to $4.18 million for the nine months ended June 30, 2022 from $5.32 million for the nine months ended June 30, 2021.

These decreases in the provision for income taxes were primarily due to lower income before income taxes.

The Company's effective income tax rate was 20.42% for the quarter ended June 30, 2022 and 20.27% for the quarter ended June 30, 2021.

The Company's effective tax rate was 20.15% for the nine months ended June 30, 2022 and 19.79% for the nine months ended June 30, 2021.

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 FHLB borrowings (if needed).

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The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs.

At March 31, 2022, 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 42.05%.

At March 31, 2022, the Bank maintained an uncommitted credit facility with the FHLB that provided for immediately available borrowings up to an aggregate amount equal to 45% of total assets, limited by available collateral, under which no amounts where outstanding.

The Bank had $429.99 million available for borrowings with the FHLB at March 31, 2022.

At June 30, 2022, 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 37.28%.

At June 30, 2022, the Bank maintained an uncommitted credit facility with the FHLB that provided for immediately available borrowings up to an aggregate amount equal to 45% of total assets, limited by available collateral, under which no amounts were outstanding.

The Bank had $474.66 million available for borrowings with the FHLB at June 30, 2022.

The Bank maintains a short-term borrowing line with the FRB with total credit based on eligible collateral.

At March 31, 2022, the Bank had no outstanding balance on this borrowing line, under which $87.26 million was available for future borrowings.

At June 30, 2022, the Bank had no outstanding balance on this borrowing line, under which $87.72 million was available for future borrowings.

The Bank also maintains a $50.00 million overnight borrowing line with Pacific Coast Bankers' Bank ("PCBB").

At March 31, 2022, the Bank did not have an outstanding balance on this borrowing line.

At June 30, 2022, 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.

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The Bank's primary investing activity is the origination of loans and, to a lesser extent, the purchase of investment securities.

During the six months ended March 31, 2022 and 2021, the Bank originated $307.01 million and $323.72 million of loans, respectively.

At March 31, 2022, the Bank had loan commitments totaling $155.88 million and undisbursed construction loans in process totaling $100.72 million.

Investment securities purchased during the six months ended March 31, 2022 and 2021 totaled $126.27 million and $31.43 million, respectively.

During the nine months ended June 30, 2022 and 2021, the Bank originated $435.92 million and $470.04 million of loans, respectively.

At June 30, 2022, the Bank had loan commitments totaling $178.55 million and undisbursed construction loans in process totaling $102.04 million.

Investment securities purchased during the nine months ended June 30, 2022 and 2021 totaled $167.60 million and $52.50 million, respectively.

The Bank’s liquidity is also affected by the volume of loans sold and loan principal payments.

During the six months ended March 31, 2022 and 2021, the Bank sold $39.44 million and $85.13 million, respectively, in loans and loan participation interests.

During the three and six months ended March 31, 2022, the Bank received $71.72 million and $179.94 million in principal repayments, respectively.

During the nine months ended June 30, 2022 and 2021, the Bank sold $51.05 million and $126.19 million, respectively, in loans and loan participation interests.

During the three and nine months ended June 30, 2022, the Bank received $64.02 million and $249.16 million in principal repayments, respectively.

The Bank’s liquidity has been positively impacted by increases in deposit levels.

During the six months ended March 31, 2022, deposits increased by $85.87 million from September 30, 2021.

The Bank's liquid assets in the form of cash and cash equivalents, CDs held for investment and investment securities increased to $760.95 million at March 31, 2022 from $740.96 million at September 30, 2021.

CDs that are scheduled to mature in less than one year from March 31, 2022 totaled $77.41 million.

During the nine months ended June 30, 2022, deposits increased by $93.56 million from September 30, 2021.

The Bank's liquid assets in the form of cash and cash equivalents, CDs held for investment and investment securities decreased to $719.38 million at June 30, 2022 from $740.96 million at September 30, 2021.

CDs that are scheduled to mature in less than one year from June 30, 2022 totaled $78.65 million.

Historically, the Bank has been able to retain a significant amount of its deposits as they mature.

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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 projects scheduled for capital investments in premises and equipment during the remaining six months ending September 30, 2022 that would materially impact liquidity.

Based on current objectives, there are no projects scheduled for capital investments in premises and equipment during the remaining three months ending September 30, 2022 that would materially impact liquidity.

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.

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Assuming continued payment during fiscal year 2022 at the rate of $0.22 per share, the average total dividend paid each quarter would be approximately $1.83 million based on the number of current outstanding shares (which assumes no increases or decreases in the number of shares).

For the remaining six months ending September 30, 2022, the Bank projects that fixed commitments will include $168,000 of operating lease payments.

For the remaining three months ending September 30, 2022, the Bank projects that fixed commitments will include $80,000 of operating lease payments.

There are no scheduled payments and maturities of FHLB borrowings during the fiscal year 2022, but due to favorable borrowing terms, the Company decided in January 2022 that it was advantageous to payoff $5.00 million in FHLB borrowings.

In addition, at March 31, 2022, there were other future obligations and accrued expenses of $6.57 million.

In addition, at June 30, 2022, there were other future obligations and accrued expenses of $7.23 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.

1 unchanged sentence

Sources of capital and liquidity for Timberland Bancorp include distributions from the Bank and the issuance of debt or equity securities.

At March 31, 2022, Timberland Bancorp (on an unconsolidated basis) had liquid assets of $1.42 million.

At June 30, 2022, Timberland Bancorp (on an unconsolidated basis) had liquid assets of $2.37 million.

Capital Resources

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The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

Based on its capital levels at March 31, 2022, the Bank exceeded all regulatory capital requirements as of that date.

Based on its capital levels at June 30, 2022, the Bank exceeded all regulatory capital requirements as of that date.

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 March 31, 2022, the Bank was considered to be "well-capitalized" under applicable regulatory requirements.

Based on capital levels at June 30, 2022, 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 March 31, 2022 to its minimum regulatory capital requirements at that date (dollars in thousands):

The following table compares the Bank’s actual capital amounts at June 30, 2022 to its minimum regulatory capital requirements at that date (dollars in thousands):

Be “Adequately

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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 March 31, 2022, the Bank's CET1 capital exceeded the required capital conservation buffer.

At June 30, 2022, the Bank's CET1 capital exceeded the required capital conservation buffer.

Timberland Bancorp, Inc.

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If Timberland Bancorp, Inc.

were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at March 31, 2022, Timberland Bancorp, Inc.

were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at June 30, 2022, 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 March 31, 2022 (dollars in thousands):

as of June 30, 2022 (dollars in thousands):

Leverage Capital Ratio:

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Key Financial Ratios and Data

Three Months Ended March 31, Six Months Ended

Three Months Ended June 30, Nine Months Ended

2022 2021 2022 2021

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis