What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-12-11 compared with 2022-12-09 · 216 added, 259 removed, 1752 unchanged (21% of the section changed)

63 unchanged sentences

The primary audit procedures we performed to address this critical audit matter included the following, among others:

• We obtained an understanding of the relevant controls related to management’s establishment of the qualitative factors, assessment, and review and approval of the qualitative factors, and the data used in determining the qualitative factors.

We obtained an understanding of the relevant controls related to management’s establishment of the qualitative factors, assessment, review, and approval of the qualitative factors, and the data used in determining the qualitative factors.

We obtained an understanding of how management developed the estimates and related assumptions, including:

26 unchanged sentences

Premises and equipment, net 21,642 21,898

Other real estate owned (“OREO”) and other repossessed assets, net — 157

Accrued interest receivable 6,004 4,483

30 unchanged sentences

Retained earnings 199,386 180,535

Accumulated other comprehensive income (loss) ( 717 ) 59

Accumulated other comprehensive loss ( 1,084 ) ( 717 )

Total shareholders’ equity 233,073 218,569

22 unchanged sentences

Net recoveries on investment securities 9 22 20

Gain on sales of investment securities, net 95 — —

Service charges on deposits 3,824 3,964 3,911

3 unchanged sentences

Escrow fees 109 211 290

Valuation recovery (allowance) on loan servicing rights, net 119 110 ( 221 )

Valuation recovery on loan servicing rights, net — 119 110

Other, net 959 975 1,245

10 unchanged sentences

Premises and equipment 3,915 3,736 3,942

Loss (gain) on sales/dispositions of premises and equipment, net

(Gain) loss on sales/dispositions of premises and equipment, net ( 19 ) 13 —

Advertising 786 695 625

7 unchanged sentences

Loan administration and foreclosure 503 508 471

Data processing and telecommunications 2,719 2,510 2,285

Technology and communications 3,545 2,719 2,510

Deposit operations 1,368 1,235 1,091

16 unchanged sentences

Net income $ 27,118 $ 23,600 $ 27,583

Other comprehensive income (loss)

Other comprehensive loss

Unrealized holding loss on investment securities available for sale, net of income taxes of $( 98 ), $( 209 ), and $( 2 ), respectively

2 unchanged sentences

Adjustments related to other factors for which OTTI was previously recognized, net of income taxes of $ 0 , $ 0 , and $ 1 , respectively

( 1 ) 2 ( 3 )

Accretion of OTTI on investment securities held to maturity, net of income taxes of $ 1 , $ 2 , and $ 2 , respectively

Total other comprehensive income (loss), net of income taxes

( 776 ) ( 2 ) 11

Total other comprehensive loss, net of income taxes ( 367 ) ( 776 ) ( 2 )

Total comprehensive income $ 26,751 $ 22,824 $ 27,581

12 unchanged sentences

Net income — — 27,583 — 27,583

Other comprehensive income — — — 11 11

Other comprehensive loss — — — ( 2 ) ( 2 )

Repurchase of common stock ( 19,588 ) ( 527 ) — — ( 527 )

2 unchanged sentences

— — ( 8,589 ) — ( 8,589 )

Earned Employee Stock Ownership Plan ("ESOP") shares, net of income taxes — 31 — — 31

Stock option compensation expense — 173 — — 173

8 unchanged sentences

Balance, September 30, 2022 8,221,952 38,751 180,535 ( 717 ) 218,569

See notes to consolidated financial statements

Consolidated Statements of Shareholders’ Equity (continued)

(Dollars in Thousands, Except Per Share Amounts)

Timberland Bancorp, Inc.

and Subsidiary

Years Ended September 30, 2022, 2021 and 2020

Common Stock Accumulated

Comprehensive

Income (Loss)

Number of Shares Amount Retained

Earnings Total

Balance, September 30, 2021 8,355,469 $ 42,673 $ 164,167 $ 59 $ 206,899

Net income — — 27,118 — 27,118

1 unchanged sentence

Repurchase of common stock ( 185,399 ) ( 4,998 ) — — ( 4,998 )

Restricted stock grants 26,150 — — — —

Exercise of stock options 42,635 698 — — 698

16 unchanged sentences

Amortization of CDI 271 316 361

Earned ESOP shares — — 31

Accretion of discount on purchased loans ( 75 ) ( 182 ) ( 340 )

Stock option compensation expense 320 246 173

Gain on sales of investment securities, net ( 95 ) — —

Net recoveries on investment securities ( 9 ) ( 22 ) ( 20 )

2 unchanged sentences

Amortization (accretion) of discounts and premiums on securities ( 1,223 ) ( 39 ) 118

Provision for OREO losses — — 173

Gain on sales of loans, net ( 244 ) ( 1,510 ) ( 5,904 )

Loss (gain) on sales/dispositions of premises and equipment, net 13 — ( 98 )

(Gain) loss on sales/dispositions of premises and equipment, net ( 19 ) 13 —

Provision for loan losses 2,132 270 —

4 unchanged sentences

BOLI net earnings ( 627 ) ( 613 ) ( 597 )

BOLI death benefit in excess of cash surrender value ( 79 ) — —

Increase (decrease) in deferred loan origination fees 921 ( 822 ) ( 1,293 )

10 unchanged sentences

7,442 20,448 13,162

Proceeds from sales of investment securities available for sale 8,927 — —

Purchase of FHLB stock ( 1,408 ) ( 91 ) ( 181 )

Decrease (increase) in loans receivable, net ( 163,238 ) 47,054 ( 133,953 )

(Increase) decrease in loans receivable, net ( 172,857 ) ( 163,238 ) 47,054

Purchase of premises and equipment ( 1,106 ) ( 911 ) ( 895 )

Proceeds from sales of OREO and other repossessed assets — 159 985

Proceeds from sales/dispositions of premises and equipment — — 307

Proceeds from death benefit on BOLI 546 — —

Net cash provided by (used in) investing activities ( 170,223 ) ( 335,162 ) 37,445

S ee notes to consolidated financial statements

See Notes to Consolidated Financial Statements

Consolidated Statements of Cash Flows (continued)

5 unchanged sentences

Cash flows from financing activities

Net increase in deposits

$ 61,621 $ 212,149 $ 290,179

Net (decrease) increase in deposits $ ( 71,241 ) $ 61,621 $ 212,149

Proceeds from (repayment of) FHLB borrowings 35,000 ( 5,000 ) ( 5,000 )

4 unchanged sentences

( 8,267 ) ( 7,232 ) ( 8,589 )

Net cash provided by financing activities 45,221 198,664 292,249

Net cash (used in) provided by financing activities ( 48,808 ) 45,221 198,664

Net increase (decrease) in cash and cash equivalents ( 188,034 ) ( 263,441 ) 265,744

5 unchanged sentences

Interest paid 10,303 2,700 3,244

Supplemental disclosure of non-cash investing activities

Other comprehensive income (loss) related to investment securities $ ( 776 ) $ ( 2 ) $ 11

Supplemental disclosure of non-cash investing and financing activities

Other comprehensive loss related to investment securities $ ( 367 ) $ ( 776 ) $ ( 2 )

Operating lease liabilities arising from recording of ROU assets 72 — —

7 unchanged sentences

The accompanying consolidated financial statements include the accounts of Timberland Bancorp, Inc.

(“Timberland Bancorp”);

its wholly owned subsidiary, Timberland Bank (the “Bank”);

and the Bank’s wholly owned subsidiary, Timberland Service Corp.

(“Timberland Bancorp”), its wholly owned subsidiary, Timberland Bank (the “Bank”), and the Bank’s wholly owned subsidiary, Timberland Service Corp.

(collectively, the "Company”).

44 unchanged sentences

Changes in the fair value of investments in equity securities are recorded in other non-interest income.

The Bank, as a member of the FHLB, is required to maintain an investment in capital stock of the FHLB in an amount equal to 0.12 % of the Bank's total assets plus 4.00 % of any borrowings from the FHLB.

The Bank, as a member of the FHLB, is required to maintain an investment in capital stock of the FHLB in an amount equal to 0.12 % of the Bank's total assets, with a maximum of $10 million and a minimum of $10,000, plus 4.00 % of any borrowings from the FHLB.

On December 15, 2023, the capital stock requirements will change to 0.06% of the Bank's total assets, with no change in the maximum and minimum, plus 4.50% of any borrowings from the FHLB.

No ready market exists for this stock, and it has no quoted market value.

51 unchanged sentences

A troubled debt restructured loan ("TDR") is a loan for which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider.

Examples of such concessions include, but are not limited to:

a reduction in the stated interest rate;

an extension of the maturity at an interest rate below current market rates;

a reduction in the face amount of the debt;

a reduction in the accrued interest;

or re-amortizations,

Examples of such concessions

Notes to Consolidated Financial Statements

2 unchanged sentences

September 30, 2023 and 2022

extensions, deferrals and renewals.

include, but are not limited to:

a reduction in the stated interest rate;

an extension of the maturity at an interest rate below current market rates;

a reduction in the face amount of the debt;

a reduction in the accrued interest;

or re-amortizations, extensions, deferrals and renewals.

TDRs are considered impaired and are individually evaluated for impairment.

TDRs are classified as non-accrual (and considered to be non-performing) unless they have been performing in accordance with modified terms for a period of at least six months.

In March 2020, the Company announced loan modification programs to support and provide relief for its borrowers during the novel coronavirus of 2019 ("COVID-19") pandemic.

The Company has followed the loan modification criteria within the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"), which was signed into law on March 27, 2020, and interagency guidance from the federal banking agencies when determining if a borrower's modification is subject to a TDR classification.

On March 22, 2020, federal banking regulators issued an interagency statement that included guidance on their approach for the accounting of loan modifications in light of the economic impact of the COVID-19 pandemic.

The guidance interprets current accounting standards and indicates that a lender can conclude that a borrower is not experiencing financial difficulty if short-term modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to the loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification is implemented.

The agencies confirmed in working with the staff of the Financial Accounting Standards Board ("FASB") that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not troubled debt restructurings.

If it is determined that the modification does not meet the criteria under the CARES Act or interagency guidance to be excluded from TDR classification, the Company evaluates the loan modifications under its existing TDR framework.

Loans subject to forbearance under the COVID-19 loan modification program are not reported as past due or placed on non-accrual status during the forbearance time period, and interest income continues to be recognized over the contractual life of the loans.

Allowance for Loan Losses

18 unchanged sentences

In addition, as certain of these third-party appraisals and independent fair market value assessments are only updated periodically, changes in the values of specific properties may have occurred subsequent to the most recent appraisals.

Accordingly, the amounts of any such

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

potential changes and any related adjustments are generally recorded at the time such information is received.

Accordingly, the amounts of any such potential changes and any related adjustments are generally recorded at the time such information is received.

When the estimated net realizable value of the impaired loan is less than the recorded investment in the loan (including accrued interest and net deferred loan origination fees or costs), impairment is recognized by creating or adjusting an allocation of the allowance for loan losses, and uncollected accrued interest is reversed against interest income.

5 unchanged sentences

These factors may result in losses or recoveries differing significantly from those provided in the consolidated financial statements.

If real estate values decline and as updated appraisals are received on collateral for impaired loans, the Company may need to increase the allowance for loan losses as appropriate.

If real estate values decline and as updated appraisals are received on collateral for impaired loans, the Company may need to increase the

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

allowance for loan losses as appropriate.

In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

2 unchanged sentences

Depreciation is computed using the straight-line method over the following estimated useful lives:

buildings and improvements - five to forty years and furniture and equipment - three to seven years.

buildings and improvements - five to forty years;

and furniture and equipment - three to seven years.

The cost of maintenance and repairs is charged to expense as incurred.

16 unchanged sentences

Income from BOLI is recognized when earned.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

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.

5 unchanged sentences

If the Company's qualitative assessment concluded that it is "more likely than not" that the fair value of its reporting unit is less than its carrying amount, it must perform the two-step impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized, if any.

The first step of the goodwill impairment test compares the estimated fair value of the reporting unit with its carrying amount, or the book value, including goodwill.

The first step of the goodwill impairment test compares the estimated fair

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

value of the reporting unit with its carrying amount, or the book value, including goodwill.

If the estimated fair value of the reporting unit equals or exceeds its book value, goodwill is considered not impaired, and the second step of the impairment test is unnecessary.

4 unchanged sentences

Management's qualitative assessment takes into consideration macroeconomic conditions, industry and market considerations, cost or margin factors, financial performance and the share price of the Company's common stock.

The Company performed its fiscal year 2022 goodwill impairment test during the quarter ended June 30, 2022.

The Company performed its

fiscal year 2023 goodwill impairment test during the quarter ended June 30, 2023 with the assistance of an independent third-party firm specializing in goodwill impairment valuations for financial institutions.

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, 2023.

14 unchanged sentences

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.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

Loan Servicing Rights

10 unchanged sentences

Impairment, if deemed temporary, is recognized through a valuation allowance to the extent that fair value is less than the recorded amount.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

Operating Leases

5 unchanged sentences

As the Company's leases typically do not provide an implicit rate;

the Company uses its incremental borrowing rate based on the information available at the operating lease commencement date in determining the present value of lease payments.

the Company uses the weighted average discount rate to estimate the present value of future lease payments in calculating the value of the ROU asset.

The operating lease ROU assets is further reduced by any lease pre-payments made and lease incentives.

11 unchanged sentences

Valuation allowances are established to reduce the net recorded amount of deferred tax assets if it is determined to be more likely than not that all or some portion of the potential deferred tax asset will not be realized.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

With respect to accounting for uncertainty in incomes taxes, a tax provision is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.

7 unchanged sentences

The Company measures compensation cost for all stock-based awards based on the grant-date fair value of the stock-based awards and recognizes compensation cost over the service period of stock-based awards.

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

The fair value of stock options is

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

determined using the Black-Scholes valuation model.

Stock option forfeitures are accounted for as they occur.

The fair value of restricted stock is determined based on the grant date fair value of the Company's common stock.

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.

1 unchanged sentence

Related Party Transactions

The Chairman of the Board of the Bank and Timberland Bancorp is a member of the law firm that provides general counsel to the Company.

Legal and other fees paid to this law firm for the years ended September 30, 2022, 2021 and 2020 totaled $ 48,000 , $ 67,000 and $ 78,000 , respectively.

The Chairman of the Board of the Bank and Timberland Bancorp passed away during the year ended September 30, 2023.

He was a member of the law firm that provides general counsel to the Company.

Legal and other fees paid to this law firm during the period of time he served on the Board for years ended September 30, 2023, 2022 and 2021 totaled $ 24,000 , $ 48,000 and $ 67,000 , respectively.

Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses:

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments , as amended by ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10 and ASU 2019-11.

5 unchanged sentences

Securities and Exchange Commission, ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Upon adoption, the Company expects a change in the processes and procedures to calculate the allowance for loan losses, including changes in the assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model.

In addition, the current policy for OTTI on investment securities available for sale will be replaced with an allowance approach.

The Company is reviewing the requirements of ASU 2016-13 and has begun developing and implementing processes and procedures to help ensure that it is fully compliant with ASU 2016-13 at the adoption date.

At this time, the Company anticipates that the allowance for loan losses will increase as a result of the implementation of ASU 2016-13;

however, until its evaluation is complete, the magnitude of this increase will be unknown.

The Company adopted ASU 2016-13 as of October 1, 2023 in accordance with the required implementation date and recorded the impact of adoption to retained earnings, net of deferred income taxes, as required by the standard.

The adjustment recorded at adoption was not significant to the overall allowance for credit losses or shareholders' equity as compared to September 30, 2023 and consisted of adjustments to the allowance for credit losses on loans as well as an adjustment to the Company's reserve for unfunded loan commitments.

Subsequent to adoption, the Company will record adjustments to its allowance for credit losses and reserves for unfunded loan commitments through the provision for credit losses in the consolidated statement of income.

The Company also recorded an immaterial allowance for credit losses on investment securities at the date of adoption.

The majority of investment securities held are treasury or government agency-backed securities, which have minimal risk.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other:

1 unchanged sentence

This ASU simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.

In computing the implied fair value of goodwill under Step 2, an entity has to perform procedures to determine the fair value of its assets and liabilities (including unrecognized assets and liabilities) at the impairment testing date following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.

Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

5 unchanged sentences

The adoption ASU 2017-04 is not expected to a have a material impact on the Company's future consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the accounting for Income Taxes.

The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidelines.

ASU 2019-12 was effective for fiscal years beginning after December 15, 2020,

including interim periods within those fiscal years.

The Company adopted ASU 2019-12 effective October 1, 2021, and it did not have a material impact on the Company's consolidated financial statements.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

3 unchanged sentences

This ASU is effective for all entities as of March 12, 2020 through December 31, 2024.

The Company has not adopted ASU 2020-04 as of September 30, 2022.

The adoption of ASU 2020-04 is not expected to have a material impact on the Company's future consolidated financial statements.

The Company has adopted ASU 2020-04 as of June 30, 2023.

The adoption of ASU 2020-04 did not have a material impact on the Company's consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures.

The amendments eliminate the accounting guidance for troubled debt restructurings (“TDRs”) for creditors, require new disclosures for creditors for certain loan refinancings and restructurings when a borrower is experiencing financial difficulty, and require public business entities to include current-period gross write-offs in the vintage disclosure tables.

This ASU eliminates the accounting guidance for TDRs for creditors, requires new disclosures for creditors for certain loan refinancings and restructurings when a borrower is experiencing financial difficulty, and requires public business entities to include current-period gross write-offs in the vintage disclosure tables.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The adoption of ASU 2022-02 is not expected to have a material impact on the Company's future consolidated financial statements.

The Company adopted ASU 2022-02 in conjunction with ASU 2016-13 as of October 1, 2023.

The adoption of ASU 2022-02 did not have a material impact on the 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.

Note 2 - Restricted Assets

29 unchanged sentences

Private label residential 49,335 245 ( 2,392 ) 47,188

Taxable municipal securities 2,102 — (67) 2,035

Bank issued trust preferred securities 500 — ( 31 ) 469

36 unchanged sentences

35,447 ( 2,166 ) 27 8,708 ( 226 ) 6 44,155 ( 2,392 )

Taxable municipal securities 2,035 (67) 1 — — — 2,035 (67)

Bank issued trust preferred securities 469 ( 31 ) 1 — — — 469 ( 31 )

$ 189,351 $ ( 10,937 ) 100 $ 47,652 $ ( 6,148 ) 20 $ 237,003 $ ( 17,085 )

11 unchanged sentences

The Company has the ability and the intent to hold the investments until the fair value of these securities recovers.

Additional deterioration in market and economic conditions related to the COVID-19 pandemic may, however, have an adverse impact on credit quality in the future and result in OTTI charges.

The Company bifurcates 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).

18 unchanged sentences

Loss severity rate — % 12.96 % 4.55 %

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

The following table presents a roll forward of the credit loss component of held to maturity and available for sale debt securities that have been written down for OTTI with the credit loss component recognized in earnings for the years ended September 30, 2023, 2022 and 2021 (dollars in thousands):

9 unchanged sentences

Balance, end of year $ 816 $ 836 $ 853

During the year ended September 30, 2022, the Company recorded a $ 1,000 net realized gain on sixteen held to maturity investment securities, all of which had been recognized previously as a credit loss.

During the year ended September 30, 2021, the Company recorded a $ 12,000 net realized loss (as a result of investment securities being deemed worthless) on nineteen held to maturity investment securities, all of which had been recognized previously as a credit loss.

During the year ended September 30, 2020, the Company recorded a $ 66,000 net realized loss (as a result of investment securities being deemed worthless) on nineteen held to maturity investment securities, all of which had been recognized previously as a credit loss.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

During the year ended September 30, 2023, the Company recorded a $ 11,000 net realized loss on 14 held to maturity investment securities, all of which had been recognized previously as a credit loss.

During the year ended September 30, 2022, the Company recorded a $ 1,000 net realized gain on 16 held to maturity investment securities, all of which had been recognized previously as a credit loss.

During the year ended September 30, 2021, the Company recorded a $ 12,000 net realized loss on 19 held to maturity investment securities, all of which had been recognized previously as a credit loss.

During the year ended September 30, 2023, the Company recorded a $95,000 realized gain on sale of two available for sale investment securities.

There were no realized gains or losses on available for sale investment securities for the years ended September 30, 2022 and 2021.

The recorded amount of investment securities pledged as collateral for public fund deposits, federal treasury tax and loan deposits and FHLB collateral totaled $ 201,817,000 and $ 133,824,000 at September 30, 2023 and 2022, respectively.

140 unchanged sentences

September 30, 2023 and 2022

The CARES Act authorized the SBA to temporarily guarantee loans under the PPP.

The Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act") authorized the SBA to temporarily guarantee loans under the PPP.

As a qualified SBA lender, the Company was automatically authorized to originate PPP loans upon commencement of the program in April 2020 through the program's initial conclusion in August 2020.

5 unchanged sentences

and (3) principal and interest payments deferred for at least six months from the date of disbursement.

All PPP loans needed to be issued by January 1, 2022.

The PPP ended on May 31, 2021.

Allowance for Loan Losses

290 unchanged sentences

Consumer loans:

Home equity and second mortgage — — — 145 — —

Commercial business loans 245 245 123 247 — —

32 unchanged sentences

With an allowance recorded:

Mortgage loans:

One- to four-family — — — 97 — —

Land 362 362 76 72 — —

Consumer loans:

Home equity and second mortgage — — — 145 — —

Commercial business loans 250 250 127 268 — —

35 unchanged sentences

Land 362 362 76 72 — —

Consumer loans:

Other — — — 7 — —

Commercial business loans 294 294 171 285 — —

13 unchanged sentences

September 30, 2023 and 2022

The CARES Act provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs.

This included short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.

Borrowers were considered current under the CARES Act and related regulatory guidance if they were less than 30 days past due on their contractual payments at the time a modification program is implemented.

Among other purposes, the CAA 2021, provided coronavirus emergency response and relief, including extending relief offered under the CARES Act related to restructured loans as a result of COVID-19.

The provisions ended on January 1, 2022.

In response to requests from borrowers and in accordance with the CARES Act and related regulatory guidance, the Company made payment deferral COVID-19 related modifications (typically 90-day payment deferrals with interest continuing to accrue or scheduled to be paid monthly) on a number of loans.

All of these borrowers had resumed making payments as of September 30, 2022.

Loan modifications in accordance with the CARES Act and related regulatory guidance were still subject to an evaluation in regard to determining whether or not a loan is deemed to be impaired.

The following table details the COVID-19 loan modifications on deferral status as of September 30, 2021 (dollars in thousands):

COVID-19 Loan Modifications

Mortgage loans Number Balance Percent

One- to four-family 1 $ 323 100.0 %

Total COVID-19 modifications 1 $ 323 100.0 %

The Company had $ 2,615,000 in TDRs included in impaired loans at September 30, 2022 and had no commitments to lend additional funds on these loans.

The Company had $ 2,553,000 in TDRs included in impaired loans at September 30, 2021 and had no commitments to lend additional funds on these loans.

The Company had $ 2,495,000 and $ 2,615,000 in TDRs included in impaired loans at September 30, 2023 and 2022, respectively, and no commitments to lend additional funds on these loans at either such date.

None of the allowance for loan losses was allocated to TDRs at September 30, 2023 and 2022.

9 unchanged sentences

Commercial $ 2,330 $ — $ 2,330

Land — 119 119

Consumer loans:

1 unchanged sentence

$ 2,472 $ 143 $ 2,615

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

There was one new TDR recognized during the year ended September 30, 2022.

There were no new TDRs during the years ended September 30, 2023 and 2021.

There was one new TDR during the year ended September 30, 2022.

The following table sets forth information with respect to the Company's TDRs, by portfolio segment, added during the year ended September 30, 2022:

17 unchanged sentences

Premises and equipment, net $ 21,642 $ 21,898

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

Note 6 – OREO and Other Repossessed Assets

5 unchanged sentences

Balance, end of year $ — 2 $ — 2

At September 30, 2022 and 2021, OREO and other repossessed assets consisted of OREO properties in Washington.

The Company recorded net gains on sales of OREO and other repossessed assets of $ 2,000 , $ 92,000 , and $ 35,000 for the years ended September 30, 2022, 2021 and 2020, respectively.

At September 30, 2023 and 2022, OREO and other repossessed assets consisted of two OREO properties in Washington with no book value.

The Company did not record a net gain or loss on sale of OREO for the year ended September 30, 2023.

For the years ended September 30, 2022 and 2021 the company recorded net gains on sales of OREO and other repossessed assets of $ 2,000 , and $ 92,000 , respectively.

Gains and losses on sales of OREO and other repossessed assets are recorded in the OREO and other repossessed assets, net category in non-interest expense in the accompanying consolidated statements of income.

At September 30, 2022, there were no foreclosed residential real estate properties held in OREO as a result of obtaining physical possession, and there were no one- to four-family properties in the process of foreclosure.

At September 30, 2021, there were no foreclosed residential real estate properties held in OREO as a result of obtaining physical possession, and there was one one- to four-family property with a balance of $ 30,000 in the process of foreclosure.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

At September 30, 2023, and 2022 there were no foreclosed residential real estate properties held in OREO as a result of obtaining physical possession, and there were no one- to four-family properties in the process of foreclosure.

Note 7 - Goodwill and CDI

2 unchanged sentences

Amortization expense for the CDI for fiscal years ending subsequent to September 30, 2023 is estimated to be as follows (dollars in thousands):

Thereafter 45

Note 8 - Loan Servicing Rights

3 unchanged sentences

The guaranteed principal amount of SBA loans serviced for others at September 30, 2023, 2022 and 2021 was $ 1,882,000 , $ 3,560,000 and $ 6,761,000 , respectively.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

The following is an analysis of the changes in Freddie Mac loan servicing rights for the years ended September 30, 2023, 2022 and 2021 (dollars in thousands):

3 unchanged sentences

Amortization ( 1,009 ) ( 1,115 ) ( 1,022 )

Valuation recovery (allowance) 119 92 ( 211 )

Valuation recovery — 119 92

Balance, end of year $ 2,124 $ 3,020 $ 3,438

1 unchanged sentence

The Freddie Mac servicing rights' fair values at September 30, 2023, 2022 and 2021 were estimated using discounted cash flow analyses with an average discount rates of 9.50 %, 9.50 % and 9.00 %, and average conditional prepayment rates of 6.23 %, 6.31 % and 12.71 %, respectively .

At September 30, 2022, there was no valuation allowance.

At September 30, 2021 and 2020, there was a valuation allowance of $ 119,000 and $ 211,000 , respectively.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

At September 30, 2023 and 2022, there was no valuation allowance.

At September 30, 2021, there was a valuation allowance of $92,000, respectively.

The following is an analysis of the changes in SBA loan servicing rights for the years ended September 30, 2023, 2022 and 2021 (dollars in thousands):

1 unchanged sentence

Balance, beginning of year $ 3 $ 44 $ 115

Other additions — — 13

Amortization ( 3 ) ( 41 ) ( 89 )

Valuation recovery (allowance) — 18 ( 10 )

Valuation recovery — — 18

Balance, end of year $ — $ 3 $ 44

At September 30, 2022, SBA servicing rights were insignificant.

At September 2021 and 2020, the estimated fair value of SBA servicing rights totaled $ 99,000 and $ 115,000 , respectively.

The SBA servicing rights' fair values at September 30, 2021 and 2020 were estimated using discounted cash flow analyses with an average discount rate of 15.00 % for both years and average conditional prepayment rates of 17.85 % and 16.29 %, respectively.

At September 30, 2023 and 2022, SBA servicing rights were insignificant.

At September 30, 2021, the estimated fair value of SBA servicing rights totaled $ 99,000 .

The SBA servicing rights' fair values at September 30, 2021 were estimated using discounted cash flow analyses with an average discount rate of 15.00 % and average conditional prepayment rates of 17.85 % .

There was no valuation allowance on SBA servicing rights at September 30, 2023, 2022 and 2021.

Note 9 - Leases

At September 30, 2022, the Company has operating leases for two retail bank branch offices.

The Company's leases have remaining lease terms of four to nine years , both of which include options to extend the leases for up to five years .

At September 30, 2023, 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 eight years , which 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 liabilities.

4 unchanged sentences

Total lease cost $ 354 $ 371 $ 395

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

The following table provides supplemental information related to operating leases at or for the years ended September 30, 2023, 2022 and 2021 (dollars in thousands):

6 unchanged sentences

As an alternative, the weighted average discount rate is used to estimate the present value of future lease payments in calculating the value of the ROU asset.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

Maturities of operating lease liabilities at September 30, 2023 for the five fiscal years ending subsequent to September 30, 2023 and thereafter, are as follows (dollars in thousands):

12 unchanged sentences

Individual certificates of deposit in amounts of $250,000 or greater totaled $ 91,714,000 and $ 21,830,000 at September 30, 2023 and 2022, respectively.

The Company had brokered deposits totaling $ 4,617,000 and $ 11,383,000 at September 30, 2022 and 2021, respectively.

The Company had brokered deposits totaling $ 38,165,000 at September 30, 2023.

The Company had no brokered deposits at September 30, 2022.

The Company had reciprocal deposits totaling $70,764,000 and $4,617,000 at September 30, 2023 and 2022, respectively.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

Scheduled maturities of certificates of deposit for fiscal years ending subsequent to September 30, 2023 are as follows (dollars in thousands):

9 unchanged sentences

Total $ 11,302 $ 2,657 $ 3,013

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

Note 11 – FHLB Borrowings and Other Borrowings

1 unchanged sentence

At September 30, 2023, the Bank had a borrowing capacity of $ 533,989,000 .

The Bank had no long-term or short-term FHLB borrowings outstanding at September 30, 2022.

The Bank had $ 5,000,000 in FHLB borrowings outstanding at September 30, 2021.

The Bank had $ 15,000,000 long-term and $20,000,000 short-term FHLB borrowings outstanding at September 30, 2023.

The long term borrowings consisted of two borrowings, with scheduled maturities in May 2026, and each bears interest at 3.95%.

The short-term borrowings consist of three borrowings, which mature at various dates during the 2024 fiscal year and bear interest at rates ranging from 5.52% to 5.57%.

The Bank had no FHLB borrowings outstanding at September 30, 2022.

Under the Advances, Pledge and Security Agreement entered into with the FHLB ("FHLB Borrowing Agreement"), virtually all of the Bank’s assets, not otherwise encumbered, are pledged as collateral for borrowings under the FHLB Borrowing Agreement.

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

At September 30, 2022, the Bank had a borrowing capacity on this line of $ 77,089,000 .

The Bank had no outstanding borrowings on this line at both September 30, 2022 and 2021.

The Bank also maintains two short-term borrowing lines with the FRB, with total credit based on eligible collateral:

Borrower-in-custody ("BIC") and Bank Term Funding Program ("BTFP").

At September 30, 2023, the Bank had a borrowing capacity on the BIC line of $ 146,257,000 , with no outstanding borrowings at September 30, 2023 and 2022.

At September 30, 2023, the Bank had a borrowing capacity on the BTFP line of $57,000,000, with no outstanding borrowings at September 30, 2023.

The Bank has a short-term $ 50,000,000 overnight borrowing line with Pacific Coast Bankers' Bank.

7 unchanged sentences

Total other liabilities and accrued expenses $ 9,030 $ 7,697

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

Note 13 - Income Taxes

4 unchanged sentences

Provision for income taxes $ 6,876 $ 5,962 $ 6,845

At September 30, 2022 and 2021, the Company had income taxes payable of $ 332,000 and $ 42,000 , which is included in other liabilities and accrued expenses in the accompanying consolidated balance sheets.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

At September 30, 2023, the Company had income tax receivable of $ 107,000 , which is included in other assets in the accompanying consolidated balance sheets.

At September 30, 2022, the Company had an income tax payable of $ 332,000 , which is included in other liabilities and accrued expenses in the accompanying consolidated balance sheets.

The components of the Company’s deferred tax assets and liabilities at September 30, 2023 and 2022 were as follows (dollars in thousands):

14 unchanged sentences

Loan fees/costs 983 771

FHLB stock dividends — 38

Prepaid expenses 172 175

Purchase accounting adjustment 159 208

Net unrealized gains on investment securities and investments in equity securities — 20

Operating lease ROU assets 372 416

Total deferred tax liabilities 4,225 4,149

Net deferred tax liabilities $ ( 127 ) $ ( 510 )

Deferred tax liabilities are included in other liabilities and accrued expenses in the accompanying consolidated balance sheets.

Net deferred tax assets (liabilities) $ 262 $ ( 127 )

Deferred tax assets are included in other assets, and deferred tax liabilities are included in other liabilities and accrued expenses in the accompanying consolidated balance sheets.

No valuation allowance for deferred tax assets was recorded as of September 30, 2023 and 2022, as management believes that it is more likely than not that all of the deferred tax assets will be realized based on management's expectations of future taxable income.

The provision for income taxes for the years ended September 30, 2023, 2022 and 2021 differs from that computed at the federal statutory corporate tax rate as follows (dollars in thousands):

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

2023 2022 2021

1 unchanged sentence

BOLI income ( 148 ) ( 129 ) ( 125 )

Dividends on ESOP ( 70 ) ( 88 ) ( 75 )

Dividends on Employee Stock Ownership Plan ("ESOP") stock ( 71 ) ( 70 ) ( 88 )

Stock options tax effect ( 66 ) ( 34 ) ( 167 )

4 unchanged sentences

The KSOP benefits employees with at least one year of service who are 18 years of age or older.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

may fund the ESOP with contributions of cash or stock, which are made at the discretion of the Board, and may fund the 401(k) Plan with contributions of cash.

The Bank may fund the ESOP with contributions of cash or stock, which are made at the discretion of the Board, and may fund the 401(k) Plan with contributions of cash.

Employee vesting occurs over six years .

8 unchanged sentences

Note 15 - Stock Compensation Plans

Under the Company’s 2003 Stock Option Plan, the Company was able to grant options for up to 300,000 shares of common stock to employees, officers, directors and directors emeriti.

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 is able to 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.

2 unchanged sentences

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 20 % annual installments on each of the five anniversaries from the date of the grant, and options generally have a maximum contractual term of ten years from the date of the grant.

At September 30, 2022, there were 396 and 196,700 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.

At both September 30, 2022 and 2021, there were no unvested restricted stock awards.

There were no restricted stock grants awarded during the years ended September 30, 2022, 2021 and 2020.

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 the grant.

Restricted stock grants generally vest over a three or five year term from the date of grant.

At September 30, 2023, there were 5,036 and 176,050 shares of common stock available under the 2014 and 2019 Equity Incentive Plans, respectively.

Stock option activity for the years ended September 30, 2023, 2022 and 2021 is summarized as follows:

Notes to Consolidated Financial Statements

2 unchanged sentences

September 30, 2023 and 2022

Stock option activity for the years ended September 30, 2022, 2021 and 2020 is summarized as follows:

Shares Weighted Average

55 unchanged sentences

As of September 30, 2023, unrecognized compensation cost related to non-vested stock options was $ 777,000 , which is expected to be recognized over a weighted average period of 2.16 years.

During the year ended September 30, 2023, the Company granted a total of 26,150 shares of restricted stock from the 2019 Plan subject to time-based vesting.

At both September 30, 2022 and 2021, there were no unvested restricted stock awards outstanding.

There were no restricted stock grants awarded during the years ended September 30, 2022 and 2021.

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 September 30, 2023, unrecognized compensation cost related to unvested restricted stock awards was $716,000, which is expected to be recognized over a weighted average period of 2.83 years.

The following table presents the activity related to restricted stock for the year ended September 30, 2023:

Number of Unvested Shares Weighted Average Grant Date Fair Value

Outstanding, September 30, 2022 — $ —

Granted 26,150 27.37

Forfeited — —

Outstanding, September 30, 2023 26,150 $ 27.37

Note 16 - Commitments and Contingencies

2 unchanged sentences

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 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

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

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.

14 unchanged sentences

Increases (decreases) in the reserve for unfunded loan commitments are recorded in non-interest expense in the accompanying consolidated statements of income.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

The Bank has an employee severance compensation plan which expires in 2027 and which 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 will be eligible to participate in the plan.

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, the Chief Financial Officer and the Chief Operating 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.

Timberland Bancorp has employment agreements with the Chief Executive Officer and the Chief Operating 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.

7 unchanged sentences

The minimum requirements are a common equity Tier 1 ("CET1") capital ratio of 4.5 %, a Tier 1 capital ratio of 6.0 %, a total capital ratio of 8.0 % and a leverage ratio of 4.0 %.

In addition to the minimum regulatory 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.

In addition to the minimum regulatory capital ratios, the Bank is required to

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

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 September 30, 2023, the Bank's CET1 capital exceeded the required capital conservation buffer.

10 unchanged sentences

Total capital 233,914 19.3 96,975 8.0 121,219 10.0

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

September 30, 2022

17 unchanged sentences

Total capital 235,023 19.4 218,667 19.5

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

Note 18 - Condensed Financial Information - Parent Company Only

13 unchanged sentences

Total liabilities and shareholders’ equity $ 233,213 $ 218,614

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

Condensed Statements of Income - Years Ended September 30, 2023, 2022 and 2021

13 unchanged sentences

Net income $ 27,118 $ 23,600 $ 27,583

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

Condensed Statements of Cash Flows - Years Ended September 30, 2023, 2022 and 2021

5 unchanged sentences

Equity in undistributed income of Bank ( 15,897 ) ( 13,482 ) ( 18,726 )

Earned ESOP shares — — 31

Stock option compensation expense 320 246 173

4 unchanged sentences

Investment in Bank ( 267 ) ( 202 ) ( 149 )

Purchase of investment securities held to maturity — — ( 500 )

Net cash used in investing activities ( 267 ) ( 202 ) ( 149 )

8 unchanged sentences

End of year $ 517 $ 1,710 $ 2,932

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

Note 19 - Net Income Per Common Share

13 unchanged sentences

(1) For the years ended September 30, 2023, 2022 and 2021, average options to purchase 207,803 , 204,265 and 136,148 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.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

Note 20 - Accumulated Other Comprehensive Income (Loss)

13 unchanged sentences

[1] All amounts are net of income taxes.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

Note 21 - Fair Value Measurements

12 unchanged sentences

The Company's assets measured at estimated fair value on a recurring basis at September 30, 2023 and 2022 are as follows (dollars in thousands):

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

Estimated Fair Value

18 unchanged sentences

The specific reserve for collateral dependent impaired loans is based on the estimated fair value of the collateral less estimated costs to sell, if applicable.

In some cases, adjustments are made to the appraised

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2022 and 2021

values due to various factors including age of the appraisal, age of comparables included in the appraisal and known changes in the market and in the collateral.

In some cases, adjustments are made to the appraised values due to various factors including age of the appraisal, age of comparables included in the appraisal and known changes in the market and in the collateral.

Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value.

8 unchanged sentences

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 September 30, 2022 (dollars in thousands):

Estimated Fair Value

Impaired loans:

Level 1 Level 2 Level 3

Commercial business loans

$ — $ — $ 123

Total impaired loans — — 123

Total $ — $ — $ 123

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis as of September 30, 2022 (dollars in thousands):

Estimated Fair Value Valuation Technique(s)

Unobservable Input(s)

Impaired loans $ 123 Market approach Appraised value less estimated selling costs NA

The following table summarizes the balances of assets measured at estimated fair value on a non-recurring basis at September 30, 2021 (dollars in thousands):

Estimated Fair Value

Impaired loans:

Level 1 Level 2 Level 3

Mortgage loans:

Land $ — $ — $ 286

Commercial business loans — — 123

Total impaired loans — — 409

Investment securities – held to maturity:

MBS - Private label residential — 10 —

OREO and other repossessed assets — — 157

Total $ — $ 10 $ 566

Notes to Consolidated Financial Statements

2 unchanged sentences

September 30, 2023 and 2022

Estimated Fair Value Valuation Technique(s) Unobservable Input(s) Range

Impaired loans $ 409 Market approach Appraised value less estimated selling costs NA

OREO and other repossessed assets 157 Market approach Lower of appraised value or

listing price less estimated selling costs NA

The following table summarizes the balances of assets measured at estimated fair value on a non-recurring basis at September 30, 2023 and 2022 (dollars in thousands):

Total Estimated Estimated Fair Value Measurements Using

Fair Value Level 1 Level 2 Level 3

September 30, 2023

Impaired loans $ 122 $ — $ — $ 122

September 30, 2022

Impaired loans $ 123 $ — $ — $ 123

The following table presents quantitative information about Level 3 inputs for financial instruments measured at fair value on a non-recurring basis at September 30, 2023 and 2022:

Valuation Technique Significant Unobservable Inputs Range

Impaired loans Market approach Appraised value less selling costs N/A

GAAP requires disclosure of estimated fair values for financial instruments.

22 unchanged sentences

300,100 297,542 — — 297,542

FHLB borrowings 35,000 34,747 — — 34,747

Accrued interest payable 1,397 1,397 1,397 — —

55 unchanged sentences

Net interest income 16,263 13,982 12,893 12,696

Provision for loan losses ( 270 ) — — —

Non-interest income 2,997 3,102 3,083 3,442

25 unchanged sentences

For the year ended September 30, 2022, the Company recognized $ 3,964,000 in service charges on deposits, $ 5,210,000 in ATM and debit card interchange transaction fees, $ 211,000 in escrow fees and $ 27,000 in fee income from non-deposit investment sales, all considered within the scope of ASC 606.

Descriptions of the Company's revenue-generating activities that are within the scope of ASC 606 are as follows:

Notes to Consolidated Financial Statements

2 unchanged sentences

September 30, 2023 and 2022

Descriptions of the Company's revenue-generating activities that are within the scope of ASC 606 are as follows:

• Service Charges on Deposits:

15 unchanged sentences

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-K

Item 8. Financial Statements and Supplementary Data