What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-02-12 compared with 2023-08-07 · 383 added, 392 removed, 716 unchanged (52% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

June 30, 2023 and September 30, 2022

December 31, 2023 and September 30, 2023

(Dollars in thousands, except per share amounts)

7 unchanged sentences

approximates fair value) 12,449 15,188

Investment securities held to maturity, at amortized cost (estimated fair value of $ 260,471 and $ 249,783 )

Investment securities held to maturity, at amortized cost (net of allowance for credit losses of $ 82 at December 31, 2023), (estimated fair value of $ 254,361 and $ 253,766 )

266,085 270,218

4 unchanged sentences

Loans held for sale 1,425 400

Loans receivable, net of allowance for loan losses of $ 15,307 and $ 13,703

Loans receivable, net of allowance for credit losses of $ 16,655 and $ 15,817

1,336,283 1,302,305

21 unchanged sentences

CONSOLIDATED BALANCE SHEETS (continued)

June 30, 2023 and September 30, 2022

December 31, 2023 and September 30, 2023

(Dollars in thousands, except per share amounts)

7 unchanged sentences

50,000,000 shares authorized;

8,094,174 shares issued and outstanding - June 30, 2023 8,221,952 shares issued and outstanding - September 30, 2022

8,120,708 shares issued and outstanding - December 31, 2023 8,105,338 shares issued and outstanding - September 30, 2023

34,869 34,771

8 unchanged sentences

CONSOLIDATED STATEMENTS OF INCOME

For the three and nine months ended June 30, 2023 and 2022

For the three months ended December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

Three Months Ended June 30, Nine Months Ended

2023 2022 2023 2022

Three Months Ended December 31,

Interest and dividend income

9 unchanged sentences

Net interest income 16,004 17,743

Provision for loan losses 610 — 1,610 —

Net interest income after provision for loan losses 16,024 13,982 49,918 39,571

Provision for (recapture of) credit losses

Provision for credit losses - loans 379 525

Recapture of credit losses - investment securities ( 10 ) —

Recapture of credit losses - unfunded commitments ( 33 ) —

Total provision for credit loss - net 336 525

Net interest income after provision for (recapture of) credit losses 15,668 17,218

Non-interest income

Net recoveries on investment securities 5 3

Gain on sale of investment securities available for sale, net 95 — 95 —

Service charges on deposits 1,023 947

3 unchanged sentences

Escrow fees 19 30

Valuation recovery on MSRs — — — 119

Other, net 253 297

4 unchanged sentences

CONSOLIDATED STATEMENTS OF INCOME (continued)

For the three and nine months ended June 30, 2023 and 2022

For the three months ended December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

Three Months Ended June 30, Nine Months Ended

2023 2022 2023 2022

Three Months Ended December 31,

Non-interest expense

1 unchanged sentence

Premises and equipment 973 924

Gain on sales/dispositions of premises and equipment, net ( 32 ) ( 6 ) ( 32 ) —

Advertising 186 195

OREO and other repossessed assets, net — ( 2 ) 1 ( 18 )

ATM and debit card interchange transaction fees 615 483

4 unchanged sentences

Loan administration and foreclosure 105 120

Data processing and telecommunications 944 698 2,612 1,980

Technology and telecommunication expenses 974 789

Deposit operations 320 346

16 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the three and nine months ended June 30, 2023 and 2022

For the three months ended December 31, 2023 and 2022

(Dollars in thousands)

Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

Comprehensive income

Net income $ 6,296 $ 7,507

Other comprehensive loss

Unrealized holding loss on investment securities available for sale, net of income taxes of $( 66 ) , $( 122 ), $( 8 ) and $( 167 ), respectively

( 249 ) ( 459 ) ( 29 ) ( 629 )

Other comprehensive income (loss)

Unrealized holding gain (loss) on investment securities available for sale, net of income taxes of $ 66 and $( 5 ), respectively

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

Accretion of OTTI on investment securities held to maturity, net of income taxes of $ 1 , and $ 0 , respectively

Total other comprehensive loss, net of income taxes ( 249 ) ( 458 ) ( 27 ) ( 624 )

Total other comprehensive income (loss), net of income taxes 257 ( 18 )

Total comprehensive income $ 6,553 $ 7,489

3 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the three and nine months ended June 30, 2023 and 2022

For the three months ended December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

Number of Shares Amount Accumulated

Compre-hensive

Income (Loss)

Stock Retained

Earnings Total

Balance, March 31, 2022 8,305,826 $ 40,988 $ 171,388 $ ( 107 ) 212,269

Net income — — 5,738 — 5,738

Other comprehensive loss — — — ( 458 ) ( 458 )

Repurchase of common stock ( 58,678 ) ( 1,502 ) — — ( 1,502 )

Exercise of stock options 2,300 27 — — 27

Common stock dividends ($ 0.22 per common share)

— — ( 1,827 ) — ( 1,827 )

Stock option compensation expense — 72 — — 72

Balance, June 30, 2022 8,249,448 $ 39,585 $ 175,299 $ ( 565 ) $ 214,319

Balance, March 31, 2023 8,203,174 $ 37,979 $ 190,177 $ ( 495 ) $ 227,661

Net income — — 6,306 — 6,306

Other comprehensive loss — — — ( 249 ) ( 249 )

Repurchase of common stock ( 110,000 ) ( 2,674 ) — — ( 2,674 )

Exercise of stock options 1,000 17 — — 17

Common stock dividends ($ 0.23 per common share)

— — ( 1,877 ) — ( 1,877 )

Stock option compensation expense — 79 — — 79

Balance, June 30, 2023 8,094,174 $ 35,401 $ 194,606 $ ( 744 ) $ 229,263

Common Stock Accumulated

10 unchanged sentences

— — ( 2,636 ) — ( 2,636 )

Stock option compensation expense — 204 — — 204

Balance, June 30, 2022 8,249,448 $ 39,585 $ 175,299 $ ( 565 ) $ 214,319

Stock-based compensation expense — 78 — — 78

Balance, December 31, 2022 8,231,197 $ 38,878 $ 185,406 $ ( 735 ) $ 223,549

Balance, September 30, 2023 8,105,338 $ 34,771 $ 199,386 $ ( 1,084 ) $ 233,073

Net income — — 6,296 — 6,296

Other comprehensive loss — — — ( 27 ) ( 27 )

Other comprehensive income — — — 257 257

Repurchase of common stock ( 12,330 ) ( 362 ) — — ( 362 )

2 unchanged sentences

— — ( 1,867 ) — ( 1,867 )

Stock option compensation expense — 235 — — 235

Balance, June 30, 2023 8,094,174 $ 35,401 $ 194,606 $ ( 744 ) $ 229,263

Stock-based compensation expense — 105 — — 105

Adoption of ASU 2016-13 , net of tax

— — ( 488 ) — ( 488 )

Balance, December 31, 2023 8,120,708 $ 34,869 $ 203,327 $ ( 827 ) $ 237,369

See notes to unaudited consolidated financial statements

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended June 30, 2023 and 2022

For the three months ended December 31, 2023 and 2022

(Dollars in thousands)

Nine Months Ended June 30,

Three Months Ended December 31,

Cash flows from operating activities

1 unchanged sentence

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses 1,610 —

Provision for credit losses 336 525

Depreciation 356 338

Deferred income taxes/(benefits) ( 77 ) 223

Accretion of discount on purchased loans ( 10 ) ( 28 )

Amortization of CDI 56 68

Stock option compensation expense 235 204

Gain on sale of investment securities available for sale, net ( 95 ) —

Stock-based compensation expense 105 78

Net recoveries on investment securities ( 5 ) ( 3 )

Change in fair value of investments in equity securities ( 37 ) ( 2 )

Amortization (accretion) of discounts and premiums on securities ( 922 ) 123

Gain on sales of OREO and other repossessed assets, net — ( 1 )

Accretion of discounts and premiums on securities ( 293 ) ( 298 )

Gain on sales of loans, net ( 78 ) ( 21 )

Gain on sales/disposition of premises and equipment, net ( 32 ) —

Loans originated for sale ( 4,742 ) ( 389 )

1 unchanged sentence

Amortization of loan servicing rights 236 263

Valuation recovery on loan servicing rights, net — ( 119 )

BOLI net earnings ( 156 ) ( 156 )

Increase (decrease) in deferred loan origination fees 636 ( 1,192 )

Increase in deferred loan origination fees 95 211

Net change in accrued interest receivable and other assets, and other liabilities and accrued expenses ( 1,087 ) 170

1 unchanged sentence

Cash flows from investing activities

Net decrease in CDs held for investment 5,963 4,594

Proceeds from sale of investment securities available for sale 8,929 —

Net decrease (increase) in CDs held for investment 2,739 ( 498 )

Purchase of investment securities held to maturity ( 1,919 ) ( 14,317 )

2 unchanged sentences

Proceeds from maturities and prepayments of investment securities available for sale 1,644 2,559

Purchase of FHLB stock ( 608 ) ( 91 )

Redemption of FHLB stock 1,601 —

Increase in loans receivable, net ( 34,869 ) ( 40,841 )

Purchases of premises and equipment ( 298 ) ( 143 )

Proceeds from sales of premises and equipment 45 —

Proceeds from sales of OREO and other repossessed assets — 158

Net cash used in investing activities ( 24,827 ) ( 67,607 )

3 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

For the nine months ended June 30, 2023 and 2022

For the three months ended December 31, 2023 and 2022

(Dollars in thousands)

Nine Months Ended June 30,

Three Months Ended December 31,

Cash flows from financing activities

Net increase (decrease) in deposits $ 66,134 $ ( 31,086 )

Proceeds from (repayments of) FHLB borrowings 15,000 ( 5,000 )

Repayments of FHLB borrowings ( 15,000 ) —

Proceeds from exercise of stock options 355 397

2 unchanged sentences

Net cash provided by (used in) financing activities 49,260 ( 33,673 )

Net decrease in cash and cash equivalents ( 186,802 ) ( 158,045 )

Net increase (decrease) in cash and cash equivalents 29,300 ( 91,859 )

Cash and cash equivalents

2 unchanged sentences

Supplemental disclosure of cash flow information

Income taxes paid $ 6,268 $ 3,642

Interest paid $ 6,206 $ 1,180

Supplemental disclosure of non-cash investing activities

Other comprehensive loss related to investment securities $ ( 27 ) $ ( 624 )

Operating lease liabilities arising from recording of ROU assets $ 71 $ —

Other comprehensive income (loss) related to investment securities $ 257 $ ( 18 )

Adjustment to retained earnings, net of deferred tax;

- adoption of ASU 2016-13 $ ( 488 ) $ —

See notes to unaudited consolidated financial statements

9 unchanged sentences

The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2023 (“2023 Form 10-K”).

The unaudited consolidated results of operations for the nine months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the entire fiscal year ending September 30, 2023.

The unaudited consolidated results of operations for the three months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the entire fiscal year ending September 30, 2024.

(b) Principles of Consolidation:

5 unchanged sentences

Actual results could differ from those estimates.

(e) Certain prior period amounts have been reclassified to conform to the June 30, 2023 presentation with no change to previously reported net income or total shareholders’ equity.

(e) Certain prior period amounts have been reclassified to conform to the December 31, 2023 presentation with no change to previously reported net income or total shareholders’ equity.

(2) INVESTMENT SECURITIES

Held to maturity and available for sale investment securities have been classified according to management’s intent and were as follows as of June 30, 2023 and September 30, 2022 (dollars in thousands):

Held to maturity and available for sale investment securities have been classified according to management’s intent and were as follows as of December 31, 2023 and September 30, 2023 (dollars in thousands):

Losses Estimated

June 30, 2023

Fair Value Allowance for Credit Losses ("ACL")

December 31, 2023

Held to Maturity

4 unchanged sentences

Private label residential 40,662 356 ( 1,934 ) 39,084 73

Taxable municipal securities 1,796 — ( 47 ) 1,749

Municipal securities 1,878 — ( 30 ) 1,848 —

Bank issued trust preferred securities 491 — ( 47 ) 444 9

Total $ 275,053 $ 268 $ ( 14,850 ) $ 260,471

Total held to maturity 266,085 $ 359 $ ( 12,083 ) $ 254,361 $ 82

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

Available for Sale

7 unchanged sentences

Private label residential 44,011 295 ( 2,611 ) 41,695

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

Bank issued trust preferred securities 500 — ( 31 ) 469

Municipal securities 1,787 — ( 47 ) 1,740

Bank issues trust preferred securities 500 — ( 51 ) 449

Total $ 270,218 $ 295 $ ( 16,747 ) $ 253,766

1 unchanged sentence

government agencies $ 43,132 $ — $ ( 1,361 ) $ 41,771

Total $ 42,309 $ — $ ( 894 ) $ 41,415

Held to maturity and available for sale investment securities with unrealized losses were as follows as of June 30, 2023 (dollars in thousands):

$ 43,132 $ — $ ( 1,361 ) $ 41,771

Held to maturity and available for sale investment securities with unrealized losses were as follows as of December 31, 2023 (dollars in thousands):

Less Than 12 Months 12 Months or Longer Total

6 unchanged sentences

Private label residential — — — 35,585 ( 1,934 ) 30 35,585 ( 1,934 )

Taxable municipal securities — — — 1,749 ( 47 ) 1 1,749 ( 47 )

Municipal securities — — — 1,748 ( 30 ) 1 1,748 ( 30 )

Bank issued trust preferred securities

15 unchanged sentences

1,288 ( 2 ) 1 38,205 ( 2,609 ) 32 39,493 ( 2,611 )

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

Municipal securities — — — 1,740 ( 47 ) 1 1,740 ( 47 )

Bank issued trust preferred securities — — — 449 ( 51 ) 1 449 ( 51 )

3 unchanged sentences

$ 10,635 $ ( 308 ) 3 $ 30,809 $ ( 1,053 ) 27 $ 41,444 $ ( 1,361 )

The Company has evaluated the investment securities in the above tables and has determined that the declines in their fair value are temporary.

The unrealized losses are primarily due to changes in market interest rates and spreads in the market for mortgage-related products.

The fair value of these securities is expected to recover as the securities approach their maturity dates and/or as the pricing spreads narrow on mortgage-related securities.

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

Further, as of June 30, 2023, management does not have the intent to sell any of the securities classified as available for sale for which the estimated fair value is below the recorded value and believes that it is more likely than not that the Company will not have to sell such securities before a recovery of cost (or recorded value if previously written down).

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).

To determine the component of the gross OTTI related to credit losses, the Company compared the amortized cost basis of the OTTI security to the present value of its revised expected cash flows, discounted using its pre-impairment yield.

The revised expected cash flow estimates for individual securities are based primarily on an analysis of default rates, prepayment speeds and third-party analytic reports.

Significant judgment by management is required in this analysis that includes, but is not limited to, assumptions regarding the collectability of principal and interest, net of related expenses, on the underlying loans.

The following table presents a summary of the significant inputs utilized to measure management’s estimates of the credit loss component on OTTI securities as of June 30, 2023 and 2022:

Range Weighted

Minimum Maximum Average

June 30, 2023

Constant prepayment rate 6.00 % 15.00 % 9.84 %

Collateral default rate — % 19.47 % 10.96 %

Loss severity rate — % 3.70 % 1.34 %

June 30, 2022

Constant prepayment rate 6.00 % 15.00 % 10.15 %

Collateral default rate 0.55 % 22.28 % 9.71 %

Loss severity rate — % 7.85 % 3.39 %

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 nine months ended June 30, 2023 and 2022 (dollars in thousands):

Nine Months Ended

Beginning balance of credit loss $ 836 $ 853

Additions (subtractions):

Net realized gain (loss) previously recorded

as credit losses

Recovery of prior credit loss ( 7 ) ( 13 )

Ending balance of credit loss $ 819 $ 842

During the nine months ended June 30, 2023, the Company recorded a $ 10,000 net realized loss on 14 held to maturity investment securities all of which had been recognized previously as credit loss.

During the nine months ended June 30, 2022, the Company recorded a $ 2,000 net realized gain on 16 held to maturity investment securities all of which had been recognized previously as credit loss.

The recorded amount of investment securities pledged as collateral for public fund deposits, federal treasury tax and loan deposits, FHLB collateral and other non-profit organization deposits totaled $ 204.13 million and $ 133.82 million at June 30, 2023 and September 30, 2022, respectively.

The contractual maturities of debt securities at June 30, 2023 were as follows (dollars in thousands).

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

During the three months ended December 31, 2022, the Company recorded a $ 7,000 net realized loss on 14 held to maturity investment securities all of which had been recognized previously as credit loss.

The recorded amount of investment securities pledged as collateral for public fund deposits, federal treasury tax and loan deposits, FHLB collateral and other non-profit organization deposits totaled $ 204.13 million and $ 201.82 million at December 31, 2023 and September 30, 2023, respectively.

The contractual maturities of debt securities at December 31, 2023 were as follows (dollars in thousands).

Expected maturities may differ from scheduled maturities due to the prepayment of principal or call provisions.

8 unchanged sentences

Total $ 266,085 $ 254,361 $ 41,492 $ 40,446

Credit Quality Indicators and Allowance for Credit Losses

Available for Sale Investment Securities

The Company assesses each available for sale investment security that is in an unrealized loss position to determine whether the decline in fair value below the amortized cost basis results from a credit loss or other factors.

The Company did not record an ACL on any available for sale debt securities at December 31, 2023 or upon adoption of ASU 2016-13 on October 1, 2023.

As of both dates, the Company considered the unrealized losses across the classes of major security-type to be related to fluctuations in market conditions, primarily interest rates, and not reflective of a deterioration in credit value.

The Company expects the fair value of these securities to recover as the securities approach their maturity dates or sooner if market yields for such securities decline.

The Company does not believe that these securities are other than temporarily impaired because of their credit quality or related to any issuer or industry specific event.

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

Held to Maturity Investment Securities

The Company measures expected credit losses on held to maturity investment securities, which are comprised of U.S.

government agency and U.S.

government mortgage-backed securities, private label mortgage-backed securities, municipal, and other bonds.

The Company’s agency and mortgage-backed securities that are issued by U.S.

government entities and agencies are either explicitly or implicitly guaranteed by the U.S.

government, are highly rated by major rating agencies, and have a long history of no credit losses.

As such, no ACL has been established for these securities.

The ACL on the private label mortgage-backed securities, municipal, and other bonds within the held to maturity securities portfolio is calculated using the probability of default/loss given default ("PD/LGD") method.

The calculation is completed on a quarterly basis using the default studies provided by an industry leading source.

At December 31, 2023, the allowance for credit losses on the held to maturity securities portfolio totaled $ 82,000 .

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

Three Months Ended December 31, 2023

Held to Maturity Beginning Allowance Impact of Adopting CECL (ASU 2016-13) Provision for (Recapture of) Credit Losses Ending Allowance

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

Bank issued trust preferred securities — 10 ( 1 ) 9

Total $ — $ 92 $ ( 10 ) $ 82

The ACL on held to maturity investment securities is included within investment securities held to maturity on the consolidated balance sheets.

Changes in the ACL are recorded within provision for (recapture of) credit losses on the consolidated income statement.

Accrued interest receivable on held to maturity investment securities totaled $ 908,000 at December 31, 2023 and is included

within accrued interest income receivable on the consolidated balance sheet.

This amount is excluded from the estimate

of expected credit losses.

Held to maturity debt securities are typically classified as non-accrual when the contractual

payment of principal or interest has become 90 days past due or management has serious doubts about the further

collectability of principal or interest.

When held to maturity debt securities are placed on non-accrual status, unpaid interest

credited to income is reversed.

The Company had $ 85,000 of private label mortgage-backed held to maturity investment securities in non-accrual status at December 31, 2023.

The Company monitors the credit quality of debt securities held to maturity through the use of credit ratings from Moody's, S&P and Fitch.

The Company monitors the credit ratings on a quarterly basis.

The following table sets forth the Company's held to maturity investment securities at December 31, 2023 by credit quality indicator:

Credit Ratings

As of December 31, 2023 AAA/AA/A BBB/BB/B Unrated Total

Held to Maturity

Treasury and U.S.

government agency securities $ 169,869 $ — $ — $ 169,869

Mortgage-backed securities ("MBS"):

government agencies 53,185 — — 53,185

Private label residential 19,324 — 21,338 40,662

Municipal securities 1,778 — 100 1,878

Bank issued trust preferred securities — — 491 491

Total held to maturity $ 244,156 $ — $ 21,929 $ 266,085

Prior to adopting ASU 2016-13, the Company bifurcated OTTI into (1) amounts related to credit losses which are recognized through earnings and (2) amounts related to all other factors which are recognized as a component of other comprehensive income (loss).

The revised expected cash flow estimates for individual securities are based primarily on an analysis of default rates, prepayment speeds and third-party analytic reports.

Significant judgment by management was required in this analysis that included, but not limited to, assumptions regarding the collectability of principal and interest, net of related expenses, on the underlying loans.

The amounts written off due to credit loss remain and continue to be recovered on a cash basis.

The following table presents a roll forward of the credit loss component of held to maturity debt securities that have been written down for OTTI with the credit loss component recognized in earnings for the three months ended December 31, 2023 and 2022 (dollars in thousands):

Three Months Ended

Beginning balance of credit loss $ 816 $ 836

Subtractions:

Net realized loss previously recorded as credit losses ( 1 ) ( 7 )

Recapture of prior credit loss ( 4 ) ( 3 )

Ending balance of credit loss $ 811 $ 826

(3) GOODWILL AND CDI

6 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

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.

14 unchanged sentences

Any change in these indicators could have a significant negative impact on the Company's financial condition, impact the goodwill impairment analysis or cause the Company to perform a goodwill impairment analysis more frequently than once per year.

As of June 30, 2023, management believes that there have been no events or changes in the circumstances since May 31, 2023 that would indicate a potential impairment of goodwill.

As of December 31, 2023, management believes that there have been no events or changes in the circumstances since May 31, 2023 that would indicate a potential impairment of goodwill.

No assurances can be given, however, that the Company will not record an impairment loss on goodwill in the future.

1 unchanged sentence

Any impairment charge could have a material adverse effect on the Company's results of operations and financial condition.

The recorded amount of goodwill at June 30, 2023 and September 30, 2022 remained unchanged at $ 15.13 million.

The recorded amount of goodwill at December 31, 2023 and September 30, 2023 remained unchanged at $ 15.13 million.

CDI represents the future economic benefit of the potential cost savings from acquiring core deposits as part of a business combination compared to the cost of alternative funding sources.

1 unchanged sentence

CDI is evaluated for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable, with any changes in estimated useful life accounted for prospectively over the revised remaining life.

As of June 30, 2023, management believes that there have been no events or changes in the circumstances that would indicate a potential impairment of CDI.

(4) LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loans receivable by portfolio segment consisted of the following at June 30, 2023 and September 30, 2022 (dollars in thousands):

As of December 31, 2023, management believes that there have been no events or changes in the circumstances that would indicate a potential impairment of CDI.

(4) LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Loans receivable by portfolio segment consisted of the following at December 31, 2023 and September 30, 2023 (dollars in thousands):

2023 September 30,

20 unchanged sentences

Total loans receivable 1,462,958 100.0 % 1,426,558 100.0 %

Undisbursed portion of construction loans in process 104,774 103,168

Undisbursed portion of construction loans in process (LIP") 104,683 103,194

Deferred loan origination fees, net 5,337 5,242

Allowance for loan losses 15,307 13,703

ACL 16,655 15,817

Subtotal 126,675 124,253

1 unchanged sentence

_____________________________

(1) Does not include one- to four-family loans held for sale totaling $ 0 and $ 748 at June 30, 2023 and September 30, 2022, respectively.

Loans receivable at June 30, 2023 and September 30, 2022 are reported net of unamortized discounts totaling $ 203,000 and $ 267,000 , respectively.

Allowance for Loan Losses

The following tables set forth information for the three and nine months ended June 30, 2023 and 2022 regarding activity in the allowance for loan losses by portfolio segment (dollars in thousands):

Three Months Ended June 30, 2023

Allowance Provision for

(Recapture of) Loan Losses Charge-

offs Recoveries Ending

Mortgage loans:

One- to four-family $ 2,052 $ 126 $ — $ — $ 2,178

Multi-family 938 74 — — 1,012

Commercial 6,904 125 — — 7,029

Construction – custom and owner/builder 726 73 — — 799

Construction – speculative one- to four-family 121 ( 11 ) — — 110

Construction – commercial 267 24 — — 291

Construction – multi-family 662 30 — — 692

Construction – land development 245 ( 12 ) — — 233

Land 363 26 — — 389

Consumer loans:

Home equity and second mortgage 507 35 — — 542

Other 47 5 ( 1 ) — 51

Commercial business loans 1,866 115 — — 1,981

Total $ 14,698 $ 610 $ ( 1 ) $ — $ 15,307

Nine Months Ended June 30, 2023

Allowance Provision for

(Recapture of) Loan Losses Charge-

offs Recoveries Ending

Mortgage loans:

(1) Does not include one- to four-family loans held for sale totaling $ 1,425 and $ 400 at December 31, 2023 and September 30, 2023, respectively.

Loans receivable at December 31, 2023 and September 30, 2023 are reported net of unamortized discounts totaling $ 182,000 and $ 192,000 , respectively.

Credit Quality Indicators

The Company uses credit risk grades which reflect the Company’s assessment of a loan’s risk or loss potential.

The Company categorizes loans into risk grade categories based on relevant information about the ability of borrowers to service their debt such as:

current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors such as the estimated fair value of the collateral.

The Company uses the following definitions for credit risk ratings as part of the on-going monitoring of the credit quality of its loan portfolio:

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

Watch loans are defined as those loans that still exhibit acceptable quality, but have some concerns that justify greater attention.

If these concerns are not corrected, a potential for further adverse categorization exists.

These concerns could relate to a specific condition peculiar to the borrower, its industry segment or the general economic environment.

Special Mention:

Special mention loans are defined as those loans deemed by management to have some potential weaknesses that deserve management’s close attention.

If left uncorrected, these potential weaknesses may result in the deterioration of the payment prospects of the loan.

Substandard loans are defined as those loans that are inadequately protected by the current net worth and paying capacity of the obligor, or of the collateral pledged.

Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt.

If the weakness or weaknesses are not corrected, there is the distinct possibility that some loss will be sustained.

Loans in this classification have the weaknesses of substandard loans with the additional characteristic that the weaknesses make the collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss.

At December 31, 2023 and September 30, 2023, there were no loans classified as doubtful.

Loans in this classification are considered uncollectible and of such little value that continuance as bankable assets is not warranted.

This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this loan even though partial recovery may be realized in the future.

At December 31, 2023 and September 30, 2023, there were no loans classified as loss.

The following table sets forth the Company's loan portfolio at December 31, 2023 by risk attribute and year of origination as well as current period gross charge-offs (dollars in thousands):

Term Loans Amortized Cost Basis by Origination Fiscal Year

Type 2024 2023 2022 2021 2020 Prior Revolving Loans Total Loans Receivable

One-to four-family

Multi-family 855 157 — — 1,012

Commercial 6,682 347 — — 7,029

Construction – custom and owner/builder 675 124 — — 799

Pass $ 2,096 $ 33,948 $ 113,479 $ 50,623 $ 19,711 $ 42,663 $ — $ 262,520

Substandard — — 217 — — 385 — 602

Total one- to four-family $ 2,096 $ 33,948 $ 113,696 $ 50,623 $ 19,711 $ 43,048 $ — $ 263,122

Pass $ 12,250 $ 9,541 $ 28,037 $ 32,216 $ 19,196 $ 45,115 $ 966 $ 147,321

Total multi-family $ 12,250 $ 9,541 $ 28,037 $ 32,216 $ 19,196 $ 45,115 $ 966 $ 147,321

Commercial real estate

Pass $ 5,022 $ 54,235 $ 128,949 $ 95,521 $ 60,026 $ 212,856 $ 5,898 $ 562,507

Watch — — — — 3,111 7,995 — 11,106

Substandard — — — — — 5,425 — 5,425

Total commercial real estate $ 5,022 $ 54,235 $ 128,949 $ 95,521 $ 63,137 $ 226,276 $ 5,898 $ 579,038

Term Loans Amortized Cost Basis by Origination Fiscal Year

Type 2024 2023 2022 2021 2020 Prior Revolving Loans Total Loans Receivable

Construction-custom & owner/builder

Pass $ 2,618 $ 48,389 $ 12,914 $ 1,094 $ — $ — $ — $ 65,015

Watch — — 524 3,532 454 436 — 4,946

Substandard — — — 150 — — — 150

Total construction $ 2,618 $ 48,389 $ 13,438 $ 4,776 $ 454 $ 436 $ — $ 70,111

Construction-speculative one-to four-family

Pass $ 567 $ 7,669 $ 644 $ 523 $ — $ — $ — $ 9,403

Total construction $ 567 $ 7,669 $ 644 $ 523 $ — $ — $ — $ 9,403

Construction-commercial

Pass $ — $ 15,780 $ 4,753 $ 1,293 $ — $ — $ — $ 21,826

Watch — 967 — — — — — 967

Total construction $ — $ 16,747 $ 4,753 $ 1,293 $ — $ — $ — $ 22,793

Construction-multi-family

Pass $ 53 $ 20,186 $ 11,821 $ 1,287 $ 8,118 $ — $ — $ 41,465

Total construction $ 53 $ 20,186 $ 11,821 $ 1,287 $ 8,118 $ — $ — $ 41,465

Construction-land development

Land 397 ( 8 ) — — 389

Consumer loans:

Home equity and second mortgage 440 102 — — 542

Other 42 11 ( 2 ) — 51

Commercial business loans 1,801 184 ( 5 ) 1 1,981

Total $ 13,703 $ 1,610 $ ( 7 ) $ 1 $ 15,307

Three Months Ended June 30, 2022

Allowance Provision for

(Recapture of) Loan Losses Charge-

Pass $ — $ 2,648 $ 13,983 $ — $ — $ — $ — $ 16,631

Total construction $ — $ 2,648 $ 13,983 $ — $ — $ — $ — $ 16,631

Pass $ 3,285 $ 6,694 $ 7,515 $ 5,410 $ 770 $ 2,939 $ 1,589 $ 28,202

Watch — — — — — — 495 495

Total land $ 3,285 $ 6,694 $ 7,515 $ 5,410 $ 770 $ 2,939 $ 2,084 $ 28,697

Pass $ 1,632 $ 5,406 $ 2,086 $ 323 $ 696 $ 2,563 $ 26,405 $ 39,111

Watch — — — — — 34 — 34

Substandard — — — — — 258 — 258

Total home equity $ 1,632 $ 5,406 $ 2,086 $ 323 $ 696 $ 2,855 $ 26,405 $ 39,403

Term Loans Amortized Cost Basis by Origination Fiscal Year

Type 2024 2023 2022 2021 2020 Prior Revolving Loans Total Loans Receivable

Other consumer

Pass $ 1,081 $ 568 $ 258 $ 117 $ 20 $ 746 $ 74 $ 2,864

Watch — — — — — 33 29 62

Total other consumer $ 1,081 $ 568 $ 258 $ 117 $ 20 $ 779 $ 103 $ 2,926

Current period gross write-offs $ 1 $ 1 $ — $ — $ — $ — $ — $ 2

Commercial business

Pass $ 6,102 $ 21,354 $ 40,471 $ 12,450 $ 9,714 $ 6,032 $ 38,818 $ 134,941

Watch — — 171 57 — — — 228

Substandard — 1,475 — — — 298 — 1,773

Total commercial business $ 6,102 $ 22,829 $ 40,642 $ 12,507 $ 9,714 $ 6,330 $ 38,818 $ 136,942

Pass $ — $ — $ — $ 353 $ 70 $ — $ — $ 423

Total SBA PPP $ — $ — $ — $ 353 $ 70 $ — $ — $ 423

Total loans receivable, gross (net of construction LIP)

Pass $ 34,706 $ 226,418 $ 364,910 $ 201,210 $ 118,321 $ 312,914 $ 73,750 $ 1,332,229

Watch — 967 695 3,589 3,565 8,498 524 17,838

Substandard — 1,475 217 150 — 6,366 — 8,208

Total loans receivable $ 34,706 $ 228,860 $ 365,822 $ 204,949 $ 121,886 $ 327,778 $ 74,274 $ 1,358,275

Current period gross charge-off $ 1 $ 1 $ — $ — $ — $ — $ — $ 2

Allowance for Credit Losses

The Company adopted the new accounting standard for the ACL, commonly referred to as the current expected credit losses ("CECL") methodology, as of October 1, 2023.

All disclosures as of and for the three months ended December 31, 2023 are presented in accordance with the new accounting standard.

The comparative financial periods prior to the adoption of this new accounting standard are presented and disclosed under previously applicable GAAP's incurred loss methodology, which is not directly comparable to the new, CECL methodology.

See also Note 10, Recent Accounting Pronouncements.

As a result of implementing this new accounting standard, there was a one-time adjustment to the fiscal year 2024 opening allowance balance of $ 461,000 related to loans held for for investment.

The Company elected not to measure an ACL for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful.

The Company has concluded that this policy results in the timely reversal of uncollectible interest.

The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost.

The ACL is evaluated and calculated on a collective basis for those loans which share similar risk characteristics.

For loans that do not share similar risk characteristics and cannot be evaluated on a collective basis, the Company will evaluate the loan individually.

The Company estimates the expected credit losses over the loans' contractual terms, adjusted for expected prepayments.

The ACL calculation is

calculated for loan segments utilizing loan level information and relevant information from internal and external sources related to past events and current conditions.

Management has adopted the discounted cash flow ("DCF") methodology for all segments.

The Company incorporates a reasonable and supportable forecast that utilizes current period national gross domestic product ("GDP") and national unemployment figures.

Each of the loan segments are impacted by these factors.

Prepayments are established for each segment based on historical averages for the segments, which management believes is an accurate presentation of future prepayment activity.

Loans that do not share common risk characteristics with other loans are evaluated individually and are not included in the collective analysis.

The ACL on loans that are individually evaluated may be estimated based on their expected cash flows, or in the case of loans for which repayment is expected substantially through the operation or sale of collateral when the borrower is experiencing financial difficulty, may be measured based on the fair value of the collateral less estimated selling costs.

When available information confirms that specific loans or portions thereof are uncollectible, identified amounts are charged against the ACL.

The existence of some or all of the following criteria will generally confirm that a loss has been incurred:

the loan is significantly delinquent and the borrower has not demonstrated the ability or intent to bring the loan current;

the Company has no recourse to the borrower, or if it does, the borrower has insufficient assets to pay the debt;

and/or the estimated fair value of the loan collateral is significantly below the current loan balance, and there is little or no near-term prospect for improvement.

Management's evaluation of the ACL is based on ongoing, quarterly assessments of the known and inherent risks in the loan portfolio.

Loss factors are based on the Company's historical loss experience with additional consideration and adjustments made for changes in economic conditions, changes in the amount and composition of the loan portfolio, delinquency rates, changes in collateral values, seasoning of the loan portfolio, duration of the current business cycle, a detailed analysis of individually evaluated loans and other factors as deemed appropriate.

Management also assesses the risk related to reasonable and supportable forecasts that are used.

These factors are evaluated on a quarterly basis.

Loss rates used by the Company are affected as changes in these factors increase or decrease from quarter to quarter.

In addition, regulatory agencies, as integral part of their examination process, periodically review the Company's allowance for credit 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.

The following tables set forth information for the three months ended December 31, 2023 and 2022 regarding activity in the ACL by portfolio segment (dollars in thousands):

Three Months Ended December 31, 2023

Allowance Impact of Adopting CECL (ASU 2016-13) Provision for

(Recapture of) Credit Losses Charge-

offs Recoveries Ending

14 unchanged sentences

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

Nine Months Ended June 30, 2022

Three Months Ended December 31, 2022

Allowance Provision for

16 unchanged sentences

Total $ 13,703 $ 525 $ — $ 1 $ 14,229

The following tables present information on the loans evaluated individually and collectively for impairment in the allowance for loan losses by portfolio segment at June 30, 2023 and September 30, 2022 (dollars in thousands):

Allowance for Loan Losses Recorded Investment in Loans

The following tables present information on the allowance for loan losses by portfolio segment at September 30, 2023 prior to the adoption of ASU 2016-13 (dollars in thousands):

Allowance for Credit Losses Recorded Investment in Loans

Evaluated for

6 unchanged sentences

Impairment Total

June 30, 2023

Mortgage loans:

One- to four-family $ — $ 2,178 $ 2,178 $ 373 $ 228,901 $ 229,274

Multi-family — 1,012 1,012 — 111,777 111,777

Commercial — 7,029 7,029 2,988 554,027 557,015

Construction – custom and owner/builder — 799 799 — 78,739 78,739

Construction – speculative one- to four-family — 110 110 — 7,037 7,037

Construction – commercial — 291 291 — 24,300 24,300

Construction – multi-family — 692 692 — 52,941 52,941

Construction – land development — 233 233 — 13,810 13,810

Land — 389 389 150 25,758 25,908

Consumer loans:

Home equity and second mortgage

— 542 542 390 39,618 40,008

Other — 51 51 — 2,469 2,469

Commercial business loans 123 1,858 1,981 289 136,825 137,114

SBA PPP loans — — — — 519 519

Total $ 123 $ 15,184 $ 15,307 $ 4,190 $ 1,276,721 $ 1,280,911

September 30, 2023

18 unchanged sentences

Total $ 123 $ 15,694 $ 15,817 $ 4,009 $ 1,319,355 $ 1,323,364

The following tables present an analysis of loans by aging category and portfolio segment at June 30, 2023 and September 30, 2022 (dollars in thousands):

Non-Accrual Loans

When a loan is 90 days delinquent the accrual of interest is generally discontinued and the loan is placed on non-accrual.

All interest accrued but not collected for loans placed on non-accrual is reversed out of interest income.

Generally, payments received on non-accrual loans are applied to reduce the outstanding principal balance of the loan.

At times interest may be accounted for on a cash basis, depending on the collateral value and the borrowers payment history.

A loan is generally not removed from non-accrual until all delinquent principal, interest and late fees have been brought current and the borrower demonstrates repayment ability over a a period of not less than six months and all taxes are current.

The following tables present an analysis of loans by aging category and portfolio segment at December 31, 2023 and September 30, 2023 (dollars in thousands):

Past Due 60-89

3 unchanged sentences

Past Due Current Total

June 30, 2023

December 31, 2023

Mortgage loans:

14 unchanged sentences

Total $ 66 $ 171 $ 3,366 $ — $ 3,603 $ 1,354,672 $ 1,358,275

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

Past Due 60-89

Past Due Non-

Accrual (1) Past Due

Accruing Total

Past Due Current Total

September 30, 2023

4 unchanged sentences

Construction – custom and owner/builder 151 — — — 151 73,088 73,239

— — — — — 67,091 67,091

Construction – speculative one- to four-family — — — — — 9,361 9,361

— — — — — 8,364 8,364

Construction – commercial — — — — — 26,030 26,030

8 unchanged sentences

Total $ 151 $ — $ 1,514 $ — $ 1,665 $ 1,321,699 $ 1,323,364

______________________

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

Credit Quality Indicators

The Company uses credit risk grades which reflect the Company’s assessment of a loan’s risk or loss potential.

The Company categorizes loans into risk grade categories based on relevant information about the ability of borrowers to service their debt such as:

The Company uses the following definitions for credit risk ratings as part of the on-going monitoring of the credit quality of its loan portfolio:

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

Watch loans are defined as those loans that still exhibit acceptable quality, but have some concerns that justify greater attention.

If these concerns are not corrected, a potential for further adverse categorization exists.

These concerns could relate to a specific condition peculiar to the borrower, its industry segment or the general economic environment.

Special Mention:

Special mention loans are defined as those loans deemed by management to have some potential weaknesses that deserve management’s close attention.

If left uncorrected, these potential weaknesses may result in the deterioration of the payment prospects of the loan.

Substandard loans are defined as those loans that are inadequately protected by the current net worth and paying capacity of the obligor, or of the collateral pledged.

Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt.

If the weakness or weaknesses are not corrected, there is the distinct possibility that some loss will be sustained.

At June 30, 2023 and September 30, 2022, there were no loans classified as doubtful.

Loans in this classification are considered uncollectible and of such little value that continuance as bankable assets is not warranted.

At June 30, 2023 and September 30, 2022, there were no loans classified as loss.

The following tables present an analysis of loans by credit quality indicator and portfolio segment at June 30, 2023 and September 30, 2022 (dollars in thousands):

June 30, 2023 Pass Watch Special

The following tables present an analysis of loans by credit quality indicator and portfolio segment at September 30, 2023 (dollars in thousands):

September 30, 2023 Pass Watch Special

Mention Substandard Total

13 unchanged sentences

Commercial business loans

135,502 — — 300 135,802

SBA PPP loans 466 — — — 466

Total $ 1,299,220 $ 17,758 $ — $ 6,386 $ 1,323,364

September 30, 2022

At December 31, 2023, the Company had $ 1.72 million of non-accrual loans with an ACL of $ 319,000 and $ 1.65 million of non-accrual loans with no ACL.

The following table is a summary of the amortized cost of collateral dependent non-accrual loans as of December 31, 2023 (in thousands):

Recorded Investment Related ACL

Mortgage loans:

One- to four-family $ 602 $ —

Multi-family 95,025 — — — 95,025

Commercial 683 —

Construction – custom and owner/builder 65,249 1,842 — — 67,091

Construction – speculative one- to four-family 8,364 — — — 8,364

Construction – commercial 29,059 — — — 29,059

Construction – multi-family 34,354 — — — 34,354

Construction – land development 13,557 — — 25 13,582

Land 25,882 522 — 450 26,854

Construction - custom & owner/builder 150 —

Consumer loans:

Home equity and second mortgage 34,709 19 — 459 35,187

Other 2,063 62 — 3 2,128

Home equity & second mortgage 171 —

Commercial business loans 1,760 319

SBA PPP loans 1,001 — — — 1,001

Total $ 3,366 $ 319

Impaired Loans

A loan is considered impaired when it is probable that the Company will be unable to collect all amounts (principal and interest) when due according to the contractual terms of the loan agreement.

Prior to the adoption of CECL, a loan was considered impaired when it was probable that the Company would be unable to collect all amounts (principal and interest) when due according to the original contractual terms of the loan agreement.

Smaller balance homogeneous loans, such as residential mortgage loans and consumer loans, may be collectively evaluated for impairment.

When a loan has been identified as being impaired, the amount of the impairment is measured by using discounted cash flows, except when, as an alternative, the current estimated fair value of the collateral (reduced by estimated costs to sell, if applicable) or observable market price is used.

When a loan was identified as being impaired, the amount of the impairment was measured by using discounted cash flows, except when, as an alternative, the current estimated fair value of the collateral (reduced by estimated costs to sell, if applicable) or observable market price was used.

The valuation of real estate collateral is subjective in nature and may be adjusted in future periods because of changes in economic conditions.

2 unchanged sentences

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

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 credit losses, and uncollected accrued interest is reversed against interest income.

If ultimate collection of principal is in doubt, all cash receipts on impaired loans are applied to reduce the principal balance.

The categories of non-accrual loans and impaired loans overlap, although they are not identical.

The following table is a summary of information related to impaired loans by portfolio segment as of June 30, 2023 and for the three and nine months then ended (dollars in thousands):

The following table is a summary of information related to impaired loans by portfolio segment prior to the adoption of CECL as of September 30, 2023 and for the year then ended (dollars in thousands):

Investment Unpaid Principal Balance (Loan Balance Plus Charge Off) Related

Allowance Quarter to Date ("QTD") Average Recorded Investment (1) Year to Date ("YTD") Average Recorded Investment (2) QTD Interest Income Recognized (1) YTD Interest Income Recognized (2) QTD Cash Basis Interest Income Recognized (1) YTD Cash Basis Interest Income Recognized (2)

Allowance Year to Date ("YTD") Average Recorded Investment (1) YTD Interest Income Recognized (1) YTD Cash Basis Interest Income Recognized (1)

With no related allowance recorded:

21 unchanged sentences

______________________________________________

(1) For the three months ended June 30, 2023 .

(2) For the nine months ended June 30, 2023.

The following table is a summary of information related to impaired loans by portfolio segment as of and for the year ended September 30, 2022 (dollars in thousands):

(1) For the year ended September 30, 2023 .

The following table is a summary of information related to impaired loans by portfolio segment prior to the adoption of CECL as of December 31, 2022 and for three months then ended (dollars in thousands):

Investment Unpaid Principal Balance (Loan Balance Plus Charge Off) Related

6 unchanged sentences

Commercial 2,980 2,980 — 2,984 33 42

450 450 — 492 — —

Land 425 425 — 438 — —

Consumer loans:

4 unchanged sentences

With an allowance recorded:

Consumer loans:

Home equity and second mortgage — — — 145 — —

Commercial business loans 249 249 127 249 — —

10 unchanged sentences

_____________________________________________

(1) For the year ended September 30, 2022.

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, 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.

The Company had $ 2.60 million and $ 2.62 million in TDRs included in impaired loans at June 30, 2023 and September 30, 2022, respectively, and had no commitments at these dates to lend additional funds on these loans.

There was no allowance for loan losses allocated to TDRs at June 30, 2023 and September 30, 2022.

There were no TDRs for which there was a payment default within the first 12 months of the modification during the nine months ended June 30, 2023.

The following tables set forth information with respect to the Company’s TDRs by interest accrual status as of June 30, 2023 and September 30, 2022 (dollars in thousands):

June 30, 2023

Accruing Non-

Accrual Total

Mortgage loans:

Commercial $ 2,302 $ — $ 2,302

Consumer loans:

Home equity and second mortgage 206 — 206

Total $ 2,604 $ — $ 2,604

September 30, 2022

Accruing Non-

Accrual Total

Mortgage loans:

Commercial $ 2,330 $ — $ 2,330

Consumer loans:

Home equity and second mortgage 142 55 197

Total $ 2,472 $ 143 $ 2,615

There were no new TDRs recognized during the nine months ended June 30, 2023.

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

The following table sets forth information with respect to the Company's TDR, by portfolio segment, during the year ended September 30, 2022 (dollars in thousands):

September 30, 2022 Number of

Contracts Pre-Modification

Investment Post- Modification

Investment End of

Home equity and second mortgage loan (1) 1 $ 136 $ 145 $ 142

Total 1 $ 136 $ 145 $ 142

(1) Modification was a result of an increase in principal balance and a reduction in interest rate and monthly payment.

At June 30, 2023, the Company has operating leases for three retail bank branch offices.

(1) For the three months ended December 31, 2022.

Troubled debt restructurings ("TDRs")

On October 1, 2023, the Company adopted ASU No.

2022-02, Financial Instruments - Credit Losses (ASU 2016-13).

This ASU eliminated the accounting guidance for TDR loans for creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower experiences financial difficulty.

No loans to borrowers experiencing financial difficulty were modified in the three months ended December 31, 2023.

At December 31, 2022, the Company had $ 2.58 million of TDRs, all of which were paying as agreed.

There were no new TDRs for the three months ended December 31, 2022.

In accordance with the Company's policy guidelines, unsecured loans are generally charged-off when no payments have been received for three consecutive months unless an alternative action plan is in effect.

The outstanding balance of a secured loan that is in excess of the net realizable value is generally charged-off if no payments are received for four or five consecutive months.

However, charge-off's are postponed if alternative proposals to restructure, obtain additional guarantors, obtain additional assets as collateral or a potential sale of the underlying collateral would result in full repayment of the outstanding loan balance.

Once any other potential source of repayment are exhausted, the impaired portion of the loan is charged-off.

Regardless of whether a loan is unsecured or collateralized, once an amount is determined to be a confirmed loan loss it is promptly charged off.

At December 31, 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 , and include options to extend the leases from two 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.

The components of lease cost (included in the premises and equipment expense category in the consolidated statements of income) are as follows for the three and nine months ended June 30, 2023 and 2022 (dollars in thousands):

Three Months Ended June 30, Nine Months Ended June 30,

2023 2022 2023 2022

The components of lease cost (included in the premises and equipment expense category in the consolidated statements of income) are as follows for the three months ended December 31, 2023 and 2022 (dollars in thousands):

Three Months Ended December 31,

Operating lease cost $ 93 $ 88

1 unchanged sentence

Total lease cost $ 93 $ 88

The following tables provide supplemental information related to operating leases at or for the three and nine months ended June 30, 2023 and 2022 (dollars in thousands):

At or For the Three Months Ended June 30, 2023 At or For the

Nine Months Ended

June 30, 2023

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 79 $ 234

Weighted average remaining lease term-operating leases 6.9 years 6.9 years

Weighted average discount rate-operating leases 2.34 % 2.34 %

At or For the Three Months Ended June 30, 2022 At or For the

Nine Months Ended

June 30, 2022

The following tables provide supplemental information related to operating leases at or for the three months ended December 31, 2023 and year ended September 30, 2023 (dollars in thousands):

At or For the Three Months Ended December 31, 2023 At or For the Year Ended September 30, 2023

Cash paid for amounts included in the measurement of lease liabilities:

4 unchanged sentences

As an alternative, the weighted average discount rate used to estimate the present value of future lease payments in calculating the value of the ROU asset and lease liability was determined by utilizing the FHLB fixed-rate credit advance borrowing rate for the term correlating to the remaining term of each lease.

Maturities of operating lease liabilities at June 30, 2023 for future fiscal years are as follows (dollars in thousands):

Maturities of operating lease liabilities at December 31, 2023 for future fiscal years are as follows (dollars in thousands):

Remainder of 2024 $ 250

5 unchanged sentences

Basic net income per common share is computed by dividing net income to common shareholders by the weighted average number of common shares outstanding during the period without considering any dilutive items.

Nonvested shares of restricted stock are included in the computation of basic earnings per share because the holder has voting rights and shares in non-forfeitable dividends during the vesting period.

Diluted net income per common share is computed by dividing net income to common shareholders by the weighted average number of common shares and common stock equivalents for items that are dilutive, net of shares assumed to be repurchased using the treasury stock method at the average share price for the Company’s common stock during the period.

Common stock equivalents arise from the assumed conversion of outstanding stock options to purchase common stock.

Information regarding the calculation of basic and diluted net income per common share for the three and nine months ended June 30, 2023 and 2022 is as follows (dollars in thousands, except per share amounts):

Three Months Ended June 30, Nine Months Ended June 30,

2023 2022 2023 2022

Information regarding the calculation of basic and diluted net income per common share for the three months ended December 31, 2023 and 2022 is as follows (dollars in thousands, except per share amounts):

Three Months Ended December 31,

Basic net income per common share computation

9 unchanged sentences

____________________________________________

(1) For the three and nine months ended June 30, 2023, average options to purchase 256,503 and 203,823 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.

For the three and nine months ended June 30, 2022, average options to purchase 201,150 and 205,221 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.

(1) For the three months ended December 31, 2023 and 2022, average options to purchase 214,595 and 182,000 shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per common share, because their effect would have been anti-dilutive.

(7) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The changes in accumulated other comprehensive income (loss) ("AOCI") by component during the three and nine months ended June 30, 2023 and 2022 are as follows (dollars in thousands):

Three Months Ended June 30, 2023

Changes in fair value of available for sale securities (1) Changes in OTTI on held to maturity securities (1) Total (1)

Balance of AOCI at the beginning of period $ ( 486 ) $ ( 9 ) $ ( 495 )

Other comprehensive loss ( 249 ) — ( 249 )

Balance of AOCI at the end of period $ ( 735 ) $ ( 9 ) $ ( 744 )

Nine Months Ended June 30, 2023

Changes in fair value of available for sale securities (1) Changes in OTTI on held to maturity securities (1) Total (1)

Balance of AOCI at the beginning of period $ ( 706 ) $ ( 11 ) $ ( 717 )

Other comprehensive income (loss) ( 29 ) 2 ( 27 )

Balance of AOCI at the end of period $ ( 735 ) $ ( 9 ) $ ( 744 )

Three Months Ended June 30, 2022

The changes in accumulated other comprehensive income (loss) ("AOCI") by component during the three months ended December 31, 2023 and 2022 are as follows (dollars in thousands):

Three Months Ended December 31, 2023

Changes in fair value of available for sale securities (1) Changes in OTTI on held to maturity securities (1) Total (1)

Balance of AOCI at the beginning of period $ ( 1,075 ) $ ( 9 ) $ ( 1,084 )

Other comprehensive income (loss) ( 459 ) 1 ( 458 )

Other comprehensive income 248 9 257

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

Nine Months Ended June 30, 2022

Three Months Ended December 31, 2022

Changes in fair value of available for sale securities (1) Changes in OTTI on held to maturity securities (1) Total (1)

6 unchanged sentences

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.

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.

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.

Under the Company's 2019 Equity Incentive Plan, the Company is able to grant options and awards or restricted stock (with or without performance measures) for up to 350,000 shares of common stock, of which 300,000 shares are reserved to be awarded to employees, including officers, and 50,000 shares are reserved to be awarded to directors and directors emeriti.

2 unchanged sentences

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 grant.

At June 30, 2023, there were 4,796 shares of common stock available which may be awarded as options or restricted stock pursuant to future grant under the 2014 Equity Incentive Plan.

At June 30, 2023, there were 199,100 shares of common stock available which may be awarded as options or restricted stock pursuant to future grant under the 2019 Equity Incentive Plan.

At both June 30, 2023 and 2022, there were no unvested restricted stock awards.

There were no restricted stock grants awarded during the nine months ended June 30, 2023 and 2022.

Stock option activity for the nine months ended June 30, 2023 and 2022 is summarized as follows:

Nine Months Ended June 30, 2023 Nine Months Ended June 30, 2022

At December 31, 2023, there were 7,816 shares of common stock available which may be awarded as options or restricted stock pursuant to future grant under the 2014 Equity Incentive Plan.

At December 31, 2023, there were 178,650 shares of common stock available which may be awarded as options or restricted stock pursuant to future grant under the 2019 Equity Incentive Plan.

Stock option activity for the three months ended December 31, 2023 and 2022 is summarized as follows:

Three Months Ended December 31, 2023 Three Months Ended December 31, 2022

Number of Shares Weighted

2 unchanged sentences

Exercised ( 27,700 ) 12.81 ( 19,815 ) 20.01

Granted 1,000 33.40 1,000 27.25

Forfeited ( 5,380 ) 25.10 ( 1,800 ) 29.68

1 unchanged sentence

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

The weighted average assumptions for options granted during the nine months ended June 30, 2023 were as follows:

Expected volatility 33 %

Expected life (in years) 5

Expected dividend yield 2.99 %

Risk free interest rate 3.58 %

Grant date fair value per share $ 8.65

The aggregate intrinsic value of options exercised during the nine months ended June 30, 2023 and 2022 was $ 345,000 and $ 475,000 , respectively.

At June 30, 2023, there were 186,910 unvested options with an aggregate grant date fair value of $ 1.05 million, all of which the Company assumes will vest.

The aggregate intrinsic value of unvested options at June 30, 2023 was $ 313,000 .

There were 3,200 options vested during the nine months ended June 30, 2023 with a total fair value of $ 17,000 .

At June 30, 2022, there were 173,670 unvested options with an aggregate grant date fair value of $ 830,000 .

There were 2,400 options that vested during the nine months ended June 30, 2022 with a total fair value of $ 9,400 .

Additional information regarding options outstanding at June 30, 2023 is as follows:

There were no stock options granted during the three months ended December 31, 2023 and 2022.

The aggregate intrinsic value of options exercised during the three months ended December 31, 2023 and 2022 was $ 469,000 and $ 244,000 , respectively.

At December 31, 2023, there were 124,640 unvested options with an aggregate grant date fair value of $ 725,000 , all of which the Company assumes will vest.

The aggregate intrinsic value of unvested options at December 31, 2023 was $ 704,000 .

There were 100 options that vested during the three months ended December 31, 2023 with a total fair value of $ 326 .

At December 31, 2022, there were 191,710 unvested options with an aggregate grant date fair value of $ 1.08 million.

There were 200 options that vested during the three months ended December 31, 2022 with a total fair value of $ 652 .

Additional information regarding options outstanding at December 31, 2023 is as follows:

Options Outstanding Options Exercisable

9 unchanged sentences

336,070 $ 24.91 6.1 211,430 $ 24.36 5.0

388,070 $ 23.47 6.1 201,160 $ 21.31 4.2

The aggregate intrinsic value of options outstanding at June 30, 2023 and 2022 was $ 1.58 million and $ 1.81 million , respectively.

As of June 30, 2023, unrecognized compensation cost related to unvested stock options was $ 893,000 , which is expected to be recognized over a weighted average life of 2.22 years.

The aggregate intrinsic value of options outstanding at December 31, 2023 and 2022 was $ 2.22 million and $ 4.28 million , respectively.

As of December 31, 2023, unrecognized compensation cost related to unvested stock options was $ 711,000 , which is expected to be recognized over a weighted average life of 2.02 years.

At December 31, 2023, there were 26,150 unvested restricted stock awards.

At December 31, 2022, there were no unvested restricted stock awards.

There were no restricted stock grants awarded during the three months ended December 31, 2023 and 2022.

Number of Unvested Shares Weighted Average Grant Date Fair Value

Outstanding, September 30, 2023 26,150 $ 27.37

Forfeited — —

Outstanding, December 31, 2023 26,150 $ 27.37

The fair value of restricted stock awards is equal to the fair value of the Company's stock on the date of the grant.

The related stock-based compensation expense is recorded over the requisite service period.

At December 31, 2023, unrecognized compensation cost related to unvested restricted stock awards was $ 676,000 , which is expected to be recognized over a weighted average period of 2.78 years.

(9) FAIR VALUE MEASUREMENTS

10 unchanged sentences

The estimated fair values of mutual funds are based upon quoted market prices (Level 1).

The Company had no liabilities measured at fair value on a recurring basis at June 30, 2023 and September 30, 2022.

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

June 30, 2023 Estimated Fair Value

The Company had no liabilities measured at fair value on a recurring basis at December 31, 2023 and September 30, 2023.

The Company's assets measured at estimated fair value on a recurring basis at December 31, 2023 and September 30, 2023 were as follows (dollars in thousands):

December 31, 2023 Estimated Fair Value

Level 1 Level 2 Level 3 Total

11 unchanged sentences

Total $ 811 $ 41,771 $ — $ 42,582

There were no transfers among Level 1, Level 2 and Level 3 during the nine months ended June 30, 2023 and the year ended September 30, 2022.

There were no transfers among Level 1, Level 2 and Level 3 during the three months ended December 31, 2023 and the year ended September 30, 2023.

The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis in accordance with GAAP.

1 unchanged sentence

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

Individually Evaluated Collateral-Dependent Loans:

Loans for which repayment is substantially expected to be provided through the operation or sale of collateral are considered collateral dependent, and are valued based on the estimated fair value of the collateral, less estimated costs to sell at the reporting date, where applicable.

Accordingly, collateral dependent loans are classified within level 3 of the fair value hierarchy.

Impaired Loans :

The estimated fair value of impaired loans is calculated using the collateral value method or on a discounted cash flow basis.

Prior to the adoption of CECL, the estimated fair value of impaired loans is calculated using the collateral value method or on a discounted cash flow basis.

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.

2 unchanged sentences

Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

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

The following table summarizes the balances of assets measured at estimated fair value on a non-recurring basis at December 31, 2023 and September 30, 2023 (dollars in thousands):

Estimated Fair Value

Level 1 Level 2 Level 3

Impaired loans:

December 31, 2023 Level 1 Level 2 Level 3

Individually evaluated loans:

Commercial business loans $ — $ — $ 1,401

Total $ — $ — $ 1,401

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 June 30, 2023 (dollars in thousands):

Fair Value Valuation

Technique(s) Unobservable Input(s)

Impaired loans $ 122 Market approach Appraised value less estimated selling costs

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

Level 1 Level 2 Level 3

September 30, 2023 Level 1 Level 2 Level 3

Impaired loans:

1 unchanged sentence

Total $ — $ — $ 122

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):

Fair Value Valuation

Technique(s) Unobservable Input(s)

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

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 December 31, 2023 and September 30, 2023 (dollars in thousands):

Technique(s) Unobservable Input(s) Range

Individually evaluated and impaired loans Market approach Appraised value less estimated selling costs N/A

GAAP requires disclosure of estimated fair values for certain financial instruments.

3 unchanged sentences

The disclosures also do not include estimated fair value amounts for certain items which are not defined as financial instruments but for which may have significant value.

The Company does not believe that it would be practicable to estimate a representative fair value for these types of items as of June 30, 2023 and September 30, 2022.

The Company does not believe that it would be practicable to estimate a representative fair value for these types of items as of December 31, 2023 and September 30, 2023.

Because GAAP excludes certain items from fair value disclosure requirements, any aggregation of the fair value amounts presented would not represent the underlying value of the Company.

Additionally, in accordance with GAAP, the Company uses the exit price notion in calculating the fair values of financial instruments not measured at fair value on a recurring basis.

The recorded amounts and estimated fair values of financial instruments were as follows as of June 30, 2023 and September 30, 2022 (dollars in thousands):

June 30, 2023

The recorded amounts and estimated fair values of financial instruments were as follows as of December 31, 2023 and September 30, 2023 (dollars in thousands):

December 31, 2023

Fair Value Measurements Using:

7 unchanged sentences

Other investments 3,000 3,000 3,000 — —

Loans held for sale 1,425 1,426 1,426 — —

Loans receivable, net 1,336,283 1,286,383 — — 1,286,383

19 unchanged sentences

Certificates of deposit 300,100 297,542 — — 297,542

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

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

3 unchanged sentences

ASU 2016-13 replaces the existing incurred losses methodology with a current expected losses methodology with respect to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held to maturity investment securities and off-balance sheet commitments.

In addition, ASU 2016-13 requires credit losses relating to available for sale debt securities to be recorded through an allowance for credit losses rather than as a reduction of the carrying amount.

ASU 2016-13 also changes the accounting for PCI debt securities and loans.

2016-13 retains many of the current disclosure requirements in GAAP and expands certain disclosure requirements.

In addition, ASU 2016-13 required credit losses relating to available for sale debt securities to be recorded through an allowance for credit losses rather than as a reduction of the carrying amount.

ASU 2016-13 also changed the accounting for PCI debt securities and loans.

ASU 2016-13 retained many of the current disclosure requirements in GAAP and expanded certain disclosure requirements.

As a "smaller reporting company" filer with the U.S.

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 does not expect the allowance for loan losses to materially change as a result of the implementation of ASU 2016-13 and expects to finalize the calculation in the first quarter of the fiscal year ending September 30, 2024.

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

Upon adoption, the Company experienced changes in the processes and procedures to calculate the allowance for credit losses, including changes in the assumptions and estimates to consider expected credit losses over the life of the loan versus the accounting practices that were utilized with the incurred loss model.

In addition, the prior policy for OTTI on investment securities available for sale was replaced with an allowance approach.

On October 1, 2023, the Company adopted this ASU, which resulted in a net of tax charge of $ 488,000 to retained earnings, a $ 461,000 increase to the allowance for credit losses on loans, a $ 92,000 increase to credit losses on investment securities, and a $ 65,000 increase to credit losses on unfunded commitments for the cumulative effect of adopting this guidance.

For more information related to the implementation, see Note 4 Loans Receivable and Allowance for Credit Losses, Note 2 Investment Securities and Note 12 Commitment and Contingent Liabilities.

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

8 unchanged sentences

ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2022.

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

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

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This ASU applies to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate ("LIBOR") or other rate references expected to be discontinued because of reference rate reform.

The ASU permits an entity to make necessary modifications to eligible contracts or transactions without requiring contract remeasurement or reassessment of a previous accounting determination.

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 March 31, 2023.

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

The adoption of ASU 2017-04 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):

1 unchanged sentence

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.

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.

This ASU is effective upon adoption of ASU 2016-13.

On October 1, 2023, the Company adopted this ASU at the same time ASU 2016-13 was adopted.

The Company had no recoveries and write offs of $ 2,000 for the three months ended December 31, 2023.

(11) REVENUE FROM CONTRACTS WITH CUSTOMERS

3 unchanged sentences

All of the Company's revenue from contracts with customers withi n the scope of ASC 606 is recognized in non-interest income with the exception of gains on sales of OREO and gains on sales/disposition of premises and equipment, which are included in non-interest expense.

For the three months ended June 30, 2023, the Company recognized $ 970,000 in service charges on deposits, $ 1.34 million in ATM and debit card interchange transaction fees, $ 27,000 in escrow fees, and $ 1,000 in fee income from non-deposit investment sales.

For the nine months ended June 30, 2023, the Company recognized $ 2.81 million in service charges on deposits, $ 3.86 million in ATM and debit card interchange transaction fees, $ 85,000 in escrow fees and $ 35,000 in fee income from non-deposit investment sales.

For the three months ended June 30, 2022, the Company recognized $ 1.05 million

in service charges on deposits, $ 1.35 million in ATM and debit card interchange transaction fees, $ 41,000 in escrow fees, and $ 4,000 in fee income from non-deposit investment sales.

For the nine months ended June 30, 2022, the Company recognized $ 2.98 million in service charges on deposits, $ 3.87 million in ATM and debit card interchanges transaction fees, $ 164,000 in escrow fees, and $ 14,000 in fee income from non-deposit investment sales.

For the three months ended December 31, 2023, the Company recognized $ 1.02 million in service charges on deposits, $ 1.26 million in ATM and debit card interchange transaction fees, $ 19,000 in escrow fees, and $ 2,000 in fee income from non-deposit investment sales, all considered within the scope of ASC 606.

For the three months ended December 31,

2022, the Company recognized $ 947,000 in service charges on deposits, $ 1.25 million in ATM and debit card interchange transaction fees, $ 30,000 in escrow fees, and $ 30,000 in fee income from non-deposit investment sales.

If a contract is determined to be within the scope of ASC 606, the Company recognizes revenue when it satisfies its performance obligation.

27 unchanged sentences

Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate, land and income-producing commercial properties.

A summary of the Company's commitments at June 30, 2023 are listed below (in thousands):

June 30, 2023

A summary of the Company's commitments at December 31, 2023 and 2022 are listed below (in thousands):

December 31, 2023 December 31, 2022

Undisbursed portion of construction loans in process (see Note 4) $ 104,683 112,096

1 unchanged sentence

Commitments to extend credit 11,810 14,126

The Company maintains a separate reserve for losses related to unfunded loan commitments.

Management estimates the amount of probable losses related to unfunded loan commitments by applying the loss factors used in the allowance for loan loss methodology to an estimate of the expected amount of funding and applies this adjusted factor to the unused portion of

unfunded loan commitments.

The reserve for unfunded loan commitments totaled $ 327,000 at June 30, 2023.

These amounts are included in other liabilities and accrued expenses in the accompanying consolidated balance sheets.

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

$ 251,743 $ 260,154

The Company maintains a separate allowance for credit losses related to unfunded loan commitments.

The Company estimates expected losses on unfunded, off-balance sheet commitments over the contractual period in which the exposure to credit risk from a contractual obligation to extend credit, unless the Company has determined that obligation is unconditionally cancellable.

The allowance methodology for calculating the ACL on unfunded loan commitments is similar to the methodology for calculating the ACL on loans but also includes an estimate of the future utilization of the commitment as determined by

historical commitment utilization.

Credit risk associated with the unfunded commitments are consistent with the loss ratio for each loan segment within the allowance for credit losses for loans.

The ACL for unfunded commitments is recognized in other liabilities and accrued expenses in the consolidated balance sheets and is adjusted as a provision (recapture of provision) for credit losses on the consolidated income statements.

The ACL for unfunded loan commitments totaled $ 364,000 at December 31, 2023.

The following table sets forth information for the three months ended December 31, 2023 and 2022 regarding activity in the allowance for credit losses for unfunded loan commitments (dollars in thousands):

Allowance for Credit Losses December 31, 2023 December 31, 2022

Beginning balance $ 332 $ 305

Impact of adopting CECL (ASU 2016-13) 65 —

(Recapture of) provision for credit losses ( 33 ) 15

Ending allowance $ 364 $ 320

The Bank has an employee severance compensation plan which expires in 2027 that provides for 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).

6 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-Q

Item 1. Financial Statements