What changed in this filing

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Item 1. Business

2024-12-11 compared with 2023-12-11 · 243 added, 264 removed, 914 unchanged (36% of the section changed)

Timberland Bancorp, Inc.

(“Timberland Bancorp" or the "Company”), a Washington corporation, was organized on September 8, 1997 for the purpose of becoming the holding company for Timberland Bank (the "Bank").

(“Timberland Bancorp"), a Washington corporation, was organized on September 8, 1997 for the purpose of becoming the holding company for Timberland Bank (the "Bank").

At September 30, 2024, on a consolidated basis, the Company had total assets of $1.92 billion, net loans receivable of $1.42 billion, total deposits of $1.65 billion and total shareholders’ equity of $245.41 million.

2 unchanged sentences

The Bank opened for business in 1915 and serves consumers and businesses across Grays Harbor, Pierce, Thurston, King, Kitsap and Lewis counties, Washington with a full range of lending and deposit services through its 23 branches (including its main office in Hoquiam).

The Bank’s deposits are insured up to applicable legal limits by the FDIC.

The Bank’s deposits are insured up to applicable legal limits by the Federal Deposit Insurance Corporation (the “FDIC”).

The Bank has been a member of the Federal Home Loan Bank System since 1937.

The Bank is regulated by the DFI and the FDIC.

The Bank is regulated by the Washington State Department of Financial Institutions - Division of Banks (the “DFI”) and the FDIC.

The Company is regulated by the Federal Reserve.

28 unchanged sentences

Other industries that support the economic base are tourism, agriculture, shipping, transportation and technology.

According to the Washington State Employment Security Department, the unemployment rate in Grays Harbor County decreased to 4.8% at September 30, 2023 from 5.8% at September 30, 2022.

The median price of a resale home in Grays Harbor County for the quarter ended September 30, 2023 decreased 1.7% to $351,300 from $357,200 for the comparable prior year period.

According to the Washington State Employment Security Department, the unemployment rate in Grays Harbor County increased to 5.5% at September 30, 2024 from 4.8% at September 30, 2023.

The median price of a resale home in Grays Harbor County for the quarter ended September 30, 2024 increased 4.0% to $365,400 from $351,300 for the comparable prior year period.

The number of home sales decreased 13.7% for the quarter ended September 30, 2024 compared to the same quarter one year earlier.

4 unchanged sentences

The economy in Pierce County is diversified with the presence of military related government employment (Joint Base Lewis-McChord), transportation and shipping employment (Port of Tacoma), and aerospace related employment.

According to the Washington State Employment Security Department, the unemployment rate for the Pierce County area decreased to 3.9% at September 30, 2023 from 4.3% at September 30, 2022.

The median price of a resale home in Pierce County for the quarter ended September 30, 2023 decreased 1.7% to $545,200 from $554,900 for the comparable prior year period.

According to the Washington State Employment Security Department, the unemployment rate for the Pierce County area increased to 4.5% at September 30, 2024 from 3.9% at September 30, 2023.

The median price of a resale home in Pierce County for the quarter ended September 30, 2024 increased 5.7% to $576,400 from $545,200 for the comparable prior year period.

The number of home sales decreased 13.9% for the quarter ended September 30, 2024 compared to the same quarter one year earlier.

3 unchanged sentences

Thurston County is home of Washington State’s capital (Olympia), and its economic base is largely driven by state government related employment.

According to the Washington State Employment Security Department, the unemployment rate for the Thurston County area decreased to 3.4% at September 30, 2023 from 3.8% at September 30, 2022.

According to the Washington State Employment Security Department, the unemployment rate for the Thurston County area increased to 3.8% at September 30, 2024 from 3.4% at September 30, 2023.

The median price of a resale home in Thurston County for the quarter ended September 30, 2024 increased 2.4% to $528,800 from $516,300 for the same quarter one year earlier.

6 unchanged sentences

The economic base of Kitsap County is largely supported by military related government employment through the U.S.

According to the Washington State Employment Security Department, the unemployment rate for the Kitsap County area decreased to 3.5% at September 30, 2023 from 3.6% at September 30, 2022.

According to the Washington State Employment Security Department, the unemployment rate for the Kitsap County area increased to 3.8% at September 30, 2024 from 3.5% at September 30, 2023.

The median price of a resale home in Kitsap County for the quarter ended September 30, 2024 increased 0.3% to $554,100 from $552,700 for the same quarter one year earlier.

11 unchanged sentences

The economic base in Lewis County is supported by manufacturing, retail trade, local government and industrial services.

According to the Washington State Employment Security Department, the unemployment rate in Lewis County decreased to 4.3% at September 30, 2023 from 4.7% at September 30, 2022.

According to the Washington State Employment Security Department, the unemployment rate in Lewis County increased to 4.7% at September 30, 2024 from 4.3% at September 30, 2023.

The median price of a resale home in Lewis County for the quarter ended September 30, 2024 increased 3.6% to $425,800 from $410,900 for the same quarter one year earlier.

3 unchanged sentences

Historically, the principal lending activity of the Bank has consisted of the origination of loans secured by first mortgages on owner-occupied, one- to four-family residences, multi-family properties, commercial real estate, and on raw or developed land, and the origination of construction loans, primarily for the construction of one- to four-family residences.

The Bank’s net loans receivable totaled $1.30 billion at September 30, 2023, representing 70.8% of consolidated total assets, and at that date, commercial real estate, construction (including undisbursed loans in process), multi-family and land loans were $996.01 million, or 69.8% of total loans.

The Bank’s net loans receivable totaled $1.42 billion at September 30, 2024, representing 73.9% of consolidated total assets, and at that date, commercial real estate, construction (including undisbursed loans in process), multi-family and land loans were $1.03 billion, or 67.7% of total loans.

Commercial real estate, construction, multi-family, and land loans typically have higher rates of return than one- to four-family loans;

1 unchanged sentence

The Bank’s internal loan policy limits the maximum amount of loans to one borrower to 90% of its legal lending limit (which is 20% of its capital plus surplus).

According to the Washington Administrative Code, capital and surplus are defined as a bank's Tier 1 capital, Tier 2 capital and the balance of a bank's allowance for loan losses not included in the bank's Tier 2 capital as reported in the bank's call report.

According to the Washington Administrative Code, capital and surplus are defined as a bank's Tier 1 capital, Tier 2 capital and the balance of a bank's allowance for credit losses not included in the bank's Tier 2 capital as reported in the bank's call report.

At September 30, 2024, the maximum amount which the Bank could have lent to any one borrower and the borrower’s related entities was approximately $49.35 million under this policy.

25 unchanged sentences

Total mortgage loans 1,324,259 87.45 1,249,237 87.57 1,090,263 86.97

1,249,237 87.57 1,090,263 86.97 931,289 86.05

Consumer Loans:

3 unchanged sentences

Total consumer loans 51,042 3.37 41,053 2.88 37,315 2.98

41,053 2.88 37,315 2.98 35,500 3.28

Commercial Loans:

2 unchanged sentences

Total commercial business and SBA PPP loans 139,003 9.18 136,268 9.55 126,040 10.05

136,268 9.55 126,040 10.05 115,501 10.67

Total loans receivable 1,514,304 100.00 % 1,426,558 100.00 % 1,253,618 100.00 %

3 unchanged sentences

(5,425) (5,242) (4,321)

Allowance for loan losses

(15,817) (13,703) (13,469)

Allowance for credit losses (2) (17,478) (15,817) (13,703)

Total loans receivable, net $ 1,421,523 $ 1,302,305 $ 1,132,426

$ 1,302,305 $ 1,132,426 $ 968,454

(1) Does not include loans held for sale of $0, $400, and $748 at September 30, 2024, 2023, and 2022, respectively.

(2) Amounts for fiscal 2024 were calculated using the Current Expected Credit Loss (“CECL”) methodology to determine

the allowance for credit losses.

Amounts reported prior to October 1, 2023, were based on the previous incurred loss

methodology, which is not directly comparable to the allowance for credit losses calculated under the CECL

Residential One- to Four-Family Lending .

37 unchanged sentences

(90% for loans originated for sale in the secondary market to Freddie Mac or the FHLB).

At September 30, 2023, two one- to four-family loans totaling $368,000 were on non-accrual status.

At September 30, 2024, one one- to four-family loan of $49,000 was on non-accrual status.

See “Lending Activities - Non-performing Loans and Delinquencies.”

3 unchanged sentences

Treasury Bill Index, the Prime Rate or a matched term FHLB borrowing, with principal and interest payments fully amortizing over terms of up to 30 years.

At September 30, 2023, the Bank’s largest multi-family loan had an outstanding principal balance of $10.00 million and was secured by an apartment building located in Thurston County.

At September 30, 2024, the Bank’s largest multi-family loan had an outstanding principal balance of $10.07 million and was secured by an apartment complex located in Pierce County.

At September 30, 2024, this loan was performing according to its repayment terms.

12 unchanged sentences

Commercial real estate loans totaled $599.22 million, or 39.6%, of the total loan portfolio at September 30, 2024.

The Bank originates commercial real estate loans generally at variable interest rates with principal and interest payments fully amortizing over terms of up to 30 years.

The Bank originates commercial real estate loans generally at variable inte rest rates with principal and interest payments fully amortizing over terms of up to 30 years.

These loans are secured by properties, such as industrial warehouses, medical/dental offices, office buildings, retail/wholesale facilities, mini-storage facilities, hotel/motels, nursing homes, restaurants, convenience stores, shopping centers and mobile home parks, generally located in the Bank’s primary market area.

At September 30, 2023, the largest commercial real estate loan was secured by a medical office building in Thurston County, had a balance of $7.75 million and was perf or ming according to its repayment terms.

At September 30, 2023, two commercial real estate loans totaling $683,000 were on non-accrual status.

At September 30, 2024 , the largest commercial real estate loan was secured by a medical office building in Thurston County, had a balance of $7.59 million and was performing according to its repayment terms.

At September 30, 2024, six commercial real estate loans totaling $1.16 million were on non-accrual status.

See “Lending Activities - Non-performing Loans and Delinquencies.”

14 unchanged sentences

(i) custom construction and owner/builder construction loans and (ii) speculative construction loans.

The Bank believes that its lengthy experience in providing residential construction loans has enabled it to establish processing and disbursement procedures to

meet the needs of its borrowers while reducing many of the risks inherent with construction lending.

The Bank also originates construction loans for commercial properties, multi-family properties, and land development projects.

The Bank believes that its lengthy experience in providing residential construction loans has enabled it to establish processing and disbursement procedures to meet the needs of its borrowers while reducing many of the risks inherent with construction lending.

The Bank also originates construction loans

for commercial properties, multi-family properties, and land development projects.

The Bank's construction loans generally provide for the payment of interest only during the construction phase, which is billed monthly, although during the term of some construction loans, no payment from the borrower is required since the accumulated interest is added to the principal of the loan through an interest reserve.

16 unchanged sentences

At the completion of construction, the loan is converted to or refinanced into either a fixed-rate mortgage loan, which conforms to secondary market standards, or an ARM loan for retention in the Bank’s portfolio.

At September 30, 2023, the largest outstanding custom and owner/builder construction loan had an outstanding balance of $1.18 million (including $502,000 of undisbursed loans in process) and was performing according to its repayment terms.

At September 30, 2024, the largest outstanding custom and owner/builder construction loan had an outstanding balance of $2.00 million (fully disbursed) and was performing according to its repayment terms.

Speculative one- to four-family construction loans are made to home builders and are termed “speculative” because the home builder does not have, at the time of loan origination, a signed contract with a home buyer who has a commitment for permanent financing with either the Bank or another lender for the finished home.

1 unchanged sentence

Rather than originating lines of credit to home builders to construct several homes at once, the Bank generally originates and underwrites a separate loan for each home.

Speculative construction loans are generally originated for a term of 12 months, with current rates generally ranging fr om 6.50% to 9.50%, an d with a loan-to-value ratio of no more than 80 % of the appraised value of the completed property.

At September 30, 2023, the largest aggregate outstanding balance to one borrower for speculative one- to four-family construction loans to taled $3.12 million (including $796,000 of undisbursed loans in process) and was comprised of five loans that were performing according to their repayment terms.

Speculative construction loans are generally originated for a term of 12 months, with current rates generally ranging fr om 6.50% to 10.50%, and with a loan-to-value ratio of no more than 80 % of the appraised value of the completed property.

At September 30, 2024, the largest aggregate outstanding balance to one borrower for speculative one- to four-family construction loans to taled $2.38 million (including $897,000 of undisbursed loans in process) and was comprised of four loans that were performing according to their repayment terms.

The Bank also provides construction financing for multi-family and commercial properties.

At September 30, 2023, these loans amounted to $108.20 million, or 39.5%, of construction loan balances.

At September 30, 2024, these loans amounted to $57.86 million, or 26.4%, of co nstruction loan balances.

These loans are typically secured by apartment buildings, condominiums, mini-storage facilities, office buildings, hotels and retail rental space predominantly loc ated in the Bank’s primary market area.

At September 30, 2024, the largest outstanding multi-family construction loan was for $10.25 million (including $384,000 of undisbursed loans in process) secured by an apartment building project in Pierce County.

At September 30, 2023, the largest outstanding commercial real estat e construction loan was secured by a mini-storage facility in Grays Harbor, Washington and had a balance of $7.10 million (including $108,000 of undisbursed loans in process).

At September 30, 2024, the largest outstanding commercial real estat e construction loan was secured by a mini-storage facility in Snohomish County, Washington and had a balance of $5.92 million.

These loans were performing according to their repayment terms at September 30, 2024.

1 unchanged sentence

See “Lending Activities - Loan Solicitation and Processing.” Prior to approval of any construction loan application, an independent fee appraiser inspects the site and prepares an appraisal on an "as completed" basis, and the Bank reviews the existing or proposed improvements, identifies the market for the proposed project and analyzes the pro-forma data and assumptions on the project.

In the case of a speculative or

custom construction loan, the Bank reviews the experience and expertise of the builder.

After this preliminary review, the application is processed, which includes obtaining credit reports, financial statements and tax returns or verification of income on the borrowers and guarantors, an independent appraisal of the project, and any other expert reports necessary to evaluate the proposed project.

In the case of a speculative or custom construction loan, the Bank reviews the experience and expertise of the builder.

After this preliminary review, the application is processed, which includes obtaining credit reports, financial statements and tax returns or verification of income on the

borrowers and guarantors, an independent appraisal of the project, and any other expert reports necessary to evaluate the proposed project.

In the event of cost overruns, the Bank generally requires that the borrower increase the funds available for construction by paying the cost of such overruns directly or by depositing its own funds into a secured savings account, the proceeds of which are used to pay construction costs or to, the extent available, authorizes disbursements from a loan contingency line in the construction budget.

27 unchanged sentences

The Bank has historically attempted to minimize this risk by generally limiting the maximum loan-to-value ratio on land and land development loans to 75% of the estimated developed value of the secured property.

At September 30, 2024 the largest land development loan was for $11.55 million for a mixed-use development, one- to four-family units and multi-family, located in Thurston County.

This loan was classified as watch and was performing in accordance with its repayment terms at September 30, 2024.

Land Lending .

1 unchanged sentence

Land loans originated by the Bank generally have maturities of one to ten years.

The largest land loan is secured by land in Grays Harbor County, had an outstanding balance of $1.40 million and was performing according to its repayment terms at September 30, 2023 .

The largest land loan is secured by land in Multnomah County, Oregon, had an outstanding balance of $2.60 million and was performing according to its repayment terms at September 30, 2024 .

At September 30, 2024, all land loans were performing according to their repayment terms .

9 unchanged sentences

Consumer loans are made with both fixed and variable interest rates and with varying terms.

Home equity lines of credit and second mortgage loans are made for purposes such as the improvement of residential properties, debt consolidation and education expenses, among others.The majority of these loans are made to existing customers and are secured by a first or second mortgage on residential property.

Home equity lines of credit and second mortgage loans are made for purposes such as the improvement of residential properties, debt consolidation and education expenses, among others.

The majority of these loans are made to existing customers and are secured by a first or second mortgage on residential property.

The loan-to-value ratio is typically 90% or less, when considering both the first and second mortgage loans.

3 unchanged sentences

For those second mortgage loans and home equity lines credit on which the Bank does not hold the existing first mortgage on the property, it is unlikely that the Bank will be successful in recovering all or a portion of the loan balance in the event of default unless the Bank is prepared to repay the first mortgage loan and such repayment and the costs associated with a foreclosure are justified by the value of the property.

Consumer loans entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by rapidly depreciating assets such as automobiles.

In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation.

The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment.

In addition, consumer loan collections are dependent on the borrower’s continuing financial stability and are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

The Bank believes that these risks are not as prevalent in the case of the Bank’s consumer loan portfolio, because a large percentage of the portfolio consists of second mortgage loans and home equity lines of credit that are underwritten in a manner such that they result in credit risk that is substantially similar to one- to four-family residential mortgage loans.

At September 30, 2023, one consumer loan totaling $177,000 was on non-accrual status.

Consumer loans generally carry greater risk than residential mortgage loans, especially when they are unsecured or secured by assets that depreciate quickly, such as automobiles.

In such cases, repossessed collateral from a defaulted loan may not fully cover the outstanding balance due to depreciation, damage, or loss.

Often, the remaining deficiency does not justify significant collection efforts beyond obtaining a deficiency judgment.

Additionally, the repayment of consumer loans relies heavily on the borrower’s financial stability, making them more susceptible to disruptions caused by job loss, divorce, illness, or personal bankruptcy.

Federal and state laws, including bankruptcy and insolvency regulations, can further limit recovery efforts on these loans.

However, the Bank believes these risks are less pronounced in its consumer loan portfolio, as a significant portion consists of second mortgage loans and home equity lines of credit.

These loans are underwritten to maintain credit risk comparable to one- to four-family residential mortgage loans.

At September 30, 2024, three consumer loans totaling $618,000 were on non-accrual status.

See “Lending Activities - Non-performing Loans and Delinquencies.”

4 unchanged sentences

The largest commercial business loan had an outstanding balance of $3.18 million at September 30, 2024 and was performing according to its repayment terms.

At September 30, 2023, five commercial business loans totaling $286,000 were on non-accrual status.

At September 30, 2024, eight commercial business loans totaling $2.06 million were on non-accrual status.

See “Lending Activities - Non-performing Loans and Delinquencies.”

8 unchanged sentences

SBA 7(a) loans are all adjustable-rate loans based on the Prime Rate.

Under the SBA 7(a) program, the Bank can

sell in the secondary market the guaranteed portion of its SBA 7(a) loans and retain the related unguaranteed portion of these loans, as well as the servicing on such loans, for which it is paid a fee.

Under the SBA 7(a) program, the Bank can sell in the secondary market the guaranteed portion of its SBA 7(a) loans and retain the related unguaranteed portion of these loans, as

well as the servicing on such loans, for which it is paid a fee.

The loan servicing spread is generally a minimum of 1.00% on all SBA 7(a) loans.

27 unchanged sentences

Deferred loan origination fees, net (5,425)

Allowance for loan losses (15,817)

Allowance for credit losses (17,478)

Total loans receivable, net $ 1,421,523

_____________

(1) Includes $129.70 million of custom and owner/building construction/permanent loans, a portion of which may convert to permanent mortgage loans once construction is completed.

The following table sets forth the dollar amount of all loans due after one year from September 30, 2023, which have fixed interest rates and have floating or adjustable interest rates:

(1) Includes $132.10 million of custom and owner/building construction/permanent loans, a portion of which may convert to permanent

mortgage loans once construction is completed.

The following table sets forth the dollar amount of all loans due after one year from September 30, 2024, which have fixed interest rates and floating or adjustable interest rates:

Rates Floating or

20 unchanged sentences

An appraisal of the real estate offered as collateral generally is undertaken by a certified appraiser retained by the Bank.

Loan applications are initiated by loan officers and are required to be approved by an authorized loan officer or Bank underwriter, one of the Bank’s Loan Committees or the Bank’s Board of Directors.

The Bank’s Consumer Loan Committee consists of several underwriters, each of whom can approve one- to four-family mortgage loans and other consumer loans up to and including the current Freddie Mac single-family limit.

Loan officers may also be granted individual approval authority for certain loans up to a maximum of $250,000.

The approval authority for individual loan officers is granted on a case by case basis by the Bank's Chief Credit Administrator or Chief Executive Officer.

All construction loans must be approved by a member of one of the Bank's Loan Committees or the Bank's Board of Directors, or in the case of one- to four- family construction loans that meet Freddie Mac guidelines, by the Regional Manager of Community Lending, the Loan Department Supervisor or a Bank underwriter, subject to their individual or Loan Committee loan limit.

The Bank’s Commercial Loan Committee, which consists of the Bank’s Chief Executive Officer, Chief Credit Administrator, Executive Vice President of Lending, a commercial underwriter, and the Senior Vice President of Credit Administration, may approve commercial real estate loans and commercial business loans up to and including $3.00 million.

The Bank’s Chief Executive Officer, Chief Credit Administrator and Executive Vice President of Lending also have individual lending authority for loans up to and including $750,000.

The Bank’s Board Loan Committee, which consists of one permanent non-employee Director, one rotating non-employee Director and the Bank’s Chief Executive Officer may approve loans up to and including $5.00 million.

Loans in excess of $5.00 million, as well as loans of any amount granted to a single borrower whose aggregate loans exceed $5.00 million, must be approved by the Bank’s Board of Directors.

Loan applications are initiated by loan officers and must be approved by an authorized loan officer, Bank underwriter, the Bank’s Loan Committees, or the Bank’s Board of Directors.

The Bank’s Consumer Loan Committee consists of underwriters who can approve one- to four-family mortgage loans and other consumer loans up to the current Freddie Mac single-family limit.

Loan officers may be granted individual approval authority for loans up to $250,000 on a case-by-case basis by the Bank's Chief Credit Officer or Chief Executive Officer.

Construction loans must be approved by a member of one of the Bank's Loan Committees or the Bank's Board of Directors.

For one- to four-family construction loans meeting Freddie Mac guidelines, approval may be granted by the Regional Manager of Community Lending, the Loan Department Supervisor, or a Bank underwriter, subject to their individual or Loan Committee limits.

The Bank’s Commercial Loan Committee, composed of the Bank’s Chief Executive Officer, Chief Credit Officer, Chief Lending Officer, and a commercial underwriter may approve commercial real estate and business loans up to $3.00 million.

The Bank’s Chief Executive Officer, Chief Credit Officer, and Chief Lending Officer have individual authority to approve loans up to $750,000.

The Bank’s Board Loan Committee, which includes one permanent non-employee Director, one rotating non-employee Director, and the Bank’s Chief Executive Officer, may approve loans up to $5.00 million.

Loans exceeding $5.00 million, as well as loans of any amount that cause a single borrower’s total loans to exceed $5.00 million, must be approved by the Bank’s Board of Directors.

Loan Originations, Purchases and Sales .

3 unchanged sentences

During the years ended September 30, 2024, 2023 and 2022, the Bank did not purchase any loan participation interests.

During the year ended September 30, 2021, the Bank purchased $9.04 million in loan participation interests.

Consistent with its asset/liability management strategy, the Bank’s policy generally is to retain in its portfolio all ARM loans originated and to sell fixed-rate one- to four-family mortgage loans in the secondary market to Freddie Mac;

1 unchanged sentence

The Bank also sells the guaranteed portion of some of its SBA 7(a) loans in the secondary market.

Loans sold in the secondary market are generally sold on a servicing retained basis.

Loans sold in the secondary

market are generally sold on a servicing retained basis.

At September 30, 2024, the Bank’s loan servicing portfolio, which is not included in the Company’s consolidated financial statements, totaled $370.56 million.

1 unchanged sentence

These sales are usually made to avoid concentrations in a particular loan type or concentrations to a particular borrower and to generate fee income.

The Bank did not sell loan participations during the year ended September 30, 2023.

During the years ended September 30, 2022 and 2021, the Bank sold loan participation interests of $14.4 million and $10.0 million , respectively.

During the year ended September 30, 2024, the Bank sold loan participation interests of $5.80 million.

The Bank did not sell loan participation interests during the year ended September 30, 2023.

During the year ended September 30, 2022, the Bank sold loan participation interests of $14.39 million.

The following table shows total loans originated, purchased, sold and repaid during the years indicated.

11 unchanged sentences

Commercial business loans 26,755 28,470 61,174

SBA PPP loans — — 64,891

Total loans originated 251,438 361,788 572,463

Loans and loan participations purchased:

Mortgage loans:

Commercial — — 3,999

Commercial business — — 5,042

Total loans purchased — — —

5 unchanged sentences

Other items, net 31,109 (3,061) (10,754)

Net increase (decrease) in loans receivable $ 169,879 $ 163,972 $ (45,421)

Net increase in loans receivable $ 119,218 $ 169,879 $ 163,972

Loan Origination Fees .

1 unchanged sentence

Loan fees are a percentage of the loan which are charged to the borrower for funding the loan.

The amount of fees charged by the Bank (excluding SBA PPP loans) is generally up to 2.0% of the loan amount.

In addition to the 1.0% interest earned on SBA PPP loans, the Bank earned a fee from the SBA to cover processing costs, which is amortized over the life of the loan and recognized fully at payoff or forgiveness.

The amount of fees charged by the Bank is generally up to 2.0% of the loan amount.

Accounting principles generally accepted in the United States of America ("GAAP") require fees received and certain loan origination costs for originating loans to be deferred and amortized into interest income over the contractual life of the loan.

7 unchanged sentences

A notice is mailed to the borrower 16 days after the date the payment was due.

Attempts to contact the borrower by telephone generally begin on or before the 30 th day of

Attempts to contact the borrower by telephone generally begin on or before the 30 th day of delinquency.

If a satisfactory response is not obtained, continuous follow-up contacts are attempted until the loan has been brought current.

13 unchanged sentences

Commercial 1,158 683 657

Land — 450 683

Consumer loans 618 177 255

4 unchanged sentences

Non-accrual investment securities 51 82 106

Other real estate owned and other repossessed assets — — 157

Total non-performing assets (2) $ 3,936 $ 1,596 $ 2,165

Troubled debt restructured loans on accrual status (3) $ 2,495 $ 2,472 $ 2,371

Troubled debt restructured loans on accrual status (3) N/A $ 2,495 $ 2,472

Non-accrual and 90 days or more past due loans as a percentage of loans receivable, net (4) 0.27 % 0.11 % 0.18 %

7 unchanged sentences

and $0 as of September 30, 2024, 2023, and 2022, respectively.

(2) Does not include troubled debt restructured loans on accrual status.

(3) Does not include troubled debt restructured loans totaling $0, $142, and $182

recorded as non-accrual loans as of September 30, 2023, 2022 and 2021, respectively.

(4) Loans receivable, net for purposes of this table includes the deductions for the undisbursed portion of construction loans in process and deferred loan origination fees and does not include the deduction for the allowance for loan losses.

The Bank’s non-accrual loans de creased b y $545,000 to $1.51 million at September 30, 2023 from $2.06 million at September 30, 2022, as a result of decreases in non-accrual loans of $450,000 in land loans, $78,000 in consumer loans, $23,000 in commercial business loans, and $20,000 in one- to four-family mortgage loans, partially offset by a $26,000 increase in commercial real estate loans on non-accrual status.

(2) For the years ended September 30, 2023 and 2022, does not include troubled debt restructured loans on accrual status.

(3) For the years ended September 30, 2023 and 2022 does not include troubled debt restructured loans totaling $0, and $142 recorded as non-accrual.

The Bank’s non-accrual loans increased by $2.37 million to $3.89 million at September 30, 2024 from $1.51 million at September 30, 2023, as a result of increases in non-accrual loans of $1.77 million in commercial business loans, $475,000 in commercial real estate loans and $441,000 in consumer loans, partially offset by a $319,000 decrease in one- to four-family mortgage loans on non-accrual status.

A discussion of the Bank's largest non-performing loans is set forth below under “Asset Classification.”

3 unchanged sentences

Restructured Loans.

Under GAAP, the Bank is required to account for certain loan modifications or restructurings as “troubled debt restructurings” or "troubled debt restructured loans." 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 either accrual or non-accrual.

TDRs are classified as non-performing loans unless they have been performing in accordance with their modified terms for a period of at least six months.

The Bank had TDRs at September 30, 2023 and 2022 totaling $2.49 million and $2.61 million, of which $0 and $143,000, respectively, were on non-accrual status.

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

Impaired Loans.

In accordance with GAAP, a loan is considered impaired when based on current information and events it is probable that a creditor will be unable to collect all amounts (principal and interest) when due according to the 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.

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

Management considers third-party appraisals, as well as independent fair market value assessments from realtors or persons involved in selling real estate, in determining the estimated fair value of properties.

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

When the measurement 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.

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 Bank considers all circumstances regarding the loan and borrower on an individual basis when determining whether an impaired loan should be placed on non-accrual status, such as the financial strength of the borrower, the collateral value, reasons for delay, payment record, the amount past due and the number of days past due.

At September 30, 2023, the Bank had $4.00 million in impaired loans.

For additional information on impaired loans, see "Note 4-Loans Receivable and Allowance for Loan Losses of the Notes to the Consolidated Financial Statements contained in Item 8 of this report".

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 troubled debt restructured loans ("TDR") 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 years ended September 30, 2024 and 2023.

The Bank had TDRs at September 30, 2023 and 2022 totaling $2.50 million and $2.61 million, none of which were on non-accrual status.

None of the ACL was allocated to TDRs at September 30, 2023 or 2022.

Non-accrual Loans.

The Bank considers all circumstances regarding the loan and borrower on an individual basis when determining whether a loan should remain on non-accrual status, such as the financial strength of the borrower, the collateral value, reasons for delay, payment record, the amount past due and the number of days past due.

At September 30, 2024, the Bank had $3.89 million in non-accrual loans.

For additional information on non-accrual loans, see "Note 1 - Summary of Significant Accounting Policies" and "Note 4 - Loans Receivable and Allowance for Credit Losses" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.

Asset Classification.

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substandard, doubtful and loss.

Substandard loans are classified as those loans that are inadequately protected by the

current net worth and paying capacity of the obligor, or of the collateral pledged.

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

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

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An asset classified as loss is considered uncollectible and of such little value that continuance as an asset of the Bank is not warranted.

When the Bank classifies problem assets as either substandard or doubtful, it is required to establish allowances for loan losses in an amount deemed prudent by management.

When the Bank classifies problem assets as either substandard or doubtful, it is required to establish an ACL in an amount deemed prudent by management.

These allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities and the risks associated with problem assets.

When the Bank classifies problem assets as loss, it charges off the balance of the asset against the allowance for loan losses.

When the Bank classifies problem assets as loss, it charges off the balance of the asset against the ACL.

Assets which do not currently expose the Bank to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated by the Bank as special mention.

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Assets in this category are not adversely classified and currently do not expose the Bank to sufficient risk to warrant a substandard classification.

The Bank’s determination of the classification of its assets and the amount of its valuation allowances is subject to review by the FDIC and the Division which can require a different classification and the establishment of additional loss allowances.

The aggregate amounts of the Bank’s classified and special mention loans (as determined by the Bank), and the allowance for loan losses at the dates indicated, were as follows:

The Bank’s determination of the classification of its assets and the amount of its valuation allowances is subject to review by the FDIC and the DFI which can require a different classification and the establishment of additional loss allowances.

The aggregate amounts of the Bank’s classified and special mention loans (as determined by the Bank), and the ACL at the dates indicated, were as follows:

At September 30,

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Total classified and special mention loans $ 13,038 $ 6,386 $ 7,624

Allowance for loan losses $ 15,817 $ 13,703 $ 13,469

Allowance for credit losses $ 17,478 $ 15,817 $ 13,703

_____________

(1) Includes non-performing loans.

Loans classified as substandard decreased by $1.00 million to $6.39 million at September 30, 2023 from $7.39 million at September 30, 2022.

Loans classified as substandard increased by $2.05 million to $8.44 million at September 30, 2024 from $6.39 million at September 30, 2023.

At September 30, 2024, 22 loans were classified as substandard.

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This loan was not on non-accrual status at September 30, 2024, as the loan was making payments in accordance with its repayment terms and was adequately collateralized.

The next largest loan classified as substandard at September 30, 2023 had a balance of $488,000 and was secured by a commercial real estate property in Grays Harbor County.

This loan was on non-accrual status at September 30, 2023.

Allowance for Loan Losses.

The allowance for loan losses ("ALL") is maintained to absorb probable losses inherent in the loan portfolio.

The Bank has established a comprehensive methodology for the determination of provisions for loan losses that takes into consideration the need for an overall general valuation allowance.

The Bank’s methodology for assessing the adequacy of its ALL is based on its historic loss experience for various loan segments;

adjusted for changes in economic conditions, delinquency rates and other factors.

Using these loss estimates, management develops a range of probable loss for each loan category.

Certain individual loans for which full collectibility may not be assured are evaluated individually with loss exposure based on estimated discounted cash flows or net realizable collateral values.

The total estimated range of loss based on these two components of the analysis is compared to the loan loss allowance balance.

When determining the appropriate loss factors in fiscal 2023, management also took into consideration inflation, a potential recession and slowing economic growth, on such factors as the national and state unemployment rates and related trends, consumer spending levels and trends.

This loan was paid in full on December 2, 2024.

The next largest loan classified as substandard at September 30, 2024 had a balance of $1.19 million and was secured by a commercial real estate property in Snohomish County.

This loan was on non-accrual status at September 30, 2024 and has a 75% guarantee from the SBA.

One commercial business loan of $202,000 was classified as doubtful at September 30, 2024.

Timberland has charged off the unguaranteed portion of this loan and the remaining $202,000 balance represents the amount that is expected to be covered by

the SBA guarantee.

There were no loans classified as doubtful at September 30, 2023 and 2022.

Two commercial real estate loans were classified as special mention at September 30, 2024 and were performing according to repayment terms.

There were no loans classified as special mention at September 30, 2023 and 2022.

Allowance for Credit Losses.

The ACL is maintained to absorb expected losses inherent in the loan portfolio.

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

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

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

Management's evaluation of the ACL is based on ongoing 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 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 at least quarterly.

Loss rates used by the Bank are affected as changes in these factors increase or decrease.

In originating loans, the Bank recognizes that losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the security for the loan.

The Bank increases its ALL by charging provisions for loan losses against the Bank's operating income.

The Board of Directors reviews the adequacy of the ALL at least quarterly based on management's assessment of current economic conditions, past loss and collection experience, and risk characteristics of the loan portfolio.

The Bank’s ALL as a percentage of total loans receivable and as a percentage of non-performing loans was 1.20% and 1,044.72%, at September 30, 2023 and 1.20% and 665.52%, at September 30, 2022, respectively.

The $466,000 and $1.0 million of SBA PPP loans were omitted from the foregoing percentages at September 30, 2023 and 2022, respectively, as these loans are fully guaranteed by the SBA.

Based on its comprehensive analysis, management believes that the amount maintained in the ALL is adequate to absorb probable losses inherent in the portfolio.

Although management believes that it uses the best information available to make its determinations, future adjustments to the ALL may be necessary, and results of operations could be significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations.

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

In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing ALL is adequate or that substantial increases will not be necessary should the quality of any loans deteriorate.

A further decline in national and local economic conditions, as a result of the effects of inflation, a potential recession or slowing economic growth, among other factors could result in a material increase in the ALL which may adversely affect the Company's financial condition and results of operations.

An accounting change requiring that we calculate the ALL on the basis of the current expected credit losses over the lifetime of our loans, referred to as the CECL model, became applicable to us, as a smaller reporting company, on October 1, 2023.

This will change the current method of providing allowance for credit losses only when they have been incurred and are probable.

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

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

The Bank increases its ACL by charging provisions for credit losses against the Bank's operating income.

The Board of Directors reviews the adequacy of the ACL at least quarterly based on management's assessment of current economic conditions, past loss and collection experience, and risk characteristics of the loan portfolio.

The Bank’s ACL as a percentage of total loans receivable and as a percentage of non-performing loans was 1.21% and 449.88%, at September 30, 2024 and 1.20% and 1,044.72%, at September 30, 2023, respectively.

The $260,000 and $466,000 of SBA PPP loans were omitted from the foregoing percentages at September 30, 2024 and 2023, respectively, as these loans are fully guaranteed by the SBA.

Based on its comprehensive analysis, management believes that the amount maintained in the ACL is adequate to absorb expected losses inherent in the portfolio.

Although management believes that it uses the best information available to make its determinations, future adjustments to the ACL may be necessary, and results of operations could be significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations.

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

In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing ACL is adequate or that substantial increases will not be necessary should the quality of any loans deteriorate.

A further decline in national and local economic conditions, as a result of the effects of inflation, a recession or slowing economic growth, among other factors could result in a material increase in the ACL which may adversely affect the Company's financial condition and results of operations.

For further explanation of the CECL model, ACL calculation and the effects of adoption of the new accounting standard see "Note 1 - Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements in Item 8 of this report.

Credit Ratios

The following table sets forth the ratios between the ALL, non-accrual loans and total loans at the dates indicated:

The following table sets forth the ratios between the ACL, non-accrual loans and total loans at the dates indicated:

At September 30,

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(Dollars in thousands)

ALL $ 15,817 $ 13,703 $ 13,469

ACL (1) $ 17,478 $ 15,817 $ 13,703

Non-accrual loans $ 3,885 $ 1,514 $ 2,059

Loans receivable, net (2) $ 1,439,001 $ 1,318,122 $ 1,146,129

ALL to loans receivable, net 1.20 % 1.20 % 1.37 %

ACL to loans receivable, net 1.21 % 1.20 % 1.20 %

Non-accrual loans to loans receivable, net 0.27 % 0.11 % 0.18 %

ALL to non-accrual loans 1044.72 % 665.52 % 471.93 %

ACL to non-accrual loans 449.88 % 1044.72 % 665.52 %

________________________________

(1) Loans receivable, net for this table includes the deductions for the undisbursed portion of construction loans in process and net deferred loan origination fees and does not include the deduction for the ALL.

The following table sets forth the ALL by loan category at the dates indicated:

(1) Amounts for fiscal 2024 were calculated using the CECL methodology to determine the allowance for credit losses.

Amounts reported prior to October 1, 2023, were based on the previous incurred loss methodology, which is not directly comparable to the allowance for credit losses calculated under the CECL methodology.

(2) Loans receivable, net for this table includes the deductions for the undisbursed portion of construction loans in process and net deferred loan origination fees and does not include the deduction for the ACL/allowance for loan losses.

The following table sets forth the ACL by loan category at the dates indicated:

At September 30,

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2,640 9.18 1,967 9.55 1,801 10.05

Total allowance for loan losses

Total allowance for credit losses (1) $ 17,478 100.00 % $ 15,817 100.00 % $ 13,703 100.00 %

________________________________

Analysis of ALL

(1) Amounts for fiscal 2024 were calculated using the CECL methodology to determine the allowance for credit losses.

Amounts reported prior to October 1, 2023, were based on the previous incurred loss methodology, which is not

directly comparable to the allowance for credit losses calculated under the CECL methodology.

Analysis of ACL

The table below sets forth the ratio of net charge-offs during the period to average loans outstanding during the period:

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The Company's investment policy also permits investment in equity securities in certain financial service companies.

At September 30, 2023, the Bank’s investment portfolio was comprised of investments in debt securities that totaled $311.99 million, consisting of $171.63 million of U.S.

government agency securities held to maturity, $96.31 million of mortgage-backed securities held to maturity, $1.79 million of taxable municipal securities held to maturity, $500,000 of bank issued trust preferred securities held to maturity and $41.77 million of mortgage-backed securities available for sale.

The investment securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost.

Investment securities classified as available for sale are reported at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss), net of of income tax.

At September 30, 2024, the Bank’s investment portfolio totaled $244.35 million , consisting of $92.31 million of U.S.

government agency securities held to maturity, $77.96 million of mortgage-backed securities held to maturity, $1.33 million of municipal securities held to maturity, $495,000 of bank issued trust preferred securities held to maturity, $3.94 million of U.S.

government agency securities available for sale and $68.32 million of mortgage-backed securities available for sale.

The Bank does not maintain a trading account for any investments.

This compares with a total investment portfolio of $311.99 million at September 30, 2023, consisting of $171.63 million of U.S.

government agency securities held to maturity, $93.33 million of mortgage-backed securities held to maturity, $2.10 million of taxable municipal securities held to maturity, $500,000 of bank issued trust preferred securities held to maturity and $41.42 million of mortgage-backed securities available for sale.

The following table sets forth the maturities and weighted average yields of the debt securities in the Bank's portfolio at September 30, 2023.

government agency securities held to maturity, $96.31 million of mortgage-backed securities held to maturity, $1.79 million of municipal securities held to maturity, $500,000 of bank issued trust preferred securities held to maturity and $41.77 million of mortgage-backed securities available for sale.

The following table sets forth the maturities and weighted average yields of the investment securities in the Bank's portfolio at September 30, 2024.

The weighted average yields were calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values.

One Year or Less After One to

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government agency securities (1) $ 23,106 1.27 % $ 69,301 1.60 % $ — — % $ — — %

$ 79,622 1.27 % $ 86,942 1.55 % $ 5,062 1.41 % $ — — %

Mortgage-backed securities (1) 4,366 5.74 11,309 4.08 750 3.97 61,535 4.02

3,992 6.66 16,579 4.58 4,948 2.96 70,786 3.93

Taxable municipal securities — — 1,787 3.44 — — — —

Municipal securities (1) — — 1,230 3.44 — — — —

Bank issued trust preferred securities (1) — — — — 500 4.75 — —

Available for Sale:

Treasury and U.S.

government agency securities (1) 3,939 4.62 % — — — — — —

Mortgage-backed securities (1) — 2,130 5.96 5,144 5.96 61,044 5.25

385 5.75 2,590 5.84 6,642 5.96 32,154 5.36

Total portfolio (1) $ 31,411 2.31 % $ 83,970 2.80 % $ 6,394 5.63 % $ 122,579 4.63 %

________________________________

(1) Held to maturity investment securities are shown at amortized cost and available for sale investment securities are shown at estimated fair market value.

(2) The weighted average yields are calculated by multiplying each amortized cost value by its yield and dividing the sum of these results by the total amortized cost values.

Yields on tax-exempt investments are not calculated on a fully tax equivalent basis.

For additional information regarding investment securities, see “Item 1A.

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minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors.

In determining the terms of its deposit accounts, the Bank considers current market interest rates, profitability to the Bank,

matching deposit and loan products and its customer preferences and concerns.

In determining the terms of its deposit accounts, the Bank considers current market interest rates, profitability to the Bank, matching deposit and loan products and its customer preferences and concerns.

The Bank actively seeks consumer and commercial checking accounts through checking account acquisition marketing programs.

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At September 30, 2024, the Bank had $113.58 million of jumbo certificates of deposit of $250,000 or more.

The Bank had $59.48 million in reciprocal NOW checking deposits and $11.29 million in reciprocal money market deposits at September 30, 2023.

The Bank had $62.80 million in reciprocal negotiable order of withdrawal ("NOW") checking deposits and $30.67 million in reciprocal money market deposits at September 30, 2024.

At September 30, 2024, the Bank had $48.76 million in brokered certificates of deposit.

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The following table sets forth information concerning the Bank's deposits at September 30, 2024:

Category Amount Percentage of Total Deposits

Deposit Category Amount Percentage of Total Deposits

(Dollars in thousands)

Non-interest bearing demand $ 413,116 25.07 %

Negotiable order of withdrawal (“NOW”) checking 386,730 24.78

NOW 333,329 20.23

Savings 205,993 12.50

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Total $ 113,579

As of September 30, 2023, approximately $407.61 million of our deposit portfolio was uninsured.

The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.

The Bank is an approved depositor for public funds in Washington.

Per the applicable laws, public funds must be secured by qualified investment securities.

As of September 30, 2024, 2023 and 2022 approximately $471.08 million, $407.61 million and $122.69 million, respectively, of the Bank’s deposit portfolio was uninsured.

These amounts are estimates based on methodologies and assumptions used for regulatory reporting purposes.

The Bank is an approved public funds deposit institution in Washington, where applicable laws require public funds to be secured by qualified investment securities.

As of September 30, 2024, $177.40 million of the Bank's uninsured deposits were public funds, all of which were fully secured by qualified investment securities.

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Beginning balance $ 1,560,935 $ 1,632,176 $ 1,570,555

Net (withdrawals) deposits before interest credited (82,543) 58,965 209,136

Net deposits (withdrawals) before interest credited 57,074 (82,543) 58,965

Interest credited 29,659 11,302 2,656

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

Net increase (decrease) in deposits 86,733 (71,241) 61,621

Ending balance $ 1,647,668 $ 1,560,935 $ 1,632,176

For additional information regarding our deposits, see "Note 10 - Deposits" of the Notes to Consolidated Financial Statements contained in Item 8 of this report.

Deposits and loan repayments are generally the primary source of funds for the Bank's lending and investment activities and for general business purposes.

The Bank may use borrowings from the FHLB to supplement its supply of lendable funds and to meet deposit withdrawal requirements.

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Depending on the program, limitations on the amount of borrowings are based on the financial condition of the member institution and the adequacy of collateral pledged to secure the credit.

At September 30, 2023, the Bank maintained a credit facility with the FHLB that provided for immediately available borrowings up to an aggregate amount to 45% of the Bank’s total assets, limited by available collateral, under which long-term borrowings totaling $15.00 million and short-term borrowings totaling $20.00 million were outstanding at September 30, 2023.

The Bank 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 no outstanding balance on the BIC line, under which $146.26 million was available for future borrowings.

At September 30, 2023, the Bank had no outstanding balance on the BTFP line, under which $57.00 million was available for future borrowings.

At September 30, 2024, the Bank maintained a credit facility with the FHLB that provided for immediately available borrowings up to an aggregate amount to 45% of the Bank’s total assets, limited by available collateral, under which long-term borrowings totaling $20.00 million and no short-term borrowings were outstanding at September 30, 2024.

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

At September 30, 2024, the Bank had no outstanding balance on this line, with $86.63 million available for future borrowings.

A short-term borrowing line of credit of $50.00 million is also maintained at Pacific Coast Bankers' Bank ("PCBB").

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Timberland Bancorp is also subject to the rules and regulations of the SEC under the federal securities laws.

As a state-chartered savings bank, the Bank is subject to regulation and oversight by the Division and the applicable provisions of Washington law and regulations of the Division adopted thereunder.

As a state-chartered savings bank, the Bank is subject to regulation and oversight by the DFI and the applicable provisions of Washington law and regulations of the DFI adopted thereunder.

The Bank also is subject to regulation and examination by the FDIC, which insures the deposits of the Bank to the maximum extent permitted by law, and requirements established by the Federal Reserve.

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Under state law, savings banks in Washington also generally have all the powers that federal savings banks have under federal laws and regulations.

The Bank is subject to periodic examination and reporting requirements by and of the Division and the FDIC.

The Bank is subject to periodic examination and reporting requirements by and of the DFI and the FDIC.

The following is a brief description of certain laws and regulations applicable to Timberland Bancorp and the Bank.

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Legislation is introduced from time to time in the U.S.

Congress or the

Washington State Legislature that may affect the operations of Timberland Bancorp and the Bank.

In addition, the regulations governing the Company and the Bank may be amended from time to time by the FDIC, DFI, Federal Reserve and the CFPB.

Congress or the Washington State Legislature that may affect the operations of Timberland Bancorp and the Bank.

In addition, the regulations governing the Company and the Bank may be amended from time to time by the FDIC, DFI, Federal Reserve and the Consumer Financial Protection Bureau ("CFPB").

Any such legislation or regulatory changes in the future could adversely affect the Company's and the Bank's operations and financial condition.

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Regulation of the Bank

The Bank, as a state-chartered savings bank, is subject to regulation and oversight by the FDIC and the Division extending to all aspects of its operations.

The Bank, as a state-chartered savings bank, is subject to regulation and oversight by the FDIC and the DFI extending to all aspects of its operations.

Insurance of Accounts and Regulation by the FDIC.

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Based on the FDIC’s recent projections, however, the FDIC determined that the DIF reserve ratio is at risk of not reaching the statutory minimum by the statutory deadline of September 30, 2028 without increasing the deposit insurance assessment rates.

The increased assessment would improve the likelihood that the DIF reserve ratio would reach the required minimum by the statutory deadline, consistent with the FDIC’s Amended Restoration Plan.The FDIC also concurrently maintained the Designated Reserve Ratio (“DRR”) for the DIF at 2% for 2023.

The new assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds 2% to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2% DRR.

The increased assessment would improve the likelihood that the DIF reserve ratio would reach the required minimum by the statutory deadline, consistent with the FDIC’s Amended Restoration Plan.

The FDIC also concurrently

maintained the Designated Reserve Ratio (“DRR”) for the DIF at 2% for 2024 and will maintain it at that level for 2025.

The revised assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds 2% to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2% DRR.

Progressively lower assessment rate schedules will take effect when the reserve ratio reaches 2%, and again when it reaches 2.5%.

The revised assessment rate schedule will remain in effect unless and until the reserve ratio meets or exceeds 2%, absent further action by the FDIC.

In a banking industry emergency, the FDIC may also impose a special assessment.

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The Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”), enacted in May 2018, required the federal banking agencies, including the FDIC, to establish for institutions with assets of less than $10 billion a “community bank leverage ratio” or “CBLR” of between 8 to 10%.

Institutions with capital meeting or exceeding the ratio and otherwise complying with the specified requirements (including off-balance sheet exposures of 25% or less of total assets and

trading assets and liabilities of 5% or less of total assets) and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements.

Institutions with capital meeting or exceeding the ratio and otherwise complying with the specified requirements (including off-balance sheet exposures of 25% or less of total assets and trading assets and liabilities of 5% or less of total assets) and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements.

The CBLR was established at 9% Tier 1 capital to total average assets, effective January 1, 2020.

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An institution that temporarily ceases to meet any qualifying criteria is provided with a two-quarter grace period to again achieve compliance.

Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of 8% or greater requires the institution to comply with the generally applicable capital requirements.

Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of greater than 8% requires the institution to comply with the generally applicable capital requirements.

The Bank has not elected to use the CBLR framework as of September 30, 2024.

3 unchanged sentences

For additional information regarding the Bank's regulatory capital requirements, see "Note 17-Regulatory Matters" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.

The FASB adopted a new accounting standard for GAAP that is effective as of October 1, 2023.

This standard, referred to as Current Expected Credit Loss, or CECL, requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets.

CECL covers a broader range of assets than the current method of recognizing credit losses and generally results in earlier recognition of credit losses.

Upon adoption of CECL, a banking organization must record a one-time adjustment to its credit loss allowances as of the beginning of the fiscal year of adoption equal to the difference, if any, between the amount of credit loss allowances under the current methodology and the amount required under CECL.

For a banking organization, implementation of CECL is generally likely to reduce retained earnings, and to affect other items, in a manner that reduces its regulatory capital.

The federal banking regulators (the Federal Reserve, the Office of the Comptroller of the Currency and the FDIC) have adopted a rule that gives a banking organization the option to phase in over a three-year period the day-one adverse effects of CECL on its regulatory capital.

Prompt Corrective Action.

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Undercapitalized institutions are subject to certain prompt corrective action requirements, regulatory controls and restrictions which become more extensive as an institution becomes more severely undercapitalized.

Failure by an institution to comply with applicable capital requirements would, if unremedied, result in progressively more severe restrictions on its activities and lead to enforcement actions, including, but not limited to, the issuance of a capital directive to ensure the maintenance of required capital levels and, ultimately, the appointment of the FDIC as receiver or conservator.

Failure by an institution to comply

with applicable capital requirements would, if unremedied, result in progressively more severe restrictions on its activities and lead to enforcement actions, including, but not limited to, the issuance of a capital directive to ensure the maintenance of required capital levels and, ultimately, the appointment of the FDIC as receiver or conservator.

Banking regulators will take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements.

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Federal Home Loan Bank System.

The Bank is a member of the FHLB, one of 11 regional Federal Home Loan Banks that administer the home financing credit function of savings institutions, each serving as a reserve or central bank for its

members within its assigned region.

The FHLB is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System.

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Federal law generally limits the activities and equity investments of FDIC-insured state-chartered banks to those that are permissible for national banks.

exceed 2% of the bank's total assets, (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors' and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured depository institutions, and (iv) acquiring or retaining the voting shares of a depository institution owned by another FDIC-insured institution if certain requirements are met.

An insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary, (ii) investing as a limited partner in a partnership, the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank's total assets, (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors' and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured depository institutions, and (iv) acquiring or retaining the voting shares of a depository institution owned by another FDIC-insured institution if certain requirements are met.

Under the laws of Washington State, Washington-chartered savings banks may exercise any of the powers of Washington-chartered commercial banks, national banks and federally-chartered savings banks, subject to the approval of the DFI in certain situations.

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The Federal Reserve requires all depository institutions to maintain reserves at specified levels against their transaction accounts, primarily checking accounts.

In response to the COVID-19 pandemic, the Federal Reserve reduced reserve requirement ratios to zero percent effective on March 26, 2020, to support lending to households and businesses.

At September 30, 2023, the Bank was in compliance with the reserve requirements in place at that time.

The Federal Reserve reduced reserve requirement ratios to zero percent effective on March 26, 2020.

At September 30, 2024, the reserve requirement of zero percent was still in place.

Transactions with Affiliates.

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The amount of dividends payable by the Bank to the Company depends upon the Bank's earnings and capital position, and is limited by federal and state laws, regulations and policies.

According to Washington law, the Bank may not declare or pay a cash dividend on its capital stock if it would cause its net worth to be reduced below (i) the amount required for liquidation accounts or (ii) the net worth requirements, if any, imposed by the Director of the Division.

In addition, dividends on the Bank's capital stock may not be paid in an aggregate amount greater than the aggregate retained earnings of the Bank, without the approval of the Director of the Division.

In addition, dividends on the Bank's capital stock may not be paid in an aggregate amount greater than the aggregate retained earnings of the Bank, without the approval of the Director of the DFI.

Dividends payable by the Bank can be limited or prohibited if the Bank does not meet the capital conservation buffer requirement.

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Moreover, the federal bank regulatory agencies also have the general authority to limit the dividends paid by insured banks if such payments should be deemed to constitute an unsafe and unsound practice.

Anti-Money Laundering and Customer Identification.

Anti-Money Laundering, Bank Secrecy and Customer Identification.

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act) was signed into law on October 26, 2001.

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Non-compliance with federal or similar state privacy and cybersecurity laws and regulations could lead to substantial regulatory imposed fines and penalties, damages from private causes of action and/or reputational harm.

Please see "Item 1C.

Cybersecurity".

Further, on July 26, 2023, the SEC adopted final rules that require public companies to promptly disclose material cybersecurity incidents in a Current Report on Form 8-K (“Form 8-K”) and detailed information regarding their cybersecurity risk management and governance on an annual basis in an Annual Report on Form 10-K (Form 10-K”).

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Other Consumer Protection Laws and Regulations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") established the Consumer Financial Protection Bureau ("CFPB") as an independent bureau of the Federal Reserve with responsibility for the implementation of federal financial consumer protection and fair lending laws and regulations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") established the CFPB as an independent bureau of the Federal Reserve with responsibility for the implementation of federal financial consumer protection and fair lending laws and regulations.

The Bank is subject to consumer protection regulations issued by the CFPB, but as a smaller financial institution, is generally subject to supervision and enforcement by the FDIC and DFI with respect to its compliance with federal and state consumer financial protection laws and regulations.

The Bank is subject to a broad array of federal and state consumer protection laws and regulations that govern almost every aspect of its business relationships with consumers.

While the list set forth below is not exhaustive, these include the Truth-in-Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Right to Financial Privacy Act, the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check Clearing for the 21st Century Act, laws governing flood insurance, laws governing consumer protections in connection with the sale of insurance, federal and state laws prohibiting unfair and deceptive business practices, and various

regulations that implement some or all of the foregoing.

These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans, and providing other services.

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providing tax planning and preparation services;

and, subject to certain limitations, providing securities brokerage services for customers.

and, subject to certain limitations, providing securities brokerage

services for customers.

The Federal Reserve must approve the acquisition (or acquisition of control) of a bank or other FDIC-insured depository institution by a bank holding company, and the appropriate federal banking regulator must approve a bank’s acquisition (or acquisition of control) of another bank or other FDIC-insured institution.

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Depending on circumstances, a notice or application may be required to be filed with appropriate state banking regulators and may be subject to their approval or non-objection.

company's capital needs, asset quality and overall financial condition, and that it is inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends.

Federal Reserve policy limits the payment of cash dividends by bank holding companies, which expresses the Federal Reserve's view that a bank holding company should pay cash dividends only to the extent that the company's net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the company's capital needs, asset quality and overall financial condition, and that it is inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends.

Under Washington corporate law, the Company generally may not pay dividends if after that payment it would not be able to pay its liabilities as they become due in the usual course of business, or its total assets would be less than its total liabilities.

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The Company has one wholly-owned subsidiary, the Bank.

The Bank has one wholly-owned direct subsidiary, Timberland Service Corp.

The Bank has one wholly-owned subsidiary, Timberland Service Corp.

(“Timberland Service”), whose primary function is to provide escrow services.

Employees and Human Capital Resources

As part of our commitment to transparency and excellence, we are pleased to share an overview of the Company’s human capital strategies and achievements.

Our emphasis on nurturing a dynamic, engaged, and resilient workforce remains pivotal to our success.

Our efforts encapsulate our commitment to fostering a robust and engaged workforce, highlighting our focus on talent, well-being, development, and strategic alignment.

In line with our dedication to transparency and excellence, we are pleased to present an overview of the Company’s human capital strategies and achievements.

Our emphasis on nurturing a dynamic, engaged, and resilient workforce remains central to our success.

Our efforts reflect our commitment to fostering a robust and engaged workforce, highlighting our focus on talent, well-being, development, and strategic alignment.

We are proud of the progress made in enhancing our human capital, recognizing it as a fundamental driver of the Company’s sustained growth.

These initiatives collectively underscore our commitment to fostering a workforce deeply connected to the needs and values of our community.

We're dedicated to continued growth, guided by the principles of service, integrity, and community stewardship.

We are dedicated to continued growth, guided by the principles of service, integrity, and community stewardship.

Workforce Representation.

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The employees are not represented by a collective bargaining unit, and the Company believes that its relationship with its employees is positive.

We believe that our ability to attract and retain employees is a key to our success.

Accordingly, we strive to offer competitive salaries and employee benefits to all employees and monitor salaries in our market areas.

The average tenure of our employees was 7.9 years as of September 30, 2023.

Our workforce was 80% female and 20% male, and women held 81% of the Company’s management roles (including department supervisors and managers, as well as executive leadership).

The average tenure of management was 14.8 years.

The ethnicity of our workforce was 80% White, 8% Hispanic or Latinx, 4% Asian, 3% two or more races, 2% Native Hawaiian or Pacific Islander, 2% African American or Black and 1% American Indian or Alaska Native.

The Company's board of directors is comprised of the Company's Chief Executive Officer and seven non-employee directors, including four directors who identified as female and one who identified as a member of a minority community.

We recognize that our ability to attract and retain employees is a key to our success, and we strive to offer competitive salaries and benefits while staying aligned with market standards.

The average tenure among employees was seven years at September 30, 2024, with women representing 76% of the workforce and holding 76% of management roles, including supervisors, managers, and executive leaders.

Management tenure averaged 12.7 years.

The workforce's ethnic composition was 76% White, 9% Hispanic or Latinx, 4% Asian, 5% two or more races, 3% Native Hawaiian or Pacific Islander, 2% American Indian or Alaska Native, and 1% African American or Black.

The Company's Board of Directors is comprised of the Company's Chief Executive Officer and seven non-employee directors, four of whom identify as female and one as a member of a minority community.

Talent Acquisition and Attrition.

Strategic talent acquisition efforts have expanded our workforce with diverse skill sets aligned with our strategic goals.

We continue to manage attrition rates and showcase a retention-centric approach in working with our leaders, ensuring stability within our talented teams.

Our recruitment strategy emphasizes local talent acquisition and continues to result in bolstering our teams with individuals deeply rooted in the communities the Company serves.

The Company continues to evolve its strategy of promoting diversity through the posting of open positions to diverse job sites.

The Company observes a fair and equitable application process for positions that are advertised both internally and externally.

Our strategic talent acquisition efforts have strengthened our workforce by bringing in diverse skill sets aligned with our goals.

We remain focused on managing attrition and fostering a retention-driven culture by working closely with leaders to maintain stability within our teams.

Our recruitment strategy prioritizes hiring local talent, enhancing our teams with individuals who have strong connections to the communities we serve.

To promote diversity, we continue to refine our approach by advertising open positions on platforms that reach diverse audiences.

We are committed to a fair and equitable hiring process, ensuring all roles are posted both internally and externally.

Diversity, Equity, and Inclusion (“DEI”).

The Company recognizes the importance of acknowledging our employees’ unique identities, perspectives and contributions.

In 2023, Timberland chose to adopt a formal program that fosters an environment that provides all employees with equitable access to opportunities for growth and development and a workforce that reflects the communities we serve.

Our Human Resources Director and our DEI Officer oversee the program scope of education/training, recruitment, and hiring practices.

Training programs such as unconscious bias training for hiring managers, DEI online training for all employees of the Company and a newly implemented Employee Resource Group (“ERG”) focuses efforts on equity, fairness, and inclusivity of employee engagement throughout the organization’s workforce.

The Company provides competitive comprehensive benefits to our employees.

Our commitment to ensuring a safe, healthy workplace has been unwavering, with proactive measures to safeguard our employees' well-being.

programs available to eligible employees may include 401(k) savings plan, employee stock ownership plan, health and life insurance, health savings accounts and flexible spending accounts, employee assistance program, paid holidays, paid time off, paid volunteer time, paid time off for the employee’s birthday and other leave as applicable.

The Company promotes wellness initiatives through DEI and benefits administration to all employees that focuses on self-care, nutrition, work life balance, and financial education.

Sustained focus on employee health and safety underscores our commitment to a secure workplace.

The Company values the unique identities, perspectives, and contributions of its employees.

To support this, the Company implemented a formal program designed to create an inclusive environment that ensures equitable access to growth and development opportunities while building a workforce that reflects the communities we serve.

This program is overseen by our Human Resources Director and focuses on education, training, recruitment, and hiring practices.

Key initiatives include unconscious bias training for hiring managers, DEI online training for all employees, and the introduction of an Employee Resource Group.

These efforts aim to promote equity, fairness, and inclusivity across the organization, fostering meaningful employee engagement.

The Company provides competitive and comprehensive benefits to its employees.

We are committed to maintaining a safe and healthy workplace, implementing proactive measures to protect our team.

Benefit programs available to eligible employees may include 401(k) savings plan, employee stock ownership plan, health and life insurance, health savings accounts and flexible spending accounts, employee assistance program, paid holidays, paid time off, paid volunteer time, paid time off for the employee’s birthday and other leave as applicable.

To further promote wellness, we provide initiatives through DEI programs and benefits administration that emphasize self-care, nutrition, work-life balance, and financial education.

This sustained focus on health and safety reflects our dedication to fostering a secure and supportive work environment.

Total Rewards (Compensation and Benefits).

Our commitment to providing competitive and equitable total rewards packages reinforces our employees' dedication and contributions.

We're proud to provide competitive and meaningful total rewards, acknowledging the contributions of our employees through our transparency of wage and benefit information of posted positions, 401(k), employee stock ownership plan, healthcare and insurance benefits, profit sharing for eligible employees, annual performance based merit increases, semi-annual performance reviews, organizational celebrations, employee wellness campaigns, recognition events, and career development opportunities within the organization.

We are committed to offering competitive and equitable total rewards packages that recognize and reinforce the dedication and contributions of our employees.

Our total rewards program reflects this commitment through transparent wage and benefit information for posted positions, a 401(k) plan, an employee stock ownership plan, healthcare and insurance benefits, profit sharing for eligible employees, annual merit-based performance increases, organizational celebrations, wellness campaigns, recognition events, and opportunities for career development within the organization.

Employee Engagement and Training.

Our community-focused approach has significantly boosted employee engagement, fostering a sense of belonging and purpose.

The Company’s strategy is to create long term, productive relationships through developmental growth with its employees.

The Company offers ongoing training to employees throughout their career with the Company.

A combination of delivery methods for both regulatory and professional development training is used.

Modalities include third-party training, in-house training, and computer system based training for employees to engage in education.

Managers and supervisors are offered monthly training on a variety of management areas, including performance coaching and development of employees.

This training is created and facilitated in-house and offered virtually.

The Company also recognizes the value of allowing employees to shadow and observe other areas of the Company to promote career development.

Currently, all Company employees receive two performance reviews each year.

In 2023, the Company participated in an Employee Climate Survey.

Results from the survey have been reviewed and additional engagement strategies will continue to be developed based on the survey findings.

The Company’s culture is one that values integrity, honesty, hard work, and community.

Employees are free to voice their ideas and supported in their attempts to better themselves professionally and improve the organization.

The Company offers an employee referral incentive to attract new talent to the organization.

New employees receive a formal 90 day assessment at the completion of their probationary period.

Employees are eligible for increased vacation leave accruals based on time in service at the Company.

Employees receive recognition through several metrics based on performance, time in service, process improvements and efficiencies.

Our community-focused approach has significantly boosted employee engagement, fostering a strong sense of belonging and purpose.

The Company’s strategy is to create long term, productive relationships with employees by supporting their developmental growth.

To this end, we provide continuous training opportunities throughout their careers using a variety of methods, including third-party resources, in-house programs, and computer-based training.

Managers and supervisors participate in monthly training sessions on topics such as performance coaching and employee development, which are designed and delivered in-house and offered virtually.

To further support career development, employees are encouraged to shadow and observe other areas of the Company.

All employees receive semi-annual performance reviews, and new employees undergo a formal 90-day assessment at the end of their probationary period.

Additionally, we conduct an annual Employee Survey to gather feedback, with results informing ongoing engagement strategies.

The Company’s culture is built on values of integrity, honesty, hard work, and community.

Employees are encouraged to share their ideas and are supported in their professional growth and contributions to the organization.

To attract new talent, the Company offers an employee referral incentive.

We also reward employees for performance, tenure, process improvements, and efficiencies.

Vacation leave accruals increase with length of service, recognizing employees' commitment to the Company.

Talent Development and Succession Planning.

The Company recognizes that the skills and knowledge of its employees are critical to the success of the organization, and promotes training and continuing education as an ongoing function for employees.

The Company’s compliance training program provides annual training courses to help ensure that all employees and officers know the rules applicable to their jobs.

Additional training and testing programs are offered to employees of certain job positions within the Company to promote and recognize advancement of skill and mastery within the position.

The Company recognizes that the skills and knowledge of its employees are critical to the success of the organization and actively supports training and continuing education as an ongoing priority.

The Company’s compliance training program provides annual courses to ensure employees and officers are well-versed in the rules and regulations applicable to their jobs.

For certain positions, additional training and testing programs are available to enhance skills and recognize mastery within those positions.

Employees are encouraged to attend external education opportunities in the form of training, conferences, and networking events.

Internal, robust talent development programs cater to the unique needs of our employees, ensuring their growth aligns with our organizational values.

Succession planning initiatives and specific training programs ensure a pipeline of skilled individuals prepared to lead the Company into the future.

The Company’s comprehensive talent development programs are tailored to meet the unique needs of our employees, fostering growth that aligns with our core values.

Succession planning and targeted training initiatives further support a pipeline of capable individuals ready to lead the Company into the future.

Volunteerism.

The Company embraces social responsibility, our workforce actively participates in volunteer initiatives, positively impacting our communities.

The Company embraces social responsibility, with our workforce actively participating in volunteer initiatives that make a positive impact on our communities.

Volunteerism remains a cornerstone of our culture, reflecting our commitment to giving back.

The Company offers 20 hours of paid time each year for eligible employees to volunteer at non-profit organizations within the Company’s geographic footprint, benefiting the communities Timberland serves.

To support this, eligible employees are provided with 20 hours of paid time annually to volunteer with non-profit organizations within the Company’s geographic footprint, directly benefiting the communities we serve.

Executive Officers of the Registrant

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DeBord 44 Executive Vice President and Chief Lending Officer Executive Vice President and Chief Lending Officer

Foster 66 Executive Vice President and Chief Credit Administrator

Executive Vice President and Chief Credit Administrator

Van Cise 53 Executive Vice President and Chief Credit Officer

Executive Vice President and Chief Credit Officer

Antich 41 Executive Vice President and Chief Technology Officer Executive Vice President and Chief Technology Officer

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DeBord was employed by a national bank as a Commercial Resolution Officer from January 2010 to December 2012.

DeBord was a Vice President and Portfolio Manager with a local Savings Bank from April 2006 to January 2010 and was employed by Washington State Department of Financial Institutions - Division of Banks as a Financial Examiner from June of 2003 to April 2006.

Foster has been affiliated with the Bank and has served as Chief Credit Administrator since February 2012.

Prior to joining the Bank, Mr.

Foster was employed by the FDIC, where he served as a Loan Review Specialist from January 2011 to February 2012.

Foster owned a credit administration consulting business from February 2010 to January 2011.

Prior to that, Mr.

Foster served as the Chief Credit Officer for Carson River Community Bank from April 2008 through February 2010.

DeBord was a Vice President and Portfolio Manager with a local Savings Bank from April 2006 to January 2010 and was employed by the DFI as a Financial Examiner from June of 2003 to April 2006.

Van Cise has been affiliated with the Bank since 2012 and has served as Chief Credit Officer since January 2024.

Prior to that he had served as a Commercial Lending Team Leader.

Antich, has been affiliated with the Bank since 2007 and was promoted to Chief Technology Officer on January 25, 2022 and was promoted to Executive Vice President on February 1, 2023.

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

What changed 10-K

Item 1. Business