What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-12-11 compared with 2023-12-11 · 534 added, 484 removed, 1484 unchanged (41% of the section changed)

21 unchanged sentences

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2024, in conformity with accounting principles generally accepted in the United States of America (U.S.).

Adoption of New Accounting Standard

As described in Notes 1, 3, and 4 to the financial statements, the Company has changed its method of accounting for credit losses effective October 1, 2023 due to the adoption of Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , including all related amendments.

Basis for Opinion

16 unchanged sentences

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan Losses

Allowance for Credit Losses for Loans

Critical Audit Matter Description

As described in Notes 1 and 4 to the financial statements, the Company's allowance for loan losses (ALL) is a valuation account that reflects the estimated loan losses based on known and inherent risks in the loan portfolio

to the extent that they are both probable and reasonable to estimate.

The ALL was approximately $15,817,000 as of September 30, 2023, which consists of specific and general components in the amounts of $123,000 and $15,694,000, respectively.

The specific component relates to loans that are classified as impaired.

The Company measures impairment and the related asset specific allowance for impaired loans based on the difference between the recorded investment of the loan and the present value of the expected future cash flows, discounted at the original effective interest rate of the loan.

However, if the loan is collateral-dependent, the Company measures impairment based upon the fair value of the underlying collateral, which the Company determines based on the current fair value of the collateral less estimated selling costs.

Loans are identified as collateral-dependent if the Company believes that collateral is the sole source of repayment.

The general component is based on historical losses, general economic conditions, and other qualitative risk factors – both internal and external to the Company.

The historical loss ratio and valuation allowance are established for each pool of similar loans and updated periodically based on actual charge-off experience and current events.

The qualitative risk factors are generally determined by evaluating, among other things:

(1) lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices;

(2) national and local economic trends and conditions;

(3) nature and volume of the portfolio and terms of loans;

(4) experience, ability, and depth of lending management and staff;

(5) volume and severity of past due, classified, and nonaccrual loans, as well as other loan modifications;

(6) quality of the Company's loan review system;

(7) existence and effect of any concentrations of credit and changes in the level of such concentrations;

(8) changes in the value of underlying collateral, and (9) other external factors such as competition and legal and regulatory requirements.

The evaluation of the qualitative factor adjustments requires a significant amount of judgment by management and involves a high degree of subjectivity.

We identified the ALL as a critical audit matter, as auditing the underlying qualitative factors required significant auditor judgment given that amounts determined by management rely on analysis that is highly subjective and includes significant estimation uncertainty.

As described in Notes 1 and 4 to the financial statements, the Company's allowance for credit losses for loans as of September 30, 2024, was $17.48 million on a total loan portfolio, net of deferred fees, of $1.44 billion.

The allowance for credit losses for loans reflects an estimate of lifetime expected credit losses in the loan portfolio.

The measurement of expected credit losses is based on relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the Company's loan portfolio.

We identified the Company’s estimate of the allowance for credit losses for loans as a critical audit matter.

The principal considerations for our determination of the allowance for credit losses for loans as a critical audit matter related to the high degree of subjectivity in the Company’s judgments in determining the qualitative factors, model assumptions, forecasts and forecasting periods.

Auditing these complex judgments and assumptions by the Company involves especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters, including the extent of specialized skill or knowledge needed.

How the Critical Audit Matter Was Addressed in the Audit

1 unchanged sentence

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

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

Testing completeness and accuracy of key data inputs used in forming assumptions or calculations and testing the reliability of the underlying data on which these factors are based by comparing information to source documents and external information sources, as well as evaluating the estimated correlation to potential loss.

Evaluating the reasonableness of the qualitative factors established by management as compared to the underlying internal or external information sources.

We obtained an understanding of the loans excluded from the general component calculation for propriety of classification as acquired or impaired loans.

• We evaluated the relevance and the reasonableness of assumptions related to evaluation of the loan portfolio, current and forecasted economic conditions, and other risk factors used in development of the qualitative factors.

• We tested the completeness and accuracy of the significant inputs into the model including the underlying data used to develop the qualitative factors and forecasts.

• We validated the mathematical accuracy of the calculation.

• We evaluated the reasonableness of assumptions and data used by the Company in developing the qualitative factors by comparing these data points to internally developed and third-party sources, as well as other audit evidence gathered.

• We performed analytical procedures to evaluate the directional consistency of changes that occurred in the allowance for credit losses for loans.

/s/ Delap LLP

12 unchanged sentences

Certificates of deposit (“CDs”) held for investment, at cost 10,209 15,188

Investment securities held to maturity, at amortized cost (estimated fair value $ 253,766 and $ 249,783 )

Investment securities held to maturity, at amortized cost (net of allowance for credit losses of $ 60 at September 30, 2024 and $0 at September 30, 2023), (estimated fair value $ 166,007 and $ 253,766 )

172,097 270,218

1 unchanged sentence

Investments in equity securities, at fair value 866 811

Federal Home Loan Bank of Des Moines (“FHLB”) stock 3,602 2,194

Federal Home Loan Bank of Des Moines (“FHLB”) stock, at cost 2,037 3,602

Other investments, at cost 3,000 3,000

Loans held for sale — 400

Loans receivable, net of allowance for loan losses of $ 15,817 and $ 13,703

Loans receivable, net of allowance for credit losses of $ 17,478 and $ 15,817

1,421,523 1,302,305

32 unchanged sentences

Retained earnings 215,531 199,386

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

Accumulated other comprehensive income (loss) 20 ( 1,084 )

Total shareholders’ equity 245,413 233,073

18 unchanged sentences

Net interest income 64,167 68,359 55,834

Provision for loan losses 2,132 270 —

Net interest income after provision for loan losses 66,227 55,564 51,858

Provision for (recapture of) credit losses

Provision for credit losses - loans 1,254 2,132 270

Recapture of credit losses - investment securities ( 32 ) — —

Recapture of credit losses - unfunded commitments ( 71 ) — —

Total provision for credit losses - net 1,151 2,132 270

Net interest income after provision for (recapture of) credit losses 63,016 66,227 55,564

Non-interest income

21 unchanged sentences

Advertising 761 786 695

OREO and other repossessed assets, net 1 ( 17 ) ( 87 )

Other real estate owned ("OREO") and other repossessed assets, net 5 1 ( 17 )

ATM and debit card interchange transaction fees 2,384 1,987 1,943

24 unchanged sentences

Net income $ 24,283 $ 27,118 $ 23,600

Other comprehensive loss

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

Other comprehensive income (loss)

Unrealized holding gain (loss) on investment securities available for sale, net of income taxes of $ 291 , $( 98 ), and $( 209 ), respectively

1,095 ( 369 ) ( 781 )

Change in OTTI on investment securities held to maturity, net of income taxes:

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

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

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

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

Total other comprehensive income (loss), net of income taxes 1,104 ( 367 ) ( 776 )

Total comprehensive income $ 25,387 $ 26,751 $ 22,824

17 unchanged sentences

— — ( 7,232 ) — ( 7,232 )

Stock option compensation expense — 173 — — 173

Stock based compensation expense — 246 — — 246

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

2 unchanged sentences

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

Restricted stock grants 26,150 — — — — —

Exercise of stock options 42,635 698 — — 698

1 unchanged sentence

— — ( 8,267 ) — ( 8,267 )

Stock option compensation expense — 246 — — 246

Stock based compensation expense — 320 — — 320

Balance, September 30, 3023 8,105,338 $ 34,771 $ 199,386 $ ( 1,084 ) $ 233,073

Common Stock Accumulated

Comprehensive

Income (Loss)

Number of Shares Amount Retained

Earnings Total

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

Net income — — 24,283 — 24,283

Other comprehensive loss — — — ( 367 ) ( 367 )

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

Restricted stock grants 26,150 — — — —

Other comprehensive income — — — 1,104 1,104

Repurchase of common stock, net of tax ( 218,976 ) ( 5,958 ) — — ( 5,958 )

Restricted stock grants, net 28,615 — — — —

Exercise of stock options 45,150 659 — — 659

1 unchanged sentence

— — ( 7,650 ) — ( 7,650 )

Stock option compensation expense — 320 — — 320

Stock based compensation expense — 390 — — 390

Adoption of ASU 2016-013, net of tax — — ( 488 ) — ( 488 )

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

18 unchanged sentences

Gain on sales of OREO and other repossessed assets, net — — ( 2 )

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

Accretion of discounts and premiums on securities ( 1,051 ) ( 1,223 ) ( 39 )

Gain on sales of loans, net ( 322 ) ( 244 ) ( 1,510 )

(Gain) loss on sales/dispositions of premises and equipment, net ( 2 ) ( 19 ) 13

Provision for loan losses 2,132 270 —

Provision for credit losses - net 1,151 2,132 270

Loans originated for sale ( 14,024 ) ( 10,946 ) ( 55,136 )

18 unchanged sentences

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

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

Proceeds from redemption of FHLB stock 1,565 — —

Increase in loans receivable, net ( 121,077 ) ( 172,857 ) ( 163,238 )

Purchase of premises and equipment ( 1,309 ) ( 1,106 ) ( 911 )

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

Proceeds from sales/dispositions of premises and equipment 8 — —

Proceeds from death benefit on BOLI — 546 —

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

Net cash used in investing activities ( 45,797 ) ( 170,223 ) ( 335,162 )

See Notes to Consolidated Financial Statements

6 unchanged sentences

Cash flows from financing activities

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

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

Proceeds from (repayment of) FHLB borrowings ( 15,000 ) 35,000 ( 5,000 )

Proceeds from exercise of stock options

Repurchase of common stock

( 4,998 ) ( 4,583 ) ( 527 )

Repurchase of common stock, net of taxes ( 5,958 ) ( 4,998 ) ( 4,583 )

Payment of dividends

( 7,650 ) ( 8,267 ) ( 7,232 )

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

Net cash provided by (used in) financing activities 58,784 ( 48,808 ) 45,221

Net increase (decrease) in cash and cash equivalents 36,007 ( 188,034 ) ( 263,441 )

6 unchanged sentences

Supplemental disclosure of non-cash investing and financing activities

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

Other comprehensive income (loss) related to investment securities $ 1,104 $ ( 367 ) $ ( 776 )

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

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

See Notes to Consolidated Financial Statements

16 unchanged sentences

Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses, the determination of any OTTI in the fair value of investment securities, the valuation of loan servicing rights, the valuation of assets acquired and liabilities assumed in acquisitions and the valuation of goodwill for potential impairment.

Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for credit losses ("ACL"), the valuation of loan servicing rights, the valuation of assets acquired and liabilities assumed in acquisitions and the valuation of goodwill for potential impairment.

Certain prior year amounts have been reclassified to conform to the 2024 fiscal year presentation with no change to previously reported net income or shareholders’ equity.

17 unchanged sentences

Investment Securities

Investments in debt securities are classified upon acquisition as held to maturity or available for sale.

Investments in debt 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.

Investments in debt 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 income tax effects.

Investment securities are classified upon acquisition as held to maturity or available for sale.

Investments 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 income tax effects.

Premiums and discounts are amortized to interest income using the interest method over the contractual lives of the securities.

Gains and losses on sales of investment securities are recognized on the trade date and determined using the specific identification method.

In estimating whether there are any OTTI losses, management considers (1) the length of time and the extent to which the fair value has been less than amortized cost, (2) the financial condition and near-term prospects of the issuer, (3) the impact of changes in market interest rates and (4) the intent and ability of the Company to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value.

Declines in the fair value of individual debt securities available for sale that are deemed to be other than temporary are recognized in earnings when identified.

The fair value of the debt security then becomes the new cost basis.

For individual debt securities that are held to maturity which the Company does not intend to sell, and it is not more likely than not that the Company will be required to sell before recovery of its amortized cost basis, the other than temporary decline in the fair value of the debt security related to:

(1) credit loss is recognized in earnings and (2) market or other factors is recognized in other comprehensive income (loss).

Credit loss is recorded if the present value of expected future cash flows is less than the amortized cost.

For individual debt securities which the Company intends to sell or more likely than not will not recover all of its amortized cost, the OTTI is recognized in earnings equal to the entire difference between the debt security’s cost basis and its fair value at the consolidated balance sheet date.

For individual debt securities for which credit loss has been recognized in earnings, interest accruals and amortization and accretion of premiums and discounts are suspended when the credit loss is recognized.

Interest received after accruals have been suspended is recognized on a cash basis.

The Company analyzes investment securities to determine whether there have been any events or economic circumstances to indicate that a security has incurred a credit-related loss.

The Company considers many factors including recent events specific to the issuer or industry, and for securities, external credit ratings and recent downgrades.

Credit component losses are reported in allowance for credit losses in the income statement when the present value of expected future cash flows is less than the amortized cost.

Noncredit component losses are recorded in other comprehensive income (loss) when the Company (1) does not intend to sell the security or (2) is not more likely than not to have to sell the security prior to the security’s anticipated recovery.

If the Company is likely to sell an investment security, any noncredit component losses are recognized and are reported in non-interest income.

Investments in Equity Securities

2 unchanged sentences

The Bank, as a member of the FHLB, is required to maintain an investment in capital stock of the FHLB in an amount equal to 0.06 % of the Bank's total assets, with a maximum of $10.00 million and a minimum of $10,000, plus 4.50 % of any borrowings from the FHLB.

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

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

13 unchanged sentences

An investor can have its investment in the fund redeemed for the balance of its capital account at any quarter-end with a 60 day notice to the fund.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

Loans Held for Sale

3 unchanged sentences

The gain or loss is the difference between the net sales proceeds and the recorded value of the loans, including any remaining unamortized deferred loan origination fees.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

Loans Receivable

Loans are stated at the amount of unpaid principal, reduced by the undisbursed portion of construction loans in process, net deferred loan origination fees and the allowance for loan losses.

Loans are stated at the amount of unpaid principal, reduced by the undisbursed portion of construction loans in process, net deferred loan origination fees and the allowance for credit losses ("ACL").

Interest on loans is accrued daily based on the principal amount outstanding.

11 unchanged sentences

Credit discounts are included in the determination of fair value;

therefore, an allowance for loan losses is not recorded at the acquisition date.

therefore, an ACL is not recorded at the acquisition date.

Acquired loans are evaluated upon acquisition and classified as either purchased credit-impaired ("PCI") or purchased non-credit-impaired.

2 unchanged sentences

The excess of the undiscounted contractual balances due over the cash flows expected to be collected is considered to be the nonaccretable difference.

The nonaccretable difference represents the Company's estimate of the credit losses expected to occur and would be considered in determining the estimated

fair value of the loans as of the acquisition date.

The nonaccretable difference represents the Company's estimate of the credit losses expected to occur and would be considered in determining the estimated fair value of the loans as of the acquisition date.

Subsequent to the acquisition date, any increases in expected cash flows over those expected at the purchase date in excess of fair value are adjusted through a change to the accretable yield on a prospective basis.

Any subsequent decreases in expected cash flows attributable to credit deterioration are recognized by recording an allowance for loan losses.

Any subsequent decreases in expected cash flows attributable to credit deterioration are recognized by recording an ACL on loans.

PCI loans were insignificant as of September 30, 2024 and 2023.

For purchased non-credit-impaired loans, the difference between the fair value and unpaid principal balance of the loan at the acquisition date is amortized or accreted to interest income over the life of the loans.

Any subsequent deterioration in credit quality is recognized by recording an allowance for loan losses.

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

Any subsequent deterioration in credit quality is recognized by recording an ACL on loans.

Allowance for Credit Losses

ACL on Available for Sale Investment Securities - A vailable for sale investment securities in an unrealized loss position, are assessed to determine whether the Company intends to sell, or is more likely than not to be required to sell, the security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.

Investment securities available-for-sale that do not meet the aforementioned criteria, are evaluated to determine whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded, limited by the amount that the fair value is less than the amortized cost basis.

Notes to Consolidated Financial Statements

2 unchanged sentences

September 30, 2024 and 2023

include, but are not limited to:

a reduction in the stated interest rate;

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

a reduction in the face amount of the debt;

a reduction in the accrued interest;

or re-amortizations, extensions, deferrals and renewals.

TDRs are considered impaired and are individually evaluated for impairment.

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

Allowance for Loan Losses

The allowance for loan losses is maintained at a level sufficient to provide for probable losses inherent in the loan portfolio.

The allowance is provided based upon management's comprehensive analysis of the pertinent factors underlying the quality of the loan portfolio.

These factors include changes in the amount and composition of the loan portfolio, delinquency levels, actual loan loss experience, current economic conditions, and a detailed analysis of individual loans for which full collectability may not be assured.

The detailed analysis includes methods to estimate the fair value of loan collateral and the existence of potential alternative sources of repayment.

The allowance consists of specific and general components.

The specific component relates to loans that are deemed impaired.

For loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value less selling costs (if applicable), or observable market price of the impaired loan is lower than the recorded value of that loan.

The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative factors.

The Company's historical loss experience is determined by evaluating the average net charge-offs over the most recent economic cycle, but not to exceed six years.

Qualitative factors are determined by loan type and allow management to adjust reserve levels to reflect the current general economic environment and portfolio performance trends including recent charge-off trends.

Allowances are provided based on management’s continuing evaluation of the pertinent factors underlying the quality of the loan portfolio, including changes in the size and composition of the loan portfolio, actual loan loss experience, current economic conditions, collateral values, geographic concentrations, seasoning of the loan portfolio, specific industry conditions, the duration of the current business cycle, and regulatory requirements and expectations.

When determining the appropriate historical loss and qualitative factors, management took into consideration the impact of the COVID-19 pandemic on such factors as the national and state unemployment rates and related trends, the amount and timing of financial assistance provided by the government, consumer spending levels and trends, industries significantly impacted by the COVID-19 pandemic, and the Company's COVID-19 loan modification program.

The appropriateness of the allowance for loan losses is estimated based upon these factors and trends identified by management at the time that the consolidated financial statements are prepared.

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

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

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

A provision for (recapture of) loan losses is charged (credited) to operations and is added to (deducted from) the allowance for loan losses based on a quarterly comprehensive analysis of the loan portfolio.

The allowance for loan losses is allocated to certain loan categories based on the relative risk characteristics, asset classifications and actual loss experience of the loan portfolio.

While management has allocated the allowance for loan losses to various loan portfolio segments, the allowance is general in nature and is available for the loan portfolio in its entirety.

The ultimate recovery of all loans is susceptible to future market factors beyond the Company’s control.

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

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

Accrued interest receivable on investment securities available for sale is excluded from the estimate of expected credit losses.

Changes in the ACL on investment securities available for sale are recorded as provision for (recapture of) credit losses on the consolidated income statements.

Losses are charged against the ACL when it is believed the uncollectibility of an investment security available for sale is confirmed or when either of the criteria regarding intent or requirement to sell is met.

ACL on Held to Maturity Investment Securities - The Company measures expected credit losses on investment securities held to maturity on a pooled, collective basis by major investment security type with similar risk characteristics.

A historical lifetime probability of default and severity of loss in the event of default is derived or obtained from external sources and adjusted for the expected effects of reasonable and supportable forecasts over the expected lives of the investment securities on those historical credit losses.

Expected credit losses on investment securities in the held to maturity portfolio that do not share similar risk characteristics with any of the pools are individually measured based on net realizable value, or the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the recorded amortized cost basis of the investment securities.

Accrued interest receivable on investment securities held to maturity is excluded from the estimate of expected credit losses.

Changes in the ACL on investment securities held to maturity are recorded as provision for (recapture of) credit losses in the consolidated income statements.

Losses are charged against the ACL when it is believed the uncollectibility of an investment security held to maturity is confirmed.

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

All disclosures as of and for the year ended September 30, 2024 are presented in accordance with the new accounting standard.

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

See also, Note 4 - Loan Receivable and Allowance for Credit Losses.

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

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

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

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

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

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

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

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

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

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

Each of the loan segments are impacted by those factors.

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

Loans that are evaluated individually are not included in the collective analysis.

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

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

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

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

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

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

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

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

Management also assesses the risk related to reasonable

Notes to Consolidated Financial Statements

2 unchanged sentences

September 30, 2024 and 2023

allowance for loan losses as appropriate.

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

and supportable forecasts that are used.

These factors are evaluated on a quarterly basis.

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

In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company's ACL and may require the Company to make adjustments to the ACL based on their judgment about information available to them at the time of their examinations.

The ACL on loans totaled $ 17,478,000 at September 30, 2024.

ACL for Unfunded Loan Commitments - The Company maintains a separate ACL related to unfunded loan commitments.

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

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

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

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

The ACL on unfunded loan commitments totaled $ 327,000 at September 30, 2024.

Premises and Equipment

13 unchanged sentences

These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell.

When the property is acquired, any excess of the loan balance over the estimated net realizable value is charged to the allowance for loan losses.

When the property is acquired, any excess of the loan balance over the estimated net realizable value is charged to the ACL for OREO.

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

5 unchanged sentences

Income from BOLI is recognized when earned.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

Goodwill is initially recorded when the purchase price paid in a business combination exceeds the estimated fair value of the net identified tangible and intangible assets acquired and liabilities assumed.

5 unchanged sentences

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

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

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

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

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

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

5 unchanged sentences

The Company performed its

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

fiscal year 2024 goodwill impairment test during the quarter ended June 30, 2024.

Based on this assessment, the Company determined that it is not "more likely than not" that the Company's fair value is less than its carrying amount, and, therefore, goodwill was determined not to be impaired at May 31, 2024.

14 unchanged sentences

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

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

Loan Servicing Rights

10 unchanged sentences

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

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

Operating Leases

19 unchanged sentences

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

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

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

7 unchanged sentences

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

The fair value of stock options is

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

determined using the Black-Scholes valuation model.

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

Stock option forfeitures are accounted for as they occur.

6 unchanged sentences

Related Party Transactions

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

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

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

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

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

Recent Accounting Pronouncements

2 unchanged sentences

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

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

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

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

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

ASU 2016-13 also changed the accounting for Purchase Credit Impaired ("PCI") debt securities and loans.

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

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

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

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

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

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

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

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

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

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

In addition, the prior policy for OTTI on investment securities held to maturity was replaced with an allowance approach.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

On October 1, 2023, the Company adopted this ASU.

The following table sets forth information on the impact of adopting this ASU (dollars in thousands):

September 30, 2023 October 1, 2023 October 1, 2023

As Previously Reported (Incurred Loss) Impact of ASU 2016-13 As Reported Under ASU 2016-13

ACL on investment securities $ — $ 92 $ 92

ACL on loans 15,817 461 16,278

Net deferred tax asset ( 26 ) 130 104

ACL on unfunded commitments 332 65 397

Total equity:

$ 233,073 $ ( 488 ) $ 232,585

For more information related to the implementation, see Note 3 - Investment Securities, Note 4 - Loans Receivable and Allowance for Credit Losses and Note 16 - Commitments and Contingent Liabilities.

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

3 unchanged sentences

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

An entity would then recognize an impairment charge for the amount by

which the carrying amount exceeds the reporting unit's fair value;

An entity would then recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value;

however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit.

Additionally, an entity would consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

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

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

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

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

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (ASU 2016-13):

Troubled Debt Restructurings and Vintage Disclosures.

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

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

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

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

The amendments in this ASU are intended to provide more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income tax paid information.

The ASU requires disclosure in the rate reconciliation of specific categories as well as additional information for reconciling items that meet a quantitative threshold.

The amendment requires on an annual basis a reconciliation broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold.

In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received.

The new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

An entity should apply the amendments in this ASU on a prospective basis.

The Company expects this ASU to only impact its disclosure requirements and does not expect the adoption of this ASU to have a material impact on its business operations or the Company's consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement (Topic 220):

Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures.

The amendments in this ASU require disclosure, in notes to the

Notes to Consolidated Financial Statements

2 unchanged sentences

September 30, 2024 and 2023

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

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

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

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

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

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

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

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

Troubled Debt Restructurings and Vintage Disclosures.

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

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

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

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

financial statements, of specified information about certain costs and expenses.

In conjunction with recent standards that enhanced the disaggregation of revenue and income tax information, the disaggregated expense information will enable investors to better understand the major components of an entity's income statement.

The new standard is effective for annual periods beginning after December 15, 2026, with early adoption permitted.

The Company expects this ASU to only impact its disclosure requirements and does not expect the adoption of the ASU to have a material impact on its business operations or the Company's consolidated financial statements.

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

11 unchanged sentences

Losses Estimated

Fair Value ACL

September 30, 2024

5 unchanged sentences

Private label residential 28,479 231 ( 980 ) 27,730 55

Taxable municipal securities 1,787 — ( 47 ) 1,740

Municipal securities 1,330 8 — 1,338 —

Bank issued trust preferred securities 495 — ( 18 ) 477 5

1 unchanged sentence

Available for Sale

government securities $ 3,934 $ 6 $ ( 1 ) $ 3,939

government agencies 68,297 545 ( 524 ) 68,318

6 unchanged sentences

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

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

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

Bank issued trust preferred securities 500 — ( 51 ) 449

18 unchanged sentences

804 ( 6 ) 1 20,447 ( 974 ) 19 21,251 ( 980 )

Taxable municipal securities — — — 1,740 ( 47 ) 1 1,740 ( 47 )

Bank issued trust preferred securities — — — 477 ( 18 ) 1 477 ( 18 )

1 unchanged sentence

Available for Sale

government securities $ 1,962 $ ( 1 ) 1 $ — $ — — $ 1,962 $ ( 1 )

government agencies 11,368 ( 117 ) 4 25,751 ( 407 ) 23 37,119 ( 524 )

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

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

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

9 unchanged sentences

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

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

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

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

8 unchanged sentences

September 30, 2024 and 2023

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

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

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

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

The Company bifurcates OTTI into (1) amounts related to credit losses which are recognized through earnings and (2) amounts related to all other factors which are recognized as a component of other comprehensive income (loss).

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

The revised expected cash flow estimates for individual securities are based primarily on an analysis of default rates, prepayment speeds and

third-party analytic reports.

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

The following table presents a summary of the significant inputs utilized to measure management’s estimates of the credit loss component on OTTI securities as of September 30, 2023, 2022 and 2021:

Range Weighted

Minimum Maximum Average

September 30, 2023

Constant prepayment rate 6.00 % 15.00 % 8.26 %

Collateral default rate — % 26.71 % 11.28 %

Loss severity rate — % 5.73 % 1.55 %

September 30, 2022

Constant prepayment rate 6.00 % 15.00 % 12.98 %

Collateral default rate 0.58 % 25.64 % 9.96 %

Loss severity rate — % 8.19 % 3.36 %

September 30, 2021

Constant prepayment rate 6.00 % 15.00 % 10.20 %

Collateral default rate 1.47 % 17.55 % 12.19 %

Loss severity rate — % 12.96 % 4.55 %

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

2023 2022 2021

Balance, beginning of year $ 836 $ 853 $ 885

Additional increases to the amount related to credit losses for which OTTI

was previously recognized — — 2

Subtractions:

Net realized gain (losses) previously recorded

as credit losses

( 11 ) 1 ( 12 )

Recovery of prior credit loss ( 9 ) ( 18 ) ( 22 )

Balance, end of year $ 816 $ 836 $ 853

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

During the year ended September 30, 2024, the Company recorded a $ 2,000 net realized loss on 14 held to maturity investment securities, all of which had been recognized previously as a credit loss.

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

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

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

There were no realized gains or losses on available for sale securities for the year ended September 30, 2024.

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

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

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

The recorded amount of investment securities pledged as collateral for public fund deposits, federal treasury tax and loan deposits and FHLB collateral totaled $ 208,810,000 and $ 201,820,000 at September 30, 2024 and 2023, respectively.

10 unchanged sentences

Total $ 172,097 $ 166,007 $ 72,231 $ 72,257

Credit Quality Indicators and Allowance for Credit Losses

Available for Sale Investment Securities

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

The Company did not record an ACL on any available for sale investment securities at September 30, 2024 or upon adoption of ASU 2016-13 on October 1, 2023.

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

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

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

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

Held to Maturity Investment Securities

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

government agency and U.S.

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

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

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

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

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

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

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

At September 30, 2024, the ACL on the held to maturity securities portfolio totaled $ 60,000 .

Notes to Consolidated Financial Statements

2 unchanged sentences

September 30, 2024 and 2023

Note 4 - Loans Receivable and Allowance for Loan Losses

The following table sets forth information for the year ended September 30, 2024 regarding activity in the ACL by portfolio segment (dollars in thousands):

Year Ended September 30, 2024

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

Private label residential $ — $ 82 $ ( 27 ) $ 55

Bank issued trust preferred securities — 10 ( 5 ) 5

Total $ — $ 92 $ ( 32 ) $ 60

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

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

Accrued interest receivable on held to maturity investment securities totaled $ 455,000 at September 30, 2024 and is included in accrued interest receivable on the consolidated balance sheet.

This amount is excluded from the estimate of expected credit losses.

Held to maturity investment securities are typically classified as non-accrual when the contractual payment of principal and interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest.

When held to maturity debt securities are placed on non-accrual status, unpaid interest credited to income is reversed.

The Company had $ 51,000 of private label mortgage-backed held to maturity investment securities in non-accrual status at September 30, 2024.

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

The Company monitors the credit ratings on a quarterly basis.

The following table sets forth the Company's held to maturity investment securities at September 30, 2024 by credit quality indicator (dollars in thousands):

Credit Ratings

As of September 30, 2024 AAA/AA/A BBB/BB/B Unrated Total

Held to Maturity

Treasury and U.S.

government agency securities $ 92,312 $ — $ — $ 92,312

government agencies 49,481 — — 49,481

Private label securities 16,277 — 12,202 28,479

Municipal securities 1,230 — 100 1,330

Bank issued trust preferred securities — — 495 495

Total held to maturity $ 159,300 $ — $ 12,797 $ 172,097

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

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

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

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

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

The following table represents a roll forward of the credit loss component of held to maturity investment securities that have been written down for OTTI with the credit loss component recognized in earning for the years ended September 30, 2024, 2023 and 2022 (dollars in thousands):

2024 2023 2022

Balance, beginning of year $ 816 $ 836 $ 853

Subtractions:

Net realized gain (losses) previously recorded

as credit losses

( 2 ) ( 11 ) 1

Recovery of prior credit loss ( 11 ) ( 9 ) ( 18 )

Balance, end of year $ 803 $ 816 $ 836

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

Note 4 - Loans Receivable and Allowance for Credit Losses

Loans receivable by portfolio segment consisted of the following at September 30, 2024 and 2023 (dollars in thousands):

24 unchanged sentences

Deferred loan origination fees, net 5,425 5,242

Allowance for loan losses 15,817 13,703

Allowance for credit losses 17,478 15,817

92,781 124,253

96 unchanged sentences

September 30, 2024 and 2023

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

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

The Consolidated Appropriations Act, 2021 ("CAA 2021"), which was signed into law on December 27, 2020, renewed and extended the PPP until May 31, 2021.

As a result, the Company began originating PPP loans again in January 2021.

The SBA guarantees 100% of PPP loans made to eligible borrowers, and the entire amount of the borrower's PPP loan, including any accrued interest, is eligible to be forgiven and repaid by the SBA.

PPP loans have:

(1) an interest rate of 1%, (2) a two-year loan term to maturity for loans approved by the SBA prior to June 5, 2020 (unless the borrower and the Company mutually agree to extend the term of the loan to five years) and a five-year maturity for loans approved thereafter;

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

The PPP ended on May 31, 2021.

Allowance for Loan Losses

The following table sets forth information for the year ended September 30, 2023 regarding activity in the allowance for loan losses by portfolio segment (dollars in thousands):

Allowance Provision for (Recapture of) Loan Losses Charge-

Credit Quality Indicators

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

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

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

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

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

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

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

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

Special Mention:

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

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

Substandard :

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

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

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

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

At September 30, 2024, one loan was classified as doubtful.

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

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

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

At September 30, 2024 and 2023, there were no loans classified as loss.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

The following table sets forth the Company's loan portfolio at September 30, 2024 by risk attribute and year of origination as well as current period gross charge-offs (dollars in thousands):

Term Loans Amortized Cost Basis by Origination Fiscal Year

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

One-to four-family

Pass $ 12,941 $ 66,671 $ 113,834 $ 48,120 $ 19,053 $ 36,659 $ — $ 297,278

Watch — 1,796 — — — — — 1,796

Substandard — — — — — 49 — 49

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

Pass $ 13,136 $ 19,440 $ 39,673 $ 33,144 $ 27,029 $ 43,759 $ 1,169 $ 177,350

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

Commercial real estate

Pass $ 23,758 $ 73,005 $ 126,939 $ 91,035 $ 55,498 $ 194,273 $ 8,799 $ 573,307

Watch — 944 — — 4,201 10,548 — 15,693

Special Mention — — — — — 4,401 — 4,401

Substandard — — — — — 5,818 — 5,818

Total commercial real estate $ 23,758 $ 73,949 $ 126,939 $ 91,035 $ 59,699 $ 215,040 $ 8,799 $ 599,219

Construction-custom & owner/builder

Pass $ 38,303 $ 29,159 $ 778 $ — $ — $ — $ — $ 68,240

Watch 221 3,239 5,848 2,861 429 436 — 13,034

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

Construction-speculative one-to four-family

Pass $ 5,039 $ 2,412 $ — $ — $ — $ — $ — $ 7,451

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

Construction-commercial

Pass $ 6,006 $ 16,349 $ 1,457 $ — $ — $ — $ — $ 23,812

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

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

Term Loans Amortized Cost Basis by Origination Fiscal Year

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

Construction-multi-family

Pass $ 588 $ 20,169 $ — $ — $ — $ — $ — $ 20,757

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

Construction-land development

Pass $ 1,673 $ 2,807 $ — $ — $ — $ — $ — $ 4,480

Watch $ — $ — $ 11,549 $ — $ — $ — $ — $ 11,549

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

Pass $ 10,287 $ 4,828 $ 6,588 $ 4,004 $ 766 $ 1,954 $ 458 $ 28,885

Watch — — — — — 481 — 481

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

Pass $ 5,820 $ 4,716 $ 1,990 $ 252 $ 573 $ 2,097 $ 31,766 $ 47,214

Substandard — — — — — 81 618 699

Total home equity $ 5,820 $ 4,716 $ 1,990 $ 252 $ 573 $ 2,178 $ 32,384 $ 47,913

Other consumer

Pass $ 1,744 $ 441 $ 241 $ 57 $ 8 $ 501 $ 71 $ 3,063

Watch — — — — — 65 1 66

Total other consumer $ 1,744 $ 441 $ 241 $ 57 $ 8 $ 566 $ 72 $ 3,129

Current period gross write-offs $ 6 $ 1 $ — $ — $ — $ — $ 2 $ 9

Commercial business

Pass $ 16,129 $ 19,910 $ 35,117 $ 8,588 $ 7,589 $ 4,775 $ 43,444 $ 135,552

Watch — — 202 36 696 6 180 1,120

Substandard — 1,352 — — — 517 — 1,869

Doubtful — 202 — — — — — 202

Total commercial business $ 16,129 $ 21,464 $ 35,319 $ 8,624 $ 8,285 $ 5,298 $ 43,624 $ 138,743

Current period gross write-offs $ — $ 79 $ — $ — $ — $ 13 $ — $ 92

Pass $ — $ — $ — $ 224 $ 36 $ — $ — $ 260

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

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

Term Loans Amortized Cost Basis by Origination Fiscal Year

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

Total loans receivable, gross (net of construction LIP)

Pass $ 135,424 $ 259,907 $ 326,617 $ 185,424 $ 110,552 $ 284,018 $ 85,707 $ 1,387,649

Watch 221 5,979 17,599 2,897 5,326 11,536 181 43,739

Special Mention — — — — — 4,401 — 4,401

Substandard — 1,352 — — — 6,465 618 8,435

Doubtful — 202 — — — — — 202

Total loans receivable $ 135,645 $ 267,440 $ 344,216 $ 188,321 $ 115,878 $ 306,420 $ 86,506 $ 1,444,426

Current period gross charge-off $ 6 $ 80 $ — $ — $ — $ 13 $ 2 $ 101

Allowance for Credit Losses

During the year ended September 30, 2024, the ACL on loans increased $ 1,661,000 due primarily to a provision for credit losses on loans of $ 1,254,000 and a $ 461,000 upward adjustment related to the adoption of ASU 2016-13.

The provision for credit losses on loans recognized during the year ended September 30, 2024 was primarily due to growth in balances of collectively evaluated loans.

The following table sets forth information for the year ended September 30, 2024 regarding activity in the ACL by portfolio segment (dollars in thousands):

Allowance Impact of Adopting CECL (ASU 2016-13) Provision for (Recapture of) Credit Losses Charge-

offs Recoveries Ending

36 unchanged sentences

$ 13,703 $ 2,132 $ ( 19 ) $ 1 $ 15,817

The following table sets forth information for the year ended September 30, 2021 regarding activity in the allowance for loan losses by portfolio segment (dollars in thousands):

The following table sets forth the information for the year ended September 30, 2022 regarding activity in the allowance for loan losses by portfolio (dollars in thousands):

Allowance Provision for (Recapture of) Loan Losses Charge-

19 unchanged sentences

September 30, 2024 and 2023

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

Allowance for Loan Losses Recorded Investment in Loans

Evaluated for

Impairment Collectively

Evaluated for

Impairment Total Individually

Evaluated for

Impairment Collectively

Evaluated for

Impairment Total

Mortgage loans:

One- to four-family

$ — $ 2,417 $ 2,417 $ 368 $ 252,859 $ 253,227

— 1,156 1,156 — 127,176 127,176

— 7,209 7,209 2,973 565,292 568,265

Construction – custom and owner/ builder

— 750 750 — 73,239 73,239

Construction – speculative one- to four-family

— 148 148 — 9,361 9,361

Construction – commercial

— 316 316 — 26,030 26,030

Construction – multi-family

— 602 602 — 45,890 45,890

Construction – land development

— 274 274 — 16,129 16,129

— 406 406 — 26,726 26,726

Consumer loans:

Home equity and second mortgage

— 519 519 382 37,899 38,281

— 53 53 — 2,772 2,772

Commercial business loans 123 1,844 1,967 286 135,516 135,802

SBA PPP loans — — — — 466 466

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

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

Allowance for Loan Losses Recorded Investment in Loans

30 unchanged sentences

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

Non-Accrual Loans

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

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

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

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

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

Notes to Consolidated Financial Statements

68 unchanged sentences

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

Credit Quality Indicators

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

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

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

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

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

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

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

Special Mention:

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

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

Substandard :

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

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

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

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

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

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

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

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

Pass Watch Special Mention Substandard Total

At September 30, 2024, the Company had $ 1,825,000 of non-accrual loans with an ACL of $ 506,000 and $ 2,060,000 of non-accrual loans with no ACL.

The following table is a summary of the amortized cost of collateral dependent non-accrual loans as of September 30, 2024 (in thousands):

Recorded Investment Related ACL

Mortgage loans:

One- to four- family $ 49 $ —

Multi-family 127,176 — — — 127,176

Commercial 1,158 —

Construction - custom and owner/builder — —

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

Construction – commercial 25,063 967 — — 26,030

Construction – multi-family 45,890 — — — 45,890

Construction – land development 16,129 — — — 16,129

Land 26,226 500 — — 26,726

Consumer loans:

Home equity and second mortgage 618 —

Other 2,716 56 — — 2,772

Commercial business loans 2,060 506

SBA PPP loans 466 — — — 466

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

Total $ 3,885 $ 506

Notes to Consolidated Financial Statements

20 unchanged sentences

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

Impaired Loans

Prior to the adoption of CECL, a loan was considered impaired when it was probable that the Company would be unable to collect all amounts (principal and interest) when due according to the original contract 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 was identified as being impaired, the amount of the impairment was measured by using discounted cash flows, except when, as an alternative, the current estimated fair value of the collateral (reduced by estimated costs to sell, if applicable) or observable market price was used.

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

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

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

If ultimate collection of the loan 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.

Notes to Consolidated Financial Statements

21 unchanged sentences

With an allowance recorded:

Consumer loans:

Commercial business loans 245 245 123 247 — —

49 unchanged sentences

September 30, 2024 and 2023

The following table is a summary of information related to impaired loans by portfolio segment as of and for the year ended September 30, 2021 (dollars in thousands):

September 30, 2021 For the Year Ended September 30, 2021

Investment Unpaid Principal

Balance (Loan

Charge Off) Related

Allowance Average

Investment Interest

Recognized Cash Basis

With no related allowance recorded:

Mortgage loans:

One- to four-family $ 407 $ 450 $ — $ 655 $ 58 $ 52

Commercial 3,143 3,143 — 3,039 159 127

Land 321 321 — 292 2 2

Consumer loans:

Home equity and second mortgage 516 516 — 552 1 1

Other 17 17 — 12 — —

Commercial business loans 164 168 — 200 — —

4,568 4,615 — 4,750 220 182

With an allowance recorded:

Mortgage loans:

One- to four-family — — — 97 — —

Land 362 362 76 72 — —

Commercial business loans 294 294 171 285 — —

656 656 247 454 — —

Mortgage loans:

One- to four-family 407 450 — 752 58 52

Commercial 3,143 3,143 — 3,039 159 127

Land 683 683 76 364 2 2

Consumer loans:

Home equity and second mortgage 516 516 — 552 1 1

Other 17 17 — 12 — —

Commercial business loans 458 462 171 485 — —

$ 5,224 $ 5,271 $ 247 $ 5,204 $ 220 $ 182

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

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

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

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

Accruing Non-Accrual Total

Mortgage loans:

Commercial $ 2,290 $ — $ 2,290

Consumer loans:

Home equity and second mortgage 205 — 205

$ 2,495 $ — $ 2,495

Accruing Non-Accrual Total

Mortgage loans:

Commercial $ 2,330 $ — $ 2,330

Consumer loans:

Home equity and second mortgage 142 55 197

$ 2,472 $ 143 $ 2,615

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

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

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

2022 Number of

Contracts Pre-Modification

Investment Post- Modification

Investment End of

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

Total 1 $ 136 $ 145 $ 142

(1) Modification resulted in an extension of maturity and deferral of accrued interest.

There were no TDRs for which there was a payment default within the first 12 months of modification during the years ended September 30, 2023, 2022 or 2021.

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

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

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

No loans to borrowers experiencing financial difficulty were modified in the years ended September 30, 2024 and 2023.

At September 30, 2023, the Company had $ 2.50 million of TDRs, all of which were paying as agreed.

There were no defaults in these loans during the years ended September 30, 2024 and 2023.

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

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

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

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

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

Note 5 - Premises and Equipment

8 unchanged sentences

Premises and equipment, net $ 21,486 $ 21,642

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

Note 6 – OREO and Other Repossessed Assets

5 unchanged sentences

Balance, end of year $ — 1 $ — 2

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

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

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

At September 30, 2024, OREO and other repossessed assets consisted of one OREO property in Washington with no book value.

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

During the year ended September 30, 2024, the Company transferred one OREO property with no value, to the business association that manages the surrounding properties.

The Company did not record a net gain or loss on sale of OREO for the years ended September 30, 2024 and 2023.

For the year ended September 30, 2022, the Company recorded net gains on sales of OREO and other repossessed assets of $ 2,000 .

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

At September 30, 2024, and 2023 there were no foreclosed residential real estate properties held in OREO as a result of obtaining physical possession, and there were no one- to four-family properties in the process of foreclosure.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

Note 7 - Goodwill and CDI

7 unchanged sentences

The guaranteed principal amount of SBA loans serviced for others at September 30, 2024, 2023 and 2022 was $ 1,482,000 , $ 1,882,000 and $ 3,560,000 , respectively.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

The following is an analysis of the changes in Freddie Mac loan servicing rights for the years ended September 30, 2024, 2023 and 2022 (dollars in thousands):

6 unchanged sentences

At September 30, 2024, 2023 and 2022, the estimated fair value of Freddie Mac servicing rights totaled $ 4,655,000 , $ 5,469,000 and $ 5,547,000 , respectively.

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

The Freddie Mac servicing rights' fair values at September 30, 2024, 2023 and 2022 were estimated using discounted cash flow analyses with average discount rates of 10.00 %, 9.50 % and 9.50 %, and average conditional prepayment rates of 7.03 %, 6.23 % and 6.31 %, respectively .

At September 30, 2024, 2023 and 2022, there was no valuation allowance.

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

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

2023 2022 2021

Balance, beginning of year $ 3 $ 44 $ 115

Amortization ( 3 ) ( 41 ) ( 89 )

Valuation recovery — — 18

Balance, end of year $ — $ 3 $ 44

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

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

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

At September 30, 2024 there were no SBA servicing rights and as of September 30, 2023, and 2022, the servicing rights were insignificant.

There was no valuation allowance on SBA servicing rights at September 30, 2024, 2023 and 2022.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

Note 9 - Leases

At September 30, 2024, the Company has operating leases for two retail bank branch offices and an administrative office.

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

Lease extensions are not certain, and the Company evaluates each lease based on the specific circumstances for the location to determine the probability of exercising the extensions in the calculation of ROU assets and liabilities.

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

The components of lease cost (included in the premises and equipment expense category in the consolidated statements of income) are as follows for the years ended September 30, 2024, 2023 and 2022 (dollars in thousands):

3 unchanged sentences

Total lease cost $ 380 $ 354 $ 371

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

The following table provides supplemental information related to operating leases at or for the years ended September 30, 2024, 2023 and 2022 (dollars in thousands):

11 unchanged sentences

Total $ 1,575

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

Note 10 - Deposits

7 unchanged sentences

Individual certificates of deposit in amounts of $250,000 or greater totaled $ 113,579,000 and $ 91,714,000 at September 30, 2024 and 2023, respectively.

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

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

The Company had brokered deposits totaling $ 48,759,000 and $ 38,165,000 at September 30, 2024 and 2023, respectively.

The Company had reciprocal deposits totaling $ 93,464,000 and $ 70,764,000 at September 30, 2024 and 2023, respectively.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

Scheduled maturities of certificates of deposit for fiscal years ending subsequent to September 30, 2024 are as follows (dollars in thousands):

11 unchanged sentences

The Bank has long- and short-term borrowing lines with the FHLB with total credit on the lines up to 45 % of the Bank’s total assets, limited by available collateral.

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

At September 30, 2024, the Bank had a borrowing capacity of $ 626,041,000 prior to outstanding borrowings.

The Bank had $ 20,000,000 long-term and no short-term FHLB borrowings outstanding at September 30, 2024.

The long-term borrowings consisted of three borrowings, which mature at various dates during the 2026 fiscal year and bear interest rates ranging from 3.95% - 4.03%.

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

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

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

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

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

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

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

The Bank also maintained two short-term borrowing lines with the FRB during the years ended September 30, 2024 and 2023, with total credit based on eligible collateral:

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

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

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

September 30, 2024, the Bank had a borrowing capacity on the BIC line of $ 86,634,000 , with no outstanding borrowings at September 30, 2024 and 2023.

At September 30, 2024, the Bank did not have a balance on the BTFP line, the borrowing program was discontinued by the FRB in March of 2024.

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

8 unchanged sentences

Total other liabilities and accrued expenses $ 8,819 $ 9,030

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

Note 13 - Income Taxes

4 unchanged sentences

Provision for income taxes $ 6,123 $ 6,876 $ 5,962

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

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

At September 30, 2024 and 2023, the Company had income tax receivable of $ 80,000 and $ 107,000 , respectively, which is included in other assets in the accompanying consolidated balance sheets.

The components of the Company’s deferred tax assets and liabilities at September 30, 2024 and 2023 were as follows (dollars in thousands):

Deferred Tax Assets

Allowance for loan losses $ 3,322 $ 2,878

Allowance for credit losses $ 3,739 $ 3,392

Allowance for OREO losses 5 5

2 unchanged sentences

Deferred compensation and bonuses 163 217

Reserve for loan commitments 70 64

Operating lease liabilities 331 392

1 unchanged sentence

Total deferred tax assets 4,432 4,487

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

Deferred Tax Liabilities

7 unchanged sentences

Total deferred tax liabilities 3,940 4,225

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

Net deferred tax assets $ 492 $ 262

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

1 unchanged sentence

The provision for income taxes for the years ended September 30, 2024, 2023 and 2022 differs from that computed at the federal statutory corporate tax rate as follows (dollars in thousands):

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

2024 2023 2022

2 unchanged sentences

Dividends on Employee Stock Ownership Plan ("ESOP") stock ( 58 ) ( 71 ) ( 70 )

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

Stock based compensation tax effect ( 37 ) ( 66 ) ( 34 )

Other, net ( 32 ) 22 ( 13 )

10 unchanged sentences

There was no compensation expense recognized for the ESOP for the years ended September 30, 2024, 2023 and 2022.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

Eligible employees may contribute a portion of their wages to the 401(k) Plan up to the maximum established under the Internal Revenue Code.

4 unchanged sentences

the 2014 Equity Incentive Plan and the 2019 Equity Incentive Plan.

Under the Company's 2014 Equity Incentive Plan, the Company is able to grant options and awards of restricted stock (with or without performance measures) for up to 352,366 shares of common stock to employees, officers, directors and directors emeriti.

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

Under the Company's 2014 Equity Incentive Plan, the Company may grant options and awards of restricted stock (with or without performance measures) for up to 352,366 shares of common stock to employees, officers, directors and directors emeriti.

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

Shares issued may be purchased in the open market or may be issued from authorized and unissued shares.

3 unchanged sentences

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

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

At September 30, 2024, there were 15,576 and 154,655 shares of common stock available for future grants under the 2014 and 2019 Equity Incentive Plans, respectively.

Stock option activity for the years ended September 30, 2024, 2023 and 2022 is summarized as follows:

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

Shares Weighted Average

22 unchanged sentences

There were 1,000 options granted during the year ended September 30, 2023 with an aggregate grant date fair value of $ 9,000 .

There were no options granted during the year ended September 30, 2024.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

The weighted average assumptions for options granted during the years ended September 30, 2023 and 2022 were as follows:

2023 2022 2021

Expected volatility 33 % 33 %

9 unchanged sentences

At September 30, 2023, there were 130,120 unvested options with an aggregate grant date fair value of $ 756,000 .

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

Additional information regarding options outstanding at September 30, 2024 is as follows:

10 unchanged sentences

306,240 $ 25.21 5.4 229,010 $ 24.86 4.8

369,150 $ 24.00 6.0 239,030 $ 23.03 4.9

The aggregate intrinsic value of options outstanding at September 30, 2024, 2023 and 2022 was $ 1,599,000 , $ 1,518,000 and $ 2,130,000 , respectively.

As of September 30, 2024, unrecognized compensation cost related to non-vested stock options was $ 490,000 , which is expected to be recognized over a weighted average period of 1.76 years.

Total stock option compensation expense for the years ended September 30, 2024 and 2023 was $ 233,000 and $ 320,000 , respectively.

During the year ended September 30, 2024, the Company granted a total of 28,815 shares of restricted stock from the 2019 plan subject to time-based vesting.

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

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

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

As of and for the year ended September 30, 2022 , there were no unvested restricted stock awards outstanding or restricted stock grants awarded.

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

1 unchanged sentence

At September 30, 2024, unrecognized compensation cost related to unvested restricted stock awards was $ 1,435,000 , which is expected to be recognized over a weighted average period of 2.53 years.

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

Total compensation expense related to restricted stock awards for the year ended September 30, 2024 was $ 157,000 .

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

The following table presents the activity related to restricted stock for the years ended September 30, 2024 and 2023:

Number of Unvested Shares Weighted Average Grant Date Fair Value

3 unchanged sentences

Outstanding, September 30, 2023 26,150 27.37

Granted 28,815 30.62

Forfeited ( 200 ) 27.37

Issued ( 5,750 ) 27.37

Outstanding, September 30, 2024 49,015 $ 29.28

Note 16 - Commitments and Contingencies

2 unchanged sentences

These instruments involve, to varying degrees, elements of credit risk not recognized in the consolidated balance sheets.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

represented by the contractual amount of those instruments.

The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments.

The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

8 unchanged sentences

Commitments to extend credit 26,293 31,667

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

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

The reserve for unfunded loan commitments totaled $ 332,000 and $ 305,000 at September 30, 2023 and 2022, respectively.

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

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

The Company maintains a separate ACL related to unfunded loan commitments.

Credit risk associated with the unfunded commitments is consistent with the loss ratio for each loan segment within the ACL for loans.

The ACL on unfunded loan commitments totaled $ 327,000 at September 30, 2024

Prior to the adoption of CECL the Company maintained a separate reserve for losses related to unfunded loan commitments.

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

The reserve for unfunded loan commitments totaled $ 332,000 at September 30,

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

This amount was included in other liabilities and accrued expenses in the accompanying consolidated balance sheets.

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

The following table sets forth information for the years ended September 30, 2024 and 2023 regarding activity in the ACL (reserve for loss) on unfunded loan commitments (dollars in thousands):

Year Ended September 30, 2024 Year Ended September 30, 2023

Beginning ACL $ 332 $ 305

Impact of adopting CECL (ASU 2016-13) 66 —

(Recapture of) provision for credit losses ( 71 ) 27

Ending ACL $ 327 $ 332

The Bank has an employee severance compensation plan which expires in 2027 that provides severance pay benefits to eligible employees in the event of a change in control of Timberland Bancorp or the Bank (as defined in the plan).

2 unchanged sentences

The maximum payment for any eligible employee would be equal to 18 months of the employee’s current compensation.

Timberland Bancorp has employment agreements with the Chief Executive Officer and the Chief Operating Officer which provide for a severance payment and other benefits if the officers are involuntarily terminated following a change in control of Timberland Bancorp or the Bank.

Timberland Bancorp has employment agreements with the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Lending Officer, Chief Credit Officer and Chief Technology Officer which provide for a severance payment and other benefits if the officers are involuntarily terminated following a change in control of Timberland Bancorp or the Bank.

The maximum value of the severance benefits under the employment agreements is 2.99 times the officer's average annual compensation during the five -year period prior to the effective date of the change in control.

7 unchanged sentences

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

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

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of retained income that could be utilized for such actions.

In addition to the minimum regulatory capital ratios, the Bank is required to maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of retained income that could be utilized for such actions.

At September 30, 2024, the Bank's CET1 capital exceeded the required capital conservation buffer.

2 unchanged sentences

The following tables compare the Bank’s actual capital amounts at September 30, 2024 and 2023 to its minimum regulatory capital requirements and "Well Capitalized" regulatory capital at those dates (dollars in thousands):

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

Actual Regulatory Minimum To Be "Adequately Capitalized" Regulatory Minimum To Be "Well Capitalized" Under Prompt Corrective Action Provisions

34 unchanged sentences

Cash and due from financial institutions $ 1,430 $ 517

Interest-bearing deposits in banks — 1,548

Total cash and cash equivalents

Investment securities held to maturity, at amortized cost (estimated fair value $ 449 and $ 469 )

Investment securities held to maturity, at amortized cost (net of allowance for credit losses of $5 at September 30, 2024 and $0 at September 30, 2023) (estimated fair value of $477 and $449) 495 500

Investment in Bank 243,527 232,145

40 unchanged sentences

Proceeds from exercise of stock options 659 698 415

Repurchase of common stock ( 4,998 ) ( 4,583 ) ( 527 )

Repurchase of common stock, net of tax ( 5,958 ) ( 4,998 ) ( 4,583 )

Payment of dividends ( 7,650 ) ( 8,267 ) ( 7,232 )

Net cash used in financing activities ( 12,949 ) ( 12,567 ) ( 11,400 )

Net (decrease) increase in cash and cash equivalents ( 1,193 ) ( 1,222 ) 299

Net increase (decrease) in cash and cash equivalents 913 ( 1,193 ) ( 1,222 )

Cash and cash equivalents

25 unchanged sentences

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

Other comprehensive income (loss) ( 369 ) 2 ( 367 )

Other comprehensive income 1,095 9 1,104

Balance of AOCI at the end of period $ 20 $ — $ 20

17 unchanged sentences

The Company's assets measured at fair value on a recurring basis consist of investment securities available for sale and investments in equity securities.

The estimated fair values of MBS are based upon market prices of similar securities or observable inputs (Level 2).

The estimated fair values of MBS are based upon quoted market prices (Level 1) and market prices of similar securities or observable inputs (Level 2).

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

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

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

Notes to Consolidated Financial Statements

2 unchanged sentences

September 30, 2024 and 2023

The Company had no liabilities measured at fair value on a recurring basis at September 30, 2024 and 2023.

The Company's assets measured at estimated fair value on a recurring basis at September 30, 2024 and 2023 are as follows (dollars in thousands):

Estimated Fair Value

15 unchanged sentences

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

Individually Evaluated Collateral-Dependent Loans :

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

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

Impaired Loans:

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

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

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

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

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

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

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

Investment Securities Held to Maturity:

The estimated fair value of investment securities held to maturity is based upon the assumptions market participants would use in pricing the investment security.

Such assumptions include quoted market prices (Level 1), market prices of similar securities or observable inputs (Level 2) and unobservable inputs such as dealer quotes, discounted cash flows or similar techniques (Level 3).

OREO and Other Repossessed Assets, net:

OREO and other repossessed assets are recorded at estimated fair value less estimated costs to sell.

Estimated fair value is generally determined by management based on a number of factors, including third-party appraisals of estimated fair value in an orderly sale.

Estimated costs to sell are based on standard market factors.

The valuation of OREO and other repossessed assets is subject to significant external and internal judgment (Level 3).

Notes to Consolidated Financial Statements

6 unchanged sentences

September 30, 2024

Impaired loans $ 122 $ — $ — $ 122

Individually evaluated collateral-dependent loans $ 1,315 $ — $ — $ 1,315

September 30, 2023

2 unchanged sentences

Valuation Technique Significant Unobservable Inputs Range

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

Individually evaluated collateral-dependent loans (2024) and impaired loans (2023) Market approach Appraised value less selling costs N/A

GAAP requires disclosure of estimated fair values for financial instruments.

16 unchanged sentences

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

Loans held for sale 400 407 407 — —

Loans receivable, net 1,421,523 1,387,642 — — 1,387,642

25 unchanged sentences

300,100 297,542 — — 297,542

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

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

5 unchanged sentences

Management monitors interest rates and maturities of assets and liabilities, and attempts to manage interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

Note 22 - Selected Quarterly Financial Data (Unaudited)

7 unchanged sentences

Net interest income 16,547 15,981 15,635 16,004

Provision for loan losses ( 522 ) ( 610 ) ( 475 ) ( 525 )

Provision for credit losses, net ( 490 ) ( 244 ) ( 81 ) ( 336 )

Non-interest income 2,932 2,791 2,615 2,798

6 unchanged sentences

Diluted (1) $ 0.79 $ 0.74 $ 0.70 $ 0.77

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

__________________________________________

(1) The net income per common share amounts for the quarters do not add to the total for the fiscal year due to rounding.

September 30,

23 unchanged sentences

(4) allocate the transaction price to the performance obligations in the contract;

and (5) recognize revenue when (or as) the Company satisfies a performance obligation.

and (5) recognize revenue when (or as) the Company satisfies a

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

performance obligation.

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration that it is entitled to in exchange for the goods or services it transfers to the customer.

8 unchanged sentences

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

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2023 and 2022

• Service Charges on Deposits:

12 unchanged sentences

The Company earns fees from contracts with customers for investment activities.

Revenues are generally recognized on a monthly basis and are generally based on a percentage of the customer's assets under management or based on investment solutions that are implemented for the customer.

Revenues are generally recognized monthly and are generally based on a percentage of the customer's assets under management or based on investment solutions that are implemented for the customer.

Notes to Consolidated Financial Statements

Timberland Bancorp, Inc.

and Subsidiary

September 30, 2024 and 2023

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data