What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-10 compared with 2024-08-07 · 144 added, 221 removed, 287 unchanged (56% of the section changed)

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The information contained in this section should be read in conjunction with the consolidated financial statements and accompanying notes to the consolidated financial statements contained in Item 1 of this Form 10-Q.

The following analysis discusses the material changes in the consolidated financial condition and results of operations of the Company at and for the three and nine months ended June 30, 2024.

The following analysis discusses the material changes in the consolidated financial condition and results of operations of the Company at and for the three months ended December 31, 2024.

Special Note Regarding Forward-Looking Statements

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• our ability to implement our business strategies, including expectations regarding key growth initiatives and strategic priorities;

• increased competitive pressures among financial services companies;

• increased competitive pressures among financial services companies, including repricing and competitors' pricing initiatives, and their impact on our market position, loan and deposit products;

• changes in consumer spending, borrowing and savings habits;

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• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board (“FASB”);

• The potential imposition of new tariffs or changes to existing trade policies that could affect economic activity or specific industry sectors;

• environmental, social and governance goals and targets;

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

At June 30, 2024, the Company had total assets of $1.90 billion, net loans receivable of $1.40 billion, total deposits of $1.63 billion and total shareholders’ equity of $241.22 million.

At December 31, 2024, the Company had total assets of $1.91 billion, net loans receivable of $1.41 billion, total deposits of $1.63 billion and total shareholders’ equity of $249.20 million.

The Company's business activities generally are limited to passive investment activities and oversight of its investment in the Bank.

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Changes in market interest rates, the slope of the yield curve, and interest we earn on interest earning assets or pay on interest bearing liabilities, as well as the volume and types of interest earning assets, interest bearing and non-interest bearing liabilities and shareholders’ equity, usually have the largest impact on changes in our net interest spread, net interest margin and net interest income during a reporting period.

Since March 2022, through July 2023, in response to inflation, the Federal Open Market Committee ("FOMC") of the Federal Reserve has increased the target range for the federal funds rate by 525 basis points, to a range of 5.25% to 5.50%, where it remained as of June 30, 2024.

Since March 2022, through July 2023, in response to inflation, the Federal Open Market Committee ("FOMC") of the Federal Reserve had increased the target range for the federal funds rate by 525 basis points, to a range of 5.25% to 5.50%.

Inflation has decreased over the last year and as a result, the Federal Reserve has decreased the target range by 100 basis points in the last four months, to a range of 4.25% to 4.50% at December 31, 2024.

The provision for (recapture of) credit losses is dependent on changes in the loan portfolio and management’s assessment of the collectability of the loan portfolio as well as prevailing economic and market conditions.

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As the loan portfolio increases, or due to an increase in probable expected losses inherent in the loan portfolio, the ACL may increase, resulting in a decrease to net interest income after the provision.

Improvement in loan risk ratings, increase in property values, or receipts of recoveries of amounts previously charged off may partially or fully offset any required increases to ACL on loans

due to loan growth or an increase in the probable expected credit losses.

The Company recorded a provision for credit losses on loans of $264,000 and $810,000 for the three and nine months ended June 30, 2024, respectively (using the CECL methodology), primarily due to loan portfolio growth.

The Company recorded a provision for loan losses (using the prior incurred loss methodology) of $610,000 and $1.61 million for the three and nine months ended June 30, 2023, respectively.

Improvement in loan risk ratings, increase in property values, or receipts of recoveries of amounts previously charged off may partially or fully offset any required increases to the ACL on loans due to loan growth or an increase in the probable expected credit losses.

The Company recorded a provision for credit losses on loans of $52,000 and $379,000 for the three months ended December 31, 2024 and 2023, respectively, primarily due to loan portfolio growth.

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

For the three and nine months ended June 30, 2024, non-interest income consisted primarily of service charges on deposit accounts, gain on sales of loans, ATM and debit card interchange transaction fees, BOLI net earnings, servicing income on loans sold, escrow fees and other operating income.

Non-interest income is also increased by net recoveries on investment securities and for periods prior to the adoption of CECL reduced by net OTTI losses on investment securities, if any.

For the three months ended December 31, 2024, non-interest income consisted primarily of service charges on deposit accounts, gain on sales of loans, ATM and debit card interchange transaction fees, BOLI net earnings, servicing income on loans sold, escrow fees and other operating income.

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

Non-interest income is also decreased by valuation allowances on loan servicing rights and increased by recoveries of valuation allowances on loan servicing rights, if any.

Non-interest expense consisted primarily of salaries and employee benefits, premises and equipment, advertising, ATM and debit card interchange transaction fees, postage and courier expenses, state and local taxes, professional fees, FDIC insurance premiums, loan administration and foreclosure expenses, data processing and telecommunication expenses, deposit operation expenses, amortization of CDI, and other non-interest expenses.

Non-interest expense in certain periods is reduced by gains on the sale of premises and equipment and gains on the sale of OREO.

Non-interest income and non-interest expense are affected by the growth of the Company's operations and growth in the number of loan and deposit accounts.

Non-interest expense consisted primarily of salaries and employee benefits, premises and equipment, advertising, ATM and debit card interchange transaction fees, postage and courier expenses, state and local taxes, professional fees, FDIC insurance premiums, loan administration and foreclosure expenses, technology and communications expenses, deposit operation expenses, amortization of CDI, and other non-interest expenses.

In certain periods, non-interest expense may be reduced by gains on the sale of premises and equipment and OREO.

Both non-interest income and non-interest expense are affected by the growth of the Company's operations and growth in the number of loan and deposit accounts.

Results of operations may also be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

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The Company's critical accounting estimates are described in the Company’s 2024 Form 10-K under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Critical Accounting Estimates.” That discussion highlights estimates that the Company makes that involve uncertainty or potential for substantial change.

Other than the adoption of CECL (for additional information on CECL, see Note 4 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”), there have been no material changes in the Company’s critical accounting policies and estimates as previously disclosed in the Company’s 2023 Form 10-K.

Comparison of Financial Condition at June 30, 2024 and September 30, 2023

Total assets increased by $60.72 million, or 3.3%, to $1.90 billion at June 30, 2024 from $1.84 billion at September 30, 2023.

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

The increase in assets was primarily funded by an increase in deposits, which was partially offset by a decrease in FHLB borrowings.

Net loans receivable increased by $94.71 million, or 7.3%, to $1.40 billion at June 30, 2024 from $1.30 billion at September 30, 2023, primarily due to increases in multi-family loans, one- to four-family loans, commercial real estate loans, as well as smaller increases in several other loan categories.

These increases to net loans receivable were partially offset by decreases in various construction loan categories.

Total deposits increased by $67.61 million, or 4.3%, to $1.63 billion at June 30, 2024 from $1.56 billion at September 30, 2023, primarily due to increases in money market account and certificates of deposit balances.

These increases were partially offset by decreases in NOW checking account, non-interest bearing deposit and savings account balances.

Shareholders’ equity increased by $8.15 million, or 3.5%, to $241.22 million at June 30, 2024 from $233.07 million at September 30, 2023.

The increase in shareholders' equity was primarily due to net income, a reduction in accumulated other comprehensive loss and proceeds from stock option exercises during the current period.

These increases were partially offset

by the payment of dividends to common shareholders, repurchases of common stock and a reduction of retained earnings related to adoption of the new CECL accounting standard during the nine months ended June 30, 2024.

There have been no material changes in the Company’s critical accounting policies and estimates as previously disclosed in the Company’s 2024 Form 10-K.

Comparison of Financial Condition at December 31, 2024 and September 30, 2024

Total assets decreased by $14.00 million, or 0.7%, to $1.91 billion at December 31, 2024 from $1.92 billion at September 30, 2024.

The decrease in total assets was primarily due to decreases in loans receivable and investment securities, which were partially offset by increases in several other asset categories.

Net loans receivable decreased by $9.70 million, or 0.7%, to $1.41 billion at December 31, 2024 from $1.42 billion at September 30, 2024, primarily due to decreases in commercial business and commercial real estate loans, as well as construction loans due to an increase in the undisbursed portion of construction loans.

Smaller declines in several other loan categories also contributed to the overall decrease.

These decreases were partially offset by an increase in one- to four-family loans and in several other loan categories.

Total deposits decreased by $17.25 million, or 1.0%, to $1.63 billion at December 31, 2024 from $1.65 billion at September 30, 2024, primarily due to decreases in money market, non-interest bearing and NOW checking account balances.

These decreases were partially offset by increases in certificate of deposit ("CDs") and savings account balances.

Shareholders’ equity increased by $3.79 million, or 1.5%, to $249.20 million at December 31, 2024 from $245.41 million at September 30, 2024.

The increase was primarily due to net income and proceeds from stock option exercises during the current period.

These increases were partially offset by the payment of dividends to common shareholders, repurchases of common stock and an other comprehensive loss during the three months ended December 31, 2024.

A more detailed explanation of the changes in significant balance sheet categories follows:

Cash and Cash Equivalents and CDs Held for Investment:

Cash and cash equivalents and CDs held for investment increased by $25.46 million, or 17.7%, to $169.37 million at June 30, 2024 from $143.91 million at September 30, 2023.

The increase was primarily due to an increase in deposits and a decrease in investment securities, which was partially offset by an increase in loans and a decrease in FHLB borrowings.

Cash and cash equivalents and CDs held for investment decreased by $3.40 million, or 1.9%, to $171.54 million at December 31, 2024 from $174.94 million at September 30, 2024.

The decrease was due to a $2.74 million decrease in CDs held for investments and a $657,000 decrease in cash and cash equivalents, which was used to fund deposit withdrawals.

Investment Securities:

Investment securities (including investments in equity securities) decreased by $60.65 million, or 19.4%, to $252.15 million at June 30, 2024 from $312.80 million at September 30, 2023.

This decrease was primarily due to maturities, prepayments and scheduled amortizations exceeding purchases.

Investment securities (including investments in equity securities) decreased by $11.19 million, or 4.6%, to $234.03 million at December 31, 2024 from $245.22 million at September 30, 2024.

This decrease was primarily due to maturities, prepayments and scheduled amortizations.

Partially offsetting these decreases was the purchase of additional U.S.

government agency mortgage-backed investment securities and U.S.

Treasury investment securities, all of which were classified as available for sale.

For additional information on investment securities, see Note 2 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”

FHLB stock decreased $1.56 million, or 43.5% to $2.04 million at June 30, 2024 from $3.60 million at September 30, 2023, due to the repayment of a portion of FHLB borrowings and the restructuring of stock ownership requirements by FHLB.

FHLB stock remained constant at $2.04 million at December 31, 2024 and September 30, 2024.

Other Investments:

Other investments, consisting solely of the Company's investment in the Solomon Hess SBA Loan Fund LLC, was unchanged at $3.00 million at both June 30, 2024 and September 30, 2023.

Other investments, consisting solely of the Company's investment in the Solomon Hess SBA Loan Fund LLC, was unchanged at $3.00 million at both December 31, 2024 and September 30, 2024.

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

Net loans receivable increased by $94.71 million, or 7.3%, to $1.40 billion at June 30, 2024 from $1.30 billion at September 30, 2023.

The increase was primarily due to increases of $50.77 million in multi-family loans, $35.38 million in one- to four-family loans and $29.60 million in commercial real estate loans.

These increases were partially offset by a $47.58 million decrease in various construction loan categories, with the largest decreases occurring in commercial and multi-family construction loans.

The increase in multi-family and one-to-four family loans and the decrease in construction loans were in part due to the construction phase of these loans beings completed and then reclassified to permanent financing categories.

Loan originations decreased by $69.92 million, or 25.8%, to $202.62 million for the nine months ended June 30, 2024 from $272.54 million for the nine months ended June 30, 2023.

The decrease in loan originations was primarily due to a decrease in construction, commercial real estate, one- to four-family and commercial business loans originated.

The decrease was partially offset by increases in multi-family and land loan originations.

Net loans receivable decreased by $9.70 million, or 0.7%, to $1.41 billion at December 31, 2024 from $1.42 billion at September 30, 2024.

The decrease was primarily due to a $3.43 million decrease in commercial business loans, a $2.17 million decrease in commercial real estate loans and a $13.92 million decrease in construction loans due to a $15.47 million increase in the undisbursed portion of construction loans.

These decreases were partially offset by a $7.32 million increase in one- to four-family loans, and smaller increases in other loan categories.

Loan originations decreased by $16.86 million, or 19.1%, to $72.07 million for the three months ended December 31, 2024 from $88.93 million for the three months ended December 31, 2023.

The decrease in loan originations was primarily due to a decrease in multi-family, commercial business, one- to four-family and consumer loans originated.

The decrease was partially offset by an increase in construction loan originations.

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

Sales of fixed-rate one- to four-family loans increased by $2.17 million, or 31.1%, to $9.12 million for the nine months ended June 30, 2024 from $6.96 million for the nine months ended June 30, 2023, primarily due to an increase in one- to four-family construction loans refinancing to permanent loans and being sold into the secondary market.

Sales of fixed-rate one- to four-

family loans decreased by $1.48 million, or 39.08%, to $2.31 million for the three months ended December 31, 2024 from $9.60 million for the three months ended December 31, 2023, primarily due to a decrease in one- to four-family construction loans refinancing to permanent loans and being sold into the secondary market.

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

Premises and Equipment:

Premises and equipment decreased by $84,000, or 0.4%, to $21.56 million at June 30, 2024 from $21.64 million at September 30, 2023.

This decrease was primarily due to scheduled depreciation that was partially offset by additions from remodeling projects.

Premises and equipment increased by $131,000, or 0.6%, to $21.62 million at December 31, 2024 from $21.49 million at September 30, 2024.

This increase was primarily due to additions from remodeling projects, partially offset by scheduled depreciation.

OREO (Other Real Estate Owned):

At June 30, 2024, total OREO and other repossessed assets consisted of one land parcel with no recorded value.

At September 30, 2023, total OREO and other repossessed assets consisted of two land parcels with no recorded value.

At December 31, 2024, total OREO and other repossessed assets consisted of one commercial real estate property with a value of $221,000 and one land parcel with no recorded value.

At September 30, 2024 total OREO and other repossessed assets consisted of one land parcel with no recorded value.

BOLI (Bank Owned Life Insurance):

BOLI increased by $470,000, or 2.0%, to $23.44 million at June 30, 2024 from $22.97 million at September 30, 2023.

BOLI increased by $166,000, or 0.7%, to $23.78 million at December 31, 2024 from $23.61 million at September 30, 2024.

The increase was due to net BOLI earnings, representing the increase in the cash surrender value of the BOLI policies.

Goodwill and CDI:

The recorded amount of goodwill remained unchanged at $15.13 million at both June 30, 2024 and September 30, 2023.

CDI decreased by $169,000, or 25.0%, to $508,000 at June 30, 2024 from $677,000 at September 30, 2023 due to scheduled amortization.

The recorded amount of goodwill remained unchanged at $15.13 million at both December 31, 2024 and September 30, 2023.

CDI decreased by $45,000, or 10.0%, to $406,000 at December 31, 2024 from $451,000 at September 30, 2024 due to scheduled amortization.

For additional information on goodwill and CDI, see Note 3 of the Notes to Unaudited Consolidated Financial Statements contained in “Item 1, Financial Statements.”

Loan Servicing Rights, Net :

Loan servicing rights, net decreased by $598,000, or 28.15%, to $1.53 million at June 30, 2024 from $2.12 million at September 30, 2023 primarily due to the amortization of servicing rights.

The principal amount of loans serviced for Freddie Mac and SBA decreased by $14.27 million to $372.23 million at June 30, 2024 from $386.50 million at September 30, 2023.

Deposits increased by $67.61 million, or 4.3%, to $1.63 billion at June 30, 2024 from $1.56 billion at September 30, 2023.

The increase was primarily due to a $137.29 million increase in money market account balances and a $61.44 million increase in certificates of deposit balances.

These increases were partially offset by a $61.94 million decrease in NOW checking accounts balances, a $48.74 million decrease in non-interest bearing demand account balances and a $20.45 million decrease in savings account balances.

The increase in money market account balances was primarily due to several larger balance increases with commercial customers.

Deposits consisted of the following at June 30, 2024 and September 30, 2023 (dollars in thousands):

June 30, 2024 September 30, 2023

Loan servicing rights, net decreased by $177,000, or 12.90%, to $1.20 million at December 31, 2024 from $1.37 million at September 30, 2024 primarily due to the amortization of servicing rights.

The principal amount of loans serviced for Freddie Mac and SBA decreased by $7.46 million to $363.10 million at December 31, 2024 from $370.56 million at September 30, 2024.

Deposits decreased by $17.25 million, or 1.0%, to $1.63 billion at December 31, 2024 from $1.65 billion at September 30, 2024.

The decrease was primarily due to a $15.51 million decrease in money market account balances, a $10.21 million decrease in non-interest bearing demand account balances and a $9.91 million decrease in NOW checking accounts balances in part due to some larger customers ending the calendar year with lower balances.

These decreases were partially offset by a $17.53 million increase in certificates of deposit account balances and a $852,000 increase in savings account balances.

Deposits consisted of the following at December 31, 2024 and September 30, 2024 (dollars in thousands):

December 31, 2024 September 30, 2024

Amount Percent Amount Percent

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

FHLB borrowings decreased to $20.00 million at June 30, 2024, from $35.00 million at September 30, 2023.

The borrowings consist of one $5.00 million short-term borrowing, with a scheduled maturity in September 2024, that bears interest at 5.52%, and one $5.00 million borrowing and one $10.00 million borrowing with scheduled maturities in May 2026, both of which bear interest at 3.95%.

FHLB borrowings remained constant at $20.00 million at both December 31, 2024 and September 30, 2024.

The borrowings consist of three long-term borrowings:

two totaling $15.00 million with scheduled maturities in May 2026, both bearing interest at 3.95%, and one $5.00 million borrowing maturing in August 2026 with an interest rate of 4.03%.

Shareholders’ Equity:

Total shareholders’ equity increased by $8.15 million, or 3.5%, to $241.22 million at June 30, 2024 from $233.07 million at September 30, 2023.

The increase was primarily due to net income of $17.93 million, proceeds of $395,000 from the exercise of stock options and a $539,000 reduction in the accumulated other comprehensive loss for the fair value adjustment on available for sale investment securities.

This increase was partially offset by dividend payments to common shareholders of $5.74 million, the repurchase of 182,117 shares of the Company's common stock for $4.80 million and a $488,000 adjustment to equity for the adoption of the new CECL accounting standard.

Total shareholders’ equity increased by $3.79 million, or 1.5%, to $249.20 million at December 31, 2024 from $245.41 million at September 30, 2024.

The increase was primarily due to net income of $6.86 million and proceeds of $474,000 from the exercise of stock options.

This increase was partially offset by dividend payments to common shareholders of $1.99 million, the repurchase of 27,404 shares of the Company's common stock for $884,000 and an $812,000 other comprehensive loss for fair value adjustment on available for sale investment securities.

Asset Quality and Commercial Real Estate Portfolio Breakdown:

Non-performing assets to total assets was 0.22% at June 30, 2024 and 0.09% at September 30, 2023.

Non-performing assets increased by $2.60 million, or 162.7%, to $4.19 million at June 30, 2024 from $1.60 million at September 30, 2023.

The increase in non-performing assets was primarily due to a $2.61 million increase in non-accrual loans, with the largest increases occurring in the commercial business and commercial real estate portfolios.

The following table sets forth information with respect to the Company’s non-performing assets at June 30, 2024 and September 30, 2023 (dollars in thousands):

Non-performing assets to total assets was 0.16% at December 31, 2024 and 0.20% at September 30, 2024.

Non-performing assets decreased by $937,000, or 23.8%, to $3.00 million at December 31, 2024 from $3.94 million at September 30, 2023.

The decrease was primarily due to a $1.15 million decrease in non-accrual loans, with the largest decreases occurring in the commercial business and commercial real estate portfolios.

These decreases were partially offset by a $221,000 increase in OREO.

The following table sets forth information with respect to the Company’s non-performing assets at December 31, 2024 and September 30, 2024 (dollars in thousands):

2024 September 30,

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Commercial 698 1,158

Construction – custom and owner/builder 152 —

Consumer loans:

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Non-accrual investment securities 45 51

OREO and other repossessed assets, net 221 —

Total non-performing assets $ 2,999 $ 3,936

TDRs on accrual status (3) $ — $ 2,495

Non-accrual and 90 days or more past due loans as a percentage of loans receivable 0.19 % 0.27 %

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(1) At June 30, 2024 and September 30, 2023, there were no one- to four-family properties in the process of foreclosure.

(2) Does not include TDRs on accrual status as of September 30, 2023.

For more information regarding TDRs, see Note 4 of Notes to Unaudited Consolidated Financial Statements contained in "Item 1 Financial Statements".

(3) Does not include TDRs on non-accrual status at September 30, 2023.

For more information regarding TDRs, see Note 4 of Notes to Unaudited Consolidated Financial Statements contained in "Item 1 Financial Statements".

(1) At December 31, 2024 and September 30, 2024, there were no one-to four-family properties in the process of foreclosure.

(2) Does not include loans held for sale.

Loan balances are before any reduction of the ACL.

The following tables provide a breakdown of commercial real estate ("CRE") loans by collateral types as of June 30, 2024 and September 30, 2023:

CRE Loan Portfolio Breakdown by Collateral at June 30, 2024

The following tables provide a breakdown of commercial real estate ("CRE") loans by collateral types as of December 31, 2024 and September 30, 2024:

CRE Loan Portfolio Breakdown by Collateral at December 31, 2024

($ in thousands)

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Gas stations/convenience stores 24,881 4 2 1,037 —

Nursing homes 18,548 3 1 2,319 —

Churches 15,874 3 1 934 —

Shopping centers 10,788 2 1 1,798 —

Nursing homes 13,745 2 1 1,964 —

Mobile home parks 10,694 2 1 465 —

Shopping centers 10,648 2 1 1,774 —

Other 95,961 16 6 706 230

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Other retail buildings 50,067 8 3 533 —

Hotel/motel 30,718 5 2 3,072 —

Mini-storage 38,600 6 3 1,430 —

Hotel/motel 31,182 5 2 2,835 —

Restaurants 27,269 5 2 557 273

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Nursing homes 18,434 3 1 2,304 —

Shopping centers 10,790 2 1 2,158 —

Mobile home parks 9,696 2 1 510 —

Churches 16,235 3 1 854 —

Mobile home parks 10,798 2 1 491 —

Shopping centers 10,718 2 1 1,786 —

Other 93,117 16 6 705 690

Total CRE $ 599,219 100 % 40 % $ 926 $ 1,158

Comparison of Operating Results for the Three and Nine Months Ended June 30, 2024 and 2023

Net income decreased by $382,000, or 6.1%, to $5.92 million for the quarter ended June 30, 2024 from $6.31 million for the quarter ended June 30, 2023.

Net income per diluted common share decreased by $0.03, or 3.9%, to $0.74 for the quarter ended June 30, 2024 from $0.77 for the quarter ended June 30, 2023.

The decreases in net income and net income per diluted common share for the three months ended June 30, 2024, were primarily due to a $653,000 decrease in net interest income, a $142,000 increase in non-interest expense and an $84,000 decrease in non-interest income.

These decreases were partially offset by a $366,000 decrease in the provision for credit losses and a $131,000 decrease in the provision for income taxes.

Net income decreased by $2.55 million, or 12.4%, to $17.93 million for the nine months ended June 30, 2024 from $20.48 million for the nine months ended June 30, 2023.

Net income per diluted common share decreased by $0.26, or 10.53% to $2.21 for the nine months ended June 30, 2024 from $2.47 for the nine months ended June 30, 2023.

The decreases in net income and net income per diluted common share were due to a $3.91 million decrease in net interest income, a $278,000 increase in non-interest expense and a $12,000 decrease in non-interest income.

These decreases were partially offset by a $950,000 decrease in the provision for credit losses and a $700,000 decrease in the provision for income taxes.

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

Comparison of Operating Results for the Three Months Ended December 31, 2024 and 2023

Net income increased by $564,000, or 9.0%, to $6.86 million for the quarter ended December 31, 2024 from $6.30 million for the quarter ended December 31, 2023.

Net income per diluted common share increased by $0.09, or 11.7%, to $0.86 for the quarter ended December 31, 2024 from $0.77 for the quarter ended December 31, 2023.

The increases in net income and net income per diluted common share for the three months ended December 31, 2024, were primarily due to a $966,000 increase in net interest income and a $309,000 decrease in the provision for credit losses.

These increases were partially offset by a $443,000 increase in non-interest expense, a $167,000 increase in the provision for income taxes and $101,000 decrease in non-interest income.

Net Interest Income:

Net interest income decreased by $653,000, or 3.9%, to $15.98 million for the quarter ended June 30, 2024 from $16.63 million for the quarter ended June 30, 2023.

This decrease was due to an increase in the weighted average cost of interest-bearing liabilities to 2.64% at June 30, 2024 from 1.22% at June 30, 2023 and, to a lesser extent, a $169.73 million increase in the average balance of total interest-bearing liabilities.

Partially offsetting the increase in funding costs, was an increase in the average yields of interest-earning assets to 5.33% for the current quarter from 4.72% for the quarter ended June 30, 2023 and a $134.73 million increase in average total interest-earning assets.

Total interest and dividend income increased by $4.25 million, or 21.4%, to $24.14 million for the quarter ended June 30, 2024 from $19.89 million for the quarter ended June 30, 2023, primarily due to increases in the average yield and average balance of loans receivable and interest-bearing deposits in banks and CDs, and the average yield on investment securities.

These increases were partially offset by a decrease in the average balance of investment securities.

The average balance of total interest-earning assets increased by $134.73 million, or 8.0%, to $1.82 billion for the quarter ended June 30, 2024 from $1.69 billion for the quarter ended June 30, 2023.

Net interest income increased by $966,000, or 6.0%, to $16.97 million for the quarter ended December 31, 2024 from $16.00 million for the quarter ended December 31, 2023.

This increase was due to a 35 basis point increase in the weighted average yield of interest-earning assets to 5.42% at December 31, 2024 from 5.07% at December 31, 2023 and to a $75.76 million increase in average total interest-earning assets.

Partially offsetting the increase in the yield on interest-earning assets, was a a 40 basis point increase in the average cost of interest-bearing liabilities to 2.62% for the current quarter from 2.22% for the quarter ended December 31, 2023 and a $94.91 million increase in average total interest-bearing liabilities.

Total interest and dividend income increased by $2.76 million, or 12.3%, to $25.26 million for the quarter ended December 31, 2024 from $22.50 million for the quarter ended December 31, 2023, primarily due to increases in the average yield earned on and average balance of loans receivable, as well as an increase in the average balance of interest-bearing deposits in banks and CDs and a higher average yield on investment securities.

These increases were partially offset by a decrease in the average balance of investment securities and, to a lesser extent, a decrease in the average rate paid on interest-bearing deposits in banks and CDs.

The average balance of total interest-earning assets increased by $75.76 million, or 4.3%, to $1.85 billion for the quarter ended December 31, 2024 from $1.78 billion for the quarter ended December 31, 2023.

The average balance of loans receivable increased by $105.17 million, or 7.9%, and the average balance of interest-bearing deposits in banks and CDs increased by $40.51 million or 32.1%.

These increases were partially offset by a decrease in the average balance of investment securities of $68.84 million or 22.2% between the periods.

During the quarter ended June 30, 2024, there was a total of $133,000 of pre-payment penalties, non-accrual interest and late fees collected compared to $87,000 collected for the quarter ended June 30, 2023.

The average yield on interest-earning assets increased by 61 basis points to 5.33% for the quarter ended June 30, 2024 from 4.72% for the quarter ended June 30, 2023.

The average yield on interest-bearing deposits in banks and CDs and on investment securities increased 62 basis points and 63 basis points to 5.41% and 3.57%, for the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023, respectively, while the average yield on loans receivable increased 48 basis points to 5.65% during the same period.

Total interest expense increased by $4.90 million, or 150.6%, to $8.16 million for the quarter ended June 30, 2024 from $3.26 million for the quarter ended June 30, 2023.

The increase in interest expense was due to an increase in the average cost and, to a lesser extent, an increase in the average balance of interest-bearing liabilities, primarily deposits.

The average cost of interest-bearing liabilities increased to 2.64% for the quarter ended June 30, 2024 from 1.22% for the quarter ended June 30, 2023.

The average balance of interest-bearing liabilities increased by $169.73 million, or 15.8%, to $1.24 billion for the quarter ended June 30, 2024 from $1.07 billion for the quarter ended June 30, 2023, primarily due to increases in the average balances of money market accounts, certificate of deposit accounts and borrowings, partially offset by decreases in the average balance of NOW checking and savings accounts.

Interest expense on deposits increased by $4.82 million, or 154.2%, to $7.94 million for the quarter ended June 30, 2024 from $3.12 million for the quarter ended June 30, 2023, driven by an increase in the average cost of interest-bearing deposits in all categories and an increase in the average balance of money market accounts and certificates of deposit.

The average cost of interest bearing deposits increased 144 basis points to 2.62% for the three months ended June 30, 2024, which included a 132 basis point increase in the cost of certificates of deposit, including brokered certificates of deposit, to 4.35%, compared to the same period last year.

The average balance of certificates of deposit, including brokered certificate of deposits, increased $146.04 million, or 69.2%, to $356.99 million for the three months ended June 30, 2024, compared to the same period last year.

Interest expense on borrowings increased to $220,000 for the quarter ended June 30, 2024, compared to $132,000 for the quarter ended June 30, 2023, primarily due to an increase in the average balance of borrowings.

The average balance of borrowings increased by $7.75 million to $20.0 million for the quarter ended June 30, 2024 compared to the same period last year.

The average rate paid on borrowings increased slightly to 4.42% for the quarter ended June 30, 2024 compared to 3.95% for the same period last year.

As a result of increases in interest expense, the net interest margin ("NIM") decreased to 3.53% for the quarter ended June 30, 2024 from 3.94% for the quarter ended June 30, 2023.

Net income decreased $2.55 million or 12.4% to $17.93 million for the nine months ended June 30, 2024 from $20.48 million for the nine months ended June 30, 2023.

The decrease in net income was primarily due to a $3.91 million decrease in net interest income, a $278,000 increase in non-interest expense and a $12,000 decrease in non-interest income.

These decreases were partially offset by a $950,000 decrease in the provision for credit losses and a $700,000 decrease in the provision for income taxes.

Total interest and dividend income increased $11.40 million, or 19.5%, to $69.79 million for the nine months ended June 30, 2024 from $58.39 million for the nine months ended June 30, 2023, primarily due to increases in the average yield and average balance of loans receivable, and the average yields on interest-bearing deposits in banks and CDs and investment securities.

These increases were partially offset by a decrease in the average balances of interest-bearing deposits in banks and CDs, and investment securities.

Total interest expense increased by $15.31 million, or 223.1%, to $22.17 million for the nine months ended June 30, 2024 from $6.86 million for the nine months ended June 30, 2023.

The increase in interest expense was due to an increase in the average cost and, to a lesser extent, an increase in the average balance of interest-bearing liabilities, primarily deposits.

The NIM decreased to 3.53% for the nine months ended June 30, 2024 from 3.99% for the nine months ended June 30, 2023.

During the quarter ended December 31, 2024, there was a total of $123,000 of pre-payment penalties, non-accrual interest and late fees collected compared to $142,000 collected for the quarter ended December 31, 2023.

The average yield on interest-earning assets increased by 35 basis points to 5.42% for the quarter ended December 31, 2024 from 5.07% for the quarter ended December 31, 2023.

The average yield on investment securities increased 55 basis points to 3.51% for the quarter ended December 31, 2024 compared to the quarter ended December 31, 2023, while the average yield on loans receivable increased 28 basis points to 5.8% during the same period.

Total interest expense increased by $1.80 million, or 27.6%, to $8.29 million for the quarter ended December 31, 2024 from $6.49 million for the quarter ended December 31, 2023.

This increase was due to an increase in the average balance and, to a lesser extent, an increase in the average cost of interest-bearing liabilities, primarily deposits.

The average balance of interest-bearing liabilities increased by $94.91 million, or 8.2%, to $1.26 billion for the quarter ended December 31, 2024 from $1.16 billion for the quarter ended December 31, 2023, primarily due to increases in the average balances of money market and certificate of deposit accounts, partially offset by decreases in the average balance of NOW checking accounts.

The average cost of interest-bearing liabilities increased to 2.62% for the quarter ended December 31, 2024 from 2.22% for the quarter ended December 31, 2023.

As a result of changes above, the net interest margin ("NIM") increased to 3.64% for the quarter ended December 31, 2024 from 3.60% for the quarter ended December 31, 2023.

Average Balances, Interest and Average Yields/Cost

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Such yields and costs for the periods indicated are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the periods presented (dollars in thousands).

Three Months Ended June 30,

Balance Interest and

Dividends Yield/

Balance Interest and

Dividends Yield/

Interest-earning assets:

Loans receivable (1)(2) $ 1,391,582 $ 19,537 5.65 % $ 1,254,044 $ 16,215 5.17 %

Investment securities (2) 263,087 2,335 3.57 324,844 2,384 2.94

Dividends from mutual funds, FHLB stock and other investments 5,867 94 6.41 6,541 70 4.28

Interest-bearing deposits in banks and CDs 161,421 2,173 5.41 101,798 1,220 4.79

Total interest-earning assets 1,821,957 24,139 5.33 1,687,227 19,889 4.72

Non-interest-earning assets 82,008 84,255

Total assets $ 1,903,965 $ 1,771,482

Interest-bearing liabilities:

Savings $ 208,488 140 0.27 $ 255,463 118 0.19

Money market 326,023 2,882 3.56 205,023 429 0.84

NOW checking 329,344 1,054 1.29 387,426 982 1.02

Certificates of deposit 311,545 3,261 4.21 201,375 1,472 2.93

Brokered CDs 45,442 601 5.32 9,575 122 5.11

Short-term borrowings 5,001 70 5.63 3,464 46 5.33

Long-term borrowings 15,000 150 4.02 8,791 86 3.92

Total interest-bearing liabilities 1,240,843 8,158 2.64 1,071,117 3,255 1.22

Non-interest-bearing deposits 413,494 462,315

Other liabilities 10,245 10,199

Total liabilities 1,664,582 1,543,631

Shareholders' equity 239,383 227,851

Total liabilities and

shareholders' equity $ 1,903,965 $ 1,771,482

Net interest income $ 15,981 $ 16,634

Interest rate spread 2.69 % 3.50 %

Net interest margin (3) 3.53 % 3.94 %

Ratio of average interest-earning assets to average interest- bearing liabilities 146.83 % 157.52 %

_______________

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

Includes loans held for sale.

Amortized net deferred loan fees, late fees, extension fees, prepayment penalties, and the accretion of the fair value discount on loans are included with interest and dividends.

(2) Average balances include loans and investment securities on non-accrual status.

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

Nine Months Ended June 30,

Three Months Ended December 31,

Balance Interest and

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Three months ended

June 30, 2024

December 31, 2024

compared to three months

ended June 30, 2023

increase (decrease) due to Nine months ended

June 30, 2024

compared to nine months

ended June 30, 2023

ended December 31, 2023

increase (decrease) due to

Rate Volume Net

Change Rate Volume Net

Interest-earning assets:

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Total net increase in expense on interest-bearing liabilities 598 1,197 1,795

Net decrease in net interest income $ (1,133) $ 480 $ (653) $ (4,947) $ 1,039 $ (3,908)

Net increase in net interest income $ 741 $ 225 $ 966

Provision for Credit Losses:

A $244,000 provision for credit losses was recorded for the quarter ended June 30, 2024, consisting of a $264,000 provision for credit losses on loans which was primarily due to an increase in loans receivable, a $12,000 recapture of credit losses on investment securities, and an $8,000 recapture of credit losses on unfunded commitments which was primarily due to a decrease in the balance of unfunded loan commitments.

A $610,000 provision for loan losses, under the prior incurred loan loss method, was recorded for the quarter ended June 30, 2023.

The Company adopted the CECL methodology as of October 1, 2023, which resulted in one-time upward adjustments to the ACL on loans of $461,000, to the ACL on investment securities of $92,000, and to the ACL on unfunded commitments of $65,000, resulting in an after-tax decrease to opening retained earnings of $488,000.

Amounts reported prior to October 1, 2023 were calculated using the previous incurred loss methodology to compute our allowance for loan losses, which is not directly comparable to the ACL calculated under the CECL methodology.

The provision for credit losses for the three months ended June 30, 2024 reflects assumptions related to forecasts concerning the economic environment as a result of local, national and global events.

In addition, expected loss estimates consider various factors, including customer specific information, changes in risk ratings, projected delinquencies, and the impact of economic conditions on borrowers' ability to repay.

We recorded a $660,000 provision for credit losses for the nine months ended June 30, 2024, consisting of an $810,000 provision for credit losses on loans which was primarily due to an increase in loans receivable, a $20,000 recapture of credit losses on investment securities which was primarily due to maturities and principal repayments, and a $130,000 recapture of credit losses on unfunded loan commitments which was primarily due to a decrease in the amount of unfunded loan

There was a $1.61 million provision for loan losses, calculated under the prior incurred loan loss method, recorded for the nine months ended June 30, 2023.

For the quarter ended June 30, 2024, net charge-offs were $36,000 compared to $1,000 for the quarter ended June 30, 2023.

Non-accrual loans increased by $2.61 million, or 172.1%, to $4.12 million at June 30, 2024 from $1.51 million at September 30, 2023.

At June 30, 2024, non-accrual loans increased by $2.53 million, or 159.8%, to $4.12 million from $1.59 million at June 30, 2023.

Total delinquent loans (past due 30 days or more) and non-accrual loans increased by $2.57 million, or 154.3%, to $4.23 million at June 30, 2024, from $1.67 million at September 30, 2023 and increased by $2.39 million, or 129.7%, from $1.84 million one year ago.

The $314,000 balance of SBA PPP loans was omitted from the Company's allowance for credit losses calculation at June 30, 2024, as these loans are fully guaranteed by the SBA and management expects that most PPP borrowers will seek full or partial forgiveness of their loan obligations from the SBA within a short time frame, which will in turn reimburse the Bank for the amount forgiven.

A $27,000 provision for credit losses was recorded for the quarter ended December 31, 2024, consisting of a $52,000 provision for credit losses on loans which was primarily due to an increase in loans receivable, a $5,000 recapture of credit losses on investment securities, and a $20,000 recapture of credit losses on unfunded commitments which was primarily due to a decrease in the balance of unfunded loan commitments.

A $336,000 provision for credit losses was recorded for the quarter ended December 31, 2023, consisting of a $379,000 provision for credit losses on loans, a $10,000 recapture of credit losses on investment securities and a $33,000 recapture of credit losses on unfunded commitments.

For the quarter ended December 31, 2024, net charge-offs were $242,000 compared to $2,000 for the quarter ended December 31, 2023.

Non-accrual loans decreased by $1.15 million, or 29.7%, to $2.73 million at December 31, 2024 from $3.89 million at September 30, 2024, and decreased by $633,000, or 18.8%,from $3.36 million at December 31, 2023.

Total delinquent loans (past due 30 days or more) and non-accrual loans decreased by $459,000, or 10.2%, to $4.02 million at December 31, 2024, from $4.48 million at September 30, 2024 and increased by $417,000, or 11.6%, from $3.60 million one year ago.

While management believes the estimates and assumptions used in its determination of the adequacy of the ACL are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions will not have a material adverse impact on our financial condition and results of operations.

A further decline in national and local economic conditions, as a result of the effects of inflation, a potential recession or slowed economic growth, among other factors, could result in a material increase in the ACL and have a material adverse impact on the financial condition and results of operations.

A further decline in national and local economic conditions, as a result of the effects of inflation, a potential recession or slowed economic growth, among other factors, could

result in a material increase in the ACL and have a material adverse impact on the financial condition and results of operations.

In addition, the determination of the amount of the ACL is subject to review by bank regulators as part of the routine examination process, which may result in the adjustment of reserves based upon their judgment of information available to them at the time of their examination and have a material adverse impact on the financial condition and results of operations.

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With the adoption of CECL, purchased loans are evaluated for impairment in the same manner as the rest of the loan portfolio.

The remaining fair value discount associated with acquired loans was $163,000 at June 30, 2024.

The remaining fair value discount associated with acquired loans was $147,000 at December 31, 2024.

This discount will continue to accrete into income as these loans continue to pay down.

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Non-interest Income:

Total non-interest income decreased by $84,000, or 2.9%, to $2.79 million for the quarter ended June 30, 2024 from $2.88 million for the quarter ended June 30, 2023.

This decrease was primarily due to a $95,000 decrease in gain on sales of investment securities and a $38,000 decrease in ATM and debit card interchange transaction fees.

These decreases were partially offset by a $44,000 increase in service charges on deposits.

Total non-interest income for the nine months ended June 30, 2024 decreased $12,000, or 0.2%, to $8.20 million from $8.22 million for the nine months ended June 30, 2023.

This decrease was primarily due to a $95,000 decrease in gain on sales of investment securities, an $88,000 decrease in ATM and debit card interchange transaction fees, and smaller decreases in several other categories.

These decreases were partially offset by a $214,000 increase in service charges on deposit accounts and smaller increases in several other categories.

Total non-interest income decreased by $101,000, or 3.6%, to $2.70 million for the quarter ended December 31, 2024 from $2.80 million for the quarter ended December 31, 2023.

This decrease was primarily due to a $52,000 decrease in other, net non-interest income, largely due to a $63,000 decrease in the fair value of investments in equity securities, $35,000 decrease in gain on sales loans and a $24,000 decrease in service charges on deposits.

These decreases were partially offset by a $10,000 increase in BOLI net earnings.

Non-interest Expense:

Total non-interest expense increased by $142,000, or 1.3%, to $11.07 million for the quarter ended June 30, 2024 from $10.93 million for the quarter ended June 30, 2023.

This increase was primarily due to increased expenses of $142,000 in technology and communications, $89,000 in ATM and debit card interchange transaction fees and $68,000 in salary and employee benefits, which were partially offset by a $242,000 decrease in professional fees.

Total non-interest expense increased by $443,000, or 4.2%, to $11.07 million for the quarter ended December 31, 2024 from $10.62 million for the quarter ended December 31, 2023.

This increase was primarily due to increased expenses of $181,000 in salary and employee benefits, due to annual salary increases, $166,000 in technology and communications due to increased usage charges, $93,000 in professional fees mainly due to additional costs related to CECL, and $79,000 in other non-interest expenses.

These increases were partially offset by a $94,000 decrease in ATM and debit card interchange transaction fees as a result of a decrease in fraud charges.

The efficiency ratio for the current quarter was 56.27% compared to 56.50% for the comparable quarter one year ago.

The change in the efficiency ratio was due to lower total revenue coupled with slightly higher non-interest expense.

Total non-interest expense increased $278,000, or 0.9%, to $32.68 million for the nine months ended June 30, 2024 from $32.41 million for the nine months ended June 30, 2023.

This increase was primarily due increased expenses of $489,000 in technology and communications, $333,000 in ATM and debit card interchange transaction fees and $130,000 in premises and equipment which were partially offset by a $571,000 decrease in professional fees.

The slight improvement in the efficiency ratio was due to higher overall revenue, which was partially offset by higher non-interest expense.

Provision for Income Taxes:

The provision for income taxes decreased by $131,000, or 7.9%, to $1.54 million for the quarter ended June 30, 2024 from $1.67 million for the quarter ended June 30, 2023.

The decrease in the provision for income taxes was primarily due to lower pre-tax income.

The Company's effective income tax rate was 20.6% for the quarter ended June 30, 2024 and 20.9% for the quarter ended June 30, 2023.

The provision for income taxes decreased by $700,000, or 13.3%, to $4.55 million for the nine months ended June 30, 2024 from $5.25 million for the nine months ended June 30, 2023.

The decrease was primarily due to lower pre-tax income.

The Company's effective tax rate was 20.2% for the nine months ended June 30, 2024 compared to 20.4% for the nine months ended June 30, 2023.

The provision for income taxes increased by $167,000, or 10.8%, to $1.71 million for the quarter ended December 31, 2024 from $1.55 million for the quarter ended December 31, 2023.

The increase in the provision for income taxes was primarily due to higher pre-tax income.

The Company's effective income tax rate was 20.0% for the quarter ended December 31, 2024 and 19.6% for the quarter ended December 31, 2023.

The Company's primary sources of funds are customer deposits, proceeds from principal and interest payments on loans, the sale of loans, maturing investment securities, maturing CDs held for investment and borrowings, if needed, from the FHLB and FRB.

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

At June 30, 2024, the Bank's regulatory liquidity ratio (net cash, and short-term and marketable assets, as a percentage of net deposits and short-term liabilities) was 12.49%.

At December 31, 2024, the Bank's regulatory liquidity ratio (net cash, and short-term and marketable assets, as a percentage of net deposits and short-term liabilities) was 12.92%.

The Bank maintains a credit facility with the FHLB that provides for immediately available borrowings up to an aggregate amount equal to 45% of total assets, limited by available collateral.

At June 30, 2024, the Bank had a total of $602.28 million available for borrowings with the FHLB of which $20.00 million was outstanding.

At December 31, 2024, the Bank had a total of $599.34 million available for borrowings with the FHLB of which $20.00 million was outstanding.

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

Borrower-in-Custody ("BIC").

At June 30, 2024, the Bank had no outstanding balance on the BIC line, under which $83.17 million was available for future borrowings.

At December 31, 2024, the Bank had no outstanding balance on the BIC line, under which $77.14 million was available for future borrowings.

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

At June 30, 2024, the Bank did not have an outstanding balance on this borrowing line.

At December 31, 2024, the Bank did not have an outstanding balance on this borrowing line.

Subject to market conditions, the Bank expects to utilize these borrowing facilities from time to time in the future to fund loan originations and deposits withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible.

Liquidity management is both a short and long-term responsibility of the Bank's management.

The Bank adjusts its investments in liquid assets based upon management's assessment of (i) expected loan demand, (ii) projected loan sales, (iii) expected deposit flows, and (iv) yields available on interest-bearing deposits.

The Bank adjusts its investments in liquid assets based upon management's assessment of (i) expected loan demand, (ii) projected loan sales, (iii) expected

deposit flows, and (iv) yields available on interest-bearing deposits.

Excess liquidity is invested generally in interest-bearing overnight deposits, CDs held for investment and short-term government and agency obligations.

1 unchanged sentence

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

During the nine months ended June 30, 2024 and 2023, the Bank originated $202.62 million and $272.54 million of loans, respectively.

At June 30, 2024, the Bank had undisbursed lines of credit and commitments to extend credit totaling $132.33 million and undisbursed construction loans in process totaling $87.20 million.

Investment securities purchased during the nine months ended June 30, 2024 and 2023 totaled $38.01 million and $32.60 million, respectively.

During the three months ended December 31, 2024 and 2023, the Bank originated $72.07 million and $88.93 million of loans, respectively.

At December 31, 2024, the Bank had undisbursed lines of credit and commitments to extend credit totaling $131.54 million and undisbursed construction loans in process totaling $85.35 million.

Investment securities purchased during the three months ended December 31, 2024 and 2023 totaled $8.58 million and $1.92 million, respectively.

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

During the nine months ended June 30, 2024 and 2023, the Bank sold $14.92 million and $6.96 million, respectively, in loans and loan participation interests.

During the nine months ended June 30, 2024 and 2023, the Bank received $105.43 million and $130.21 million in principal repayments, respectively.

The Bank's liquid assets in the form of cash and cash equivalents, CDs held for investment, and investment securities available for sale (including equity securities) increased to $244.72 million at June 30, 2024 from $186.49 million at September 30, 2023.

CDs that are scheduled to mature in less than one year from June 30, 2024 totaled $294.44 million.

During the three months ended December 31, 2024 and 2023, the Bank sold $2.31 million and $9.60 million, respectively, in loans and loan participation interests.

During the three months ended December 31, 2024 and 2023, the Bank received $65.16 million and $44.35 million in principal repayments, respectively.

The Bank's liquid assets in the form of cash and cash equivalents, CDs held for investment, and investment securities available for sale (including equity securities) increased to $249.46 million at December 31, 2024 from $248.06 million at September 30, 2024.

CDs that are scheduled to mature in less than one year from December 31, 2024 totaled $327.38 million.

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

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The amount of capital investment is influenced by, among other things, current and projected demand for services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations.

Based on current objectives, there are no capital expenditures projected for the remaining three months of the fiscal year ending September 30, 2024 that would materially impact liquidity.

Based on current objectives, there are no capital expenditures projected for the remaining nine months of the fiscal year ending September 30, 2025 that would materially impact liquidity.

For the remainder of the 2025 fiscal year, the Bank projects that fixed commitments will include $253,000 of operating lease payments.

Further, one FHLB borrowing totaling $5.00 million will mature during the fiscal year 2024.

In addition, at June 30, 2024, there were other future obligations and accrued expenses of $9.21 million.

No FHLB borrowings are scheduled to mature during fiscal year 2025.

In addition, at December 31, 2024, there were other future obligations and accrued expenses of $8.36 million.

The Bank's management believes that the liquid assets combined with the available lines of credit provide adequate liquidity to meet current financial obligations for at least the next 12 months.

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Sources of capital and liquidity for Timberland Bancorp include distributions from the Bank and the issuance of debt or equity securities, although there are regulatory restrictions on the ability of the Bank to pay dividends.

At June 30, 2024, Timberland Bancorp (on an unconsolidated basis) had liquid assets of $214,000.

At December 31, 2024, Timberland Bancorp (on an unconsolidated basis) had liquid assets of $1.73 million.

The Company currently expects to continue the current practice of paying quarterly cash dividends on common stock subject to the Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice.

The current quarterly common stock dividend rate is $0.25 per share, as approved by the Board of Directors, which is a dividend rate per share that enables the Company to balance multiple objectives of managing and investing in the Bank and returning a substantial portion of cash to shareholders.

Assuming continued payment during fiscal year 2024 at the rate of $0.24 per share, the average total dividend paid each quarter would be approximately $1.91 million based on the number of current outstanding shares at June 30, 2024 (which assumes no change in the number of shares).

Assuming continued payment during fiscal year 2025 at the rate of $0.25 per share, the average total dividend paid each quarter would be approximately $1.99 million based on the number of current outstanding shares at December 31, 2024 (which assumes no change in the number of shares).

In addition, from time to time, our Board of Directors has authorized stock repurchase plans.

1 unchanged sentence

Shares purchased under such plans may also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards.

On July 25, 2023, the Company announced the adoption of a new stock repurchase program pursuant to which the Company may repurchase up to 404,708 shares of Company common stock, of which 192,025 shares remained available for future purchases as of June 30, 2024.

The repurchase program may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate.

On July 25, 2023, the Company announced the adoption of a new stock repurchase program pursuant to which the Company may repurchase up to 404,708 shares of Company common stock, of which 127,762 shares remained available for future purchases as of December 31, 2024.

liquidity, and other factors deemed appropriate.

The repurchase program does not obligate the Company to purchase any particular number of shares.

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Consistent with the Bank's goals to operate a sound and profitable organization, it is the Bank's policy to maintain a "well-capitalized" status under the regulatory capital categories of the FDIC.

Based on capital levels at June 30, 2024, the Bank was considered to be "well-capitalized" under applicable regulatory requirements.

Based on capital levels at December 31, 2024, the Bank was considered to be "well-capitalized" under applicable regulatory requirements.

Management monitors the capital levels to provide for current and future business opportunities and to maintain the Bank's "well-capitalized" status.

The following table compares the Bank’s actual capital amounts at June 30, 2024, to its minimum regulatory capital requirements at that date (dollars in thousands):

The following table compares the Bank’s actual capital amounts at December 31, 2024, to its minimum regulatory capital requirements at that date (dollars in thousands):

Actual Regulatory

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In addition to the minimum common equity Tier 1 ("CET1"), Tier 1 and total 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 June 30, 2024, the Bank's CET1 capital exceeded the required capital conservation buffer.

At December 31, 2024, the Bank's CET1 capital exceeded the required capital conservation buffer.

Timberland Bancorp, Inc.

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If Timberland Bancorp, Inc.

were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at June 30, 2024, Timberland Bancorp, Inc.

were subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at December 31, 2024, Timberland Bancorp, Inc.

would have exceeded all regulatory requirements.

The following table presents for informational purposes the regulatory capital ratios for Timberland Bancorp, Inc.

as of June 30, 2024 (dollars in thousands):

as of December 31, 2024 (dollars in thousands):

Leverage Capital Ratio:

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Key Financial Ratios and Data

Three Months Ended June 30, Nine Months Ended

2024 2023 2024 2023

Three Months Ended December 31,

PERFORMANCE RATIOS :

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis