TIMBERLAND BANCORP INC 10-Q

Item 1. Financial Statements (unaudited) TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 2024 and September 30, 2024 (Dollars in thousands, except per share amounts) December 31, 2024 September 30, 2024 (Unaudited) * Assets Cash and cash equivalents: Cash and due from financial institutions $ 24,538 $ 29,071 Interest-bearing deposits in banks 139,533 135,657 Total cash and cash equivalents 164,071 164,728 Certificates of deposit (“CDs”) held for investment, at cost 7,470 10,209 Investment securities held to maturity, at amortized cost (net of allowance for credit losses ("ACL") of $ 55 and $ 60 ), (estimated fair value of $ 147,709 and $ 166,007 ) 156,105 172,097 Investment securities available for sale, at fair value 77,080 72,257 Investments in equity securities, at fair value 840 866 Federal Home Loan Bank of Des Moines (“FHLB”) stock, at cost 2,037 2,037 Other investments, at cost 3,000 3,000 Loans held for sale 411 — Loans receivable, net of ACL of $ 17,288 and $ 17,478 1,411,819 1,421,523 Premises and equipment, net 21,617 21,486 Other real estate owned (“OREO”) and other repossessed assets, net 221 — Accrued interest receivable 7,095 6,990 Bank owned life insurance (“BOLI”) 23,777 23,611 Goodwill 15,131 15,131 Core deposit intangible (“CDI”), net 406 451 Loan servicing rights, net 1,195 1,372 Operating lease right-of-use ("ROU") assets 1,400 1,475 Other assets 15,805 6,242 Total assets $ 1,909,480 $ 1,923,475 Liabilities and shareholders’ equity Liabilities Deposits: Non-interest-bearing demand $ 402,911 $ 413,116 Interest-bearing 1,227,505 1,234,552 Total deposits 1,630,416 1,647,668 FHLB borrowings 20,000 20,000 Operating lease liabilities 1,501 1,575 Other liabilities and accrued expenses 8,364 8,819 Total liabilities $ 1,660,281 $ 1,678,062 * Derived from audited consolidated financial statements. See notes to unaudited consolidated financial statements 3 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (continued) December 31, 2024 and September 30, 2024 (Dollars in thousands, except per share amounts) December 31, 2024 September 30, 2024 (Unaudited) * Commitments and contingencies (see Note 12) Shareholders’ equity Preferred stock, $ 0.01 par value; 1,000,000 shares authorized; none issued $ — $ — Common stock, $ 0.01 par value; 50,000,000 shares authorized; 7,954,673 shares issued and outstanding - December 31, 2024 7,960,127 shares issued and outstanding - September 30, 2024 29,593 29,862 Retained earnings 220,398 215,531 Accumulated other comprehensive (loss) income ( 792 ) 20 Total shareholders’ equity 249,199 245,413 Total liabilities and shareholders’ equity $ 1,909,480 $ 1,923,475 * Derived from audited consolidated financial statements. See notes to unaudited consolidated financial statements 4 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME For the three months ended December 31, 2024 and 2023 (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended December 31, 2024 2023 Interest and dividend income Loans receivable and loans held for sale $ 21,032 $ 18,395 Investment securities 2,138 2,311 Dividends from mutual funds, FHLB stock and other investments 86 91 Interest-bearing deposits in banks and CDs 2,001 1,699 Total interest and dividend income 25,257 22,496 Interest expense Deposits 8,084 6,143 FHLB borrowings 203 349 Total interest expense 8,287 6,492 Net interest income 16,970 16,004 Provision for (recapture of) credit losses Provision for credit losses - loans 52 379 Recapture of credit losses - investment securities ( 5 ) ( 10 ) Recapture of credit losses - unfunded commitments ( 20 ) ( 33 ) Total provision for credit losses - net 27 336 Net interest income after provision for (recapture of) credit losses 16,943 15,668 Non-interest income Net recoveries on investment securities 3 5 Service charges on deposits 999 1,023 ATM and debit card interchange transaction fees 1,267 1,264 BOLI net earnings 166 156 Gain on sales of loans, net 43 78 Escrow fees 18 19 Other, net 201 253 Total non-interest income, net 2,697 2,798 See notes to unaudited consolidated financial statements 5 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (continued) For the three months ended December 31, 2024 and 2023 (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended December 31, 2024 2023 Non-interest expense Salaries and employee benefits $ 6,092 $ 5,911 Premises and equipment 950 973 Advertising 181 186 ATM and debit card interchange transaction fees 521 615 Postage and courier 121 126 State and local taxes 346 319 Professional fees 346 253 Federal Deposit Insurance Corporation ("FDIC") insurance 210 210 Loan administration and foreclosure 128 105 Technology and communications 1,140 974 Deposit operations 332 320 Amortization of CDI 45 56 Other 655 576 Total non-interest expense, net 11,067 10,624 Income before income taxes 8,573 7,842 Provision for income taxes 1,713 1,546 Net income $ 6,860 $ 6,296 Net income per common share Basic $ 0.86 $ 0.78 Diluted $ 0.86 $ 0.77 Weighted average common shares outstanding Basic 7,958,275 8,114,209 Diluted 7,999,504 8,166,048 Dividends paid per common share $ 0.25 $ 0.23 See notes to unaudited consolidated financial statements 6 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the three months ended December 31, 2024 and 2023 (Dollars in thousands) (Unaudited) Three Months Ended December 31, 2024 2023 Comprehensive income Net income $ 6,860 $ 6,296 Other comprehensive income (loss) Unrealized holding (loss) gain on investment securities available for sale, net of income taxes of $( 216 ) and $ 66 , respectively ( 812 ) 248 Change in other than temporary impairment ("OTTI") on investment securities held to maturity, net of income taxes: Accretion of OTTI on investment securities held to maturity, net of income taxes of $ 0 and $ 1 , respectively — 9 Total other comprehensive (loss) income, net of income taxes ( 812 ) 257 Total comprehensive income $ 6,048 $ 6,553 See notes to unaudited consolidated financial statements 7 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY For the three months ended December 31, 2024 and 2023 (Dollars in thousands, except per share amounts) (Unaudited) Common Stock Accumulated Other Compre-hensive 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 — — 6,296 — 6,296 Other comprehensive income — — — 257 257 Repurchase of common stock, net of tax ( 12,330 ) ( 362 ) — — ( 362 ) Exercise of stock options 27,700 355 — — 355 Common stock dividends ($ 0.23 per common share) — — ( 1,867 ) — ( 1,867 ) Stock-based compensation expense — 105 — — 105 Adoption of Accounting Standards Update ("ASU") 2016-13 — — ( 488 ) — ( 488 ) Balance, December 31, 2023 8,120,708 $ 34,869 $ 203,327 $ ( 827 ) $ 237,369 Balance, September 30, 2024 7,960,127 $ 29,862 $ 215,531 $ 20 $ 245,413 Net income — — 6,860 — 6,860 Other comprehensive loss — — — ( 812 ) ( 812 ) Repurchase of common stock, net of tax ( 27,404 ) ( 884 ) — — ( 884 ) Restricted stock grant forfeitures ( 450 ) — — — — Exercise of stock options 22,400 474 — — 474 Common stock dividends ($ 0.25 per common share) — — ( 1,993 ) — ( 1,993 ) Stock-based compensation expense — 141 — — 141 Balance, December 31, 2024 7,954,673 $ 29,593 $ 220,398 $ ( 792 ) $ 249,199 See notes to unaudited consolidated financial statements 8 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the three months ended December 31, 2024 and 2023 (Dollars in thousands) (Unaudited) Three Months Ended December 31, 2024 2023 Cash flows from operating activities Net income $ 6,860 $ 6,296 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Provision for credit losses 27 336 Depreciation 375 356 Accretion of discount on purchased loans ( 8 ) ( 10 ) Amortization of CDI 45 56 Stock-based compensation expense 141 105 Net recoveries on investment securities ( 3 ) ( 5 ) Change in fair value of investments in equity securities 26 ( 37 ) Accretion of discounts and premiums on securities ( 252 ) ( 293 ) Gain on sales of loans, net ( 43 ) ( 78 ) Loans originated for sale ( 2,680 ) ( 4,742 ) Proceeds from sales of loans 2,312 3,795 Amortization of loan servicing rights 200 236 BOLI net earnings ( 166 ) ( 156 ) Increase in deferred loan origination fees 20 95 Net change in accrued interest receivable and other assets, and other liabilities and accrued expenses ( 9,910 ) ( 1,087 ) Net cash (used in) provided by operating activities ( 3,056 ) 4,867 Cash flows from investing activities Net decrease in CDs held for investment 2,739 2,739 Purchase of investment securities held to maturity — ( 1,919 ) Purchase of investment securities available for sale ( 8,577 ) — Proceeds from maturities and prepayments of investment securities held to maturity 16,119 6,275 Proceeds from maturities and prepayments of investment securities available for sale 2,860 1,644 Redemption of FHLB stock — 1,601 Decrease (increase) in loans receivable, net 9,419 ( 34,869 ) Purchases of premises and equipment ( 506 ) ( 298 ) Net cash provided by (used in) investing activities 22,054 ( 24,827 ) S ee notes to unaudited consolidated financial statements 9 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) For the three months ended December 31, 2024 and 2023 (Dollars in thousands) (Unaudited) Three Months Ended December 31, 2024 2023 Cash flows from financing activities Net (decrease) increase in deposits $ ( 17,252 ) $ 66,134 Repayment of FHLB borrowings — ( 15,000 ) Proceeds from exercise of stock options 474 355 Repurchase of common stock ( 884 ) ( 362 ) Payment of dividends ( 1,993 ) ( 1,867 ) Net cash (used in) provided by financing activities ( 19,655 ) 49,260 Net (decrease) increase in cash and cash equivalents ( 657 ) 29,300 Cash and cash equivalents Beginning of period 164,728 128,721 End of period $ 164,071 $ 158,021 Supplemental disclosure of cash flow information Interest paid $ 8,543 $ 6,206 Supplemental disclosure of non-cash investing activities Other comprehensive (loss) income related to investment securities $ ( 812 ) $ 257 Loans transferred to OREO $ 221 $ — Adjustment to retained earnings, net of deferred tax - adoption of ASU 2016-13 $ — $ ( 488 ) See notes to unaudited consolidated financial statements 10 Timberland Bancorp, Inc. and Subsidiary Notes to Unaudited Consolidated Financial Statements (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation: The accompanying unaudited consolidated financial statements of Timberland Bancorp, Inc. and its wholly-owned subsidiary, Timberland Bank (the "Bank") (collectively, "the Company") were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of consolidated financial condition, results of operations, and cash flows in conformity with GAAP. However, all adjustments which are, in the opinion of management, necessary for a fair presentation of the interim consolidated financial statements have been included. All such adjustments are of a normal recurring nature. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2024 (“2024 Form 10-K”). The unaudited consolidated results of operations for the three months ended December 31, 2024 are not necessarily indicative of the results that may be expected for the entire fiscal year ending September 30, 2025. (b) Principles of Consolidation: The unaudited consolidated financial statements include the accounts of the Company and the Bank’s wholly-owned subsidiary, Timberland Service Corp. All significant inter-company transactions and balances have been eliminated in consolidation. (c) Operating Segment: The Company has one reportable operating segment which is defined as community banking in western Washington under the operating name, "Timberland Bank." (d) The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, as of the date of the consolidated balance sheets, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. (e) Certain prior period amounts have been reclassified to conform to the December 31, 2024 presentation with no change to previously reported net income or total shareholders’ equity. (2) INVESTMENT SECURITIES Held to maturity and available for sale investment securities have been classified according to management’s intent and were as follows as of December 31, 2024 and September 30, 2024 (dollars in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Allowance for Credit Losses December 31, 2024 Held to Maturity U.S. Treasury and U.S. government agency securities $ 79,391 $ — $ ( 4,916 ) $ 74,475 $ — Mortgage-backed securities ("MBS"): U.S. government agencies 48,161 — ( 2,324 ) 45,837 — Private label residential 26,833 264 ( 1,422 ) 25,675 52 Municipal securities 1,223 9 — 1,232 — Bank issued trust preferred securities 497 — ( 7 ) 490 3 Total $ 156,105 $ 273 $ ( 8,669 ) $ 147,709 $ 55 11 December 31, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Available for Sale U.S. Treasury and U.S. government agency securities $ 9,569 $ — $ ( 25 ) $ 9,544 MBS: U.S. government agencies 68,513 55 ( 1,032 ) 67,536 Total $ 78,082 $ 55 $ ( 1,057 ) $ 77,080 September 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Allowance for Credit Losses Held to Maturity U.S. Treasury and U.S. government agency securities $ 92,312 $ 70 $ ( 4,197 ) $ 88,185 $ — MBS: U.S. government agencies 49,481 174 ( 1,378 ) 48,277 — Private label residential 28,479 231 ( 980 ) 27,730 55 Municipal securities 1,330 8 — 1,338 $ — Bank issued trust preferred securities 495 — ( 18 ) 477 5 Total $ 172,097 $ 483 $ ( 6,573 ) $ 166,007 $ 60 September 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Available for Sale U.S. Treasury and U.S. government agency securities $ 3,934 $ 6 $ ( 1 ) $ 3,939 MBS: U.S. government agencies 68,297 545 ( 524 ) 68,318 Total $ 72,231 $ 551 $ ( 525 ) $ 72,257 12 Held to maturity and available for sale investment securities with unrealized losses were as follows as of December 31, 2024 (dollars in thousands): Less Than 12 Months 12 Months or Longer Total Estimated Fair Value Gross Unrealized Losses Quantity Estimated Fair Value Gross Unrealized Losses Quantity Estimated Fair Value Gross Unrealized Losses Held to maturity U.S. Treasury and U.S. government agency securities $ 9,786 $ ( 9 ) 1 $ 64,689 $ ( 4,907 ) 15 $ 74,475 $ ( 4,916 ) MBS: U.S. government agencies 18,746 ( 237 ) 15 26,938 ( 2,087 ) 43 45,684 ( 2,324 ) Private label residential 2,731 ( 12 ) 4 19,187 ( 1,410 ) 19 21,918 ( 1,422 ) Bank issued trust preferred securities — — — 490 ( 7 ) 1 490 ( 7 ) Total $ 31,263 $ ( 258 ) 20 $ 111,304 $ ( 8,411 ) 78 $ 142,567 $ ( 8,669 ) Available for sale U.S. Treasury and U.S. government agency securities $ 7,557 $ ( 25 ) 5 $ — $ — — $ 7,557 $ ( 25 ) MBS: U.S. government agencies 22,027 ( 522 ) 7 24,959 ( 510 ) 22 46,986 ( 1,032 ) Total $ 29,584 $ ( 547 ) 12 $ 24,959 $ ( 510 ) 22 $ 54,543 $ ( 1,057 ) Held to maturity and available for sale investment securities with unrealized losses were as follows as of September 30, 2024 (dollars in thousands): Less Than 12 Months 12 Months or Longer Total Estimated Fair Value Gross Unrealized Losses Quantity Estimated Fair Value Gross Unrealized Losses Quantity Estimated Fair Value Gross Unrealized Losses Held to maturity U.S. Treasury and U.S. government agency securities $ — $ — — $ 78,363 $ ( 4,197 ) 17 $ 78,363 $ ( 4,197 ) MBS: U.S. government agencies 1 — 1 28,618 ( 1,378 ) 44 28,619 ( 1,378 ) Private label residential 804 ( 6 ) 1 20,447 ( 974 ) 19 21,251 ( 980 ) Bank issued trust preferred securities — — — 477 ( 18 ) 1 477 ( 18 ) Total $ 805 $ ( 6 ) 2 $ 127,905 $ ( 6,567 ) 81 $ 128,710 $ ( 6,573 ) Available for sale U.S. Treasury and U.S. government agency securities $ 1,962 $ ( 1 ) 1 $ — $ — — $ 1,962 $ ( 1 ) MBS: U.S. government agencies 11,368 ( 117 ) 4 25,751 ( 407 ) 23 37,119 ( 524 ) Total $ 13,330 $ ( 118 ) 5 $ 25,751 $ ( 407 ) 23 $ 39,081 $ ( 525 ) 13 During the three months ended December 31, 2024, the Company recorded a $ 2,000 net realized loss on 13 held to maturity investment securities, all of which had been recognized previously as a credit loss. During the three months ended December 31, 2023, the Company recorded a $ 1,000 net realized loss on 13 held to maturity investment securities, all of which had been recognized previously as credit loss. The recorded amount of investment securities pledged as collateral for public fund deposits, federal treasury tax and loan deposits, FHLB collateral and other non-profit organization deposits totaled $ 193.62 million and $ 208.81 million at December 31, 2024 and September 30, 2024, respectively. The contractual maturities of investment securities at December 31, 2024 were as follows (dollars in thousands). Expected maturities may differ from scheduled maturities due to the prepayment of principal or call provisions. Held to Maturity Available for Sale Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Due within one year $ 15,209 $ 15,152 $ 4,932 $ 4,927 Due after one year to five years 80,597 75,568 9,553 9,537 Due after five years to ten years 1,210 1,252 1,915 1,906 Due after ten years 59,089 55,737 61,682 60,710 Total $ 156,105 $ 147,709 $ 78,082 $ 77,080 Credit Quality Indicators and Allowance for Credit Losses Available for Sale Investment Securities The Company assesses each available for sale investment security that is in an unrealized loss position to determine whether the decline in fair value below the amortized cost basis results from a credit loss or other factors. The Company did not record an ACL on any available for sale investment securities at December 31, 2024 or September 30, 2024. 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 portfolio is calculated using the probability of default/loss given default ("PD/LGD") method. The calculation is completed on a quarterly basis using the default studies provided by an industry leading source. At December 31, 2024 and September 30, 2024, the ACL on the held to maturity securities portfolio totaled $ 55,000 and $ 60,000 , respectively. 14 The following tables set forth information for the three months ended December 31, 2024 regarding activity in the ACL by portfolio segment (dollars in thousands): Three Months Ended December 31, 2024 Held to Maturity Beginning Allowance Provision for (Recapture of) Credit Losses Ending Allowance MBS: Private label residential $ 55 $ ( 3 ) $ 52 Bank issued trust preferred securities 5 ( 2 ) 3 Total $ 60 $ ( 5 ) $ 55 Three Months Ended December 31, 2023 Held to Maturity Beginning Allowance Impact of Adopting CECL (ASU 2016-13) Provision for (Recapture of) Credit Losses Ending Allowance MBS: Private label residential $ — $ 82 $ ( 9 ) $ 73 Bank issued trust preferred securities — 10 ( 1 ) 9 Total $ — $ 92 $ ( 10 ) $ 82 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 statement. Accrued interest receivable on held to maturity investment securities totaled $ 810,000 at December 31, 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 or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When held to maturity investment securities are placed on non-accrual status, unpaid interest credited to income is reversed. The Company had $ 45,000 of private label mortgage-backed held to maturity investment securities in non-accrual status at December 31, 2024. The Company monitors the credit quality of investment 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 December 31, 2024 by credit quality indicator: Credit Ratings As of December 31, 2024 AAA/AA/A BBB/BB/B Unrated Total Held to Maturity U.S. Treasury and U.S. government agency securities $ 79,391 $ — $ — $ 79,391 MBS: U.S. government agencies 48,161 — — 48,161 Private label residential 15,326 — 11,507 26,833 Municipal securities 1,223 — — 1,223 Bank issued trust preferred securities — — 497 497 Total held to maturity $ 144,101 $ — $ 12,004 $ 156,105 15 Credit Ratings As of September 30, 2024 AAA/AA/A BBB/BB/B Unrated Total Held to Maturity U.S. Treasury and U.S. government agency securities $ 92,312 $ — $ — $ 92,312 MBS: — U.S. government agencies 49,481 — — 49,481 Private label residential 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 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). 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 was required in this analysis that included, but not limited to, assumptions regarding the collectability of principal and interest, net of related expenses, on the underlying loans. The amounts written off due to credit loss remain and continue to be recovered on a cash basis. The following table presents a roll forward of the credit loss component of held to maturity investment securities that have been written down for OTTI with the credit loss component recognized in earnings for the three months ended December 31, 2024 and 2023 (dollars in thousands): Three Months Ended December 31, 2024 2023 Beginning balance of credit loss $ 803 $ 816 Subtractions: Net realized loss previously recorded as credit losses — ( 1 ) Recapture of prior credit loss ( 2 ) ( 4 ) Ending balance of credit loss $ 801 $ 811 16 (3) GOODWILL AND CDI 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. Goodwill is presumed to have an indefinite useful life and is analyzed annually for impairment. The Company performs an annual review during the third quarter of each fiscal year, or more frequently if indicators of potential impairment exist, to determine if the recorded goodwill is impaired. For purposes of goodwill impairment testing, the services offered through the Bank and its subsidiary are managed as one strategic unit and represent the Company's only reporting unit. An assessment of qualitative factors is completed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative analysis concludes that further analysis is required, then a quantitative impairment test would be completed. The quantitative goodwill impairment test is used to identify the existence of impairment and the amount of impairment loss and compares the reporting unit’s estimated fair value, including goodwill, to its carrying amount. If the fair value exceeds the carrying amount, then goodwill is not considered impaired. If the carrying amount exceeds its fair value, an impairment loss would be recognized equal to the amount of excess, limited to the amount of total goodwill allocated to that reporting unit. The Company performed its 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. As of December 31, 2024, management believes that there have been no events or changes in the circumstances since May 31, 2024 that would indicate a potential impairment of goodwill. No assurances can be given, however, that the Company will not record an impairment loss on goodwill in the future. If adverse economic conditions or any decreases in the Company's stock price and market capitalization were deemed to be other than temporary, it may significantly affect the fair value of the Company's goodwill and may trigger impairment charges. Any impairment charge could have a material adverse effect on the Company's results of operations and financial condition. CDI represents the future economic benefit of the potential cost savings from acquiring core deposits as part of a business combination compared to the cost of alternative funding sources. CDI is amortized to non-interest expense using an accelerated method based on an estimated runoff of related deposits over a period of ten years. CDI is evaluated for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable, with any changes in estimated useful life accounted for prospectively over the revised remaining life. As of December 31, 2024, management believes that there have been no events or changes in the circumstances that would indicate a potential impairment of CDI. 17 (4) LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES Loans receivable by portfolio segment 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 Mortgage loans: One- to four-family (1) $ 306,443 20.2 % $ 299,123 19.7 % Multi-family 177,861 11.7 177,350 11.7 Commercial real estate 597,054 39.3 599,219 39.6 Construction - custom and owner/builder 124,104 8.2 132,101 8.7 Construction - speculative one- to four-family 8,887 0.6 11,495 0.8 Construction - commercial 22,841 1.5 29,463 1.9 Construction - multi-family 48,940 3.2 28,401 1.9 Construction - land development 15,977 1.0 17,741 1.2 Land 30,538 2.0 29,366 1.9 Total mortgage loans 1,332,645 87.7 1,324,259 87.4 Consumer loans: Home equity and second mortgage 48,851 3.2 47,913 3.2 Other 2,889 0.2 3,129 0.2 Total consumer loans 51,740 3.4 51,042 3.4 Commercial loans: Commercial business 135,312 8.9 138,743 9.2 U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans 204 — 260 — Total commercial loans 135,516 8.9 139,003 9.2 Total loans receivable 1,519,901 100.0 % 1,514,304 100.0 % Less: Undisbursed portion of construction loans in process ("LIP") 85,350 69,878 Deferred loan origination fees, net 5,444 5,425 ACL 17,288 17,478 Subtotal 108,082 92,781 Loans receivable, net $ 1,411,819 $ 1,421,523 Loans receivable at December 31, 2024 and September 30, 2024 are reported net of unamortized discounts totaling $ 147,000 and $ 155,000 , respectively. Credit Quality Indicators The Company uses credit risk grades which reflect the Company’s assessment of a loan’s risk or loss potential. The Company categorizes loans into risk grade categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors such as the estimated fair value of the collateral. The Company uses the following definitions for credit risk ratings as part of the on-going monitoring of the credit quality of its loan portfolio: Pass: Pass loans are defined as those loans that meet acceptable quality underwriting standards. Watch: 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. Doubtful: Loans in this classification have the weaknesses of substandard loans with the additional characteristic that the weaknesses make the collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. At December 31, 2024 and September 30, 2024, there was one loan classified as doubtful which is supported by an SBA guarantee of the remaining balance. Loss: 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 December 31, 2024 and September 30, 2024, there were no loans classified as loss. The following table sets forth the Company's loan portfolio at December 31, 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 2025 2024 2023 2022 2021 Prior Revolving Loans Total Loans Receivable One-to four-family Risk Rating Pass $ 1,883 $ 14,158 $ 76,808 $ 112,988 $ 46,422 $ 52,343 $ — $ 304,602 Watch — — 1,794 — — — — 1,794 Substandard — — — — — 47 — 47 Total one- to four-family $ 1,883 $ 14,158 $ 78,602 $ 112,988 $ 46,422 $ 52,390 $ — $ 306,443 Multi-family Risk Rating Pass $ 2,908 $ 13,134 $ 19,416 $ 39,515 $ 32,976 $ 68,743 $ 1,169 $ 177,861 Total multi-family $ 2,908 $ 13,134 $ 19,416 $ 39,515 $ 32,976 $ 68,743 $ 1,169 $ 177,861 Commercial real estate Risk Rating Pass $ 5,995 $ 25,866 $ 77,637 $ 125,111 $ 89,546 $ 248,060 $ 7,877 $ 580,092 Watch — — 907 — — 10,921 — 11,828 Special Mention — — — — — 4,401 — 4,401 Substandard — — — — — 733 — 733 Total commercial real estate $ 5,995 $ 25,866 $ 78,544 $ 125,111 $ 89,546 $ 264,115 $ 7,877 $ 597,054 18 Term Loans Amortized Cost Basis by Origination Fiscal Year Type 2025 2024 2023 2022 2021 Prior Revolving Loans Total Loans Receivable Construction-custom & owner/builder (1) Risk Rating Pass $ 2,276 $ 47,406 $ 9,167 $ — $ 209 $ — $ — $ 59,058 Watch — 248 9,595 5,306 2,726 746 — 18,621 Total construction-custom & owner/builder $ 2,276 $ 47,654 $ 18,762 $ 5,306 $ 2,935 $ 746 $ — $ 77,679 Construction-speculative one-to four-family (1) Risk Rating Pass $ 982 $ 2,921 $ 866 $ — $ — $ — $ — $ 4,769 Total construction-speculative one-to four-family $ 982 $ 2,921 $ 866 $ — $ — $ — $ — $ 4,769 Construction-commercial (1) Risk Rating Pass $ 1,401 $ 2,060 $ 8,966 $ 2,072 $ — $ — $ — $ 14,499 Total construction-commercial $ 1,401 $ 2,060 $ 8,966 $ 2,072 $ — $ — $ — $ 14,499 Construction-multi-family (1) Risk Rating Pass $ 838 $ 2,572 $ 20,603 $ — $ — $ — $ — $ 24,013 Total construction-multi-family $ 838 $ 2,572 $ 20,603 $ — $ — $ — $ — $ 24,013 Construction-land development (1) Risk Rating Pass $ — $ 1,444 $ 1,446 $ — $ — $ — $ — $ 2,890 Watch — — — 11,549 — — — 11,549 Total construction-land development $ — $ 1,444 $ 1,446 $ 11,549 $ — $ — $ — $ 14,439 Land Risk Rating Pass $ 2,417 $ 9,785 $ 4,430 $ 6,449 $ 3,793 $ 2,656 $ 232 $ 29,762 Watch — — — 301 — 475 — 776 Total land $ 2,417 $ 9,785 $ 4,430 $ 6,750 $ 3,793 $ 3,131 $ 232 $ 30,538 Home equity and second mortgage Risk Rating Pass $ 885 $ 5,728 $ 4,435 $ 1,783 $ 249 $ 2,584 $ 31,271 $ 46,935 Watch — — — — 1,250 — — 1,250 Substandard — — — — — 79 587 666 Total home equity and second mortgage $ 885 $ 5,728 $ 4,435 $ 1,783 $ 1,499 $ 2,663 $ 31,858 $ 48,851 19 Term Loans Amortized Cost Basis by Origination Fiscal Year Type 2025 2024 2023 2022 2021 Prior Revolving Loans Total Loans Receivable Other consumer Risk Rating Pass $ 1,319 $ 395 $ 427 $ 94 $ 40 $ 506 $ 73 $ 2,854 Watch — — — — — 35 — 35 Total other consumer $ 1,319 $ 395 $ 427 $ 94 $ 40 $ 541 $ 73 $ 2,889 Current period gross write-offs $ — $ 2 $ — $ — $ — $ — $ 1 $ 3 Commercial business Risk Rating Pass $ 2,475 $ 15,538 $ 18,992 $ 33,119 $ 7,192 $ 11,129 $ 44,607 $ 133,052 Watch — — — 197 380 625 180 1,382 Substandard — 166 — — — 254 256 676 Doubtful — 202 — — — — — 202 Total commercial business $ 2,475 $ 15,906 $ 18,992 $ 33,316 $ 7,572 $ 12,008 $ 45,043 $ 135,312 Current period gross write-offs $ — $ — $ — $ 241 $ — $ — $ — $ 241 SBA PPP Risk Rating Pass $ — $ — $ — $ — $ 182 $ 22 $ — $ 204 Total SBA PPP $ — $ — $ — $ — $ 182 $ 22 $ — $ 204 Total loans receivable, gross (1) Risk Rating Pass $ 23,379 $ 141,007 $ 243,193 $ 321,131 $ 180,609 $ 386,043 $ 85,229 $ 1,380,591 Watch — 248 12,296 17,353 4,356 12,802 180 47,235 Special Mention — — — — — 4,401 — 4,401 Substandard — 166 — — — 1,113 843 2,122 Doubtful — 202 — — — — — 202 Total loans receivable $ 23,379 $ 141,623 $ 255,489 $ 338,484 $ 184,965 $ 404,359 $ 86,252 $ 1,434,551 Current period gross charge-off $ — $ 2 $ — $ 241 $ — $ — $ 1 $ 244 _____________________ (1) Net of construction LIP 20 The following table sets forth the Company's loan portfolio at September 30, 2024 by risk attribute and year of origination as well as gross charges offs in the year ending September 30, 2024: 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 Risk Rating 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 Multi-family Risk Rating 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 Risk Rating 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 (1) Risk Rating Pass $ 38,303 $ 29,159 $ 778 $ — $ — $ — $ — $ 68,240 Watch 221 3,239 5,848 2,861 429 436 — 13,034 Total construction-custom & owner/builder $ 38,524 $ 32,398 $ 6,626 $ 2,861 $ 429 $ 436 $ — $ 81,274 Construction-speculative one-to four-family (1) Risk Rating Pass $ 5,039 $ 2,412 $ — $ — $ — $ — $ — $ 7,451 Total construction-speculative one-to four-family $ 5,039 $ 2,412 $ — $ — $ — $ — $ — $ 7,451 Construction-commercial (1) Risk Rating Pass $ 6,006 $ 16,349 $ 1,457 $ — $ — $ — $ — $ 23,812 Total construction-commercial $ 6,006 $ 16,349 $ 1,457 $ — $ — $ — $ — $ 23,812 21 Term Loans Amortized Cost Basis by Origination Fiscal Year Type 2024 2023 2022 2021 2020 Prior Revolving Loans Total Loans Receivable Construction-multi-family (1) Risk Rating Pass $ 588 $ 20,169 $ — $ — $ — $ — $ — $ 20,757 Total construction-multi-family $ 588 $ 20,169 $ — $ — $ — $ — $ — $ 20,757 Construction-land development (1) Risk Rating Pass $ 1,673 $ 2,807 $ — $ — $ — $ — $ — $ 4,480 Watch — — 11,549 — — — — 11,549 Total construction-land development $ 1,673 $ 2,807 $ 11,549 $ — $ — $ — $ — $ 16,029 Land Risk Rating 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 Home equity and second mortgage Risk Rating Pass $ 5,820 $ 4,716 $ 1,990 $ 252 $ 573 $ 2,097 $ 31,766 $ 47,214 Substandard — — — — — 81 618 699 Total home equity and second mortgage $ 5,820 $ 4,716 $ 1,990 $ 252 $ 573 $ 2,178 $ 32,384 $ 47,913 Other consumer Risk Rating 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 Risk Rating 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 SBA PPP Risk Rating Pass $ — $ — $ — $ 224 $ 36 $ — $ — $ 260 Total SBA PPP $ — $ — $ — $ 224 $ 36 $ — $ — $ 260 22 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 (1) Risk Rating 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 _____________________ ( 1) Net of construction LIP Allowance for Credit Losses The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost. The ACL is evaluated and calculated on a collective basis for those loans which share similar risk characteristics. For loans that do not share similar risk characteristics and cannot be evaluated on a collective basis, the Company will evaluate the loan individually. The Company estimates the expected credit losses over the loans' contractual terms, adjusted for expected prepayments. The ACL is calculated for loan segments utilizing loan level information and relevant information from internal and external sources related to past events and current conditions. The calculation utilizes 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 individually evaluated may be estimated based on their expected cash flows, or in the case of loans for which repayment is expected substantially through the operation or sale of collateral when the borrower is experiencing financial difficulty, may be measured based on the fair value of the collateral less estimated selling costs. When available information confirms that specific loans or portions thereof are uncollectible, identified amounts are charged against the ACL. The existence of some or all of the following criteria will generally confirm that a loss has been incurred: the loan is significantly delinquent and the borrower has not demonstrated the ability or intent to bring the loan current; the Company has no recourse to the borrower, or if it does, the borrower has insufficient assets to pay the debt; and/or the estimated fair value of the loan collateral is significantly below the current loan balance, and there is little or no near-term prospect for improvement. Management's evaluation of the ACL is based on ongoing, quarterly assessments of the known and inherent risks in the loan portfolio. Loss factors are based on the Company's historical loss experience with additional consideration and adjustments made for changes in economic conditions, changes in the amount and composition of the loan portfolio, delinquency rates, changes in collateral values, seasoning of the loan portfolio, duration of the current business cycle, a detailed analysis of individually evaluated loans and other factors as deemed appropriate. Management also assesses the risk related to reasonable and supportable forecasts that are used. These factors are evaluated on a quarterly basis. Loss rates used by the Company are affected as changes in these factors increase or decrease from quarter to quarter. In addition, regulatory agencies, as integral part of their examination process, periodically review the Company's 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. 23 The following tables set forth information for the three months ended December 31, 2024 and 2023 regarding activity in the ACL by portfolio segment (dollars in thousands): Three Months Ended December 31, 2024 Beginning Allowance Provision for (Recapture of) Credit Losses Charge- offs Recoveries Ending Allowance Mortgage loans: One- to four-family $ 2,632 $ 67 $ — $ — $ 2,699 Multi-family 1,308 3 — — 1,311 Commercial real estate 6,934 ( 42 ) — — 6,892 Construction – custom and owner/builder 1,328 ( 67 ) — — 1,261 Construction – speculative one- to four-family 128 ( 46 ) — — 82 Construction – commercial 537 ( 208 ) — — 329 Construction – multi-family 456 71 — — 527 Construction – land development 335 ( 43 ) — — 292 Land 793 9 — — 802 Consumer loans: Home equity and second mortgage 348 5 — — 353 Other 39 ( 3 ) ( 3 ) — 33 Commercial business loans 2,640 306 ( 241 ) 2 2,707 Total $ 17,478 $ 52 $ ( 244 ) $ 2 $ 17,288 Three Months Ended December 31, 2023 Beginning Allowance Impact of Adopting CECL (ASU 2016-13) Provision for (Recapture of) Loan Losses Charge- offs Recoveries Ending Allowance Mortgage loans: One- to four-family $ 2,417 $ ( 408 ) $ 87 $ — $ — $ 2,096 Multi-family 1,156 ( 120 ) 164 — — 1,200 Commercial real estate 7,209 ( 494 ) 107 — — 6,822 Construction – custom and owner/builder 750 542 ( 58 ) — — 1,234 Construction – speculative one- to four-family 148 ( 16 ) — — — 132 Construction – commercial 316 176 ( 62 ) — — 430 Construction – multi-family 602 204 ( 71 ) — — 735 Construction – land development 274 25 ( 1 ) — — 298 Land 406 318 33 — — 757 Consumer loans: Home equity and second mortgage 519 ( 243 ) 10 — — 286 Other 53 ( 7 ) 2 ( 2 ) — 46 Commercial business loans 1,967 484 168 — — 2,619 Total $ 15,817 $ 461 $ 379 $ ( 2 ) $ — $ 16,655 24 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 removed from non-accrual 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. The following tables present an analysis of loans by aging category and portfolio segment at December 31, 2024 and September 30, 2024 (dollars in thousands): 30–59 Days Past Due 60-89 Days Past Due Non- Accrual (1) Past Due 90 Days or More and Still Accruing Total Past Due Current Total Loans December 31, 2024 Mortgage loans: One- to four-family $ — $ 62 $ 47 $ — $ 109 $ 306,334 $ 306,443 Multi-family — — — — — 177,861 177,861 Commercial real estate — 436 698 — 1,134 595,920 597,054 Construction – custom and owner/builder — — — — — 77,679 77,679 Construction – speculative one- to four-family — — — — — 4,769 4,769 Construction – commercial — — — — — 14,499 14,499 Construction – multi-family — — — — — 24,013 24,013 Construction – land development — — — — — 14,439 14,439 Land — — — — — 30,538 30,538 Consumer loans: Home equity and second mortgage — — 587 — 587 48,264 48,851 Other — — — — — 2,889 2,889 Commercial business loans 541 248 1,401 — 2,190 133,122 135,312 SBA PPP loans — — — — — 204 204 Total $ 541 $ 746 $ 2,733 $ — $ 4,020 $ 1,430,531 $ 1,434,551 (1) Includes non-accrual loans past due 90 days or more and other loans classified as non-accrual. 25 30–59 Days Past Due 60-89 Days Past Due Non- Accrual (1) Past Due 90 Days or More and Still Accruing Total Past Due Current Total Loans September 30, 2024 Mortgage loans: One- to four-family $ — $ — $ 49 $ — $ 49 $ 299,074 $ 299,123 Multi-family — — — — — 177,350 177,350 Commercial real estate — — 1,158 — 1,158 598,061 599,219 Construction – custom and owner/builder — — — — — 81,274 81,274 Construction – speculative one- to four-family — — — — — 7,451 7,451 Construction – commercial — — — — — 23,812 23,812 Construction – multi-family — — — — — 20,757 20,757 Construction – land development — — — — — 16,029 16,029 Land — — — — — 29,366 29,366 Consumer loans: Home equity and second mortgage — — 618 — 618 47,295 47,913 Other — 1 — — 1 3,128 3,129 Commercial business loans 424 169 2,060 — 2,653 136,090 138,743 SBA PPP loans — — — — — 260 260 Total $ 424 $ 170 $ 3,885 $ — $ 4,479 $ 1,439,947 $ 1,444,426 (1) Includes non-accrual loans past due 90 days or more and other loans classified as non-accrual. At December 31, 2024, the Company had $ 1.40 million of non-accrual loans with an ACL of $ 431,000 and $ 1.33 million of non-accrual loans with no ACL. The following table is a summary of the amortized cost of collateral dependent non-accrual loans as of December 31, 2024 (in thousands): Recorded Investment Related ACL Mortgage loans: One- to four-family $ 47 $ — Commercial real estate 698 — Consumer loans: Home equity and second mortgage 587 — Commercial business loans 1,401 431 Total $ 2,733 $ 431 26 At September 30, 2024, the Company had $ 1.83 million of non-accrua1 loans with an ACL of $ 506,000 and $ 2.06 million of non-accrual loans with no ACL. The following table is a summary of the amortized cost of collateral dependent non-accrual loans as of September 30, 2024 (in thousands): Recorded Investment Related ACL Mortgage loans: One- to four-family $ 49 $ — Commercial real estate 1,158 — Consumer loans: Home equity and second mortgage 618 — Commercial business loans 2,060 506 Total $ 3,885 $ 506 Troubled Loan Modifications Occasionally, the Company offers modifications of loans to borrowers experiencing financial difficulty by providing principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions or any combination of these. When principal forgiveness is provided, the amount of the forgiveness is charged-off against the ACL for loans. Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged-off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL for loans is adjusted by the same amount. The ACL on modified loans is measured using the same credit loss estimation methods used to determine the ACL of all other loans held for investment. These methods incorporate the post-modification of loan terms, as well as defaults and charge-offs associated with historical modified loans. There were no loans modified related to borrowers experiencing financial difficulty during the three months ended December 31, 2024. There were no loans past due at December 31, 2024 that had been modified in the previous 12 months. 27 (5) LEASES At December 31, 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 seven years , and 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 lease liabilities. The components of lease cost (included in the premises and equipment expense category in the consolidated statements of income) are as follows for the three months ended December 31, 2024 and 2023 (dollars in thousands): Three Months Ended December 31, Lease cost: 2024 2023 Operating lease cost $ 96 $ 93 Short-term lease cost — — Total lease cost $ 96 $ 93 The following table provides supplemental information related to operating leases at or for the three months ended December 31, 2024 and 2023 (dollars in thousands): At or For the Three Months Ended December 31, 2024 At or For the Three Months Ended December 31, 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 83 $ 82 Weighted average remaining lease term-operating leases 5.8 years 6.5 years Weighted average discount rate-operating leases 2.34 % 2.34 % The Company's leases typically do not contain a discount rate implicit in the lease contracts. As an alternative, the weighted average discount rate used to estimate the present value of future lease payments in calculating the value of the ROU asset and lease liability was determined by utilizing the FHLB fixed-rate credit advance borrowing rate for the term correlating to the remaining term of each lease. Maturities of operating lease liabilities at December 31, 2024 for future fiscal years are as follows (dollars in thousands): Remainder of 2025 $ 253 2026 304 2027 232 2028 219 2029 218 Thereafter 383 Total lease payments 1,609 Less imputed interest 108 Total $ 1,501 28 (6) NET INCOME PER COMMON SHARE Basic net income per common share is computed by dividing net income to common shareholders by the weighted average number of common shares outstanding during the period, without considering any dilutive items. Nonvested shares of restricted stock are included in the computation of basic earnings per share because the holder has voting rights and shares in non-forfeitable dividends during the vesting period. Diluted net income per common share is computed by dividing net income to common shareholders by the weighted average number of common shares and common stock equivalents for items that are dilutive, net of shares assumed to be repurchased using the treasury stock method at the average share price for the Company’s common stock during the period. Common stock equivalents arise from the assumed conversion of outstanding stock options. Information regarding the calculation of basic and diluted net income per common share for the three months ended December 31, 2024 and 2023 is as follows (dollars in thousands, except per share amounts): Three Months Ended December 31, 2024 2023 Basic net income per common share computation Numerator – net income $ 6,860 $ 6,296 Denominator – weighted average common shares outstanding 7,958,275 8,114,209 Basic net income per common share $ 0.86 $ 0.78 Diluted net income per common share computation Numerator – net income $ 6,860 $ 6,296 Denominator – weighted average common shares outstanding 7,958,275 8,114,209 Effect of dilutive stock options (1) 41,229 51,839 Weighted average common shares outstanding - assuming dilution 7,999,504 8,166,048 Diluted net income per common share $ 0.86 $ 0.77 ____________________________________________ (1) For the three months ended December 31, 2024 and 2023, average options to purchase 96,220 and 214,595 shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per common share because their effect would have been anti-dilutive. (7) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The changes in accumulated other comprehensive income (loss) ("AOCI") by component during the three months ended December 31, 2024 and 2023 are as follows (dollars in thousands): Three Months Ended December 31, 2024 Changes in fair value of available for sale securities (1) Total (1) Balance of AOCI at the beginning of period $ 20 $ 20 Other comprehensive loss ( 812 ) ( 812 ) Balance of AOCI at the end of period $ ( 792 ) $ ( 792 ) __________________________ (1) All amounts are net of income taxes. 29 Three Months Ended December 31, 2023 Changes in fair value of available for sale securities (1) Changes in OTTI on held to maturity securities (1) Total (1) Balance of AOCI at the beginning of period $ ( 1,075 ) $ ( 9 ) $ ( 1,084 ) Other comprehensive income 248 9 257 Balance of AOCI at the end of period $ ( 827 ) $ — $ ( 827 ) __________________________ (1) All amounts are net of income taxes. (8) STOCK COMPENSATION PLANS The Company has two active stock compensation plans: the 2014 Equity Incentive Plan and the 2019 Equity Incentive Plan. Under the Company's 2014 Equity Incentive Plan, the Company 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. The exercise price of each option equals the fair market value of the Company’s common stock on the date of grant. Generally, options and restricted stock vest in equal annual installments commencing on the first anniversary of the grant date. Stock options generally vest over a five year period from the date of the grant with a maximum contractual term of ten years from the date of grant. Restricted stock grants generally vest over a three or five year term from the grant date. At December 31, 2024, there were 15,576 and 155,705 shares of common stock available which may be awarded as options or restricted stock pursuant to future grants under the 2014 and 2019 Equity Incentive Plans, respectively. Stock option activity for the three months ended December 31, 2024 and 2023 is summarized as follows: Three Months Ended December 31, 2024 Three Months Ended December 31, 2023 Number of Shares Weighted Average Exercise Price Number of Shares Weighted Average Exercise Price Options outstanding, beginning of period 306,240 $ 25.21 369,150 $ 24.00 Exercised ( 22,400 ) 21.17 ( 27,700 ) 12.81 Forfeited ( 600 ) 27.40 ( 5,380 ) 25.10 Options outstanding, end of period 283,240 $ 25.52 336,070 $ 24.91 The fair value of stock options is determined using the Black-Scholes valuation model. There were no stock options granted during the three months ended December 31, 2024 and 2023. The aggregate intrinsic value of options exercised during the three months ended December 31, 2024 and 2023 was $ 239,000 and $ 469,000 , respectively. At December 31, 2024, there were 76,530 unvested options with an aggregate grant date fair value of $ 464,000 , all of which the Company assumes will vest. The aggregate intrinsic value of unvested options at December 31, 2024 was $ 328,000 . There were 100 options that vested during the three months ended December 31, 2024 with a total fair value of $ 326 . 30 At December 31, 2023, there were 124,640 unvested options with an aggregate grant date fair value of $ 725,000 . There were 100 options that vested during the three months ended December 31, 2023 with a total fair value of $ 326 . Additional information regarding options outstanding at December 31, 2024 is as follows: Options Outstanding Options Exercisable Range of Exercise Prices ($) Number Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Number Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) 10.26 - 10.71 14,750 $ 10.62 0.5 14,750 $ 10.62 0.5 15.67 - 19.13 50,750 16.57 4.7 39,920 16.48 4.5 26.50 - 27.40 91,020 27.32 6.9 51,720 27.25 6.1 28.23 - 29.69 95,400 28.80 5.2 69,800 29.01 4.6 31.80 - 33.40 31,320 31.85 3.9 30,520 31.59 3.8 283,240 $ 25.52 5.3 206,710 $ 25.25 4.5 The aggregate intrinsic value of options outstanding at December 31, 2024 and 2023 was $ 1.45 million and $ 2.22 million , respectively. As of December 31, 2024, unrecognized compensation cost related to unvested stock options was $ 437,000 , which is expected to be recognized over a weighted average period of 1.60 years. There were no restricted stock awards granted during the three months ended December 31, 2024 and 2023. Three Months Ended December 31, 2024 Three Months Ended December 31, 2023 Number of Unvested Shares Weighted Average Grant Date Fair Value Number of Unvested Shares Weighted Average Grant Date Fair Value Restricted stock outstanding beginning of period 49,015 $ 29.28 26,150 $ 27.37 Forfeited ( 450 ) 29.28 — — Restricted stock outstanding end of period 48,565 $ 29.28 26,150 $ 27.37 The fair value of restricted stock awards is equal to the fair value of the Company's stock on the date of the grant. The related stock-based compensation expense is recorded over the requisite service period. At December 31, 2024, unrecognized compensation cost related to unvested restricted stock awards was $ 1.34 million, which is expected to be recognized over a weighted average period of 2.45 years. (9) FAIR VALUE MEASUREMENTS Fair value is defined under GAAP as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of three levels. These levels are: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. 31 Level 2: Significant observable inputs other than quoted prices included within Level 1, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability based on the best information available in the circumstances. 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 quoted market prices (Level 1) and market prices of similar securities or observable inputs (Level 2). The estimated fair values of mutual funds and U.S. Treasury and U.S. government agency securities are based upon quoted market prices (Level 1). The Company had no liabilities measured at fair value on a recurring basis at December 31, 2024 and September 30, 2024. The Company's assets measured at estimated fair value on a recurring basis at December 31, 2024 and September 30, 2024 were as follows (dollars in thousands): December 31, 2024 Estimated Fair Value Level 1 Level 2 Level 3 Total Available for sale investment securities U.S. Treasury and U.S. government agency securities $ 9,544 $ — $ — $ 9,544 MBS: U.S. government agencies — 67,536 — 67,536 Investments in equity securities Mutual funds 840 — — 840 Total $ 10,384 $ 67,536 $ — $ 77,920 September 30, 2024 Estimated Fair Value Level 1 Level 2 Level 3 Total Available for sale investment securities U.S. Treasury and U.S. government agency securities $ 3,939 $ — $ — $ 3,939 MBS: U.S. government agencies — 68,318 — 68,318 Investments in equity securities Mutual funds 866 — — 866 Total $ 4,805 $ 68,318 $ — $ 73,123 There were no transfers among Level 1, Level 2 and Level 3 during the three months ended December 31, 2024 and the year ended September 30, 2024. The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. 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, where applicable. Accordingly, collateral dependent loans are classified within level 3 of the fair value hierarchy. 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). 32 The following table summarizes the balances of assets measured at estimated fair value on a non-recurring basis at December 31, 2024 and September 30, 2024 (dollars in thousands): Estimated Fair Value Total Estimated December 31, 2024 Level 1 Level 2 Level 3 Fair Value Individually evaluated collateral-dependent loans: Commercial business loans $ — $ — $ 970 $ 970 Total loans — — 970 970 OREO and other repossessed assets — — 221 221 Total $ — $ — $ 1,191 $ 1,191 Estimated Fair Value Total Estimated September 30, 2024 Level 1 Level 2 Level 3 Fair Value Individually evaluated collateral-dependent loans: Commercial business loans $ — $ — $ 1,315 $ 1,315 Total $ — $ — $ 1,315 $ 1,315 The following table presents quantitative information about Level 3 inputs for financial instruments measured at fair value on a non-recurring basis as of December 31, 2024 and September 30, 2024 (dollars in thousands): Valuation Technique(s) Unobservable Input(s) Range Individually evaluated collateral-dependent loans Market approach Appraised value less estimated selling costs N/A OREO and other repossessed assets Market approach Lower of appraised value or listing price less estimated selling costs N/A GAAP requires disclosure of estimated fair values for certain financial instruments. Such estimates are subjective in nature, and significant judgment is required regarding the risk characteristics of various financial instruments at a discrete point in time. Therefore, such estimates could vary significantly if assumptions regarding uncertain factors were to change. In addition, as the Company normally intends to hold the majority of its financial instruments until maturity, it does not expect to realize many of the estimated amounts disclosed. The disclosures also do not include estimated fair value amounts for certain items which are not defined as financial instruments but which may have significant value. The Company does not believe that it would be practicable to estimate a fair value for these types of items as of December 31, 2024 and September 30, 2024. Because GAAP excludes certain items from fair value disclosure requirements, any aggregation of the fair value amounts presented would not represent the underlying value of the Company. Additionally, the Company uses the exit price notion in calculating the fair values of financial instruments not measured at fair value on a recurring basis. 33 The recorded amounts and estimated fair values of financial instruments were as follows as of December 31, 2024 and September 30, 2024 (dollars in thousands): December 31, 2024 Fair Value Measurements Using: Recorded Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 164,071 $ 164,071 $ 164,071 $ — $ — CDs held for investment 7,470 7,470 7,470 — — Investment securities 233,185 224,790 84,019 140,771 — Investments in equity securities 840 840 840 — — FHLB stock 2,037 2,037 2,037 — — Other investments 3,000 3,000 3,000 — — Loans held for sale 411 424 424 — — Loans receivable, net 1,411,819 1,372,737 — — 1,372,737 Accrued interest receivable 7,095 7,095 7,095 — — Financial liabilities Certificates of deposit 385,835 385,987 — — 385,987 FHLB borrowings 20,000 19,896 — — 19,896 Accrued interest payable 1,876 1,876 1,876 — — September 30, 2024 Fair Value Measurements Using: Recorded Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 164,728 $ 164,728 $ 164,728 $ — $ — CDs held for investment 10,209 10,209 10,209 — — Investment securities 244,354 238,264 146,141 92,123 — Investments in equity securities 866 866 866 — — FHLB stock 2,037 2,037 2,037 — — Other investments 3,000 3,000 3,000 — — Loans receivable, net 1,421,523 1,387,642 — — 1,387,642 Accrued interest receivable 6,990 6,990 6,990 — — Financial liabilities Certificates of deposit 368,308 368,312 — — 368,312 FHLB borrowings 20,000 20,035 — — 20,035 Accrued interest payable 2,132 2,132 2,132 — — 34 (10) RECENT ACCOUNTING PRONOUNCEMENTS In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 the notes to the 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) REVENUE FROM CONTRACTS WITH CUSTOMERS ASU 2014-09 Revenue from Contracts with Customers (" ASC 606") applies to all contracts with customers to provide goods or services in the ordinary course of business, except for contracts that are specifically excluded from its scope. The majority of the Company's revenues are composed of interest income, deferred loan fee accretion, premium/discount accretion, gains on sales of loans and investments, BOLI net earnings, servicing income on loans sold and other loan fee income, which are not within the scope of ASC 606. Revenue reported as service charges on deposits, ATM and debit card interchange transaction fees, merchant services fees, non-deposit investment fees and escrow fees are within the scope of ASC 606. All of the Company's revenue from contracts with customers within the scope of ASC 606 is recognized in non-interest income with the exception of gains on sales of OREO and gains on sales/disposition of premises and equipment, which are included in non-interest expense. For the three months ended December 31, 2024, the Company recognized $ 999,000 in service charges on deposits, $ 1.27 million in ATM and debit card interchange transaction fees, $ 18,000 in escrow fees, and $ 1,000 in fee income from non-deposit investment sales included in "Other" on the consolidated statement of income, all considered within the scope of ASC 606. For the three months ended December 31, 2023, the Company recognized $ 1.02 million in service charges on deposits, $ 1.26 million in ATM and debit card interchange transaction fees, $ 19,000 in escrow fees, and $ 2,000 in fee income from non-deposit investment sales. If a contract is determined to be within the scope of ASC 606, the Company recognizes revenue when it satisfies its performance obligation. Descriptions of the Company's revenue-generating activities that are within the scope of ASC 606 are as follows: • Service Charges on Deposits: The Company earns fees from its deposit customers from a variety of deposit products and services. Non-transaction based fees such as account maintenance fees and monthly statement fees are considered to be provided to the customer under a day-to-day contract with ongoing renewals. Revenue for these non-transaction fees are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Transaction-based fees such as non-sufficient fund charges, stop payment charges and wire fees are recognized at the time the transaction is executed, as the contract duration does not extend beyond the service performed. • ATM and Debit Card Interchange Transaction Fees: The Company earns fees from cardholder transactions conducted through third-party payment network providers which consist of interchange fees earned from the payment networks 35 as a debit card issuer. These fees are recognized when the transaction occurs, but may settle on a daily or monthly basis. • Escrow Fees: The Company earns fees from real estate escrow contracts with customers. The Company receives and disburses money and/or property according to the customer's contract. Fees are recognized when the escrow contract closes. • Fee Income from Non-deposit Investment Sales: The Company earns fees from contracts with customers for investment activities. 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. (12) COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk not recognized in the consolidated balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Bank 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. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit - worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. However, such loan to value ratios will subsequently change, based on increases and decreases in the supporting collateral values. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate, land and income-producing commercial properties. A summary of the Company's commitments at December 31, 2024 and 2023 are listed below (in thousands): December 31, 2024 December 31, 2023 Undisbursed portion of construction loans in process (see Note 4) $ 85,350 $ 104,683 Undisbursed lines of credit 115,279 135,250 Commitments to extend credit 16,265 11,810 $ 216,894 $ 251,743 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 during which it is exposed to credit risk from its 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 is 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 $ 307,000 at December 31, 2024. The following table sets forth information for the three months ended December 31, 2024 and 2023 regarding activity in the ACL on unfunded loan commitments (dollars in thousands): Three Months Ended December 31, 2024 Three Months Ended December 31, 2023 Beginning ACL $ 327 $ 332 Impact of adopting CECL (ASU 2016-13) — 65 Provision for (recapture of) credit losses ( 20 ) ( 33 ) Ending ACL $ 307 $ 364 36 The Bank has an employee severance compensation plan which expires in 2027 that provides severance pay benefits to eligible employees in the event of a change in control of Timberland Bancorp or the Bank (as defined in the plan). In general, all employees with two or more years of service are eligible to participate in the plan. Under the plan, in the event of a change in control of Timberland Bancorp or the Bank, eligible employees who are terminated or who terminate employment (but only upon the occurrence of events specified in the plan) within 12 months of the effective date of a change in control would be entitled to a payment based on years of service or officer rank with the Bank. The maximum payment for any eligible employee would be equal to 18 months of the employee’s current compensation. Timberland Bancorp has employment agreements with the Chief Executive Officer, 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. Because of the nature of its activities, the Company is subject to various pending and threatened legal actions which arise in the ordinary course of business. In the opinion of management, liabilities arising from these claims, if any, will not have a material effect on the future consolidated financial position of the Company.