TIMBERLAND BANCORP INC 10-Q

Item 1. Financial Statements (unaudited) TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS March 31, 2025 and September 30, 2024 (Dollars in thousands, except per share amounts) March 31, 2025 September 30, 2024 (Unaudited) * Assets Cash and cash equivalents: Cash and due from financial institutions $ 26,010 $ 29,071 Interest-bearing deposits in banks 165,201 135,657 Total cash and cash equivalents 191,211 164,728 Certificates of deposit (“CDs”) held for investment, at cost 8,711 10,209 Investment securities held to maturity, at amortized cost (net of allowance for credit losses ("ACL") of $ 50 and $ 60 ), (estimated fair value of $ 134,382 and $ 166,007 ) 140,954 172,097 Investment securities available for sale, at fair value 84,807 72,257 Investments in equity securities, at fair value 853 866 Federal Home Loan Bank of Des Moines (“FHLB”) stock, at cost 2,045 2,037 Other investments, at cost 3,000 3,000 Loans held for sale 1,151 — Loans receivable, net of ACL of $ 17,525 and $ 17,478 1,420,074 1,421,523 Premises and equipment, net 21,436 21,486 Other real estate owned (“OREO”) and other repossessed assets, net 221 — Accrued interest receivable 7,127 6,990 Bank owned life insurance (“BOLI”) 23,942 23,611 Goodwill 15,131 15,131 Core deposit intangible (“CDI”), net 361 451 Loan servicing rights, net 1,051 1,372 Operating lease right-of-use ("ROU") assets 1,324 1,475 Other assets 9,331 6,242 Total assets $ 1,932,730 $ 1,923,475 Liabilities and shareholders’ equity Liabilities Deposits: Non-interest-bearing demand $ 407,811 $ 413,116 Interest-bearing 1,243,019 1,234,552 Total deposits 1,650,830 1,647,668 FHLB borrowings 20,000 20,000 Operating lease liabilities 1,426 1,575 Other liabilities and accrued expenses 7,950 8,819 Total liabilities $ 1,680,206 $ 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) March 31, 2025 and September 30, 2024 (Dollars in thousands, except per share amounts) March 31, 2025 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; 7,903,489 shares issued and outstanding - March 31, 2025 7,960,127 shares issued and outstanding - September 30, 2024 28,028 29,862 Retained earnings 225,166 215,531 Accumulated other comprehensive (loss) income ( 670 ) 20 Total shareholders’ equity 252,524 245,413 Total liabilities and shareholders’ equity $ 1,932,730 $ 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 and six months ended March 31, 2025 and 2024 (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended March 31, Six Months Ended March 31, 2025 2024 2025 2024 Interest and dividend income Loans receivable and loans held for sale $ 20,896 $ 18,909 $ 41,928 $ 37,304 Investment securities 2,003 2,246 4,141 4,556 Dividends from mutual funds, FHLB stock and other investments 82 82 168 173 Interest-bearing deposits in banks and CDs 1,884 1,919 3,885 3,618 Total interest and dividend income 24,865 23,156 50,122 45,651 Interest expense Deposits 7,454 7,301 15,538 13,444 FHLB borrowings 198 220 402 568 Total interest expense 7,652 7,521 15,940 14,012 Net interest income 17,213 15,635 34,182 31,639 Provision for (recapture of) credit losses Provision for credit losses - loans 237 166 289 545 (Recapture of) provision for credit losses - investment securities ( 5 ) 3 ( 10 ) ( 7 ) Provision for (recapture of) credit losses - unfunded commitments 14 ( 88 ) ( 7 ) ( 121 ) Total provision for credit losses - net 246 81 272 417 Net interest income after provision for (recapture of) credit losses 16,967 15,554 33,910 31,222 Non-interest income Net recoveries on investment securities 4 2 7 7 Service charges on deposits 959 988 1,958 2,011 ATM and debit card interchange transaction fees 1,176 1,212 2,443 2,476 BOLI net earnings 165 156 331 312 Gain on sales of loans, net 122 41 165 120 Escrow fees 17 15 35 33 Other, net 244 201 445 454 Total non-interest income, net 2,687 2,615 5,384 5,413 See notes to unaudited consolidated financial statements 5 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (continued) For the three and six months ended March 31, 2025 and 2024 (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended March 31, Six Months Ended March 31, 2025 2024 2025 2024 Non-interest expense Salaries and employee benefits $ 5,977 $ 6,024 $ 12,068 $ 11,936 Premises and equipment 1,075 1,081 2,025 2,054 Advertising 189 159 370 345 OREO and other repossessed assets, net 9 — 9 — ATM and debit card interchange transaction fees 521 601 1,043 1,216 Postage and courier 142 145 264 271 State and local taxes 335 325 680 644 Professional fees 431 319 777 572 Federal Deposit Insurance Corporation ("FDIC") insurance 219 206 429 416 Loan administration and foreclosure 155 134 283 239 Technology and communications 1,121 1,040 2,261 2,014 Deposit operations 319 324 652 644 Amortization of CDI 45 57 90 113 Other 656 576 1,309 1,151 Total non-interest expense, net 11,194 10,991 22,260 21,615 Income before income taxes 8,460 7,178 17,034 15,020 Provision for income taxes 1,705 1,470 3,419 3,016 Net income $ 6,755 $ 5,708 $ 13,615 $ 12,004 Net income per common share Basic $ 0.85 $ 0.71 $ 1.71 $ 1.48 Diluted $ 0.85 $ 0.70 $ 1.71 $ 1.47 Weighted average common shares outstanding Basic 7,937,063 8,081,924 7,947,786 8,098,155 Diluted 7,968,632 8,121,109 7,984,238 8,143,701 Dividends paid per common share $ 0.25 $ 0.24 $ 0.50 $ 0.47 See notes to unaudited consolidated financial statements 6 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the three and six months ended March 31, 2025 and 2024 (Dollars in thousands) (Unaudited) Three Months Ended March 31 Six Months Ended March 31 2025 2024 2025 2024 Comprehensive income Net income $ 6,755 $ 5,708 $ 13,615 $ 12,004 Other comprehensive income (loss) Unrealized holding gain (loss) on investment securities available for sale, net of income taxes of $ 32 , $ 22 , $( 183 ) and $ 88 , respectively 122 82 ( 690 ) 330 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 , $ 0 , $ 0 and $ 2 , respectively — — — 9 Total other comprehensive income (loss), net of income taxes 122 82 ( 690 ) 339 Total comprehensive income $ 6,877 $ 5,790 $ 12,925 $ 12,343 See notes to unaudited consolidated financial statements 7 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY For the three and six months ended March 31, 2025 and 2024 (Dollars in thousands, except per share amounts) (Unaudited) Common Stock Accumulated Other Compre-hensive Income (Loss) Number of Shares Amount Retained Earnings Total Balance, December 31, 2023 8,120,708 $ 34,869 $ 203,327 $ ( 827 ) $ 237,369 Net income — — 5,708 — 5,708 Other comprehensive income — — — 82 82 Repurchase of common stock, net of tax ( 99,787 ) ( 2,672 ) — — ( 2,672 ) Exercise of stock options 2,200 35 — — 35 Common stock dividends ($ 0.24 per common share) — — ( 1,949 ) — ( 1,949 ) Stock-based compensation expense — 106 — — 106 Balance, March 31, 2024 8,023,121 $ 32,338 $ 207,086 $ ( 745 ) $ 238,679 Balance, December 31, 2024 7,954,673 $ 29,593 $ 220,398 $ ( 792 ) $ 249,199 Net income — — 6,755 — 6,755 Other comprehensive income — — — 122 122 Repurchase of common stock, net of tax ( 61,764 ) ( 1,908 ) — — ( 1,908 ) Restricted stock grant forfeitures ( 1,380 ) ( 11 ) — — ( 11 ) Exercise of stock options 11,960 212 — — 212 Common stock dividends ($ 0.25 per common share) — — ( 1,987 ) — ( 1,987 ) Stock-based compensation expense — 142 — — 142 Balance, March 31, 2025 7,903,489 $ 28,028 $ 225,166 $ ( 670 ) $ 252,524 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 — — 12,004 — 12,004 Other comprehensive income — — — 339 339 Repurchase of common stock, net of tax ( 112,117 ) ( 3,034 ) — — ( 3,034 ) Exercise of stock options 29,900 390 — — 390 Common stock dividends ($ 0.47 per common share) — — ( 3,816 ) — ( 3,816 ) Stock-based compensation expense — 211 — — 211 Adoption of Accounting Standards Update ("ASU") 2016-13, net of tax — — ( 488 ) — ( 488 ) Balance, March 31, 2024 8,023,121 $ 32,338 $ 207,086 $ ( 745 ) $ 238,679 Balance, September 30, 2024 7,960,127 $ 29,862 $ 215,531 $ 20 $ 245,413 Net income — — 13,615 — 13,615 Other comprehensive loss — — — ( 690 ) ( 690 ) Repurchase of common stock, net of tax ( 89,168 ) ( 2,792 ) — — ( 2,792 ) Restricted stock grant forfeitures ( 1,830 ) ( 11 ) — — ( 11 ) Exercise of stock options 34,360 686 — — 686 Common stock dividends ($ 0.50 per common share) — — ( 3,980 ) — ( 3,980 ) Stock-based compensation expense — 283 — — 283 Balance, March 31, 2025 7,903,489 $ 28,028 $ 225,166 $ ( 670 ) $ 252,524 See notes to unaudited consolidated financial statements 8 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended March 31, 2025 and 2024 (Dollars in thousands) (Unaudited) Six Months Ended March 31, 2025 2024 Cash flows from operating activities Net income $ 13,615 $ 12,004 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 272 417 Depreciation 753 720 Accretion of discount on purchased loans ( 24 ) ( 20 ) Amortization of CDI 90 113 Stock-based compensation expense 272 211 Net recoveries on investment securities ( 7 ) ( 7 ) Change in fair value of investments in equity securities 13 ( 28 ) Accretion of discounts and premiums on securities ( 526 ) ( 574 ) Gain on sales of loans, net ( 165 ) ( 120 ) Loans originated for sale ( 8,472 ) ( 6,865 ) Proceeds from sales of loans 7,486 6,074 Amortization of loan servicing rights 394 467 BOLI net earnings ( 331 ) ( 312 ) Increase in deferred loan origination fees ( 96 ) ( 63 ) Net change in accrued interest receivable and other assets, and other liabilities and accrued expenses ( 3,976 ) ( 3,042 ) Net cash provided by operating activities 9,298 8,975 Cash flows from investing activities Net decrease in CDs held for investment 1,498 3,984 Purchase of investment securities held to maturity — ( 1,919 ) Purchase of investment securities available for sale ( 22,422 ) ( 22,207 ) Proceeds from maturities and prepayments of investment securities held to maturity 31,395 60,810 Proceeds from maturities and prepayments of investment securities available for sale 9,290 2,667 Purchase of FHLB stock ( 8 ) — Redemption of FHLB stock — 1,565 Decrease (increase) in loans receivable, net 1,059 ( 57,610 ) Purchases of premises and equipment ( 703 ) ( 796 ) Net cash provided by (used in) investing activities 20,109 ( 13,506 ) S ee notes to unaudited consolidated financial statements 9 TIMBERLAND BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) For the six months ended March 31, 2025 and 2024 (Dollars in thousands) (Unaudited) Six Months Ended March 31, 2025 2024 Cash flows from financing activities Net increase in deposits $ 3,162 $ 77,619 Repayment of FHLB borrowings — ( 15,000 ) Proceeds from exercise of stock options 686 390 Repurchase of common stock ( 2,792 ) ( 3,034 ) Payment of dividends ( 3,980 ) ( 3,816 ) Net cash (used in) provided by financing activities ( 2,924 ) 56,159 Net increase in cash and cash equivalents 26,483 51,628 Cash and cash equivalents Beginning of period 164,728 128,721 End of period $ 191,211 $ 180,349 Supplemental disclosure of cash flow information Income taxes paid $ 3,677 $ 3,388 Interest paid $ 16,375 $ 13,473 Supplemental disclosure of non-cash investing activities Other comprehensive (loss) income related to investment securities $ ( 690 ) $ 339 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 six months ended March 31, 2025 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, its wholly-owned subsidiary, the Bank, 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 March 31, 2025 presentation with no change to previously reported net income or total shareholders’ equity. 11 (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 March 31, 2025 and September 30, 2024 (dollars in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Allowance for Credit Losses March 31, 2025 Held to Maturity U.S. Treasury and U.S. government agency securities $ 69,475 $ 7 $ ( 3,953 ) $ 65,529 $ — Mortgage-backed securities ("MBS"): U.S. government agencies 47,017 11 ( 1,776 ) 45,252 — Private label residential 22,744 261 ( 1,128 ) 21,877 48 Municipal securities 1,220 9 — 1,229 — Bank issued trust preferred securities 498 — ( 3 ) 495 2 Total $ 140,954 $ 288 $ ( 6,860 ) $ 134,382 $ 50 March 31, 2025 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Available for Sale U.S. Treasury and U.S. government agency securities $ 9,576 $ 27 $ ( 9 ) $ 9,594 MBS: U.S. government agencies 76,079 183 ( 1,049 ) 75,213 Total $ 85,655 $ 210 $ ( 1,058 ) $ 84,807 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 March 31, 2025 (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 $ — $ — — $ 55,684 $ ( 3,953 ) 14 $ 55,684 $ ( 3,953 ) MBS: U.S. government agencies 12,043 ( 57 ) 11 26,509 ( 1,719 ) 43 38,552 ( 1,776 ) Private label residential 1,521 ( 8 ) 3 15,872 ( 1,120 ) 16 17,393 ( 1,128 ) Bank issued trust preferred securities — — — 495 ( 3 ) 1 495 ( 3 ) Total $ 13,564 $ ( 65 ) 14 $ 98,560 $ ( 6,795 ) 74 $ 112,124 $ ( 6,860 ) Available for sale U.S. Treasury and U.S. government agency securities $ 4,899 $ ( 9 ) 2 $ — $ — — $ 4,899 $ ( 9 ) MBS: U.S. government agencies 16,960 ( 427 ) 5 24,057 ( 622 ) 22 41,017 ( 1,049 ) Total $ 21,859 $ ( 436 ) 7 $ 24,057 $ ( 622 ) 22 $ 45,916 $ ( 1,058 ) 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 six months ended March 31, 2025, 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 six months ended March 31, 2024, the Company had no net realized losses on held to maturity investment securities. 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 $ 202.44 million and $ 208.81 million at March 31, 2025 and September 30, 2024, respectively. The contractual maturities of investment securities at March 31, 2025 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 $ 15,148 $ 15,044 $ 4,908 $ 4,895 Due after one year to five years 67,575 63,638 9,576 9,607 Due after five years to ten years 1,179 1,235 1,507 1,501 Due after ten years 57,052 54,465 69,664 68,804 Total $ 140,954 $ 134,382 $ 85,655 $ 84,807 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 March 31, 2025 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 March 31, 2025 and September 30, 2024, the ACL on the held to maturity securities portfolio totaled $ 50,000 and $ 60,000 , respectively. 14 The following tables set forth information for the three and six months ended March 31, 2025 and 2024, respectively, regarding activity in the ACL by portfolio segment (dollars in thousands): Three Months Ended March 31, 2025 Three Months Ended March 31, 2024 Beginning Allowance Provision for (Recapture of) Credit Losses Ending Allowance Beginning Allowance Provision for (Recapture of) Credit Losses Ending Allowance Held to Maturity MBS: Private label residential $ 52 $ ( 4 ) $ 48 $ 73 $ 4 $ 77 Bank issued trust preferred securities 3 ( 1 ) 2 9 ( 1 ) 8 Total $ 55 $ ( 5 ) $ 50 $ 82 $ 3 $ 85 Six Months Ended March 31, 2025 Six Months Ended March 31, 2024 Beginning Allowance Provision for (Recapture of) Credit Losses Ending Allowance Beginning Allowance Impact of Adopting CECL (ASU 2016-13) Provision for (Recapture of) Credit Losses Ending Allowance Held to Maturity MBS: Private label residential $ 55 $ ( 7 ) $ 48 $ — $ 82 $ ( 5 ) $ 77 Bank issued trust preferred securities 5 ( 3 ) 2 — 10 ( 2 ) 8 Total $ 60 $ ( 10 ) $ 50 $ — $ 92 $ ( 7 ) $ 85 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 $ 635,000 at March 31, 2025 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 $ 41,000 of private label mortgage-backed held to maturity investment securities in non-accrual status at March 31, 2025. 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. 15 The following tables set forth the Company's held to maturity investment securities at March 31, 2025 and September 30, 2024 by credit quality indicator: Credit Ratings As of March 31, 2025 AAA/AA/A BBB/BB/B Unrated Total Held to Maturity U.S. Treasury and U.S. government agency securities $ 69,475 $ — $ — $ 69,475 MBS: U.S. government agencies 47,017 — — 47,017 Private label residential 14,545 — 8,199 22,744 Municipal securities 1,220 — — 1,220 Bank issued trust preferred securities — — 498 498 Total held to maturity $ 132,257 $ — $ 8,697 $ 140,954 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 six months ended March 31, 2025 and 2024 (dollars in thousands): Six Months Ended March 31, 2025 2024 Beginning balance of credit loss $ 803 $ 816 Subtractions: Net realized loss previously recorded as credit losses 2 — Recapture of prior credit loss ( 7 ) ( 6 ) Ending balance of credit loss $ 798 $ 810 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 March 31, 2025, 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 March 31, 2025, 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 March 31, 2025 and September 30, 2024 (dollars in thousands): March 31, 2025 September 30, 2024 Amount Percent Amount Percent Mortgage loans: One- to four-family (1) $ 315,421 20.8 % $ 299,123 19.7 % Multi-family 178,590 11.8 177,350 11.7 Commercial real estate 602,248 39.7 599,219 39.6 Construction - custom and owner/builder 114,401 7.5 132,101 8.7 Construction - speculative one- to four-family 9,791 0.6 11,495 0.8 Construction - commercial 22,352 1.5 29,463 1.9 Construction - multi-family 46,602 3.1 28,401 1.9 Construction - land development 15,032 1.0 17,741 1.2 Land 32,301 2.1 29,366 1.9 Total mortgage loans 1,336,738 88.1 1,324,259 87.4 Consumer loans: Home equity and second mortgage 47,458 3.1 47,913 3.2 Other 2,375 0.2 3,129 0.2 Total consumer loans 49,833 3.3 51,042 3.4 Commercial loans: Commercial business 131,243 8.6 138,743 9.2 U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans 156 — 260 — Total commercial loans 131,399 8.6 139,003 9.2 Total loans receivable 1,517,970 100.0 % 1,514,304 100.0 % Less: Undisbursed portion of construction loans in process ("LIP") 75,042 69,878 Deferred loan origination fees, net 5,329 5,425 ACL 17,525 17,478 Subtotal 97,896 92,781 Loans receivable, net $ 1,420,074 $ 1,421,523 __________________ (1) Does not include one- to four-family loans held for sale totaling $ 1.2 million and $ 0 at March 31, 2025 and September 30, 2024, respectively. Loans receivable at March 31, 2025 and September 30, 2024 are reported net of unamortized discounts totaling $ 131,000 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 March 31, 2025 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 March 31, 2025 and September 30, 2024, there were no loans classified as loss. The following table sets forth the Company's loan portfolio at March 31, 2025 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 $ 2,866 $ 19,918 $ 80,240 $ 108,811 $ 46,423 $ 50,451 $ — $ 308,709 Watch — — 1,781 — — — — 1,781 Special Mention — — — 4,884 — — — 4,884 Substandard — — — — — 47 — 47 Total one- to four-family $ 2,866 $ 19,918 $ 82,021 $ 113,695 $ 46,423 $ 50,498 $ — $ 315,421 Multi-family Risk Rating Pass $ 3,253 $ 13,132 $ 21,521 $ 39,369 $ 23,076 $ 67,320 $ 1,169 $ 168,840 Substandard — — — — 9,750 — — 9,750 Total multi-family $ 3,253 $ 13,132 $ 21,521 $ 39,369 $ 32,826 $ 67,320 $ 1,169 $ 178,590 Commercial real estate Risk Rating Pass $ 24,398 $ 25,722 $ 74,690 $ 125,256 $ 88,705 $ 239,554 $ 8,117 $ 586,442 Watch — — — 243 — 9,696 — 9,939 Special Mention — — — — — 5,543 — 5,543 Substandard — — — — — 324 — 324 Total commercial real estate $ 24,398 $ 25,722 $ 74,690 $ 125,499 $ 88,705 $ 255,117 $ 8,117 $ 602,248 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 $ 8,364 $ 46,526 $ 2,064 $ — $ — $ — $ — $ 56,954 Watch — 2,469 9,214 2,403 2,425 435 — 16,946 Total construction-custom & owner/builder $ 8,364 $ 48,995 $ 11,278 $ 2,403 $ 2,425 $ 435 $ — $ 73,900 Construction-speculative one-to four-family (1) Risk Rating Pass $ 2,533 $ 1,850 $ 317 $ — $ — $ — $ — $ 4,700 Watch — — 467 — — — — 467 Total construction-speculative one-to four-family $ 2,533 $ 1,850 $ 784 $ — $ — $ — $ — $ 5,167 Construction-commercial (1) Risk Rating Pass $ 3,981 $ 2,498 $ 9,283 $ — $ — $ — $ — $ 15,762 Total construction-commercial $ 3,981 $ 2,498 $ 9,283 $ — $ — $ — $ — $ 15,762 Construction-multi-family (1) Risk Rating Pass $ 1,648 $ 4,513 $ 18,606 $ — $ — $ — $ — $ 24,767 Total construction-multi-family $ 1,648 $ 4,513 $ 18,606 $ — $ — $ — $ — $ 24,767 Construction-land development (1) Risk Rating Pass $ — $ 522 $ 1,469 $ — $ — $ — $ — $ 1,991 Substandard — — — 11,549 — — — 11,549 Total construction-land development $ — $ 522 $ 1,469 $ 11,549 $ — $ — $ — $ 13,540 Land Risk Rating Pass $ 5,754 $ 9,758 $ 4,128 $ 6,092 $ 3,020 $ 2,530 $ 251 $ 31,533 Watch — — — 299 — 469 — 768 Total land $ 5,754 $ 9,758 $ 4,128 $ 6,391 $ 3,020 $ 2,999 $ 251 $ 32,301 Home equity and second mortgage Risk Rating Pass $ 1,014 $ 5,444 $ 4,079 $ 1,753 $ 246 $ 2,441 $ 31,807 $ 46,784 Watch — — — — — 11 29 40 Substandard — — — — — 59 575 634 Total home equity and second mortgage $ 1,014 $ 5,444 $ 4,079 $ 1,753 $ 246 $ 2,511 $ 32,411 $ 47,458 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 $ 942 $ 300 $ 414 $ 90 $ 48 $ 473 $ 76 $ 2,343 Watch — — — — — 9 — 9 Substandard — — — — — — 23 $ 23 Total other consumer $ 942 $ 300 $ 414 $ 90 $ 48 $ 482 $ 99 $ 2,375 Current period gross write-offs $ 2 $ 1 $ — $ — $ — $ — $ 1 $ 4 Commercial business Risk Rating Pass $ 4,090 $ 14,288 $ 18,849 $ 31,589 $ 7,323 $ 14,785 $ 38,148 $ 129,072 Watch — — — — 22 — — 22 Special Mention — — — 211 327 226 — 764 Substandard — — 159 153 — 617 254 1,183 Doubtful — 202 — — — — — 202 Total commercial business $ 4,090 $ 14,490 $ 19,008 $ 31,953 $ 7,672 $ 15,628 $ 38,402 $ 131,243 Current period gross write-offs $ — $ — $ — $ 241 $ — $ — $ — $ 241 SBA PPP Risk Rating Pass $ — $ — $ — $ — $ 143 $ 13 $ — $ 156 Total SBA PPP $ — $ — $ — $ — $ 143 $ 13 $ — $ 156 Total loans receivable, gross (1) Risk Rating Pass $ 58,843 $ 144,471 $ 235,660 $ 312,960 $ 168,984 $ 377,567 $ 79,568 $ 1,378,053 Watch — 2,469 11,462 2,945 2,447 10,620 29 29,972 Special Mention — — — 5,095 327 5,769 — 11,191 Substandard — — 159 11,702 9,750 1,047 852 23,510 Doubtful — 202 — — — — — 202 Total loans receivable $ 58,843 $ 147,142 $ 247,281 $ 332,702 $ 181,508 $ 395,003 $ 80,449 $ 1,442,928 Current period gross charge-off $ 2 $ 1 $ — $ 241 $ — $ — $ 1 $ 245 _____________________ (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 and six months ended March 31, 2025 and 2024 regarding activity in the ACL by portfolio segment (dollars in thousands): Three Months Ended March 31, 2025 Beginning Allowance Provision for (Recapture of) Credit Losses Charge- offs Recoveries Ending Allowance Mortgage loans: One- to four-family $ 2,699 $ 101 $ — $ — $ 2,800 Multi-family 1,311 4 — — 1,315 Commercial real estate 6,892 91 — — 6,983 Construction – custom and owner/builder 1,261 ( 44 ) — — 1,217 Construction – speculative one- to four-family 82 7 — — 89 Construction – commercial 329 29 — — 358 Construction – multi-family 527 16 — — 543 Construction – land development 292 83 — — 375 Land 802 50 — — 852 Consumer loans: Home equity and second mortgage 353 ( 8 ) — — 345 Other 34 1 ( 2 ) — 33 Commercial business loans 2,706 ( 93 ) — 2 2,615 Total $ 17,288 $ 237 $ ( 2 ) $ 2 $ 17,525 Six Months Ended March 31, 2025 Beginning Allowance Provision for (Recapture of) Credit Losses Charge- offs Recoveries Ending Allowance Mortgage loans: One-to four-family $ 2,632 $ 168 $ — $ — $ 2,800 Multi-family 1,308 7 — — 1,315 Commercial real estate 6,934 49 — — 6,983 Construction – custom and owner/builder 1,328 ( 111 ) — — 1,217 Construction – speculative one- to four-family 128 ( 39 ) — — 89 Construction – commercial 537 ( 179 ) — — 358 Construction – multi-family 456 87 — — 543 Construction – land development 335 40 — — 375 Land 793 59 — — 852 Consumer loans: Home equity and second mortgage 348 ( 3 ) — — 345 Other 39 ( 2 ) ( 4 ) — 33 Commercial business loans 2,640 213 ( 241 ) 3 2,615 Total $ 17,478 $ 289 $ ( 245 ) $ 3 $ 17,525 24 Three Months Ended March 31, 2024 Beginning Allowance Provision for (Recapture of) Loan Losses Charge- offs Recoveries Ending Allowance Mortgage loans: One- to four-family $ 2,096 $ 89 $ — $ — $ 2,185 Multi-family 1,200 158 — — 1,358 Commercial real estate 6,822 132 — — 6,954 Construction – custom and owner/builder 1,234 ( 19 ) — — 1,215 Construction – speculative one- to four-family 132 10 — — 142 Construction – commercial 430 21 — — 451 Construction – multi-family 735 ( 257 ) — — 478 Construction – land development 298 ( 43 ) — — 255 Land 757 83 — — 840 Consumer loans: Home equity and second mortgage 286 19 — — 305 Other 46 3 ( 4 ) — 45 Commercial business loans 2,619 ( 30 ) — 1 2,590 Total $ 16,655 $ 166 $ ( 4 ) $ 1 $ 16,818 Six Months Ended March 31, 2024 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 ) $ 176 $ — $ — $ 2,185 Multi-family 1,156 ( 120 ) 322 — — 1,358 Commercial real estate 7,209 ( 494 ) 239 — — 6,954 Construction – custom and owner/builder 750 542 ( 77 ) — — 1,215 Construction – speculative one-to four-family 148 ( 16 ) 10 — — 142 Construction – commercial 316 176 ( 41 ) — — 451 Construction – multi-family 602 204 ( 328 ) — — 478 Construction – land development 274 25 ( 44 ) — — 255 Land 406 318 116 — — 840 Consumer loans: Home equity and second mortgage 519 ( 243 ) 29 — — 305 Other 53 ( 7 ) 5 ( 6 ) — 45 Commercial business loans 1,967 484 138 — 1 2,590 Total $ 15,817 $ 461 $ 545 $ ( 6 ) $ 1 $ 16,818 25 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 March 31, 2025 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 March 31, 2025 Mortgage loans: One- to four-family $ — $ — $ 47 $ — $ 47 $ 315,374 $ 315,421 Multi-family — — — — — 178,590 178,590 Commercial real estate 976 — 324 — 1,300 600,948 602,248 Construction – custom and owner/builder (2) — — — — — 73,900 73,900 Construction – speculative one- to four-family (2) — — — — — 5,167 5,167 Construction – commercial (2) — — — — — 15,762 15,762 Construction – multi-family (2) — — — — — 24,767 24,767 Construction – land development (2) — — — — — 13,540 13,540 Land — — — — — 32,301 32,301 Consumer loans: Home equity and second mortgage — — 575 — 575 46,883 47,458 Other — — — — — 2,375 2,375 Commercial business loans 20 — 1,381 — 1,401 129,842 131,243 SBA PPP loans — — — — — 156 156 Total $ 996 $ — $ 2,327 $ — $ 3,323 $ 1,439,605 $ 1,442,928 (1) Includes non-accrual loans past due 90 days or more and other loans classified as non-accrual. (2) Net of construction LIP. 26 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 (2) — — — — — 81,274 81,274 Construction – speculative one- to four-family (2) — — — — — 7,451 7,451 Construction – commercial (2) — — — — — 23,812 23,812 Construction – multi-family (2) — — — — — 20,757 20,757 Construction – land development (2) — — — — — 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. (2) Net of construction LIP. At March 31, 2025, the Company had $ 1.38 million of non-accrual loans with an ACL of $ 423,000 and $ 946,000 of non-accrual loans with no ACL. The following table is a summary of the amortized cost of collateral dependent non-accrual loans as of March 31, 2025 (in thousands): Recorded Investment Related ACL Mortgage loans: One- to four-family $ 47 $ — Commercial real estate 324 — Consumer loans: Home equity and second mortgage 575 — Commercial business loans 1,381 423 Total $ 2,327 $ 423 27 At September 30, 2024, the Company had $ 2.06 million of non-accrual loans with an ACL of $ 506,000 and $ 1.83 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 Loan Modifications to Borrowers Experiencing Financial Difficulty 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. The following tables present the amortized cost basis of loans at March 31, 2025 that were both experiencing financial difficulty and modified during the six months ended March 31, 2025, by loan class and modification type (dollars in thousands): Combination - Term Extension and Collateral Addition March 31, 2025 Amortized Cost Basis % of Total Loan Type Financial Effect Commercial Business Loan $ 256 0.20 % Loan extended three months and secured a deed of trust on a land parcel Combination - Term Extension and Payment Modification March 31, 2025 Amortized Cost Basis % of Total Loan Type Financial Effect Commercial Business Loan $ 5 — % Loan extended seven months , monthly payment reduced with principal payments due at time of change in terms and 1.5 months after signing There were no modified loans to borrowers experiencing financial difficulty at March 31, 2024. 28 (5) LEASES At March 31, 2025, 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 and six months ended March 31, 2025 and 2024 (dollars in thousands): Three Months Ended March 31, Six Months Ended March 31, Lease cost: 2025 2024 2025 2024 Operating lease cost $ 100 $ 92 $ 197 $ 185 Short-term lease cost — — — — Total lease cost $ 100 $ 92 $ 197 $ 185 The following table provides supplemental information related to operating leases at or for the three and six months ended March 31, 2025 and 2024 (dollars in thousands): At or For the Three Months Ended March 31, 2025 At or For the Six Months Ended March 31, 2025 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 84 $ 168 Weighted average remaining lease term-operating leases 5.6 years 5.6 years Weighted average discount rate-operating leases 2.35 % 2.35 % At or For the Three Months Ended March 31, 2024 At or For the Six Months Ended March 31, 2024 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 83 $ 166 Weighted average remaining lease term-operating leases 6.3 years 6.3 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 March 31, 2025 for future fiscal years are as follows (dollars in thousands): Remainder of Fiscal 2025 $ 169 Fiscal 2026 304 Fiscal 2027 232 Fiscal 2028 219 Fiscal 2029 218 Thereafter 383 Total lease payments 1,525 Less imputed interest 99 Total $ 1,426 29 (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 and six months ended March 31, 2025 and 2024 is as follows (dollars in thousands, except per share amounts): Three Months Ended March 31, Six Months Ended March 31, 2025 2024 2025 2024 Basic net income per common share computation Numerator – net income $ 6,755 $ 5,708 $ 13,615 $ 12,004 Denominator – weighted average common shares outstanding 7,937,063 8,081,924 7,947,786 8,098,155 Basic net income per common share $ 0.85 $ 0.71 $ 1.71 $ 1.48 Diluted net income per common share computation Numerator – net income $ 6,755 $ 5,708 $ 13,615 $ 12,004 Denominator – weighted average common shares outstanding 7,937,063 8,081,924 7,947,786 8,098,155 Effect of dilutive stock options (1) 31,569 39,185 36,452 45,546 Weighted average common shares outstanding - assuming dilution 7,968,632 8,121,109 7,984,238 8,143,701 Diluted net income per common share $ 0.85 $ 0.70 $ 1.71 $ 1.47 ____________________________________________ (1) For the three and six months ended March 31, 2025, average options to purchase 126,540 and 111,213 shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per common share because their effect would have been anti-dilutive. For the three and six months ended March 31, 2024, average options to purchase 244,030 and 229,232 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. 30 (7) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The changes in accumulated other comprehensive income (loss) ("AOCI") by component during the three and six months ended March 31, 2025 and 2024 are as follows (dollars in thousands): Three Months Ended March 31, 2025 Changes in fair value of available for sale securities (1) Total (1) Balance of AOCI at the beginning of period $ ( 792 ) $ ( 792 ) Other comprehensive income 122 122 Balance of AOCI at the end of period $ ( 670 ) $ ( 670 ) __________________________ (1) All amounts are net of income taxes. Six Months Ended March 31, 2025 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 ( 690 ) ( 690 ) Balance of AOCI at the end of period $ ( 670 ) $ ( 670 ) __________________________ (1) All amounts are net of income taxes. Three Months Ended March 31, 2024 Changes in fair value of available for sale securities (1) Total (1) Balance of AOCI at the beginning of period $ ( 827 ) $ ( 827 ) Other comprehensive income 82 82 Balance of AOCI at the end of period $ ( 745 ) $ ( 745 ) __________________________ (1) All amounts are net of income taxes. Six Months Ended March 31, 2024 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 330 9 339 Balance of AOCI at the end of period $ ( 745 ) $ — $ ( 745 ) __________________________ (1) All amounts are net of income taxes. 31 (8) STOCK COMPENSATION PLANS The Company maintains one active stock compensation plan, the 2019 Equity Incentive Plan (the "2019 Plan"). Under the 2019 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 for issuance to employees and officers, and 50,000 shares are reserved for issuance to directors and directors emeriti. Shares issued under the 2019 Plan may be purchased on the open market or issued from the Company's authorized and unissued shares. The exercise price of each stock option equals the fair market value of the Company’s common stock on the date of grant. Stock options generally vest in equal annual installments over five years beginning on the first anniversary of the grant date and have a maximum contractual term of ten years . Restricted stock awards typically vest in equal annual installments over a three - or five-year period beginning on the first anniversary of the grant date. At March 31, 2025, 160,185 shares of common stock remained available for further issuance under the 2019 Plan, either as stock options or restricted stock. The Company's 2014 Equity Incentive Plan (the "2014 Plan") expired on January 27, 2025; therefore, no further awards may be granted under the plan. As of March 31, 2025, there were 159,780 shares outstanding that had been previously granted in the 2014 Plan, of which 137,350 were vested and 22,430 were unvested. Stock option activity for the six months ended March 31, 2025 and 2024 is summarized as follows: Six Months Ended March 31, 2025 Six Months Ended March 31, 2024 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 ( 34,360 ) 27.40 ( 29,900 ) 13.03 Forfeited ( 5,900 ) 27.96 ( 10,140 ) 25.71 Options outstanding, end of period 265,980 $ 25.82 329,110 $ 24.95 The fair value of stock options is determined using the Black-Scholes valuation model. There were no stock options granted during the six months ended March 31, 2025 and 2024. The aggregate intrinsic value of options exercised during the six months ended March 31, 2025 and 2024 was $ 386,000 and $ 499,000 , respectively. At March 31, 2025, there were 71,230 unvested options with an aggregate grant date fair value of $ 431,000 , all of which the Company assumes will vest. The aggregate intrinsic value of unvested options at March 31, 2025 was $ 282,000 . There were 2,500 options that vested during the six months ended March 31, 2025 with a total fair value of $ 16,000 . At March 31, 2024, there were 121,820 unvested options with an aggregate grant date fair value of $ 709,000 . There were 300 options that vested during the six months ended March 31, 2024 with a total fair value of $ 2,000 . 32 Additional information regarding options outstanding at March 31, 2025 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 8,750 $ 10.67 0.4 8,750 $ 10.67 0.4 15.67 - 19.13 48,950 16.56 4.5 38,720 16.47 4.2 26.50 - 27.40 86,160 27.32 6.7 49,560 27.26 5.9 28.23 - 29.69 91,800 28.81 4.9 68,000 29.01 4.4 31.80 - 33.40 30,320 31.85 3.6 29,720 31.37 3.6 265,980 $ 25.82 5.1 194,750 $ 25.68 4.4 The aggregate intrinsic value of options outstanding at March 31, 2025 and 2024 was $ 1.20 million and $ 1.06 million , respectively. As of March 31, 2025, unrecognized compensation cost related to unvested stock options was $ 363,000 , which is expected to be recognized over a weighted average period of 1.46 years. There were no restricted stock awards granted during the six months ended March 31, 2025 and 2024. Six Months Ended March 31, 2025 Six Months Ended March 31, 2024 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 ( 1,830 ) 28.70 — — Vested ( 200 ) 27.37 — — Restricted stock outstanding end of period 46,985 $ 29.31 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 March 31, 2025, unrecognized compensation cost related to unvested restricted stock awards was $ 1.21 million, which is expected to be recognized over a weighted average period of 2.32 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. 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 33 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 March 31, 2025 and September 30, 2024. The Company's assets measured at estimated fair value on a recurring basis at March 31, 2025 and September 30, 2024 were as follows (dollars in thousands): March 31, 2025 Estimated Fair Value Level 1 Level 2 Level 3 Total Available for sale investment securities U.S. Treasury and U.S. government agency securities $ 9,594 $ — $ — $ 9,594 MBS: U.S. government agencies — 75,213 — 75,213 Investments in equity securities Mutual funds 853 — — 853 Total $ 10,447 $ 75,213 $ — $ 85,660 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 six months ended March 31, 2025 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). 34 The following table summarizes the balances of assets measured at estimated fair value on a non-recurring basis at March 31, 2025 and September 30, 2024 (dollars in thousands): Estimated Fair Value Total Estimated March 31, 2025 Level 1 Level 2 Level 3 Fair Value Individually evaluated collateral-dependent loans: Commercial business loans $ — $ — $ 957 $ 957 Total loans — — 957 957 OREO and other repossessed assets — — 221 221 Total $ — $ — $ 1,178 $ 1,178 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 March 31, 2025 and September 30, 2024: Valuation Technique(s) Unobservable Input(s) Range Individually evaluated collateral-dependent loans Market approach Appraised value less estimated selling costs 8 % OREO and other repossessed assets Market approach Lower of appraised value or listing price less estimated selling costs 8 % 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 March 31, 2025 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. 35 The recorded amounts and estimated fair values of financial instruments were as follows as of March 31, 2025 and September 30, 2024 (dollars in thousands): March 31, 2025 Fair Value Measurements Using: Recorded Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 191,211 $ 191,211 $ 191,211 $ — $ — CDs held for investment 8,711 8,711 8,711 — — Investment securities 225,761 219,189 75,123 144,066 — Investments in equity securities 853 853 853 — — FHLB stock 2,045 2,045 2,045 — — Other investments 3,000 3,000 3,000 — — Loans held for sale 1,151 1,182 1,182 — — Loans receivable, net 1,420,074 1,385,482 — — 1,385,482 Accrued interest receivable 7,127 7,127 7,127 — — Financial liabilities Certificates of deposit 401,285 401,337 — — 401,337 FHLB borrowings 20,000 19,967 — — 19,967 Accrued interest payable 1,697 1,697 1,697 — — 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 92,123 146,141 — 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 — — 36 (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 exce ption 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 March 31, 2025, the Company recognized $ 959,000 in service charges on deposits, $ 1.18 million in ATM and debit card interchange transaction fees, $ 17,000 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 six months ended March 31, 2025, the Company recognized $ 1.96 million in service charges on deposits, $ 2.44 million in ATM and debit card interchange transaction fees, $ 35,000 in escrow fees, and $ 2,000 in fee income from non-deposit investment sales. For the three months ended March 31, 2024, the Company recognized $ 988,000 in service charges on deposits, $ 1.21 million in ATM and debit card interchange transaction fees, $ 15,000 in escrow fees, and $ 2,000 in fee income from non-deposit investment sales. For the six months ended March 31, 2024, the Company recognized $ 2.01 million in service charges on deposits, $ 2.48 million in ATM and debit card interchange transaction fees, $ 33,000 in escrow fees, and $ 3,000 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 37 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 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 March 31, 2025 and 2024 are listed below (in thousands): March 31, 2025 March 31, 2024 Undisbursed portion of construction loans in process (see Note 4) $ 75,042 $ 77,502 Undisbursed lines of credit 117,220 135,883 Commitments to extend credit 27,954 19,106 $ 220,216 $ 232,491 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 $ 320,000 and $ 276,000 at March 31, 2025 and 2024, respectively 38 The following table sets forth information for the three and six months ended March 31, 2025 and 2024 regarding activity in the ACL on unfunded loan commitments (dollars in thousands): Three Months Ended March 31, 2025 Three Months Ended March 31, 2024 Beginning ACL $ 307 $ 364 Provision for (recapture of) credit losses 13 * ( 88 ) Ending ACL $ 320 $ 276 *Amount differs from Income Statement due to rounding. ACL Six Months Ended March 31, 2025 Six Months Ended March 31, 2024 Beginning ACL $ 327 $ 332 Impact of adopting CECL (ASU 2016-13) — 65 Provision for (recapture of) credit losses ( 7 ) ( 121 ) Ending ACL $ 320 $ 276 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 entered into employment agreements with its Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Lending Officer, Chief Credit Officer and Chief Technology Officer. These agreements provide for severance payments and other benefits in the event of an involuntary termination of employment following a change in control of Timberland Bancorp or its subsidiary, Timberland Bank. The maximum value of the severance benefits under these agreements is equal to 2.99 times the officer's average annual compensation during the five-year period preceding 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.